-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ALbhVnk0O+ftQSYtV6NJdWj8T4GbY2U7dVERMAd9QicqslxjqMX68a54wY0FLdzQ 32JTpmhyzOfA0vKq1XjiPQ== 0000950149-98-002051.txt : 19981230 0000950149-98-002051.hdr.sgml : 19981230 ACCESSION NUMBER: 0000950149-98-002051 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENEVA STEEL CO CENTRAL INDEX KEY: 0000860192 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 930942346 STATE OF INCORPORATION: UT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10459 FILM NUMBER: 98777536 BUSINESS ADDRESS: STREET 1: 10 SOUTH GENEVA ROAD CITY: VINEYARD STATE: UT ZIP: 84058 BUSINESS PHONE: 8012279000 10-K 1 FORM 10-K FOR YEAR ENDING 09-30-98 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended September 30, 1998, or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to _________. COMMISSION FILE NO. 1-10459 GENEVA STEEL COMPANY (Exact name of Registrant as specified in charter) UTAH 93-0942346 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 10 SOUTH GENEVA ROAD VINEYARD, UTAH 84058 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (801) 227-9000 Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on ------------------- ------------------------ which registered ---------------- CLASS A COMMON STOCK, NEW YORK STOCK EXCHANGE NO PAR VALUE PACIFIC STOCK EXCHANGE WARRANTS TO PURCHASE CLASS A COMMON STOCK PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Class A Common Stock held by non-affiliates of the Registrant, based upon the closing sale price of the Class A Common Stock on the New York Stock Exchange on November 30, 1998, was approximately $10,955,942. Shares of Class A Common Stock held by each officer and director and by each person who may be deemed to be an affiliate have been excluded. As of November 30, 1998, the Registrant had 14,700,478 and 19,151,348 shares of Class A and Class B Common Stock, respectively, outstanding. DOCUMENTS INCORPORATED BY REFERENCE 2 Parts of the following documents are incorporated by reference in Parts II, III and IV of this Report: (1) Registrant's Annual Report to Shareholders for the fiscal year ended September 30, 1998 (Parts II and IV), and (2) Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held in March, 1999 (Part III). ================================================================================ 3 PART I ITEM 1. BUSINESS. BACKGROUND Geneva Steel Company (the "Company" or "Geneva") owns and operates the only integrated steel mill in the western United States. The Company's mill manufactures coiled and flat plate, sheet, pipe and slabs for sale primarily in the western and central United States. The steel mill is located 45 miles south of Salt Lake City, Utah on approximately 1,400 acres. The steel mill's facilities include four coke oven batteries, three blast furnaces, a plasma-fired cupola ironmaking facility, two basic oxygen process ("Q-BOP") furnaces, a continuous casting facility, a combination continuous rolling mill and various finishing facilities. The Company's coke ovens produce coke from a blend of various grades of metallurgical coal. Coke is used as the principal fuel for the Company's blast furnaces, which convert iron ore into liquid iron. The plasma-fired cupola is also capable of producing liquid iron, but utilizes coke, oxygen and electricity to melt iron or scrap into liquid iron. Liquid iron, scrap metal and metallic alloys are combined and further refined in the Q-BOP furnaces to produce liquid steel. The liquid steel is then processed through the continuous casting facility into steel slabs. Steel slabs are either hot-charged into furnaces and then rolled, or they are allowed to cool and then reheated prior to rolling. Slabs are rolled into hot-rolled steel products (coiled and flat plate, hot-rolled sheet and pipe) in the Company's rolling and finishing mills. The Company also sells a portion of its slabs to other steel processors. The Company acquired the steel mill and related facilities from USX Corporation ("USX") on August 31, 1987. USX operated the mill and related facilities from 1944 until 1986, when it placed the mill on hot-idle status. Pursuant to the acquisition agreement between USX and the Company, USX retained liability for retiree life insurance, health care and pension benefits relating to employee service prior to the acquisition. USX also indemnified the Company for costs due to any environmental condition existing on the Company's real property as of the acquisition date that is determined to be in violation of environmental laws or otherwise results in the imposition of environmental liability, subject to the Company's sharing the first $20 million of certain cleanup costs on an equal basis. See "Environmental Matters." Since acquiring the mill from USX, the Company has modernized most of its facilities. The mill includes the widest combination continuous rolling mill and one of the widest in-line casters in the world. Both the rolling mill and the caster are unique in the industry and enable the Company to offer an expanded range of products; shift its product mix according to market demand; and produce wide, light-gauge plate products more efficiently than many of its competitors. RECENT DEVELOPMENTS During the fourth quarter of 1998, 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 increased supply of imports and other market conditions, the Company's overall price realization and shipments will continue to decrease significantly in the first quarter of fiscal year 1999 and are expected to remain at low levels at least through the second quarter of fiscal year 1999 and negatively impact the financial performance of the Company during such periods. As of November 30, 1998, the Company had estimated total orders on hand of approximately 74,000 tons compared to approximately 309,000 tons as of November 30, 1997. As a result of the Company's recent financial performance, the Company recently sought and received an amendment to its revolving credit facility (the "Revolving Credit Facility") with respect to both the tangible net worth and interest coverage covenants, among other things. The Company will require additional modifications, waivers or forbearances to those and other terms of the Revolving Credit Facility prior to January 7, 1999. The Company has held several meetings with the banking group for the Revolving Credit Facility. The Company anticipates that the banking group will grant short-term covenant relief either by way of a waiver or a forbearance with respect to certain potential or actual defaults. The Company believes that such waiver or forebearance would be not granted under the existing terms of the agreement if the Company intended to make the interest payment due January 15, 1999 1 4 on the 9 1/2% senior notes, as discussed below. The banking group will, however, continue to closely monitor the Company's liquidity and may withdraw its waiver or forbearance or take other action with respect to, among other things, the terms upon which the Company may borrow or the Company's continued access to borrowings. There can be no assurance that the Company will receive the waiver or forbearance, that the banking group will not require other changes to the terms upon which borrowings under the Revolving Credit Facility are made, or that the banking group will continue to permit the Company to incur borrowings thereunder, in which event the Company's operations would be substantially curtailed and its financial condition materially adversely affected. As a result of reduced shipments and price realization caused primarily by the recent surge in imports of the Company's products, the Company's liquidity has declined significantly. On December 18, 1998, the Company had approximately $21.3 million in borrowing availability under its Revolving Credit Facility. In light of the uncertainties surrounding both near-term market conditions and continued access to borrowings under the Revolving Credit Facility, the Company has elected to preserve liquidity by not making the interest payment of approximately $9.0 million due January 15, 1999 on the Company's 9-1/2 % senior notes, which will result in a default under the terms of the 9-1/2 % senior notes. Such a default, if not timely cured, gives right to the legal remedies available under the relevant bond indenture, including the possibility of acceleration. Similarly, under the terms of the 9-1/2 % Senior Notes, non-payment of interest will result in a cross default with respect to the Company's 11-1/8 % senior notes and may violate other terms thereof. The Revolving Credit Facility also contains a similar cross default provision. The Company anticipates that, as a part of the waiver or forbearance described above, the banking group for the Revolving Credit Facility will temporarily waive or forbear from acting upon such a cross-default. The Company has retained financial and legal advisors, who are reviewing the financial alternatives available to the Company, including without limitation a possible debt restructuring. Because of the Company's current financial condition, the covenant compliance issues relating to its Revolving Credit Facility and its decision not to pay the January 15, 1999 interest payment under the 9 1/2% senior notes, the Company's financial flexibility is limited. During the months ahead, the Company will be forced to make difficult decisions regarding, among other things, the future direction and capital structure of the Company. Many of the foregoing factors, over which the Company does not have complete control, may materially affect the performance and financial condition of the Company. CAPITAL PROJECTS Overview The Company has spent approximately $26 million, $48 million and $11 million on capital projects during the fiscal years ended September 30, 1996, 1997 and 1998, respectively. These expenditures were made primarily in connection with the Company's ongoing modernization efforts. Since fiscal year 1989, Geneva has spent approximately $637 million on plant and equipment to modernize and renovate its production facilities, as well as for ongoing capital maintenance. Geneva believes its modernization efforts have significantly strengthened the Company's capabilities by reducing costs, increasing operating flexibility, broadening its product line, improving product quality and increasing throughput rates. The Company's modernization program was designed to take advantage of the unique features of the Company's rolling mill. Geneva's wide six stand rolling mill is differentiated from competitors' mills by its ability to roll both narrow and wide one inch entry bars into finished product in a single pass. In contrast, other producers utilize either a single- stand reversing mill or a single-stand steckel mill to roll entry bars, requiring multiple passes. Reducing the number of passes increases throughput, operating efficiencies and yields, particularly on thinner gauge product. 2 5 Geneva's in-line caster further enhances the Company's production process by directly casting slabs to the required final width, up to 126 inches wide, before the slabs are directly rolled. Wide casting and direct rolling reduces heating and handling requirements and eliminates cross rolling to obtain final product width. The Company further capitalized on its ability to cast and roll wide plate products by completing a wide plate project which enables Geneva to produce coiled plate up to 122 inches and subsequently cut the coiled plate into flat plate. The combination of the caster, rolling mill and wide plate project has created an efficient production process for wide products that most of Geneva's competitors do not possess. As a result, the Company believes its plate production costs are lower than many of its competitors. Capital Projects The key elements of the modernization are: (i) the replacement of Geneva's open hearth furnaces with two state- of-the-art basic oxygen process ("Q-BOP") steelmaking furnaces, improving product quality and throughput and reducing costs; (ii) the construction of one of the widest in-line casters in the world, enabling the Company to cast slabs at the desired width without cross-rolling; (iii) the completion of a wide-plate project, positioning Geneva as the only North American producer currently offering coiled plate in widths greater than 96 inches and improving plate production efficiencies; and (iv) the recent modernization of Geneva's rolling mill, enhancing throughput rates, quality and cost. The Company has identified several large-scale capital improvement projects that it believes would further increase the Company's production capacity, expand product offerings, improve operating efficiencies and reduce costs. These projects, however, are not currently included in the Company's future capital budgets. The Company has identified several other projects costing lesser amounts that would also significantly improve operations. Several of the projects are in the advanced-planning stage and could likely be completed as a part of future capital maintenance budgets. These include a new plate leveler, solid state electrical drives for the rolling mill and upgrades to the Company's small diameter pipe mill. The Company's capital projects are under continuous review, and depending on market, operational, liquidity and other factors, the Company may elect to adjust the design, timing and budgeted expenditures of its capital plan. There can be no assurance that the projected benefits of the capital projects will be fully achieved, sufficient product demand will exist for the Company's additional throughput capacity, or that the planned capital projects can be completed in a timely manner or for the amounts budgeted. Notwithstanding the completion of many capital projects, management believes that additional capital projects will be critical to the Company's long-term ability to compete. PRODUCTS The Company's principal products are coiled and flat plate, hot-rolled sheet, pipe and slabs. The Company also sells non-steel materials that are by-products of its steelmaking operations. The Company's 132-inch combination continuous rolling mill has the flexibility to roll either sheet or plate in response to customer demands and changing market conditions. This flexibility has maximized utilization of its facilities. Generally, the Company manufactures products in response to specific customer orders. Consistent with the Company's strategic objectives, plate shipments have increased as the modernization program has been completed and various upgrades to plate processing and finishing equipment have been integrated into the production process. The Company sells slabs to maximize production from the continuous caster. The Company expects that slab shipments will continue to gradually decrease as rolling mill throughput improves. Product mix shifts are also determined by Geneva's product mix optimization efforts. The Company's product sales mix as a percent of net sales for fiscal years 1994 through 1998 is shown below:
------------------------------------------------------------------ 1994 1995 1996 1997 1998 ------ ------ ------ ------ ------ Plate .............. 24% 35% 45% 45% 62% Sheet .............. 65 41 30 30 18
3 6 Pipe ............... 7 6 6 10 11 Slab ............... 1 15 16 12 7 Non-steel .......... 3 3 3 3 2 ------ ------ ------ ------ ------ Total ... 100% 100% 100% 100% 100% ====== ====== ====== ====== ======
Coiled and Flat Plate. The Company produces plate products which consist of hot rolled carbon and high-strength low alloy steel plate in coil form, cut-to-length from coil and flat rolled in widths varying from 48 to 122 inches and in thicknesses varying from .1875 of an inch to 3 inches. Coiled and flat plate can be used for heavy steel structures such as storage tanks, railroad cars, ships and bridges. Sheet. The Company produces hot-rolled sheet steel which is sold in sheet or coil form in thicknesses of .061 to .230 of an inch and widths of 40 to 74 inches. Maximum widths vary according to thickness. Included in the sheet products made by the Company are cut-to-length sheet, hot-rolled bands and tempered coil. Sheet is used in a variety of applications such as storage tanks, light structural components and supports and welded tubing. Pipe. The Company produces electric resistance welded pipe ("ERW pipe") ranging from approximately 6 5/8 to 16 inches in diameter. ERW pipe is manufactured by heating and fusing the edges of the steel coil to form the pipe. The Company's ERW pipe is used primarily in pipelines, including water, natural gas and oil transmission and distribution systems, and in standard and structural pipe applications. Slab and Non-Steel. The Company has sold steel slabs when market conditions were favorable and as a means of maximizing production through the continuous caster. Consistent with the Company's efforts to shift product mix to higher margin finished products and subject to market dynamics, slab sales should continue to decline. The Company also sells various by-products resulting from its steelmaking activities. MARKETING; PRINCIPAL CUSTOMERS The Company sells its plate and sheet products through a sales agency arrangement primarily to steel service centers and distributors, which in recent years have become one of the largest customer groups in the domestic steel industry. Service centers and distributors accounted for approximately 65% of the Company's finished product sales (excluding slabs) during fiscal year 1998. The Company also sells its products to steel processors and various end-users, including manufacturers of welded tubing, highway guardrail, storage tanks, railcars, ships and agricultural and industrial equipment. The Company believes that sales of its products, either directly or through service centers or distributors, to automotive or appliance manufacturers have been immaterial. The Company has developed a broad customer base of approximately 250 customers in 39 states, and abroad through exporters to five customers in Canada and Mexico, with no concentration in any particular industry. The Company sells its ERW pipe to end-users and distributors primarily in the western and central United States, where demand for pipe fluctuates in partial response to oil and gas industry cycles, import levels and other factors. Export sales, which generally have lower margins than domestic sales, accounted for approximately .7%, 1.4% and 2.6% of the Company's net sales during fiscal years 1996, 1997 and 1998, respectively. The Company's principal direct marketing efforts are in the western and central United States. The Company believes that it holds a significant market share of the plate, hot-rolled sheet and pipe sales in the eleven western states. The Company is focused on expanding its share of the market in other areas of the United States, where management believes there are significant opportunities for revenue growth. On November 2, 1998, the Company signed a new, three-year agreement with Mannesmann Pipe and Steel ("Mannesmann"). Under the agreement, Mannesmann will extend the marketing of the Company's steel products to throughout the continental United States. Mannesmann previously marketed the Company's products in 15 midwestern states and to certain customers in the eastern United States. The Company's existing sales force will remain Geneva employees, but will be directed by Mannesmann. The Company also simultaneously announced several other organization changes designed to improve product distribution and on-time delivery. 4 7 The Company's strategy is to maintain its core market in the western United States, where its market position is the strongest, and to increase growth in the midwest, southeast and eastern regions. The Company believes that service centers and distributors account for a substantially larger proportion of its sales than of sales for the industry as a whole. Demand from this customer group historically has fluctuated widely due to substantial swings in the group's inventory levels. In view of these factors, the Company intends to target selected steel processors and various end-users, while retaining strong relationships with service center and distributor customers. The Company believes its modernization program enables the Company to produce higher quality products and to gain access to a wider range of customers. The Company's rolling mill can currently produce more wide, coiled plate than the Company's processing facilities can cut and level into higher margin flat plate. In addition, the Company's western location creates logistical challenges in providing on-time delivery to its midwestern and southeastern customers. Consequently, the Company has created a plate distribution and processing system intended to increase plate processing capacity and improve customer service. The facilities allow the Company to further maximize its sales of flat plate made from coils. The system utilizes a hub-and-spoke concept in which products are shipped in bulk primarily by rail from the Company to transloading centers or plate processors and thereafter delivered in smaller quantities primarily by truck to customers. The Company has established transloading centers in Chicago, West Memphis (AK), Mobile (AL), and Manchac (LA), to which plate is shipped in common sizes and volumes. These inventories are located in relative close proximity to the Company's customer base to maximize availability and on-time delivery. In addition, the Company has contracted with several processors strategically located throughout the west, midwest and southeast to which coiled plate is shipped for processing into flat plate for specific customers. Through these arrangements, the Company has significantly increased its capacity to produce and sell plate made from coils at costs comparable to processing plate on its own internal facilities. The Company is in the process of installing an enterprise-wide business system that is designed to increase on-time deliveries through a sophisticated system that tracks inventory and determines the most cost-efficient mode of transportation to the customer. The Company generally produces steel in response to specific orders. As of November 30, 1998, the Company had estimated total orders on hand for approximately 74,000 tons compared to approximately 309,000 tons as of November 30, 1997. See "Competition and Other Market Factors." EMPLOYEES; LABOR AGREEMENT As of November 25, 1998, the Company's workforce included approximately 1,625 full-time employees, of whom approximately 310 are salaried and approximately 1,315 are union-eligible. The Company's operating management personnel generally have considerable experience in the steel industry. Almost half have more than 20 years of industry experience, with most of the remaining managers ranging in experience from 8 to 20 years. The Company's senior operating managers have an average of approximately 20 years of industry experience. Substantially all of the Company's union-eligible employees are represented by the United Steelworkers of America under a collective bargaining agreement. In April 1998, the Company reached a new, three-year labor agreement with the United Steelworkers of America. The negotiations were completed without any work interruptions or labor disruption. The Company believes that its labor agreement is an important competitive advantage. Although the Company's wage rates under the agreement are high by local standards and comparable to regional competitors, its total hourly labor costs are substantially below recent industry averages compiled by the American Iron and Steel Institute. Unlike labor agreements negotiated by many other domestic integrated steel producers, the Company's labor agreement does not contain traditional work rules, significantly limits the Company's pension obligations and entitles the Company to reduce its profit sharing obligations by an amount equal to a portion of its capital expenditures. The Company did not assume any pension obligations or retiree medical obligations related to employment service while the plant was owned by USX. 5 8 As part of the new agreement, the Company and the Union reached several new understandings intended to create a cooperative partnership. The objectives of the partnership include, among others, (i) improving productivity, quality and customer service, (ii) expanding employee involvement in decision making, and (iii) creating a better work environment. A significant portion of the labor negotiations focused upon the mutually-recognized need to improve the Company's operating results through further workforce reductions. The Company granted the union-eligible employees employment security, subject to several exceptions. These exceptions included the right to lay off (i) up to 200 workers prior to September 1, 1998; (ii) any workers with fewer than three years of service; (iii) employees displaced by several identified potential capital improvements; and (iv) employees associated with certain key facilities in the event that production at those facilities falls below a specified level. The Company also agreed to expanded protections against outsourcing Union work, subject to several exceptions. In return, the Union agreed actively to assist the Company in capturing attrition through several means, including workplace restructuring. This joint effort will be conducted by representatives of both labor and management, with oversight by a steering committee composed of senior executives and Union leaders. The Union has also appointed a full-time facilitator to help organize the effort and solve problems as they arise. The Company has made significant progress in implementing its strategy to reduce its employment costs through process redesign, workplace restructuring, modernization and severance incentives. Since September 1997, the Company's administrative and executive staff has been reduced from 328 to 219. Operations management has been reduced from 155 to 92. During the same period, the Company has also reduced its union-eligible workforce by 332. In addition, the Company currently has 460 union-eligible employees on layoff status because of market conditions. When the market improves and production increases, the labor agreement requires that the Company rehire those employees on layoff that desire to return. The Company and the Union are working on several initiatives intended to capture the attrition created by those employees which elect not to return from layoff status. There can be no assurance, however, that such attrition will be captured or that other labor-management initiatives will be successful. The Company's labor agreement also contains a performance dividend plan designed to reward employees for increased shipments of steel products. Compensation under the plan includes a monthly guarantee of $.33 per hour for all union represented workers. The guaranteed payment is based on an annualized shipment rate of up to 1.5 million tons. As shipments increase above this level, compensation under the plan also increases. The Company also has a performance dividend plan for all non-union employees that provides additional compensation as shipment levels increase. Unlike the union plan, however, there are no guaranteed payments. The Company's profit sharing obligations under the labor agreement are based on earnings before taxes, extraordinary items and profit sharing. Unlike the profit sharing arrangements of many major domestic integrated steel producers, the Company's profit sharing obligations are reduced by an amount equal to a portion of its capital expenditures. The Company is required to contribute each year to the profit sharing pool 10% of earnings before taxes, extraordinary items and profit sharing after deducting 25% of the first $50 million of capital expenditures and 30% of all additional capital expenditures in such year (including, in each case, capital maintenance). All payments made to workers under the union performance dividend plan are deducted from any profit sharing obligations otherwise required. Effective March 1, 1995, the Company established a voluntary employee beneficiary association trust ("VEBA Trust") to fund post retirement medical benefits for future retirees covered by the collective bargaining agreement. Company contributions to the VEBA Trust are $.15 for each hour of work performed by employees covered by the collective bargaining agreement. No benefits were payable from the VEBA Trust until March 31, 1998. The Company and the Union are currently developing eligibility requirements, benefit levels and other related terms with respect to the VEBA trust. 6 9 RAW MATERIALS AND RELATED SERVICES The Company is located near major deposits of several of the principal raw materials used to make steel, including iron ore, high volatile coal, limestone and natural gas. The Company believes that, in certain instances, this proximity, together with the Company's importance as a customer to suppliers of these materials, enhances its ability to obtain competitive terms for these raw materials. As the Company evaluates emerging technologies for the production of iron and steel, it focuses on those technologies that allow increased utilization of resources available in the western United States. Iron Ore. The Company's steelmaking process can use both iron ore and iron ore pellets. In recent years, the Company has used iron ore pellets in an effort to maximize the operating efficiencies of its blast furnaces in response to increased production needs. Iron ore pellets are generally purchased from USX, as discussed below, as well as on the spot market. The Company has iron ore deposits at mines in Utah. When used, the ore is mined by an independent contractor under claims owned by the Company and transported by railroad to the steel mill. The Company expects future costs of recovery of this ore to increase gradually as the open reserves are depleted. The Company has historically purchased iron ore pellets from USX. Pursuant to a five year agreement entered into as of September 1, 1994, which was amended on July 25, 1997 and September 30, 1998, the Company has a commitment to purchase a minimum of 2,700,000 net tons in the fifth year of the agreement, which is defined as a five- quarter period ending December 31, 1999. The agreement also limits the maximum quantity of pellets USX is obligated to supply. Given the current market conditions, the Company may not have a need for the minimum volume requirements under the USX agreement. The Company may in the future elect to purchase additional amounts of pellets on a longer-term basis. Coal and Coke. The coke batteries operated by the Company require a blend of various grades of metallurgical coal. The Company currently obtains high volatile coal from a mine in western Colorado operated by Oxbow Carbon and Minerals, Inc. ("Oxbow") under a contract that expires in March 2004. The Company and Oxbow have discussed shortening the payment terms thereof in return for a discount, but have not yet agreed to any change. The Company also purchases various grades of coal under short-term contracts from sources in the eastern United States. Although the Company believes that such coal is available from several alternative eastern suppliers, the Company is subject to price volatility resulting from fluctuations in the spot market. There can be no assurance that the Company's blend of coal will not change or that its overall cost of coal will not increase. At times of full production, the Company purchases imported coke as a result of its decreasing capacity to produce its own coke as the Company's coke ovens deteriorate. The ability of other domestic integrated steel mills to produce coke is also generally decreasing, thereby increasing the demand for purchased coke in the United States at times of strong steel demand. The Company purchases coke from sources originating in Japan and China. As the Company's consumption of purchased coke increases, the Company's average cost of coke used in the manufacturing process will be higher. Energy. The Company's steel operations consume large amounts of oxygen, electricity and natural gas. The Company purchases oxygen, nitrogen and argon from three facilities located on the Company's premises. Two of the facilities were constructed by Air Liquide America Corporation ("Air Liquide") and the third by Praxair, Inc. ("Praxair"). These facilities are capable of providing approximately 275, 800 and 550 tons of oxygen per day under contracts which expire in 2002, 2012 and 2006, respectively. The Company generates a portion of its electrical requirements using a 50 megawatt rated generator located at the steel mill and currently purchases its remaining electrical requirements from Pacificorp under a 110 - 150 megawatt interruptible power contract expiring in February 2002. The contract provides for price increases tied to changes in the utilities energy and fixed costs. Natural gas is purchased at the wellhead in the Rocky Mountain region and is transported to the steel mill by pipeline utilizing firm and interruptible transportation contracts. The Rocky Mountain region has substantial natural gas reserves. 7 10 Other. The Company's mill can be physically served by both the Burlington Northern Santa Fe Railroad ("BNSF") and the Union Pacific Railroad Company ("UP"). The Company believes that it is one of the largest western customers of the UP railroad. The Company's location in the western United States facilitates backhauling, which reduces freight costs. In connection with the merger of the UP and Southern Pacific Transportation Company, the Company negotiated a long-term transportation contract with the UP covering a large portion of the Company's rail transportation needs and intended to provide a competitive rate structure. The Company also owns mining claims in a limestone quarry located approximately 30 miles from the Company's plant. The limestone is mined by the Company and transported by railroad to the mill. The Company uses scrap metal obtained from its own operations and external sources in its steelmaking process. As the Company increases its production volume or improves yields, management anticipates that increased amounts of scrap will be purchased. The cost of the Company's raw materials, including energy, has been susceptible in the past to fluctuations in price and availability and is expected to increase over time. Worldwide competition in the steel industry has frequently limited the ability of steel producers to raise finished product prices to recover higher raw material costs. The Company's future profitability will be adversely affected to the extent it is unable to pass on higher raw material costs to its customers. COMPETITION AND OTHER MARKET FACTORS The Company competes with domestic and foreign steel producers on the basis of price, quality and service. Many of the Company's competitors are larger companies and have greater capital resources. Intense worldwide sales competition exists for all the Company's products. Both the industry and the Company face increasing competition from producers of certain materials such as aluminum, composites, plastics and concrete. The Company believes that certain of its raw material arrangements, particularly with respect to energy, and its current labor contract are favorable in relation to those of the domestic steel industry as a whole. However, the Company currently purchases iron ore pellets and a significant portion of its coal requirements from locations in the midwest and eastern United States, for which it has a transportation cost disadvantage. The Company believes that its geographic location enhances its ability to compete in the western United States, although it has a transportation disadvantage in midwestern and eastern markets. Product quality has improved significantly as a result of the Company's modernization efforts. The Company believes that its modernization efforts have enhanced the competitiveness of its products, particularly with respect to plate products. Standards of quality in the steel industry are, nevertheless, rising as buyers continually expect higher quality products. Foreign and domestic producers continue to invest heavily to achieve increased production efficiencies and product quality. The steel industry is cyclical in nature and highly competitive. Moreover, overall throughput capacity and competition are increasing due primarily to construction of mini-mills and improvements in production efficiencies at existing mills. The Company, like other steel producers, is highly sensitive to price and production volume changes. Consequently, downward movements have had and will continue to have an adverse effect on the Company's results of operations. Integrated steel producers are facing increasing competitive pressures from mini-mills. Mini-mills use ferrous scrap metal as their basic raw material and serve regional markets. These operations traditionally produced lower margin, commodity type steel goods such as bars, rods and structural products. A number of mini-mills, however, produce plate, coil and pipe products that compete directly with the Company's products. Several domestic mini-mills have been completed that produce wide plate in coil form, thereby competing with products produced by the Company. In addition, other mini-mills are planned. Thin slab/direct rolling techniques have also allowed mini-mills to produce some of the types of sheet products that have traditionally been supplied by integrated producers. 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 8 11 by fluctuations in the value of the United States dollar against several other currencies as well as the strength of the United States economy relative to 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 steel industry began experiencing an unprecedented surge in imports. Approximately 40% of recent domestic plate and hot rolled sheet consumption has been supplied by imports. Imports have similarly increased in each of the Company's other product lines. The surge in imports from various countries in part is 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 strong markets for steel consumption. The Company, as well as other domestic steel producers, believes that foreign producers are selling product into the U.S. market at dumped prices and that domestic shipments and pricing have been adversely affected by unfairly traded imports. While a previous import surge in 1996 primarily involved only flat plate, the current surge includes all of the Company's products. As a result, from May 1998 to November 1998, the Company's plate and sheet prices fell by 12.2% and 12.7%, respectively. Concurrently, the Company has been forced to reduce production by approximately 50 percent, resulting in higher costs per ton and production inefficiencies, as well as a significant decline in operating results and cash flow. During September 1998 through November 1998, the Company's total shipments were approximately 302,000 tons as compared to 493,000 tons for the same period in 1997. On September 30, 1998, the Company and eleven other domestic steel producers filed anti-dumping actions against hot-rolled coiled steel imports form Russia, Japan and Brazil (the "Coiled Products Cases"). The group also filed a subsidy (countervailing duty) case against Brazil. In mid November 1998, the International Trade Commission (the "ITC") made a unanimous affirmative preliminary determination. Preliminary dumping margins will be announced by the Department of Commerce ("DOC") in February 1999, with final margins announced between May-July 1999. The ITC is expected to make its final injury determination between July-September 1999. If affirmative, the final determinations by the ITC and DOC will result in duties against imported hot-rolled coil products from the offending countries. Under applicable law, the U.S. Administration may settle some or all of the cases if the settlement has the effect of removing the injury or threat of injury caused by the imports. Settlements, called suspension agreements, typically involve import volume and/or price limitations Imports of hot-rolled coil products from the subject countries that arrive in the U.S. after mid-November 1998 are at risk that duties eventually imposed in the Coiled Products Cases could be applied retroactively to that date. Consequently, the Company expects that such imports will likely decline. As a result, the Company expects that its production levels, shipments and pricing of those products will increase as imports decline and excess inventory levels are reduced. There is, however, no assurance that the trade cases will be successful, that duties will be imposed, that imports from countries not named in the Coiled Products Cases will not increase or that domestic shipments or prices will rise. The Company continues to monitor imports of all its products and will very likely file additional trade cases or take other trade action in the future. Existing trade laws and regulations may be inadequate to the adverse impact of such an unprecedented world financial crisis practices; consequently, imports could pose continuing or increasing problems for the domestic steel industry and the Company. A five year sunset review of anti-dumping countervailing duty orders against the countries on plate will begin November 1999 and should be concluded by the end of 2000. The Company and other U.S. producers will participate in these reviews in support of a five year extension of these orders. The outcome of these reviews cannot currently be predicted. ENVIRONMENTAL MATTERS Compliance with environmental laws and regulations is a significant factor in the Company's business. The Company is subject to federal, state and local environmental laws and regulations concerning, among other things, air emissions, wastewater discharge, and solid and hazardous waste disposal. The Company has incurred substantial capital expenditures for environmental control facilities, including the Q-BOP furnaces, the wastewater treatment facility, the benzene mitigation equipment, the coke oven gas desulfurization facility and other projects. The Company has budgeted a total of approximately $2.0 million for environmental capital improvements in fiscal years 1999 and 2000. Environmental legislation and regulations have 9 12 changed rapidly in recent years and it is likely that the Company will be subject to increasingly stringent environmental standards in the future. Although the Company has budgeted capital expenditures for environmental matters, it is not possible at this time to predict the amount of capital expenditures that may ultimately be required to comply with all environmental laws and regulations. Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the U.S. Environmental Protection Agency and the states have authority to impose liability on waste generators, site owners and operators and others regardless of fault or the legality of the original disposal activity. Other environmental laws and regulations may also impose liability on the Company for conditions existing prior to the Company's acquisition of the steel mill. At the time of the Company's acquisition of the steel mill, the Company and USX identified certain hazardous and solid waste sites and other environmental conditions which existed prior to the acquisition. USX has agreed to indemnify the Company (subject to the sharing arrangements described below) for any fines, penalties, costs (including costs of clean-up, required studies, and reasonable attorneys' fees), or other liabilities for which the Company becomes liable due to any environmental condition existing on the Company's real property as of the acquisition date that is determined to be in violation of any environmental law, is otherwise required by applicable judicial or administrative action, or is determined to trigger civil liability (the "Pre-existing Environmental Liabilities"). The Company has provided a similar indemnity (but without any similar sharing arrangement) to USX for conditions that may arise after the acquisition. Although the Company has not completed a comprehensive analysis of the extent of the Pre-existing Environmental Liabilities, such liabilities could be material. Under the acquisition agreement between the two parties, the Company and USX agreed to share on an equal basis the first $20 million of costs incurred by either party to satisfy any government demand for studies, closure, monitoring, or remediation at specified waste sites or facilities or for other claims under CERCLA or the Resource Conservation and Recovery Act. The Company is not obligated to contribute more than $10 million for the clean-up of wastes generated prior to the acquisition. The Company believes that it has paid the full $10 million necessary to satisfy its obligations under the cost-sharing arrangement. USX has advised the Company, however, of its position that a portion of the amount paid by the Company may not be properly credited against Geneva's obligations. Although the Company believes that USX's position is without merit, there can be no assurance that this matter will be resolved without litigation. The Company and USX have similarly had several disagreements regarding the scope and actual application of USX's indemnification obligations. The Company's ability to obtain indemnification from USX in the future will depend on factors which may be beyond the Company's control and may be subject to litigation. ITEM 2. PROPERTIES. The Company's principal properties consist of the approximately 1,400-acre site on which the steel mill and related facilities are located, the Company's iron ore mines in southern Utah and the limestone quarry near the steel mill. The Company also leases from the State of Utah, under a lease expiring in 2016, a site which includes a retention pond. The retention pond is a significant part of the Company's water pollution control facilities. Although the Company's facilities are generally suitable to its needs, the Company believes that such facilities will continue to require future improvements and additional modernization projects in order to remain competitive. See Item 1. "Business--Capital Projects" and "--Competition and Other Market Factors." 10 13 ITEM 3. LEGAL PROCEEDINGS. On February 25, 1997, the Company filed a state court complaint against Commerce & Industry Insurance Co. ("C&I"), a New York Corporation, alleging that C&I had breached its insurance contract with Geneva by failing to pay Geneva's claim for the losses it incurred on January 25 and 26, 1996 and subsequent thereto when it lost its internal generator. C&I removed the case to the United States District Court for the District of Utah. The case continued during 1997 and 1998 with the parties conducting further investigation and discovery of the claims. On August 11, 1998, the Company and C&I reached a settlement of the litigation. Under the terms of the settlement, C&I agreed to pay the Company $24.5 million to resolve all outstanding issues. The Company's insurance carrier under the primary layer of insurance paid the Company $5 million in the fall of 1996. Including the Company's $1 million deductible, the settlement reflects an overall-resolution of the claim in the amount of $30.5 million. The settlement was achieved through third party mediation. In addition to the matters described under Item 1. "Business--Environmental Matters", the Company is a party to routine legal proceedings incidental to its business. In the opinion of management, after consultation with its legal counsel, none of the proceedings to which the Company is currently a party to are expected to have a material adverse effect on the Company's financial condition or results of operation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report. 11 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Class A Common Stock is listed and traded on the New York Stock Exchange ("NYSE") and the Pacific Stock Exchange under the symbol "GNV." The following table sets forth, for the periods indicated, the high and low sales prices for the Class A Common Stock as reported on the NYSE Composite Tape.
Fiscal Year Ended September 30, 1997 HIGH LOW -------- -------- First Quarter ended December 31 $4 1/2 $2 3/4 Second Quarter ended March 31 3 5/8 2 Third Quarter ended June 30 3 1/2 2 1/4 Fourth Quarter ended September 30 4 1/4 2 5/8
Fiscal Year Ended September 30, 1998 HIGH LOW -------- -------- First Quarter ended December 31 $3 7/8 $1 15/16 Second Quarter ended March 31 3 11/16 1 15/16 Third Quarter ended June 30 4 1/4 2 1/4 Fourth Quarter ended September 30 2 5/8 1 3/16
As of November 30, 1998, the Company had 14,700,478 shares of Class A Common Stock outstanding, held by 654 stockholders of record, and 19,151,348 shares of Class B Common Stock outstanding, held by five stockholders of record. Shares of Class B Common Stock are convertible into shares of Class A Common Stock at the rate of ten shares of Class B Common Stock for one share of Class A Common Stock. There is no public market for the Class B Common Stock. The Company currently anticipates that it will retain all available funds to finance its capital expenditures and other business activities, and it does not anticipate paying any cash dividends on the Common Stock in the foreseeable future. In addition, the Company's revolving credit facility and senior notes restrict the amount of dividends that the Company may pay. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and Note 3 of Notes to Consolidated Financial Statements included in this Report. ITEM 6. SELECTED FINANCIAL DATA. The information required by this Item is incorporated by reference to pages 4 through 5 of the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1998. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this Item is incorporated by reference to pages 6 through 15 of the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1998. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this Item is incorporated by reference to pages 16 through 36 of the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1998. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 12 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item is incorporated by reference to the sections entitled "Election of Directors -- Nominees for Election as Directors" and "Executive Officers" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held in March 1999. The definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after September 30, 1998, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference to the sections entitled "Election of Directors -- Director Compensation" and "Executive Compensation" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held in March 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is incorporated by reference to the section entitled "Principal Holders of Voting Securities" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held in March 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item is incorporated by reference to the section entitled, "Certain Relationships and Related Transactions" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held in March 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K. (a) Documents Filed: 1. Consolidated Financial Statements. The following Consolidated Financial Statements of the Company and Report of Independent Public Accountants included in the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1998 are incorporated by reference in Item 8 of this Report: - Report of Independent Public Accountants - Consolidated Balance Sheets at September 30, 1998 and 1997 - Consolidated Statements of Operations for the years ended September 30, 1998, 1997 and 1996 - Consolidated Statements of Stockholders' Equity for the years ended September 30, 1998, 1997 and 1996 - Consolidated Statements of Cash Flows for the years ended September 30, 1998, 1997 and 1996 - Notes to Consolidated Financial Statements 13 16 2. Financial Statement Schedule. The following Financial Statement Schedule of the Company for the years ended September 30, 1998, 1997 and 1996 is filed as part of this Report and should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto:
Schedule Page -------- ---- II - Valuation and Qualifying Accounts 18
Financial statements and schedules other than those listed are omitted for the reason that they are not required or are not applicable, or the required information is shown in the Consolidated Financial Statements or Notes thereto, or contained in this Report. (b) Reports on Form 8-K None. (c) Exhibits
EXHIBIT INCORPORATED FILED NO. EXHIBIT BY REFERENCE HEREWITH - ----------- --------------------------------------------------------------------- -------------------- -------------- 3.1 Revised Articles of Incorporation of the Registrant (1) 3.2 Articles of Amendment dated February 17, 1993 to the Registrant's (2) Revised Articles of Incorporation
14 17
EXHIBIT INCORPORATED FILED NO. EXHIBIT BY REFERENCE HEREWITH - ----------- --------------------------------------------------------------------- -------------------- -------------- 3.3 Articles of Amendment dated March 12, 1993 to the Registrant's (3) Revised Articles of Incorporation 3.4 Restated Bylaws of the Registrant X 4.1 Specimen Certificate of the Registrant's Class A Common Stock, no (1) par value 4.2 Specimen Certificate of the Registrant's Series B Preferred Stock, (4) no par value 4.3 Rights Agreement dated as of May 19, 1997, between Registrant and (5) Rights Agent 10.1 Asset Sales Agreement between USX and the Registrant dated as of (1) June 26, 1987, as Amended and Restated August 31, 1987 10.2 Registration Rights Agreement among the signatories listed on the (1) signature pages thereof and the Registrant dated November 6, 1989 10.3 License Agreement between ENSR Corporation and the Registrant (1) dated December 8, 1988 10.4 Second Amended and Restated Revolving Credit Agreement among (6) the Registrant, the Lender Parties named therein, Citicorp U.S.A., Inc. and Heller Financial Inc., dated May 14, 1996 10.5 Amendment to Second Amended and restated Revolving Credit X Agreement dated May 1, 1998 10.6 Amendment No. 2 to Second Amended and Restated Revolving X Credit Agreement dated September 30, 1998 10.7 Second Amended and Restated Security Agreement dated May 14, (6) 1996 10.8 Amended and Restated Sales Representation Agreement between X Mannesmann Pipe & Steel Corporation and the Registrant dated October 30, 1998 10.9 Geneva Steel Key Employee Plan (7) 10.10 Amendment to Geneva Steel Key Employee Plan dated May 12, (8) 1991 10.11 Form of Non-Statutory Stock Option Agreement (1) 10.12 Management Employee Savings and Pension Plan, as Amended and (9) Restated generally effective January 1, 1994, dated as of July 3, 1995 10.13 Amendment No. 1 to the Geneva Steel Management Employee (10) Savings and Pension Plan, effective as of January 1, 1997, dated June 25, 1997 10.14 Form of revised Executive Split Dollar Insurance Agreement (11) 10.15 Form of revised Executive Supplemental Retirement Agreement (11)
15 18
EXHIBIT INCORPORATED FILED NO. EXHIBIT BY REFERENCE HEREWITH - ----------- --------------------------------------------------------------------- -------------------- -------------- 10.16 Union Employee Savings and Pension Plan, as Amended and (12) Restated effective January 1, 1995, dated as of August 13, 1997 10.17 Collective Bargaining Agreement between United Steelworkers of X America and the Registrant ("Collective Bargaining Agreement") dated May 1, 1998 10.18 Agreement between Union Carbide Industrial Gases, Inc. and the (7) Registrant dated July 12, 1990, as amended August 3, 1990 (the "Union Carbide Agreement") 10.19 Amendment to the Union Carbide Agreement dated December 1, (11) 1992 10.20 Oxygen Supply Agreement between Air Liquide America (12) Corporation and the Registrant dated June 10, 1997 10.21 Coilbox License Agreement between Stelco Technical Services (1) Limited and the Registrant dated August 23, 1989 10.22 License Agreement for the K-OBM Process between (1) Klockner Contracting and Technologies GmbH and the Registrant dated November 25, 1989 10.23 Special Use Lease Agreement No. 897 between the State of Utah (11) and the Registrant dated January 13, 1992 and Amendment thereto dated June 19, 1992 10.24 Indenture dated as of January 15, 1994 between the Registrant and (13) Bankers Trust Company, as Trustee, including a form of 9 1/2% Senior Note due 2004 10.25 Indenture dated as of March 15, 1993 between the Registrant and (3) The Bank of New York, as Trustee, including a form of 11 1/8% Senior Note due 2001 10.26 License Agreement relating to the desulfurization process between (1) BS&B Engineering Company, Inc. and the Registrant dated March 1, 1990 10.27 Lo-Cat(R)Licensing Agreement between ARI Technologies, Inc. and (7) the Registrant dated April 16, 1990 10.28 Agreement relating to the closure of hazardous waste surface (7) impoundments between USX Corporation, the Registrant and Duncan Lagnese Associates, Incorporated dated October 22, 1990 10.29 Agreement for Sale and Purchase of Coke between the Registrant (14) and Pacific Basin Resources (a division of Oxbow Carbon and Minerals, Inc.) dated April 29, 1994 (the "Oxbow Coke Agreement") 10.30 First Amendment to the Oxbow Coke Agreement dated April 11, (15) 1996 10.31 Agreement for the Sale and Purchase of Coal between the Registrant (16) and Oxbow Carbon and Minerals, Inc. dated February 19, 1996, effective as of April 1, 1994
16 19
EXHIBIT INCORPORATED FILED NO. EXHIBIT BY REFERENCE HEREWITH - ----------- --------------------------------------------------------------------- -------------------- -------------- 10.32 Warrant Agreement dated as of March 16, 1993 between the (2) Registrant and The Bank of New York, as Warrant Agent 10.33 Form of Indenture between the Registrant and the Trustee thereunder (3) related to the Exchange Debentures, including a form of Exchange Debenture 10.34 Taconite Pellet Sales Agreement between USX Corporation and (17) Geneva Steel dated May 31, 1995 10.35 First Amendment to Taconite Pellet Sales Agreement between USX (12) Corporation and the Registrant dated July 25,1997 10.36 Second Amendment to Taconite Pellet Sales Agreement between X USX Corporation and Geneva Steel dated September 30, 1998 10.37 Industrial Gas Supply Agreement between Air Liquide America (17) Corporation and Geneva Steel dated June 8, 1995 10.38 Geneva Steel Company 1996 Incentive Plan (18) 10.39 Form of Employment Agreement between Registrant and Certain (12) Executive Officers 13 Selected portions of the Registrant's Annual Report to Shareholders X for the year ended September 30, 1998 which are incorporated by reference in Parts II and IV of this Report 23 Consent of Arthur Andersen LLP, independent public accountants X 27 Financial Data Schedule X
---------- (1) Incorporated by reference to the Registration Statement on Form S-1 dated March 27, 1990, File No. 33-33319. (2) Incorporated by reference to the Registration Statement on Form S-3 dated June 16, 1993, File No. 33-64548. (3) Incorporated by reference to the Registration Statement on Form S-4 dated April 15, 1993, File No. 33-61072. (4) Incorporated by reference to the Registration Statement on Form S-4 dated August 9, 1993, File No. 33-61072. (5) Incorporated by reference to Exhibit 99.1 of the Registration Statement on Form 8-A filed on November 21, 1997. (6) Incorporated by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996. (7) Incorporated by reference to the Registration Statement on Form S-1 dated November 5, 1990, File No. 33-37238. (8) Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended September 30, 1991. 17 20 (9) Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended September 30, 1995. (10) Incorporated by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997. (11) Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended September 30, 1992. (12) Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended September 30, 1997. (13) Incorporated by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1993. (14) Incorporated by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994. (15) Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended September 30, 1996. (16) Incorporated by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996. (17) Incorporated by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995. (18) Incorporated by reference to the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997. (d) Financial Statement Schedule See page 18 herein. 18 21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Geneva Steel Company: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements incorporated by reference in Item 8 of this Form 10-K, and have issued our report thereon dated December 4, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(a)2 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Salt Lake City, Utah December 4, 1998 22 GENEVA STEEL COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996 (Dollars in Thousands)
Additions Balance at Charged to Deductions, Balance Beginning Costs and Net of at End Description of Year Expenses Recoveries of Year - ----------- ---------- ---------- ---------- ------- Year Ended September 30, 1998 Allowance for doubtful accounts $4,564 $6,923 $(5,076) $6,411 ====== ====== ======= ====== Year Ended September 30, 1997 Allowance for doubtful accounts $4,031 $6,558 $(6,025) $4,564 ====== ====== ======= ====== Year Ended September 30, 1996 Allowance for doubtful accounts $2,012 $8,616 $(6,597) $4,031 ====== ====== ======= ======
20 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on December 28, 1998. GENEVA STEEL Company By: /s/ Joseph A. Cannon ------------------------------------ Joseph A. Cannon, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Joseph A. Cannon Chairman of the Board and Chief December 28, 1998 - ------------------------------------- Executive Officer (Principal executive officer) Joseph A. Cannon /s/ Robert J. Grow President and Director December 28, 1998 - ------------------------------------- Robert J. Grow /s/ Ken C. Johnsen Executive Vice President, Secretary December 28, 1998 - ------------------------------------- and General Counsel Ken C. Johnsen /s/ Dennis L. Wanlass Vice President, Treasurer and Chief December 28, 1998 - ------------------------------------- Financial Officer Dennis L. Wanlass (Principal financial and accounting officer) /s/ Alan C. Ashton Director December 28, 1998 - ------------------------------------- Alan C. Ashton /s/ K. Fred Skousen Director December 28, 1998 - ------------------------------------- K. Fred Skousen /s/ R. J. Shopf Director December 28, 1998 - ------------------------------------- R. J. Shopf /s/ Kevin S. Flannery Director December 28, 1998 - ------------------------------------- Kevin S. Flannery /s/ Gregory T. Hradsky Director December 28, 1998 - ------------------------------------- Gregory T. Hradsky
EX-3.4 2 BY-LAWS 1 EXHIBIT 3.4 BYLAWS OF GENEVA STEEL COMPANY ARTICLE I. OFFICES Section 1. Business Offices. The principal office of the corporation shall be located at 10 South Geneva Road, Vineyard, Utah 84058. The corporation may have such other offices, either within or outside Utah, as the board of directors may designate or as the business of the corporation may require from time to time. Section 2. Registered Office. The registered office of the corporation required by the Utah Business Corporation Act to be maintained in Utah may be, but need not be, identical with the principal office if in Utah, and the address of the registered office may be changed from time to time by the board of directors. ARTICLE II. SHAREHOLDERS Section 1. Annual Meeting. An annual meeting of the shareholders shall be held on the fourth Tuesday of February of every year, or on such other date as may be determined by the board of directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. If the election of the directors shall not be held on the day designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the board of directors shall cause the election to be held at a meeting of the shareholders as soon thereafter as conveniently may be. Section 2. Place of Meetings. Each annual or special meeting of the shareholders shall be held at such place, either within or outside Utah, as may be designated in the notice of meeting, or if no place is designated in the notice, at the registered office of the corporation in Utah. Section 3. Matters Relating to Notice of Meetings. If three successive notices mailed to the last known address of any shareholder of record are returned as undeliverable, no further notices to such shareholder shall be necessary until another address for such shareholder is made known to the corporation. If properly requested by a person or persons, other than the corporation properly calling a meeting, the secretary shall give notice of such meeting at corporate expense. The attendance of a shareholder at a meeting in person or by proxy (or participation by a shareholder in a meeting by means of a conference telephone or similar communications equipment) shall constitute a waiver of notice of such meeting, except where a shareholder attends (or participates in) a meeting for the express purpose of objecting the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted -1- 2 at, nor the purpose of, any meeting of the shareholders need be specified in the notice or waiver of notice of such meeting unless required by statute. Section 4. Matters Relating to Proxies. Any proxy to be voted at any meeting of the shareholders shall be filed with the secretary of the corporation before or at the time of the meeting. Section 5. Failure of a Quorum. If less than a majority of the outstanding shares of the corporation entitled to vote are represented in person or by proxy at a meeting, a majority of the shares so represented may adjourn the meeting from time to time for a period not to exceed sixty days at any one adjournment without further notice other than an announcement at the meeting. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 6. Voting of Fractional Shares. Each fractional share is entitled to a corresponding fractional vote, on each matter submitted to a vote of the shareholders either at a meeting thereof or pursuant to written action as permitted by applicable law, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the Articles of Incorporation (as the same may be amended, revised or restated from time to time) as permitted by the Utah Business Corporation Act. Section 7. Written Consents. Any written consent of shareholders may be signed in counterparts. Section 8. Notice of Shareholder Business and Nominations. (a) Annual Meetings of Shareholders. (1) Nominations of persons for election to the board of directors of the corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (a) pursuant to the corporation's notice of meeting, (b) by or at the direction of the board of directors, or (c) by any shareholder of the corporation who was a shareholder of record at the time of giving notice provided for in this bylaw, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this bylaw. (2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (c) of paragraph (a)(1) of this bylaw, the shareholder must have given timely notice thereof in writing to the secretary of the corporation and such other business must otherwise be a proper matter for shareholder action. To be timely, a shareholder's notice shall be delivered to the secretary at the principal executive offices of the corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or -2- 3 reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the corporation's books, and of such beneficial owner and (ii) the class and number of shares of the corporation which are owned beneficially and of record by such shareholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this bylaw to the contrary, in the event that the number of directors to be elected to the board of directors of the corporation is increased and there is no public announcement by the corporation naming all of the nominees for director or specifying the size of the increased board of directors at least 70 days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. (b) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the board of directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the board of directors or (b) provided that the board of directors has determined that directors shall be elected at such meeting, by any shareholder of the corporation who is a shareholder of record at the time of giving of notice provided for in this bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this bylaw. In the event the corporation calls a special meeting of shareholders for the purpose of electing one or more directors to the board of directors, any such shareholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation's notice of meeting, if the shareholder's notice required by paragraph (a)(2) of this bylaw shall be delivered to the secretary at the principal executive offices of the corporation not earlier than the close of business on the 90th day prior to such meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareholder's notice as described above. (c) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures -3- 4 set forth in this bylaw. Except as otherwise provided by law, the Articles of Incorporation or these bylaws, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this bylaw and, if any proposed nomination or business is not in compliance with this bylaw, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this bylaw, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this bylaw, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this bylaw. Nothing in this bylaw shall be deemed to affect any rights (i) of shareholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances. ARTICLE III. BOARD OF DIRECTORS Section 1. Number, Qualifications and Organization. The number of directors constituting the entire board of directors shall be determined at any time and from time to time by resolution of the board of directors then in office, but shall not be less than three (3) and shall not be more than seven (7); provided however, that if any of the events set forth in Article IV, Paragraph A.6 (f) (iv) (A) of the Articles of Incorporation shall have occurred and have not been terminated (as set forth in Article IV, Paragraph A.6 (f) (iv) (B) of such Articles) (an "Unterminated Event"), (a) the number of directors constituting the entire board of directors shall not be less than four (4) and shall not be more than twelve (12), and (b) a number of additional directors equal to at least 25% of the total number of members of the board of directors immediately after an Unterminated Event shall be elected by the then current board of directors (if so directed by the holders of the Preferred Stock described in Article IV, Paragraph A.6(a) of such Articles) or, at the discretion of the holders of such Preferred Stock, by the holders of such Preferred Stock. Directors must be at least twenty-one years old. The directors may elect from their number a director to serve as chairman of the board of directors, for such term and with such authority as may be granted by the board of directors. Section 2. Resignation. Any director may resign at any time by giving written notice to the chief executive officer or to the secretary of the corporation or by agreeing to do so in and in accordance with the terms of a written agreement. A director's resignation shall take effect upon receipt of such notice unless otherwise specified therein or in accordance with the terms of such agreement, the acceptance of such resignation shall not be necessary to make it effective. Section 3. Regular Meetings. A regular meeting of the board of directors shall be held immediately after and at the same place as the annual meeting of the shareholders, or as soon as practical thereafter at the time and place determined by the board, for the purpose of electing officers and for the transaction of such other business as may come before the meeting. The board of directors may provide by -4- 5 resolution the time and place, either within or outside Utah, for the holding of additional regular meetings. Section 4. Special Meeting. Special meetings of the board of directors may be called by or at the request of the chief executive officer or any two directors. The person or persons authorized to call special meetings of the board of directors may fix the time and place for holding any special meeting of the board called by them. Section 5. Notice. No notice is required for the regular meeting to be held immediately after and at the same place as the annual meeting of the shareholders. Notice of each other meeting of the board of directors stating the place, day and hour of the meeting shall be given to each director at least five days prior thereto by the mailing of written notice by first class mail, or at least two days prior thereto by personal delivery of written notice or by telephonic or telegraphic notice, except that in the case of a meeting to be held by means of a conference telephone or similar communications equipment telephone notice may be given one day prior thereto. (The method of notice need not be the same to each director.) Notice shall be deemed to be given, if mailed, when deposited in the United States Mail, with postage thereon prepaid, addressed to the director at his business or residence address; if personally delivered, when delivered to the director; if telegraphed, when the telegram is delivered to the telegraph company; if telephoned, when communicated to the director. The participation by a director in a meeting by means of conference telephone or similar communication equipment shall constitute a waiver of notice of such meeting, except where a director so participates in a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 6. Presumption of Assent. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 7. Failure of Quorum and Voting. If less than a majority of the number of directors fixed by Section 1 of this Article is present at a meeting (in person or participating by telephone or other means allowed by law), a majority of the directors present may adjourn the meeting from time to time without further notice other than an announcement at the meeting, until a quorum shall be present. No director may vote or act by proxy at any meeting of directors. Section 8. Compensation. By resolution of the board of directors, any director may be paid any one or more of the following: his or her expenses, if any, of attendance at meeting; a fixed sum for attendance at such meeting; or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Section 9. Executive and Other Committees. By one or more resolutions adopted by the majority of the board of directors, the board of directors may designate from among its members an executive committee and one or more other committees, each of which, to the extent provided in the resolution establishing such committee, shall have and may exercise all of the authority of the board of directors, except as prohibited by statute. Rules governing procedures for meeting of any committee of the board shall be established by the committee, or in the absence thereof, by the board of directors. -5- 6 Section 10. Written Consents. Any written consent of directors may be signed in counterparts. ARTICLE IV. OFFICERS AND AGENTS Section 1. Additional Officers and Qualifications. In addition to the officers prescribed by statute, the board of directors may elect to appoint such other officers, assistant officers and agents, including a chief executive officer, one or more vice presidents, assistant secretaries, and assistant treasurers, as they may consider necessary. All officers must be at least twenty-one years old. Section 2. Election and Term of Office. The officers of the corporation shall be elected by the board of directors annually at the first meeting of the board held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified, or until his earlier, death, resignation or removal. Section 3. Salaries. The salaries of the officers shall be as fixed from time to time by the board of directors and no officer shall be prevented from receiving a salary by reason of the fact that he is also a director of the corporation. Section 4. Vacancies. Any officer may resign at any time, subject to any rights or obligations under any existing contracts between the officer and the corporation, by giving written notice to the chief executive officer or to the board of directors. An officer's resignation shall take effect at the time specified therein; the acceptance of such resignation shall not be necessary to make it effective. A vacancy in any office, however occurring, may be filled by the board of directors for the unexpired portion of the term. Section 5. Authority and Duties of Officers. The officers of the corporation shall have the authority and shall exercise the powers and perform the duties specified below and as may be additionally specified by the chief executive officer, the board of directors or these bylaws, except that in any event each officer shall exercise such powers and perform such duties as may be required by law: (a) Chief Executive Officer. The chief executive officer shall, subject to the direction and supervision of the board of directors, (i) have general and active control of its affairs and business and general supervision of its officers, agents and employees; (ii) unless there is a chairman of the board, preside at all meetings of shareholders; (iii) see that all orders and resolutions of the board of directors are carried into effect; and (iv) perform all other duties incident to the office of chief executive officer as from time to time may be assigned to him by the board of directors. (b) President. The president shall perform such duties incident to the office of the president as from time to time may be assigned to him by the board of directors or the chief executive officer. (c) Vice Presidents. Vice presidents shall assist the chief executive officer and the president and shall perform such duties as may be assigned by the board of directors, the chief executive -6- 7 officer or the president. (d) Secretary. The secretary shall: (i) keep the minutes of the proceedings of the shareholders and the board of directors; (ii) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (iii) be custodian of the corporate records and the seal of the corporation; (iv) keep at the corporation's registered office or principal place of business within or outside Utah a record containing the names and addresses of all shareholders and the number and class of shares held by each, unless such a record shall be kept at the office of the corporation's transfer agent or registrar; (v) have general charge of the stock books of the corporation, unless the corporation has a transfer agent; and (vi) in general, perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the board of directors, the chief executive officer or the president. Assistant secretaries, if any, shall have the same duties and powers, subject to the supervision by the secretary. (e) Treasurer. The treasurer shall: (i) be the chief financial officer of the corporation and have the care and custody of all its funds, securities, evidences of indebtedness or other personal property and deposit the same in accordance with the instructions of the board of directors; (ii) receive and give receipts for monies paid into or on account of the corporation and pay out of the funds on hand all bills, payrolls, and other just debts of the corporation of whatever nature upon maturity; (iii) be the principal accounting officer of the corporation and as such prescribe and maintain the methods and systems of accounting to be followed, keep complete books and records of account, prepare and file all local, state and federal tax returns, prescribe and maintain an adequate system of internal audit, and prepare and furnish to the board of directors, the chief executive officer and the president statements of account showing the financial position of the corporation and the results of its operations; (iv) upon request of the board of directors, make such reports to it as may be required at any time; and (v) perform all other duties incident to the office of treasurer and such other duties as from time to time may be assigned by the board of directors, the chief executive officer or the president. Assistant treasurers, if any, shall have the same powers and duties, subject to supervision by the treasurer. Section 6. Surety Bonds. The board of directors may require any officer or agent of the corporation to execute to the corporation a bond in such sums and with such sureties as shall be satisfactory to the board, conditioned upon the faithful performance of his duties and for the restoration to the corporation of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. ARTICLE V. SHARES Section 1. Issuance of Shares. The issuance or sale by the corporation of any shares of its authorized capital stock of any class, including treasury shares, shall be made only upon authorization by the board of directors, except as otherwise may be provided by statute. Section 2. Certificates. Certificates of stock shall be in such form consistent with law as shall be prescribed by the board of directors. The certificates representing shares of stock of the corporation shall be consecutively numbered. -7- 8 Section 3. Lost Certificates. In case of the alleged loss, destruction or mutilation of a certificate of stock, the board of directors may direct the issuance of a new certificate in lieu thereof upon such terms and conditions in conformity with law as it may prescribe. The board of directors may, in its discretion, require a bond in such form and amount and with such surety as it may determine, before issuing a new certificate. Section 4. Transfer of Shares. Upon surrender to the corporation or to a transfer agent of the corporation of a certificate of stock fully endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate. Every such transfer of stock shall be entered on the stock books of the corporation. Section 5. Holders of Record. The corporation shall be entitled to treat the holder of record of any share of stock as the holder-in-fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as may be required by the laws of Utah. Section 6. Transfer Agents, Registrars and Paying Agents. The board of directors may, at its discretion, appoint one or more transfer agents, registrars or agents for making payment upon any class of stock, bond, debenture or other security of the corporation. Such agents and registrars may be located either within or outside Utah. They shall have such rights and duties and shall be entitled to such compensation as may be agreed. ARTICLE VI. INDEMNIFICATION Section 1. Definitions. For purposes of this Article VI, the following terms shall have the meanings set forth below: (a) Action - Any threatened, pending or compelled action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative; and (b) Indemnified Party - Any person who is or was a party or is threatened to be made a party to any Action by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any employee benefit plan of the corporation for which any such person is or was serving as trustee, plan administrator or fiduciary. Section 2. Determination. To the extent applicable law permits a determination to be made as to the propriety of indemnification by someone other than a court, the directors or the shareholders, such determination may be made upon the request of a majority of the directors who are not or were not parties to such Action, or if there be none, upon the request of a majority of a quorum of the whole board of directors, by independent legal counsel (which counsel shall not be the counsel generally employed by the corporation in connection with its corporation affairs) in a written opinion. -8- 9 Section 3. Payment in Advance. Expenses (including attorneys' fees) incurred by Indemnified Party in defending any Action, shall be paid by the corporation in advance of the final disposition of such Action upon receipt of a written undertaking by or on behalf of the Indemnified Party to repay such amount if it is ultimately determined that he or she is not entitled to be indemnified by the corporation as authorized under applicable law. Section 4. Insurance. By action of the board of directors, notwithstanding any interest of the directors in such action, the corporation may purchase and maintain insurance, in such amounts as the board may deem appropriate, on behalf of any Indemnified Party against any liability asserted against him and incurred by him in his capacity of or arising out of his status as an Indemnified Party, whether or not the corporation would have the power to indemnify him against such liability under applicable provisions of law. Section 5. Right to Impose Conditions to Indemnification. The corporation shall have the right to impose, as conditions to any indemnification or advance of expenses provided by the corporation, such reasonable requirements and conditions as to the board of directors or shareholders may appear appropriate in each specific case and circumstance, including but not limited to any one or more of the following: (a) that any counsel representing the person to be indemnified in connection with the defense or settlement of any Action shall be counsel mutually agreeable to the person to be indemnified and to the corporation; (b) that the corporation shall have the right, at its option, to assume and control the defense or settlement of any claim or proceeding made, initiated, or threatened against the person to be indemnified; and (c) that the corporation shall be subrogated, to the extent of any payments made by way of indemnification or advance, to all of the indemnified person's right of recovery, and that the person to be indemnified shall execute all writings and do everything necessary to assure such rights of subrogation to the corporation. ARTICLE VII. MISCELLANEOUS Section 1. Voting of Securities by the Corporation. Unless otherwise provided by resolution of the board of directors, on behalf of the corporation the chief executive officer, the president or any vice president, shall attend in person or by substitute appointed by him, or shall execute written instruments appointing a proxy or proxies to represent the corporation at all meetings of the shareholders of any other corporation, association, or other entity in which the corporation holds any stock or other securities, and may execute written waivers of notice with respect to any such meetings. At all such meetings and otherwise, the chief executive officer, the president or any vice president, in person or by substitute or proxy as aforesaid, may vote the stock or other securities so held by the corporation and may execute written consents or any other instruments with respect to such stock or securities and may exercise any and all rights and powers incident to the ownership of said stock or securities, subject, however, to the instructions, if any, of the board of directors. Section 2. Seal. The corporate seal of the corporation shall be circular in form and shall contain the name of the corporation, the year of its incorporation, and the words, "Seal, Utah." Section 3. Fiscal Year. The fiscal year of the corporation shall be determined by resolution of the board of directors of this corporation. -9- EX-10.5 3 AMENDMENT TO 2ND AMEND. AND RESTATED CREDIT AGREE. 1 Exhibit 10.5 EXECUTION COPY AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING AGREEMENT dated as of May 1, 1998 (the "Amendment") among GENEVA STEEL COMPANY, a Utah corporation (the "Borrower"), the financial institutions listed on the signature pages to the Credit Agreement (as defined below) (each individually a "Lender" and collectively the "Lenders"), the issuer party thereto (the "Issuer"), CITICORP USA, INC., a Delaware corporation ("CUSA"), as agent under the Credit Agreement for itself and the Lenders (in such capacity, the "Agent"), and HELLER FINANCIAL, INC., as co-agent (the "Co-Agent"). All capitalized terms used but not otherwise defined in this Amendment shall have the meanings assigned thereto in the Credit Agreement referred to below. WITNESSETH: WHEREAS, the Borrower, the Lenders, the Issuer, the Agent and the Co-Agent have entered into a Second Amended and Restated Revolving Credit Agreement dated as of May 14, 1996 (the "Credit Agreement", and the terms defined in the Credit Agreement being used herein as therein defined); WHEREAS, the Borrower and the Majority Lenders pursuant to Section 10.1 of the Credit Agreement desire to amend the Credit Agreement; and WHEREAS, the Majority Lenders are willing to amend the Credit Agreement in the manner and on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows: SECTION 1. Amendments to the Credit Agreement. (a) The definition of "Reportable Event" is amended by deleting the words "Section 4043(b)" and substituting therefor the words "Section 4043(c)". (b) Section 4.9(a) of the Credit Agreement is amended by deleting the second sentence thereof and substituting therefor the following: 1 2 There are no Multiemployer Plans, and except as set forth on Schedule 4.9 hereto, no Title IV Plans. (c) Section 4.9(b) of the Credit Agreement is amended by adding the words "Except for the Title IV Plan described on Schedule 4.9, as to which a timely application will be filed," at the beginning thereof. (d) Section 7.9 of the Credit Agreement is amended by deleting the parenthetical in the fourth line thereof and substituting therefor the following: (except for any such Plan listed on Schedule 4.9 on the Closing Date and except for the Title IV Plan described on Schedule 4.9 so long as the annual contributions with respect thereto do not exceed $4,000,000 in each fiscal year). (e) Schedule 4.9 of the Credit Agreement is deleted in its entirety and Schedule 4.9 attached hereto is substituted therefor. SECTION 2. Representations and Warranties. Borrower hereby represents and warrants to the Majority Lenders that (i) the execution, delivery and performance of this Amendment has been duly authorized by all requisite corporate action on the part of Borrower and will not violate the certificate of incorporation or by-laws of Borrower; (ii) this Amendment is the legal, valid, binding and enforceable obligation of Borrower, enforceable against it in accordance with its terms; (iii) the representations and warranties contained in the Credit Agreement as amended by this Amendment are true and correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date and for changes therein permitted or contemplated by the Credit Agreement as amended by this Amendment; and (iv) after giving effect to this Amendment, no Default or Event of Default under the Credit Agreement has occurred and is continuing. 2 3 SECTION 3. Conditions to Effectiveness. This Amendment shall become effective (the "Effective Date") when, and only when, (i) the Borrower and the Majority Lenders shall have signed a copy hereof (whether the same or different copies), (ii) the Majority Lenders shall have received certified resolutions of the Board of Directors of Borrower authorizing the transactions contemplated hereunder and (iii) the Majority Lenders shall have received a certificate from a Responsible Officer of Borrower certifying that the representations and warranties set forth in Section 2 hereof are true and correct on and as of the Effective Date. SECTION 4. No Modification. This Amendment is limited as specified herein and, except as provided herein, shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Loan Document, all of which shall continue to be in full force and effect and are hereby ratified and confirmed in all respects. SECTION 5. Counterparts. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. SECTION 6. References to Loan Documents. From and after the Effective Date, all references in the Credit Agreement and each of the Loan Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby. SECTION 7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 3 4 SECTION 8. Release. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM ANY LENDER. BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES EACH LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AGREEMENT IS EXECUTED, WHICH BORROWER MAY NOW OR HEREAFTER HAVE AGAINST SUCH LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment as of the date first above written. GENEVA STEEL COMPANY By: /s/ Dennis L. Wanlass --------------------------------------- Name: Dennis L. Wanlass Title: Vice President, Treasurer and Chief Financial Officer 4 5 CITICORP USA, INC. as Agent By: /s/ John Podkowsky --------------------------------------- Name: John Podkowsky Title: Attorney-in-Fact Lenders CITICORP USA, INC. By: /s/ John Podkowsky --------------------------------------- Name: John Podkowsky Title: Attorney-in-Fact GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ J.K. Williams --------------------------------------- Name: Janet K. Williams Title: Duly Authorized Signatory IBJ SCHRODER BANK & TRUST COMPANY By: /s/ John Butera --------------------------------------- Name: John Butera Title: V.P. 5 6 TRANSAMERICA BUSINESS CREDIT CORPORATION By: /s/ Michael Burns --------------------------------------- Name: Michael S. Burns Title: Senior Vice President CORESTATES BANK, N.A. By: /s/ Jennifer Avrigian --------------------------------------- Name: Jennifer Avrigian Title: AVP HELLER FINANCIAL, INC. By: /s/ T. Bukowski --------------------------------------- Name: T. Bukowski Title: Sr. Vice President MELLON BANK, N.A. By: /s/ Daniel K. Clancy --------------------------------------- Name: Daniel K. Clancy Title: Vice President 6 7 LASALLE BUSINESS CREDIT, INC. By: /s/ Mark E. Landsem --------------------------------------- Name: Mark E. Landsem Title: Vice President PNC BUSINESS CREDIT By: /s/ Michael D. Shover --------------------------------------- Name: Michael D. Shover Title: Bank Officer NATIONSBANK, N.A. By: /s/ Melba B. Quizon --------------------------------------- Name: Melba B. Quizon Title: Vice President BNY FINANCIAL CORP. as Successor in interest to THE BANK OF NEW YORK COMMERCIAL CORPORATION By: /s/ Stephen V. Mangiante --------------------------------------- Name: Stephen V. Mangiante Title: Vice President 7 8 SANWA BUSINESS CREDIT CORPORATION By: /s/ Peter L. Skavla --------------------------------------- Name: Peter L. Skavla Title: Vice President CIT GROUP/BUSINESS CREDIT, INC. By: /s/ William Shiro --------------------------------------- Name: William Shiro Title: Assistant Vice President Issuer CITIBANK, N.A. By: /s/ John Podkowsky --------------------------------------- Name: John Podkowsky Title: Attorney-in-Fact 8 EX-10.6 4 AMEND #2 TO RESTATED 1 Exhibit 10.6 AMENDMENT NO. 2 TO SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT AMENDMENT NO. 2 TO SECOND AMENDED AND RESTATED REVOLVING AGREEMENT, dated as of September 30, 1998 (the "Amendment No. 2"), by and among GENEVA STEEL COMPANY, a Utah corporation (the "Borrower"), the financial institutions listed on the signature pages to the Credit Agreement (as defined below) (each individually a "Lender" and collectively the "Lenders"), the issuer party thereto (the "Issuer"), CITICORP USA, INC., a Delaware corporation ("CUSA"), as agent under the Credit Agreement for itself and for the Lenders (in such capacity, the "Agent"), and HELLER FINANCIAL, INC., as co-agent (the "Co-Agent"). All capitalized terms used but not otherwise defined in this Amendment shall have the meanings assigned to such terms in the Credit Agreement referred to below. W I T N E S S E T H: WHEREAS, the Borrower, the Lenders, the Issuer, the Agent and the Co-Agent have entered into a Second Amended and Restated Revolving Credit Agreement dated as of May 14, 1996, as amended by an Amendment dated as of May 1, 1998 (the "Credit Agreement"); WHEREAS, the Borrower and the Majority Lenders pursuant to Section 10.1 of the Credit Agreement desire to amend the Credit Agreement; and WHEREAS, the Majority Lenders are willing to amend the Credit Agreement in the manner and on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows: SECTION 1. Amendments to the Credit Agreement. Subject to the satisfaction of the conditions to effectiveness in Section 3 hereof, the Credit Agreement shall be amended as follows: (a) The following definitions in Section 1.1 shall be amended and restated in their entirety to read as follows: "Borrowing Base" means, at any time, the sum of (a) 85% of Eligible Receivables at such time plus (b) the lesser of (i) such amount of the Eligible Inventory at such time as determined in accordance with the advance rate formulae set forth on Schedule I and (ii) the Inventory Availability Sublimit, less, in each case, 2 such reserves as the Agent, in its sole discretion, may deem appropriate, plus (c) all cash on deposit at such time in the Cash Collateral Account and the L/C Cash Collateral Account; provided, however, that the aforementioned advance rates in respect of Eligible Inventory may be prospectively adjusted by the Agent from time to time upon at least five Business Days' prior written notice to the Borrower to conform to the Agent's regular business practices and policies applicable to asset based loans with advance rates based on current assets in effect from time to time, which practices and policies may be changed by the Agent in its sole discretion; provided, however, that any increase in the advance rates above those set forth on Schedule I shall require the written consent of Lenders having two-thirds or more of the Revolving Credit Commitments, and any changes with respect to reserves (as contemplated above) to be evidenced by notice to the Borrower and applicable prospectively on the Borrowing Base Certificate following such notice. "EBITDA" means, for any Person and its Restricted Subsidiaries for any period, the Net Income (Loss) of such Person and its Restricted Subsidiaries for such period taken as a single accounting period, plus (a) the sum of the following amounts of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP to the extent included in the determination of such Net Income (Loss): (i) depreciation expense, (ii) amortization expense, (iii) other non-cash charges, (iv) Net Interest Expense, (v) provision for income taxes and similar taxes, and (vi) extraordinary losses, less (b) the sum of the following amounts of such Person and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP to the extent included in the determination of such Net Income (Loss): (i) extraordinary gains, (ii) the Net Income (Loss) (which, if it is a negative, shall be added) of any other Person that is accounted for by the equity method of accounting, after deducting the amount of dividends or distributions paid by such other Person to such Person, (iii) the Net Income (Loss) (which, if it is a negative, shall be added) of any other Person acquired by such Person or a Restricted Subsidiary of such Person in a transaction accounted for as a pooling of interests for any period prior to the date of such acquisition, and (iv) other non-operating income. "Net Worth" of any Person means, at any date, the difference between Total Assets of such Person at such date and Total Liabilities (excluding any such liabilities resulting from accrued but unpaid dividends on the Borrower's Stock) of such Person at such date. 2 3 "Tangible Net Worth" of any Person means, at any date, the Net Worth of such Person at such date, excluding, however, from the determination of the Total Assets of such Person at such date (to the extent the same are included in the determination of Total Assets and without duplication), (i) all goodwill, organizational expenses, research and development expenses, trademarks, trade names, copyrights, patents, patent applications, licenses and rights in any thereof, and other similar intangibles, (ii) all deferred charges or unamortized debt discount and expense, (iii) all reserves carried and not deducted from assets or carried as a liability, (iv) treasury stock and capital stock of such Person and its Restricted Subsidiaries, and all obligations or other securities of, or capital contributions to, or investments in or advances or loans to, any Unrestricted Subsidiary of such Person or any of its Subsidiaries, (v) securities which are not readily marketable, (vi) cash held in a sinking or other analogous fund established for the purpose of redemption, retirement, defeasance or prepayment of any Stock, (vii) any write-up in the book value of any asset resulting from a revaluation thereof, and (viii) any items not included in clauses (i) through (vii) above which are treated as intangibles in conformity with GAAP. (b) The following definition in Section 1.1 shall be amended as follows: Paragraph (q) of the definition of "Eligible Receivables" is amended by inserting after the words "Accounts of such account debtor" in the first line thereof the words "(other than Accounts created under the Mannesman Agreement)". (c) Section 5.1 shall be amended and restated in its entirety to read as follows: "5.1. Maintenance of Tangible Net Worth . The Borrower shall maintain, during each of the periods set forth below, Tangible Net Worth no less than the sum of (a) the amounts set forth below plus (b) an amount equal to 75% of the net (after payment of fees, commissions, expenses and the like) cash proceeds received by the Borrower from the sale of Additional Equity since the date hereof: 3 4
Minimum Period Amount ------ ------ April 30, 1996 - July 30, 1996 $74,200,000 July 31, 1996 - October 30, 1996 $74,200,000 October 31, 1996 - January 30, 1997 $74,200,000 January 31, 1997 - April 29, 1997 $72,200,000 April 30, 1997 - July 30, 1997 $69,700,000 July 31, 1997 - October 30, 1997 $67,200,000 October 31, 1997 - January 30, 1998 $65,000,000 January 31, 1998 - April 29, 1998 $65,000,000 April 30, 1998 - July 30, 1998 $65,000,000 July 31, 1998 - September 30, 1998 $110,000,000 October 1, 1998 - October 31, 1998 $110,000,000 November 1, 1998 - November 30, 1998 $200,000,000 December 1, 1998 - December 31, 1998 $200,000,000 January 1, 1999 - January 30, 1999 $200,000,000 January 31, 1999 - April 29, 1999 $200,000,000 April 30, 1999 - July 30, 1999 $200,000,000 July 31, 1999 - October 30, 1999 $200,000,000 October 31, 1999 - January 30, 2000 $200,000,000 January 31, 2000 - April 29, 2000 $200,000,000 April 30, 2000 and thereafter $200,000,000"
(d) Section 5.3 shall be amended and restated in its entirety to read as follows: "5.3. EBITDA to Cash Interest Expense Ratio . The Borrower shall achieve as of the last day of each Fiscal Quarter commencing with the Fiscal Quarter ending June 30, 1996, determined on the basis of the four Fiscal Quarters ending on the date of determination, a ratio of (a) EBITDA for such period to (b) Cash Interest Expense for such period, not less than the ratio set forth below: 4 5
For the Fiscal Minimum Quarter Ending Ratio Required -------------- -------------- June 30, 1996 1.40 : 1.0 September 30, 1996 1.40 : 1.0 December 31, 1996 1.40 : 1.0 March 31, 1997 1.40 : 1.0 June 30, 1997 1.50 : 1.0 September 30, 1997 1.50 : 1.0 December 31, 1997 1.50 : 1.0 March 31, 1998 1.60 : 1.0 June 30, 1998 1.75 : 1.0 September 30, 1998 1.82 : 1.0 December 31, 1998 2.15 : 1.0 March 31, 1999 2.30 : 1.0 June 30, 1999 2.40 : 1.0 September 30, 1999 2.60 : 1.0 December 31, 1999 2.75 : 1.0 March 31, 2000 and thereafter 3.00 : 1.0"
(e) Notwithstanding the provisions of Section 6.11 of the Credit Agreement, the financial statements of the Borrower due on December 31, 1998, in respect of the month of November 1998, shall be furnished to the Lenders no later than January 7, 1999. SECTION 2. Representations and Warranties. The Borrower hereby represents and warrants to the Lenders that (i) the execution, delivery and performance of this Amendment has been duly authorized by all requisite corporate action on the part of the Borrower and will not violate the certificate of incorporation or by-laws of the Borrower; (ii) this Amendment is the legal, valid, binding and enforceable obligation of the Borrower, enforceable against it in accordance with its terms; (iii) the representations and warranties contained in the Credit Agreement, as amended by this Amendment No. 2, are true and correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date and for changes therein permitted or contemplated by the Credit Agreement, as amended by this Amendment No. 2; and (iv) after giving effect to this 5 6 Amendment, no Default or Event of Default under the Credit Agreement has occurred and is continuing. SECTION 3. Conditions to Effectiveness. This Amendment shall become effective (the "Effective Date") when, and only when, (i) the Borrower and the Majority Lenders shall have signed a copy hereof (whether the same or different copies), (ii) the Lenders shall have received certified resolutions of the Board of Directors of the Borrower authorizing the transactions contemplated hereunder and (iii) the Lenders shall have received a certificate from a Responsible Officer of the Borrower certifying that the representations and warranties set forth in Section 2 hereof are true and correct on and as of the Effective Date. SECTION 4. No Modification. This Amendment is limited as specified herein and, except as provided herein, shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Loan Document, all of which shall continue to be in full force and effect and are hereby ratified and confirmed in all respects. SECTION 5. Counterparts. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. SECTION 6. References to Loan Documents. From and after the Effective Date, all references in the Credit Agreement and each of the Loan Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby. 6 7 SECTION 7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 8. Release. THE BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM ANY LENDER. THE BORROWER HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES EACH LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AGREEMENT IS EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE AGAINST SUCH LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE. [signature pages follow] 7 8 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment as of the date first above written. GENEVA STEEL COMPANY By: /s/ Joseph A. Cannon ------------------------------------ Name: Joseph A. Cannon Title: Chief Executive Officer CITICORP USA, INC., as Agent By: /s/ John Podkowski ------------------------------------ Name: John Podkowski Title: Attorney-in-Fact Lenders CITICORP USA, INC. By: /s/ John Podkowski ------------------------------------ Name: John Podkowski Title: Attorney-in-Fact 8 9 GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ J. K. Williams ------------------------------------ Name: Janet K. Williams Title: Duly Authorized Signatory IBJ SCHRODER BANK & TRUST COMPANY By: /s/ John Butera ------------------------------------ Name: John Butera Title: VP TRANSAMERICA BUSINESS CREDIT CORPORATION By: /s/ Michael Burns ------------------------------------ Name: Michael S. Burns Title: Senior Vice President CORESTATES BANK, N.A. By: /s/ Jennifer Avrigian ------------------------------------ Name: Jennifer Avrigian Title: AVP 9 10 HELLER FINANCIAL, INC. By: /s/ T. Bukowski ------------------------------------ Name: T. Bukowski Title: Sr. Vice Pres. MELLON BANK, N.A. By: /s/ Daniel K. Clancy ------------------------------------ Name: Daniel K. Clancy Title: Vice President LASALLE BUSINESS CREDIT, INC. By: /s/ Mark E. Landsem ------------------------------------ Name: Mark E. Landsem Title: Vice President PNC BUSINESS CREDIT By: /s/ Michael D. Shover ------------------------------------ Name: Michael D. Shover Title: Bank Officer NATIONSBANK, N.A. By: /s/ Melba B. Quizon ------------------------------------ Name: Melba B. Quizon Title: Vice President 10 11 BNY Financial Corp. as successor in interest to THE BANK OF NEW YORK COMMERCIAL CORPORATION By: /s/ Stephen V. Mangiante ------------------------------------ Name: Stephen V. Mangiante Title: Vice President SANWA BUSINESS CREDIT CORPORATION By: /s/ Peter L. Skavla ------------------------------------ Name: Peter L. Skavla Title: Vice President CIT GROUP/BUSINESS CREDIT, INC. By: /s/ William Shiro ------------------------------------ Name: William Shiro Title: Assistant Vice President Issuer CITIBANK, N.A. By: /s/ John Podkowski ------------------------------------ Name: John Podkowski Title: Attorney-in-Fact 11 EX-10.8 5 AMENDED AND RESTATED SALES REPRESENTATION AGRMT. 1 Exhibit 10.8 AMENDED AND RESTATED SALES REPRESENTATION AGREEMENT This Sales Representation Agreement (this "Agreement") is the amendment and restatement of an agreement entered into as of the 8th day of December, 1988 and amended April 18, 1991, April 17, 1992, April 1, 1996 and October 30, 1998 between Geneva Steel Company, a Utah corporation ("Geneva"), and Mannesmann Pipe & Steel Corporation, a New York corporation ("Mannesmann"). Agreement In consideration of the mutual promises contained herein, and other valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows: 1. Grant. Subject to the terms and conditions contained in this Agreement, Geneva grants to Mannesmann the sole and exclusive right to purchase from Geneva, sell and distribute to customers now or hereafter located in the geographical area defined on Exhibit A, attached hereto (the "Territory"), those steel products produced by Geneva that are more particularly described on Exhibit B attached hereto ("Products"); provided, however, Geneva shall have the option to exclude from time to time from the "Products" and from the terms of this Agreement any pipe produced at the pipe mills located at the Geneva Steel Works. For purposes of this Section 1, a customer will be deemed to be located within the Territory only if that customer's purchasing and delivery locations for the Products it orders are located within the Territory. 2. Reservation of Right. Notwithstanding Section 1 of this Agreement, Geneva reserves the right, subject to Section 3.11 of this Agreement, to sell Products and other materials produced by Geneva ("other materials") to any customer in or outside of the Territory; provided, however, that subject to Section 3.2 hereof, Geneva agrees, so long as Mannesmann is complying with its obligations pursuant to Section 3.1 hereof, not to expand its marketing or sales efforts within the Territory for the purpose of increasing the number of customers within the Territory that purchase Products directly from Geneva. Any contact relating to the marketing or sale of Products by Geneva with any customer within the Territory, other than those customers identified on Exhibit C attached hereto ("Geneva Direct Customers"), shall be coordinated with Mannesmann, in advance when practicable. Geneva shall have the right to contact any customer or potential customer in the Territory and Mannesmann shall provide Geneva with the names and addresses of the appropriate contact persons with such customers or potential customers for such purpose; provided, however, that no sales of Products by Geneva to any customer of Mannesmann in the Territory (other than to a Geneva Direct Customer) shall be concluded without notice of such sale to Mannesmann. 2 3. Sale of Product. 3.1 Sales Effort of Mannesmann. Mannesmann will use its best efforts to engage in a consistent, deliberate sales effort that is, in good faith, calculated to optimize the sale of Products in the Territory (including with respect to product mix and overall margin optimization), the net mill return to Geneva, and the integration of such effort with Geneva's sales efforts and overall sales philosophy. For purposes of this Agreement, "net mill return to Geneva" shall mean the total sales price actually received by Geneva for Products or other materials, as the case may be, less transportation charges incurred in delivering Products or other materials to customers. 3.2 Direct Sales. Geneva may, at Geneva's option and notwithstanding any provision hereof to the contrary, sell Products and other materials directly to any customer or potential customer within the Territory if such customer or potential customer expresses its refusal to place an order through Mannesmann or if Mannesmann refuses to take an order from such customer or potential customer. Mannesmann agrees to provide Geneva with prompt notice of any refusal by a customer or potential customer to place an order through Mannesmann or Mannesmann's refusal to accept an order from any customer or potential customer and to facilitate the placement of an order by such customer or potential customer directly with Geneva. Geneva agrees to exercise such option in a manner as not to unduly disrupt service by Mannesmann to customer or potential customer. 3.3 Employees. a. Geneva shall make available to Mannesmann the services of certain of Geneva's employees (the "Employees"). The number and identity of the Employees, and the terms and conditions of such employment, shall be mutually acceptable to Geneva and Mannesmann, including the replacement or removal of the Employees by Mannesmann during the term of this Agreement. The Employees shall assist Mannesmann in its marketing, sales, servicing and invoicing of Product to customers of Mannesmann in the Territory pursuant to this Agreement; provided, that any such Employees that have historically been involved in the sale of pipe products may be excluded by Geneva from the provisions of this Agreement in the event Geneva exercises its right to exclude pipe products from the definition of "Products" pursuant to Section 1 hereof. Mannesmann shall reimburse Geneva on demand for the salary, payroll burden and benefits (except as otherwise specified in Sections 3.3(b) and 3.3(c)) incurred by Geneva in connection with the Employees. Mannesmann shall be solely responsible for any expenses incurred by the Employees related to such assistance and shall ensure that the 2 3 Employees comply with Mannesmann's expense reimbursement guidelines with respect thereto. b. Geneva shall continue to maintain all insurance coverage applicable to the Employees consistent with coverage provided with respect to other employees of Geneva, including but not limited to workers' compensation, health insurance, life insurance, short term disability and long term disability. Geneva's workers' compensation insurance shall be endorsed to name Mannesmann as an alternate employer using Endorsement Number WC-00-03-01. Mannesmann shall obtain an endorsement to its existing commercial general liability insurance extending coverage to the acts and omissions of the Employees and naming Geneva as an additional insured and shall issue to Geneva a waiver of subrogation claims. c. Mannesmann shall indemnify, defend, and hold harmless Geneva from and against any claims against Geneva: (i) by third parties for any acts or omissions of the Employees while performing services for Mannesmann or any of the customers of Mannesmann; and (ii) by any Employee for claims other than personal injuries to the claimant, to the extent such claim arises out of or relates to acts or omissions of other Employees or the acts or omissions of employees of Mannesmann in the scope of such employee's employment. Geneva shall indemnify, hold harmless and defend Mannesmann from and against any claims against Mannesmann by any Employee (or beneficiaries of or persons claiming through any Employee): (i) arising out of acts or omissions of other employees of Geneva in the scope of such Employee's employment; and (ii) arising out of or relating to claims or expenses for personal injuries, health benefits, life insurance, short term disability or long term disability to the extent Geneva would be otherwise liable for such claims pursuant to Geneva's plans, policies or practices. Mannesmann hereby waives all claims against Geneva arising out of or as a result of any claim being filed by an Employee against Mannesmann to the extent such claim against Mannesmann is covered by the workers' compensation insurance endorsement obtained with respect to the Employees by Geneva pursuant to Section 3.3b. d. During the term of this Agreement, and for one (1) year after the termination or expiration of the term of this Agreement, Mannesmann shall not attempt to hire, hire or otherwise cause, induce or suggest that any such employee terminate employment with Geneva. 3.4 Acceptance of Orders. Geneva shall, in its sole discretion, have the right to accept or reject any order for Products or other materials that is submitted by Mannesmann; provided, however, that any such order shall be deemed accepted by Geneva if notice of a rejection thereof is not given to Mannesmann 3 4 as soon as is reasonable under the circumstances, but in no event later than (a) within five business days after Geneva received such order from Mannesmann, if such order is wholly for Products or other materials that are generally and regularly produced by Geneva and at Geneva's then current and applicable published price for such Products or other materials, and (b) within ten business days after Geneva receives such order from Mannesmann if any portion of such order is for Products or other materials that are not generally and regularly produced by Geneva, or at a price that is lower than Geneva's then current and applicable published price for such Products or other materials. 3.5 Sales Forecast Reports. a. On or before the first business day of the calendar month preceding each calendar quarter Mannesmann shall submit to Geneva, in writing, a forecast for such quarter that sets forth Mannesmann's anticipated sales of Products. b. On a best effort basis by Mannesmann, each such forecast shall include a breakdown of anticipated sales for each calendar month falling within the calendar quarter covered by such forecast and shall otherwise include such details as are reasonably requested by Geneva upon reasonable notice to Mannesmann. 3.6 Sales Representatives. Mannesmann shall, at all times, maintain a sales force and support personnel that are adequate and qualified to exploit and develop Mannesmann's marketing opportunities within the Territory. Geneva reserves the right to approve or disapprove of any salesperson that Mannesmann proposes to engage to sell Products within the Territory that was not selling Products for Mannesmann in the Territory on October 31, 1998. Any such salesperson that Geneva, in its reasonable judgment, disapproves shall not be used by Mannesmann to sell Products within the Territory. 3.7 Efforts of Geneva to Hire Sales Personnel. Mannesmann agrees that it will not interfere in any way with efforts by Geneva to hire any Mannesmann salesperson to sell Products or other materials directly for Geneva. Such efforts may include, without restriction, obtaining letters of intent from Mannesmann salespersons to become employed by Geneva upon the termination of this Agreement. Mannesmann agrees that it will take no action that is detrimental to any salesperson of Mannesmann by reason of such salesperson's signing such a letter of intent or agreeing to become employed by Geneva. 4 5 3.8 Marketing. a. Mannesmann agrees to incorporate into the marketing effort it makes to sell Products within the Territory, on a good faith basis, any reasonable directions or suggestions made by Geneva with respect to: (i) marketing techniques and general policies Mannesmann adopts with respect to the sale of Products within the Territory; and (ii) information, including without restriction, literature, brochures, and verbal instructions given by sales personnel to customers and prospective customers within the Territory for the purpose of soliciting sales of Products. b. Without limiting the generality of Section 3.8a, Mannesmann agrees that, without the specific prior consent of Geneva, it will not, sell or distribute within the Territory, any plate, wide coil, or pipe product of any manufacturer or distributor (other than Geneva) that competes with any of the Products. As used in Sections 3.8a and 3.8b, a Product or other materials shall not be deemed to be "produced" by Geneva until such time as such Product is actually available for order by customers. c. Mannesmann hereby grants to Geneva a right of first refusal for the term of this Agreement to supply Mannesmann with all Narrow Coil Products (as hereinafter defined) to be sold by, through or under Mannesmann within the Territory. "Narrow Coil Products" shall mean unprocessed hot rolled bands with (i) a width of seventy-six (76) inches or narrower and (ii) a thickness in the range between, and including, nine one-hundredths of one (0.090) inch and above. Prior to accepting from a customer any purchase order or entering into any agreement to sell any Narrow Coil Product, Mannesmann shall provide Geneva with a written notice of each inquiry received by it with respect to the sale of Narrow Coil Product. Such notice shall contain all of the terms and conditions applicable to such inquiry and a copy, if available, of such inquiry (an "Inquiry Notice"). Geneva shall provide to Mannesmann written notice of Geneva's exercise of such right of first refusal within two (2) business days of Geneva's receipt of an Inquiry Notice. In the event that Geneva elects to supply Mannesmann with the Narrow Coil Product identified in an Inquiry Notice, Geneva shall proceed to supply such Narrow Coil Product to Mannesmann in accordance with terms and conditions of the Inquiry Notice as supplemented by this Agreement; provided, however, that in the event of any conflict between such Inquiry Notice and this Agreement, the terms and conditions of this Agreement shall control. 5 6 3.9 Market Data Reports. Mannesmann will submit to Geneva on a regular basis, but not less frequently than four times each month, a marketing report that will include: a. a brief description of the marketing efforts on behalf of Geneva that have been made since the last marketing report submitted by Mannesmann; b. customer responses to Geneva's currently quoted prices for Products; c. price structures, to the extent available, of steel products produced by competitors of Geneva; d. any general market data that could reasonably be expected to have an effect on Geneva's pricing structure of Products or sales efforts in the Territory; e. customers and prospective customers that have been contacted in an effort to sell Products, including, but not limited to, Narrow Coil Products, within the Territory; f. a report for each customer that has, since the last report, expressed to Mannesmann, its employees or agents, any dissatisfaction with Mannesmann, Geneva, Products or other materials, with details regarding the reason for any such dissatisfaction; and g. a record of all competitive price reports made by Mannesmann during the previous week or which had not been included in a marketing report previously supplied to Geneva. 3.10 Pricing of Products. Geneva shall, on or before the 45th day prior to the first business day of each calendar quarter, notify Mannesmann of its pricing structure of Products for such quarter that apply in the Territory. Geneva will make a good faith effort to maintain pricing structures throughout each quarter at a competitive level and to immediately notify Mannesmann of any price change applicable in the Territory. Mannesmann shall maintain records of competitive price reports in such detail as Geneva shall request and shall include such reports in the marketing report as provided in Section 3.9g. 3.11 Sales Allowance, Commission, and Discount. a. Mannesmann shall be entitled to receive as a sales allowance with respect to sales to Mannesmann of Products and other materials shipped, or anticipated to be shipped, to Mannesmann customers located within the Territory an amount (the "Sales Allowance") equal to the total of (x) the Variable Allowance 6 7 for such sale plus (y) 1.13% of the difference between the following (1) the invoice amount with respect to such sale and (2) the Variable Allowance for such sale. The allowance provided in this Section 3.11a shall be deducted by Mannesmann, at the times hereafter indicated, from the funds remitted by Mannesmann to Geneva. b. The Variable Allowance for sales referred to in Section 3.11a is a percentage of the net invoice amount for each ton of Product and other material shipped by Geneva (including direct sales by Geneva other than sales excepted under Section 3.12) for which a Sales Allowance is provided pursuant to this Agreement in each sales year equal to 1.5% on each ton so shipped up to and including 1,000,000 tons in the aggregate and 1% on each ton so shipped above 1,000,000 tons in the aggregate; provided, however, the Variable Allowance for sales of electric resistance welded pipe shall be 1.75%; provided, further, however, the tons of such pipe shipped shall not be included in the tons of Product and other materials shipped by Geneva for purposes of determining the percentage used in the calculation of the Variable Allowance. c. Following each calendar quarter in any sales year either party hereto may propose an adjustment to the portion of the Sales Allowance described in Section 3.11a(y) above, to be effective for sales during the then current calendar quarter, reflecting changes in (1) the Prime Rate, as hereinafter defined, and (2) the average aging of receivables for accounts of Mannesmann arising from sales by Mannesmann of Products and other materials purchased by Mannesmann under this Agreement from those in effect on the date hereof; provided, that Mannesmann shall use its best efforts to maintain the average aging of receivables as low as possible with a target of not more than forty-five calendar days. Such proposal shall be accompanied by detailed justification for such adjustment. In the event the parties hereto fail to agree to the adjustment proposed, such element of the Sales Allowance then in effect shall continue until an adjustment is agreed. d. Any commission payable by Geneva to Mannesmann in connection with the direct sale of Product by Geneva shall be paid by Geneva to Mannesmann upon receipt by Geneva of payment for such Product. e. Mannesmann shall be entitled to receive as an additional discount with respect to each Payment Invoice for Products sold to Mannesmann an amount equal to the product of (x) the average number of days in the period commencing on the date that payment for such Products is received by Geneva in accordance with Section 5.2 of this Agreement and ending on the date on which such Products are shipped (the "Storage Period"); multiplied by (y) (i) the average of the prime rate published in the Money Rates 7 8 section of the Wall Street Journal (the "Prime Rate") on each day during the Storage Period divided by (ii) 365; and multiplied by (z) (i) the amount set forth on the Payment Invoice with respect to such Product less (ii) the Sales Allowance retained by Mannesmann or otherwise remitted to Mannesmann by Geneva with respect to such Payment Invoice. The initial Storage Period and the average Prime Rate shall be 21 days and 8.25%, respectively. The discount provided in this Section 3.11e shall be deducted by Mannesmann, at the times hereafter indicated, from the funds remitted by Mannesmann to Geneva. f. Following each calendar quarter in any sales year either party hereto may propose an adjustment to the discount described in Section 3.11e above, to be effective for Payment Invoices during the then current calendar quarter, reflecting changes in (1) the Prime Rate and (2) the Storage Period. In the event the parties hereto fail to agree to the adjustment proposed, such element of the discount then in effect shall continue until an adjustment is agreed. 3.12 Exception. Notwithstanding Section 3.11 of this Agreement, Geneva shall not be obligated to pay any sales allowance, discount or commission to Mannesmann for any Product that is sold to any customer identified on Exhibit C to this Agreement or to any customer or potential customer with whom Mannesmann has refused to deal or to whom Mannesmann has elected not to sell or for any other materials that are sold by Geneva to any customer located within the Territory. Geneva will have the right to sell such Product or other materials directly or through another sales representative. 3.13 Title to the Products. a. Title to the Products shall pass to Mannesmann upon the Products being Identified to the Agreement (as defined below). Promptly upon assignment of Products to an order, all such Products shall be stamped, or the lots consisting of such Products shall be marked, with a tracking number (a "Tracking Number") that shall be entered into Geneva's inventory records. b. Products shall be deemed "Identified to the Agreement" on the earlier of: (i) At the time at which the Tracking Number for such Product or for the lot of which such Product is a part, is identified in Geneva's inventory records as relating to a particular purchase order placed by Mannesmann; provided, however, that any Product Identified to the Agreement that is placed in any of the inventory stockpiles, other than a stockpile relating to the Mannesmann purchase order to which such Product has been 8 9 identified, herein the "Geneva Inventory Stockpiles," shall be deemed to be "fungible" for purposes of Article 7 of the Utah Uniform Commercial Code (Any fungible Product that is Identified to the Agreement and is located in the "Geneva Inventory Stockpiles," may be replaced by or substituted for any other Product of equal quantity, metallurgical quality and width, thickness and length; provided, that such replacement or substitute Product is concurrently Identified to the Agreement, as provided in the foregoing part of this Section 3.13b(i)); or (ii) At the time at which an invoice is issued to Mannesmann for designated Products, regardless of whether the requirements of 3.13b(i) have been met. c. Mannesmann may elect to file a protective Form UCC-1 with the Utah Department of Commerce, Division of Corporations and Commercial Code to give public notice of its interest in the Products with respect to which title has passed to Mannesmann. d. Mannesmann acknowledges and consents to the storage of the Products on Geneva's premises whether such Products have or have not been Identified to the Agreement. 3.14 Books and Records. Geneva shall have the right, exercisable from time to time upon reasonable advance notice, to audit and copy those portions of Mannesmann's books and records necessary to determine Mannesmann's compliance with its obligations under this Section 3. Geneva shall have no right to audit or copy any (a) confidential and proprietary information pertaining to a customer or supplier (other than customers of Products), (b) Mannesmann's books and records relating to salaries of Mannesmann employees, or (c) Mannesmann's books and records unrelated to Mannesmann's obligations hereunder. 4. Warranty Provisions. 4.1 Warranty. The Products and other materials produced by Geneva and sold under this Agreement are warranted to conform to contract specifications. The obligations of Geneva under this warranty are limited to an amount equal to the original invoice price of Products or other materials that have been reported by Mannesmann not to conform to such specifications and that have been so found by Geneva after inspection, such amount to be paid either by delivery of replacement product or offset against future invoices as the parties may in good faith mutually agree. 4.2 Claims. All claims under the warranty set forth at Section 4.1 shall be made in writing by Mannesmann within five working days after receipt by Mannesmann from its customer of 9 10 notice of defect. Geneva will not be responsible for any claim if notice thereof is not received by Geneva promptly following delivery by Geneva to Mannesmann or Mannesmann's customer, whichever is earlier, of the Products or other materials produced by Geneva that are the subject of such claim. Notwithstanding the foregoing, Geneva will not, in any event, be responsible for such a claim if notice thereof is not received by Geneva within the same time limit Geneva contractually prescribes from time to time for customers to whom Geneva sells directly. Geneva agrees in good faith to settle any warranty claim in a timely fashion. 4.3 Sole Remedy for Defects. Mannesmann agrees to accept the warranty hereinabove contained in lieu of all other warranties, statutory or otherwise, as the sole and exclusive remedy against Geneva for any defects of any nature whatsoever. ANY STATUTORY OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE IS HEREBY WAIVED. EXCEPT FOR THE WARRANTY SET FORTH IN SECTION 4.1 AND THE REMEDY PROVIDED IN SECTION 4.1, ALL WARRANTIES, UNDERTAKINGS AND CONDITIONS, EXPRESS OR IMPLIED, BY STATUTE OR OTHERWISE, ARE HEREBY EXCLUDED. IN NO EVENT SHALL GENEVA BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES SUFFERED BY MANNESMANN OR ANY CUSTOMER OF MANNESMANN. 4.4 Disputes Regarding Warranty. If Geneva and Mannesmann do not agree regarding the merits of a warranty claim, the disagreement will be settled by the good faith appointment by the parties of a qualified and neutral inspection company that is agreed to by the parties to investigate and report to the parties within a reasonable time regarding the merits of the warranty claim. The results of such report shall be final and binding on the parties hereto. 5. Credit Risk and Payment. 5.1 Credit Risk. The credit risk on all Products and other materials shipped by Geneva upon Mannesmann's order shall be borne by Geneva. 5.2 Payment for Products. Notwithstanding any provision in this Agreement to the contrary, with respect to any purchase order received from Mannesmann by Geneva under this Agreement, as soon as practicable after a Product is Identified to the Agreement, Geneva shall forward, by U.S. Mail or, at the discretion of Geneva, a faster medium such as overnight courier or facsimile transmission, invoices relating to such Product, and the other materials subject to such purchase order, (each a "Payment Invoice"). Each Payment Invoice shall specify the purchase order to which it relates, the estimated promise date with respect thereto and the status of production or shipment of the order. With respect to the Products for which title has passed to 10 11 Mannesmann but that are stored in Geneva's inventory stockpiles, Geneva shall include with the Payment Invoice for such Products a mill test report for such Product and a warehouse receipt, acknowledging Mannesmann's title to the Products, the form of which shall be reasonably acceptable to Geneva and Mannesmann and be sufficient as a warehouse receipt pursuant to Article 7 of the Utah Uniform Commercial Code. Mannesmann shall, every Monday and every Thursday of each week, remit to Geneva by wire transfer in U.S. funds the full amount of all Payment Invoices from Geneva with respect to which such payment has not previously been made less the Sales Allowance owed Mannesmann for shipments to be made pursuant to such orders and the discount identified in Section 3.11e of this Agreement. In addition to the information required above, upon shipment of the Products, Geneva shall provide to Mannesmann the mill test report and bills of lading for such Products. 5.3 Billing for Products. Mannesmann shall promptly, after receiving Geneva's bill of lading with respect to any Product or other materials, bill its customer for the Product or other materials subject to such invoice. Each of Mannesmann's billings shall be on a net 30 day term or such other term as may be agreed to by Geneva in writing and in advance of Geneva's shipment. Thereafter, Mannesmann will use its best efforts to collect full payment of such invoice from its customer. Geneva and Mannesmann agree to meet periodically to reconcile their records with respect to the transactions under this Agreement to assure that Mannesmann is paid the applicable Sales Allowance and, if necessary, to review and adjust the procedures for billing and payment hereunder. 5.4 Assignment of Uncollected Accounts. Mannesmann shall keep an accurate accounting of all customer accounts receivable for customers to which Mannesmann sells Products or other materials. With respect to Products and other materials shipped by Geneva pursuant to a purchase order given by Mannesmann to Geneva pursuant hereto, Mannesmann may, at its option, notify Geneva of the failure of a customer to pay any invoice from Mannesmann for such Products and other materials within 90 days from shipment date, specifying the customer, the amount unpaid, the invoice relating to the account and the reason, if any, asserted for non-payment. Within five business days after receipt by Geneva of such notice by Mannesmann, (which notice shall be timely given under the circumstances) Geneva shall remit to Mannesmann by wire transfer in U.S. funds the amount of the invoice from Mannesmann to its customer which has not been paid less the Variable Allowance in the case of a sale as to which a Variable Allowance was paid. Geneva shall use its best efforts to collect each account receivable with respect to which Geneva has so remitted funds and will remit to Mannesmann, within 30 days after collection, Mannesmann's portion of the Variable Allowance on the amount so collected. As to any invoice so paid by Geneva, Mannesmann hereby 11 12 absolutely, irrevocably, presently and unconditionally without further act or deed of any kind or nature whatsoever assigns to Geneva, without recourse to Mannesmann, the accounts receivable represented thereby, all present and future rights to collect from such customer any such unpaid amounts, interest thereon and other amounts in accordance with the terms of the Agreement between Mannesmann and such customer. Mannesmann shall further (a) give Geneva reasonable access to its sales records to allow Geneva to verify accounts receivable so assigned to Geneva, (b) upon request of Geneva, execute such other documents and instruments as Geneva may reasonably determine to be necessary to evidence such assignment and (c) cooperate with Geneva as Geneva reasonably determines necessary to collect such accounts receivable. 6. Force Majeure. Geneva will not be liable for any failure or delay in delivery caused by an act of God, labor strike, accident, governmental restriction, raw material shortage, or any other cause beyond Geneva's control, or because of equipment failure. 7. Special or Consequential Damage. Neither party hereto shall be liable to the other party for any special or consequential damages arising from the breach of any obligation under this Agreement. 8. Relationship of the Parties. The relationship between the parties hereto shall be one of independent contractors. Neither party hereto is authorized to bind the other contractually or otherwise, or to make any representation not permitted herein on behalf of the other party without such other party's consent. 9. Right to Set-Off. Geneva and Mannesmann agree that if Geneva purchases materials from Mannesmann during the term of this Agreement ("Materials"), and fails to pay for such Materials upon the terms agreed to between the parties, the parties will automatically set-off any such monies that are past due and owing by Geneva to Mannesmann for the Materials against monies due and owed by Mannesmann to Geneva for Products and other materials. For purposes of this Agreement, Materials shall mean, without limitation, any goods the parties may agree upon from time to time. Geneva and Mannesmann agree to use their best efforts to promptly, diligently and in good faith, establish and maintain appropriate accounting procedures necessary to implement any set-off allowed for in this Section 9. 10. Term of Agreement. This Agreement shall expire at the close of business on September 30, 2001, if notice of such termination is given by a party hereto to the other party not less than six (6) months prior to such termination date. If timely notice of such termination is not given, the term of this Agreement 12 13 shall be extended automatically for an additional three year term and for additional three year terms thereafter until notice of termination is given by a party hereto to the other party not less than six (6) months prior to the next termination date. Notwithstanding the foregoing, Geneva shall have the option to terminate this Agreement effective December 31, 1999 by giving written notice of such termination to the other party hereto not less than six (6) months prior to the effective date of such termination. 11. Termination. Notwithstanding Section 10, this Agreement may be terminated: 11.1 by the non-defaulting party if the other party is adjudicated bankrupt, makes a general assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, ceases to conduct business in the ordinary course, has a receiver appointed, files a petition under any bankruptcy, reorganization, debt arrangement, insolvency, liquidation or distribution law or a petition under any bankruptcy, reorganization, debt arrangement, insolvency, liquidation or distribution law is filed against it and is not dismissed within sixty days; 11.2 by the non-defaulting party if the other party materially breaches any of the terms of this Agreement, unless such breach is cured within thirty days after written notice thereof; 11.3 by Geneva if Rudy Georg no longer is employed by Mannesmann or his areas of responsibility in relation to Mannesmann's obligations under this Agreement are materially decreased in any way. Mannesmann acknowledges that Rudy Georg is and shall remain the employee of Mannesmann primarily responsible for Geneva's account with Mannesmann and the performance by Mannesmann of its obligations hereunder; or 11.4 by Geneva if Mannesmann violates the provisions of Section 21 hereof relating to the transfer or assignment of this Agreement by Mannesmann. For the purposes of this Section 11.4, any consent required for an assignment by Mannesmann under Section 21 of this Agreement may be withheld in Geneva's sole and absolute discretion if the assignee is unacceptable to Geneva. For the purposes of this Section 11.4, "transfer or assignment" shall include any transfer or assignment by merger, consolidation, liquidation or transfer of assets or a transfer of control of Mannesmann, without the prior written consent of Geneva, which consent may be withheld in Geneva's sole and absolute discretion. "Control" for the purposes of this Agreement shall mean the sale or transfer of a controlling percentage of the capital stock of 13 14 Mannesmann or the sale of at least twenty-five percent (25%) of the value of the assets of Mannesmann. Provided, however, that if, and only if, Mannesmann gives Geneva written notice of a transfer or assignment (a "Transfer Notice") prior to termination of this Agreement by Geneva pursuant to Section 11.4 of this Agreement, then within fifteen (15) business days after Geneva's receipt of such Transfer Notice, Geneva shall give Mannesmann written notice setting forth the effective date of such termination, if any, which effective date shall not be less than thirty (30) nor more than ninety (90) days from the date of Geneva's receipt of such Transfer Notice. 11.5 With respect to Sections 11.3 and 11.4 only, termination of this Agreement shall be Geneva's sole remedy. 12. Post-Termination Transition. Following a timely notice of termination pursuant to Section 10 of this Agreement, or actual termination effected pursuant to Section 11 of this Agreement, Mannesmann shall promptly afford Geneva its full good faith cooperation in aiding Geneva to effect a transition of Geneva's sales force to replace Mannesmann's sales force that deals with purchasers of the Products and other materials. The cooperation contemplated by this Section 12 includes all acts of Mannesmann reasonably necessary in such transition including, but not limited to, the following: 12.1 Mannesmann will provide Geneva with a comprehensive list of customers to whom Mannesmann has sold Products or other materials pursuant to this Agreement. 12.2 For each customer on the list supplied pursuant to Section 12.1, Mannesmann will supply Geneva with the following to the extent that such is in the possession of Mannesmann: (a) all historical sales information kept by Mannesmann relating to Products and other materials purchased by Mannesmann pursuant to this Agreement; (b) the names of the employees or other representatives of such customer that are Mannesmann's primary sales contact for such customer; (c) the names of key management personnel of such customer; (d) the names of all competitor steel product suppliers from whom such customer purchases; 14 15 (e) the address of the headquarters and of each branch location of such customer; (f) a list of all equipment owned by such customer that is used or that can be used to process Products and/or other materials, including any technical specifications relating to such equipment that Mannesmann may possess; and (g) a list of all steel products such customer is capable of producing. 12.3 Mannesmann will facilitate an introduction of the employees or other representatives of such customer responsible for making purchasing decisions for Products and other materials to the person or persons designated by Geneva at such time and under such circumstances that, in the best judgment of Mannesmann, will afford Geneva's designated representative with the best opportunity to effect a transition of such customer's purchasing Products and other materials directly from Geneva. 13. Promotion of Geneva. Mannesmann will use its best efforts at all times that this Agreement is in force to promote and maintain a positive reputation for Geneva among Mannesmann's customers and potential customers with a view to minimizing any inconvenience, concern or confusion on the part of any such customer or potential customer caused by Geneva's taking over all sales efforts in the Territory upon termination of this Agreement. 14. Insurance. Geneva shall cause Mannesmann to be named as an additional insured on any product liability insurance obtained by Geneva that covers Products and other materials. Geneva will direct the carrier of any such insurance to forward to Mannesmann a certificate of insurance naming Mannesmann as an additional insured on the policy obtained and to give Mannesmann 90 days notice of the termination, for any reason, of such policy. 15. Notice. Any notice required or permitted hereunder shall be in writing and sent by registered or certified mail, postage prepaid, as follows: If to Geneva: Geneva Steel Company Attention: Ken C. Johnsen P.O. Box 2500 Provo, Utah 84603 15 16 with a copy to: Parr Waddoups Brown Gee & Loveless 185 South State Street, Suite 1300 Salt Lake City, Utah 84111 Attention: Roger D. Henriksen If to Mannesmann: Mannesmann Pipe & Steel Corporation 1990 Post Oak Boulevard, 18th Floor Houston, Texas 77056 or at such other address as either party to this Agreement may from time to time designate by notice in writing to the other party. Notice shall be deemed given two business days after being mailed in the manner set forth above. 16. Amendments. Any amendment to this Agreement must be in writing, and signed by all parties to this Agreement. 17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah. 18. Required Performance. The failure of either party to this Agreement to require the performance of any term of this Agreement or the waiver by either party of any breach under this Agreement shall not prevent the subsequent enforcement of such term and shall not be deemed a waiver of any subsequent breach. 19. Costs Upon Default. In the event of a default under the terms of this Agreement, the non-defaulting party shall be entitled to recover from the defaulting party, all costs of the non-defaulting party, including a reasonable attorney's fee, in enforcing the rights of the non-defaulting party hereunder. 20. Severability. If any provision of this Agreement is held to be invalid or void by any court of competent jurisdiction, such provision shall be deemed severable from the remainder of this Agreement and shall not effect any other provision hereof. If such provision shall be deemed invalid due to its scope or breadth, such provision shall be deemed valid to the extent of the scope or breadth permitted by law. 21. Assignability. Neither party to this Agreement shall assign any rights or delegate any obligations of such party hereunder, without the prior written consent of the other party hereto. Geneva may withhold any such consent in its sole and absolute discretion. Consent to any assignment shall not operate as a waiver of the necessity for consent to any subsequent 16 17 assignment and the terms of such consent shall be binding on any person holding by, through or under Mannesmann. 22. Merger. This Agreement (including all Exhibits hereto, which Exhibits are hereby incorporated herein by this reference) contains the entire understanding between the parties with respect to the subject matter hereof and supercedes all prior understandings between the parties. In the event of any conflict between the terms of this Agreement and any purchase order or any document submitted by Mannesmann to Geneva, this Agreement shall govern. 23. Confidentiality. Each of Mannesmann and Geneva acknowledges that information, data and documents disclosed or produced by the other party hereto (the "Disclosing Party") pursuant to this Agreement, orally or in writing, including but not limited to, the terms and conditions of this Agreement, unless otherwise specifically designated, shall be deemed "confidential information" within the meaning of this Agreement. Except with prior written consent of the Disclosing Party, all confidential information is solely for use in connection with the performance of the party to which such confidential information was disclosed or produced (the "Recipient Party") of its obligations hereunder and shall not be used by the Recipient Party or disclosed to any other person except with the prior written consent of the Disclosing Party in each instance. "Confidential information" shall not include any such information, data or documents that (a) at the time of disclosure is or subsequently becomes, through no fault of such party, part of the public domain, (b) was known to the party to whom it was disclosed, or (c) was disclosed to the other party by a third party legally entitled to do so. 24. Counterparts and Facsimile Signatures. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute but one and the same instrument. Counterparts and signatures transmitted by facsimile shall be valid as originals. 25. Business Days. For purposes of this Agreement "business day" shall mean every Monday through Friday except state, federal and company holidays. 26. Inurement. This Agreement shall be binding upon and inure to the benefit of Geneva and Mannesmann and their respective successors and assigns. 27. Effective Date. This Agreement shall be effective as of November 16, 1998 unless the parties mutually agree in writing on a different effective date. 17 18 IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of October 30, 1998. GENEVA STEEL COMPANY By: /s/ RICHARD D. CLAYTON ------------------------------- Name: Richard D. Clayton Its: Senior VP of Marketing and Distribution MANNESMANN PIPE & STEEL CORPORATION By: /s/ RUDOLF GEORG ------------------------------- Name: Rudolf Georg ------------------------------ Its: President ------------------------------ 18 19 EXHIBIT A (Attached to and forming a part of the Amended and Restated Sales Representation Agreement) The term "Territory" shall include all of the United States of America excluding Alaska and Hawaii. 20 EXHIBIT B (Attached to and forming a part of the Amended and Restated Sales Representation Agreement) The term "Products" shall mean all steel products manufactured within the mill capabilities by Geneva on October 31, 1998 or thereafter, including hot rolled bands and sheets in thickness of 12 gauge and above, black or temper passed coils, hot rolled plate (including but not limited to strip mill plate), floor plate, welded pipe, and slabs; provided, however, that such term shall not include non-prime or secondary items, products for sale to Geneva or any of its affiliates or ingots or at Geneva's option, pipe products produced by Geneva or at the pipe mills located at the Geneva Steel Works. 21 EXHIBIT C (Attached to and forming a part of the Amended and Restated Sales Representation Agreement) Geneva Direct Customers within the Territory Huntco Steel Inc. EX-10.17 6 COLLECTIVE BARGAINING AGREEMENT 1 Exhibit 10.17 AGREEMENT AGREEMENT dated May 1, 1998 between GENEVA STEEL (the "Company") and UNITED STEELWORKERS OF AMERICA, on behalf of Local Union 2701 hereinafter referred to as the "Union", providing for industrial relations at the Company's Geneva, Utah steel operations (the "Geneva Plant") and certain other matters as set forth herein. ARTICLE 1 APPLICATION OF AGREEMENT SECTION 1 -- PURPOSE AND INTENT OF THE PARTIES. A. Matters of Employment: It is the intent and purpose of the parties hereto to set forth herein the agreement between them in respect to rates of pay, hours of work, and other conditions of employment in the Geneva Plant and certain other matters as set forth herein. B. Basis of Claims: The provisions of this Agreement constitute the sole procedure for the processing and settlement of any claim by an employee (as defined below) or the Union of the violation by the Company of this Agreement. As the representative of the employees, the Union may except as provided in Article 16, Section 4.C. initiate and process grievances through the grievance procedure, including arbitration, in accordance with this Agreement, or adjust or settle the same. C. Administration: The representatives of the Company and the Union shall continue to provide each other with such advance notice as is reasonable under the circumstances on all matters of importance in the administration of the terms of the Agreement, including changes or innovations affecting relations between the parties. D. Nondiscrimination: It is and shall be the policy of the Company and the Union that the provisions of this Agreement shall be applied to all employees and applicants without regard to race, color, religious creed, national origin, sex, age, disability, Veteran or special disable Veteran status, or membership in the Union. SECTION 2 -- UNIT COVERAGE. A. Membership: The bargaining unit at the Geneva Plant, and the term "employee(s)" as used herein, shall include all production, maintenance, pipe mill, quarry and certain salaried clerical and technical employees of the Company for whom the Union is currently certified by the National Labor Relations Board as the exclusive collective-bargaining representative, and shall exclude all executives, office employees, managers, division managers, area managers, foremen, shift managers, supervisors, draftsmen, timekeepers, watchmen and guards, full-time first-aid and safety employees, and all similar or other jobs not currently included in the bargaining unit. The 1 2 term "Geneva Plant" shall not include the 40" blooming mill, and the structural mill which have been shut down. B. Dispute of Coverage: Any difference which shall arise between the Company and the Union as to whether or not an individual employee is or is not included within the bargaining unit shall be handled as a grievance in accordance with the procedures set forth in Article 16 hereof. SECTION 3 -- CONTRACTING OUT The parties recognize the seriousness of the problems associated with contracting out of work both inside and outside the Plant and have accordingly agreed as follows: The Parties have existing rights and contractual understandings with respect to contracting out. In addition, the following provisions shall be applicable to all contracting out issues subject to, and arising on or after the effective date of this Agreement. A. Basic Prohibition: In determining whether work should be contracted out or accomplished by the bargaining unit, the guiding principle is that work capable of being performed by Bargaining Unit employees shall be performed by such employees. Accordingly, the Company will not contract out any work for performance inside or outside the Plant unless it demonstrates that such work meets one of the following exceptions: B. Exceptions: 1. Work in the Plant a. Production, service, all maintenance and repair work, all installation, replacement and reconstruction of equipment and productive facilities, other than that listed in Subparagraph B1.b. below, all within a Plant, may be contracted out if (i) the consistent practice has been to have such work performed by employees of contractors and (ii) it is more reasonable (within the meaning of paragraph C below) for the Company to contract out such work than to use its own employees. b. Major new construction including major installation, major replacement and major reconstruction of equipment and productive facilities, at the Plant may be contracted out. A project shall be deemed major so as to fall within the scope of this exception if it is shown by the Company that the project is of a grander or larger scale when compared to other projects bargaining unit forces at the Plant are normally expected to do. Such comparison should be made in light of all relevant factors. However, in making such comparison, there shall be no bundling of historically distinct 2 3 projects into single projects of major new construction (including major installation, major replacement and major reconstruction of equipment and production facilities) nor any compression of historically distinct projects into a continuous time period. As regards the term "new construction" above, except for work done on equipment or systems pursuant to a manufacturer's warranty, work that is of a peripheral nature to major new construction, including major installation, major replacement and major reconstruction of equipment and production facilities and which does not concern the main body of work shall be assigned to employees within the bargaining unit unless it is more reasonable to contract out such work taking into consideration the factors set forth in Paragraph C or it is otherwise mutually agreed. For purposes of this provision, the term "work of a peripheral nature" may in certain instances include, but not be limited to demolition, site preparation, road building, utility hook-ups, pipe lines and any work which is not integral to the main body. 2. Work Outside the Plant a. Should the Company contend that maintenance or repair work to be performed outside the Plant or work associated with the fabricating of goods, materials or equipment purchased or leased from a vendor or supplier should be excepted from the prohibitions of this Section, the Company must demonstrate that it is more reasonable (within the meaning of paragraph C below) for the Company to contract for such work (including the purchase or lease of the item) than to use its own employees to perform the work or to fabricate the item. Notwithstanding the above, the Company may purchase standard components or parts or supply items, produced for sale generally ("shelf items"). No items shall be deemed a standard component or part or supply item if (i) its fabrication requires the use of prints, sketches or manufacturing instructions supplied by the Company or at its behest or it is otherwise made according to Company specifications or (ii) it involves the purchase of motors, transmissions, convertors or other items under a core exchange, replacement or trade-in transaction (whether or not title to the unit passes to the vendor/purchaser as part of the transaction). b. Production work may be performed outside the Plant only where the Company demonstrates that it is unable because of lack of capital to invest in necessary equipment or facilities, and that it has a continuing 3 4 commitment to the steelmaking business. In determining whether there is capital to invest in particular equipment or facilities, the Company is entitled to make reasonable judgments about the allocation of scarce capital resources among its Plants represented by the Union and their supporting facilities. 3. Mutual Agreement Work contracted out by mutual agreement of the parties pursuant to Paragraph G below. C. Reasonableness: In determining whether it is more reasonable for the Company to contract out work, rather than use its own employees, the following factors shall be considered: 1. Whether the bargaining unit will be adversely impacted. 2. The necessity for hiring new employees shall not be deemed a negative factor except for work of a temporary nature. 3. Desirability of recalling employees on layoff. 4. Availability of qualified employees (whether active or on layoff) for a duration long enough to complete the work. 5. Availability of adequate qualified supervision. 6. Availability of required equipment either on hand or by lease or purchase, provided that either the capital outlay for the purchase of such equipment, or the expense of leasing such equipment, is not an unreasonable expenditure in all the circumstances at the time the proposed decision is made. 7. The expected duration of the work and the time constraints associated with the work. 8. Whether the decision to contract out the work is made to avoid any obligation under the collective bargaining agreement or benefits agreements associated therewith. 9. Whether the work is covered by a warranty necessary to protect the Company's investment. For purposes of this subparagraph, warranties are intended to include work performed for the limited time necessary to make effective the following seller guarantees: 4 5 a. Manufacturer guarantees that new or rehabilitated equipment or systems are free of errors in quality, workmanship or design. b. Manufacturer guarantees that new or rehabilitated equipment or systems will perform at stated levels of performance and or efficiency subsequent to installation. Warranties are commitments associated with a particular product or service in order to assure that seller representations will be honored at no additional cost to the Company. Long term service contracts are not warranties for the purposes of this subparagraph. 10. In the case of work associated with leased equipment, whether such equipment is available without a commitment to use the employees of outside contractors or lessors for its operation and maintenance. 11. Whether, in connection with the subject work or generally, the Local Union is willing to waive or has waived restrictive working conditions, practices or jurisdictional rules (all within the meaning of "local working conditions" and the authority provided by this Agreement). D. Contracting Out Committee: 1. A regularly constituted committee consisting of not more than four persons (except that the committee may be enlarged to six persons by local agreement), half of whom shall be members of the bargaining unit and designated by the Union in writing to the Management, shall attempt to resolve problems in connection with the operation, application and administration of the foregoing provisions. 2. In addition to the requirements of Paragraph E below, such committee may discuss any other current problems with respect to contracting out brought to the attention of the committee. 3. Such committee shall meet at least one time each month. E. Notice and Information: Before the Company finally decides to contract out an item of work as to which it claims the right to contract out, the Union committee members will be notified. Except as provided in Paragraph J below (Shelf Item Procedure) such notice will be given in sufficient time to permit the Union to invoke the Expedited Procedure described in Paragraph H below, unless emergency situations prevent it. Such notice shall be in writing and shall be sufficient to advise the Union members of the committee of the location, type, scope, duration and timetable of the work to be performed so that the Union members of the committee 5 6 can adequately form an opinion as to the reasons for such contracting out. Such notice shall generally contain the information set forth below: 1. Location of work. 2. Type of work: a. Service b. Maintenance c. Major Rebuilds d. New Construction 3. Detailed description of the work. 4. Crafts or occupations involved. 5. Estimated duration of work. 6. Anticipated utilization of bargaining unit forces during the period. 7. Effect on operations of work not completed in timely fashion. Within ninety (90) days following the effective date of this agreement, representatives of the parties shall develop a form notice for the submission of the information described above. Either the Union members of the committee or the Company members of the committee may convene a prompt meeting of the committee. Should the Union committee members believe a meeting to be necessary, they shall so request the Company members in writing within five (5) days (excluding Saturdays, Sundays and holidays) after receipt of such notice and such a meeting shall be held within three (3) days (excluding Saturdays, Sundays and holidays) thereafter. The Union members of the committee may include in the meeting the Union representative from the area in which the problem arises. At such meeting, the parties should review in detail the plans for the work to be performed and the reasons for contracting out such work. Upon their request, the Union members of the committee will be provided any and all relevant information in the Company's possession relating to the reasonableness factors set forth in Paragraph C above. Included among the information to be made available to the committee shall be the opportunity to review copies of any relevant proposed contracts with the outside contractor. This information will be kept confidential. The Company members of the committee shall give full consideration to any comments or suggestions by the Union members of the committee and to any alternative plans proposed by Union members for the performance of the work by bargaining unit personnel. Except in emergency situations, such discussions, if requested shall take place before any final decision is made as to whether or not such work will be contracted out. 6 7 Should the Company committee members fail to give notice as provided above, then not later than thirty (30) days from the date of the commencement of the work a grievance relating to such matter may be filed under the complaint and grievance procedure. Should it be found in the arbitration of a grievance alleging a failure of the Company to provide the notice or information required under this Paragraph E that such notice or information was not provided, that the failure was not due to any emergency requirement, and that such failure deprived the Union of a reasonable opportunity to suggest and discuss practicable alternatives to contracting out, the Arbitrator shall have the authority to fashion a remedy, at his discretion, that he deems appropriate to the circumstances of the particular case. Such remedy, if afforded, may include earnings and benefits to grievants who would have performed the work, if they can be reasonably identified. F. Remedy for Repeated Notice Violations: Notwithstanding any other provision of this Agreement, where, at a particular Plant, it is found that the Company (i) committed violations of Paragraph E that demonstrate willful conduct in violation of the notice provision or constitutes a pattern of conduct of repeated violations or (ii) violated a cease and desist order previously issued by an Arbitrator in connection with a violation of paragraph E the Arbitrator may, as circumstances warrant, fashion a suitable remedy or penalty. G. Mutual Agreement and Disputes: The committee may resolve the matter by mutually agreeing that the work in question either shall or shall not be contracted out. Any such resolution shall be final and binding but only as to the matter under consideration and shall not affect future determinations under this Section. If the matter is not resolved, or if no discussion is held, the dispute may be processed further (i) by filing a grievance relating to such matter under the complaint and grievance procedure described in the Labor Agreement; or (ii) by submitting the matter to the Expedited Procedure set out in Paragraph H below. H. Expedited Procedure: In the event that either the Union or Company members of the committee request an expedited resolution of any dispute arising under this Section, except Paragraph J (Shelf Item Procedure), it shall be submitted to the Expedited Procedure in accordance with the following: 1. In all cases except those involving day-to-day maintenance and repair work and service, and emergency situations, the Expedited Procedure shall be implemented prior to letting a binding contract. 7 8 2. Within three (3) days (excluding Saturdays, Sundays and holidays) after either the Union or Company members of the committee determine that the committee cannot resolve the dispute, either party (Chairman of the Grievance Committee in the case of the Local Union and the Manager of Labor Relations in the case of the Company) may advise the other in writing that it is invoking this Expedited Procedure. 3. An expedited arbitration must be scheduled within three (3) days (excluding Saturdays, Sundays and holidays) of such notice and heard at a hearing commencing within five (5) days (excluding Saturdays, Sundays and holidays) thereafter. The arbitrator selected from the Arbitration Panel shall hear the dispute and, if the arbitrator selected is not available to hear the dispute within five (5) days, another arbitrator shall be selected from the Arbitration Panel. 4. The arbitrator must render a decision within forty-eight (48) hours (excluding Saturdays, Sundays and holidays) of the conclusion of the hearing. Such decision may be cited as a precedent by either party in any future contracting out disputes. 5. Notwithstanding any other provision of this Agreement, any case heard in the Expedited Procedure before the work in dispute was performed may be reopened by the Union in accordance with this paragraph if such work, as actually performed, varied in any substantial respect from the description presented in arbitration, except where the difference involved a good faith variance as to the magnitude of the project. The request to reopen the case must be submitted within seven (7) days of the date on which the Union knew or should have known of the variance and shall contain a summary of the ways in which the work as actually performed differed from the description presented in arbitration. As soon as practicable after receipt of a request to reopen, an arbitration hearing date shall be scheduled. In a case reopened pursuant to this paragraph, the Arbitrator shall determine whether the work in dispute, as it actually was performed, violated the contracting out provisions and, if so, the remedy. The prior decision regarding the subject work shall be considered in the determination and given weight in the subsequent dispute, except to the extent that it relied on an erroneous description. I. Contractors Testifying in Arbitration: No testimony offered by an outside contractor may be considered in any proceeding alleging a violation of these provisions unless the party calling the contractor provides the other party with a copy of each contractor document to be offered at least forty-eight (48) hours (excluding Saturdays, Sundays and holidays) before commencement of that hearing. 8 9 J. Shelf Item Procedure: 1. No later than July 1, 1998, and, except as provided herein, annually thereafter, the Company shall provide the Union members of the committee with a list and description of anticipated ongoing purchases of each item which the Company claims to be a shelf item within the meaning of Paragraph B (2) a above. If the Union members of the committee so request, the list shall not include any item included on a previous list where the status of the items, as of that time, has been expressly resolved. Within sixty (60) days of the submission of the list, either the Union members of the committee or the Company members may convene a prompt meeting of the committee to discuss and review the list of items and, if requested, the facts underlying the Company's claim that such items are shelf items. 2. The committee may resolve the matter by mutually agreeing that the item in question either is or is not a shelf item. With respect to any item as to which the Union members of the committee agree with the Company's claim that it is a shelf item, the Company shall be relieved of any obligation to furnish a contracting out notice until the June 1 next following such agreement and thereafter, if the Union has requested that a resolved item be deleted from the shelf item list in accordance with Paragraph J (1). 3. If the matter is not resolved, any dispute may be processed further by filing, within thirty (30) days of the date of the last discussion, a grievance in Step Three (3) of the complaint and grievance procedures as described in the labor agreement. Except as provided in Paragraph J (5) such a grievance shall include all items in dispute. However, where a number of items raise the same or similar issues, those items may be grouped in a single class or category. 4. An item which the Company claims to be a shelf item, but which was not included on the list referred to above because no purchase was anticipated, shall be listed and described on a contracting out notice provided to the Union not later than the regularly scheduled meeting of the contracting out committee next following purchase of the item. Thereafter, the parties shall follow the procedures set forth in paragraphs (2) and (3) above. 5. The Union may file a grievance in accordance with Paragraph G or H of these provisions with respect to any unresolved item of maintenance, repair work or work associated with the fabrication of goods, material or equipment performed outside the Plant notwithstanding the inclusion of such item on the shelf item list previously furnished to the Union by the Company, provided such grievance is filed within thirty (30) days of the date on which the Union knew or should have known of the performance of the work. 9 10 K. Annual Review: Commencing on or before September 1, 1998 and on or before September 1 of each year thereafter the Company committee members shall meet with the Union committee members for the purpose of (i) reviewing all work whether inside or outside the Plant which the Company anticipates may be performed by outside contractors or vendors at some time during the following Twelve (12) months, (ii) determining such work which should be performed by Bargaining Unit employees and (iii) identifying situations where the elimination of restrictive practices would promote the performance of any such work by Bargaining Unit employees. The Union committee members shall be entitled in conducting this study to review any current or proposed contracts concerning items of work performed for the Company by outside contractors and vendors and shall keep such information confidential. By no later than November 1, 1998 and November 1 of each year thereafter the Local Union and Company committee members shall jointly prepare a written report recording the results of this review. Specifically, the report should list (a) all items of work which the parties agree will be performed by Bargaining Unit employees during the following twelve (12) calendar months, (b) all items of work which the parties agree should be performed by outside contractors and vendors, and (c) those items on which the parties disagree. If the parties disagree, the report will state the reason for such disagreements. L. District Director/Company Union Relations Representative:It is the intent of the parties that the members of the joint plant contracting out committee shall engage in discussions of the problem involved in this field in a good faith effort to arrive at mutual understanding so that disputes and grievances can be avoided. If either the Company or the Union members of the committee feel that this is not being done, they may appeal to the District Director of the Union who has jurisdiction of the Plant in question and the appropriate representative of the Company Headquarters for review of the complaint about the failure of the committee to properly function. Such appeal shall result in prompt investigation by the District Director or his designated representative and the Company's Union Relations Representative for such review. This provision should in no way affect the rights of the parties in connection with the processing of any grievance relating to the subject of contracting out. M. The amount of overtime that has been worked by the employees or that may be worked by the employees shall not be used as a justification for contracting out. SECTION 4 -- SUPERVISION. Supervisors at the plant shall not perform work on a job normally performed by an employee; provided, however, this provision shall not be construed to prohibit supervisors from performing the following types of work: 1. Experimental work. 10 11 2. Demonstration work performed for the purpose of instructing and training employees. 3. Work required of the supervisors by emergency conditions which if not performed might result in interference with operations, bodily injury, or loss or damage to material or equipment; and 4. Work which under the circumstances then existing, would be unreasonable to assign to an employee. Work which is incidental to supervisor duties on the job normally performed by a supervisor, even though similar to duties found in jobs in the bargaining unit, shall not be affected by this provision. If a supervisor performs work in violation of this Section 4 and the employee who otherwise would have performed this work can reasonably be identified, or in the event that the employee who otherwise would have performed the work cannot be identified, the employee who initiated the grievance, the Company shall pay such employee the applicable Regular Hourly Wage for the time involved or for four (4) hours, whichever is greater. ARTICLE 2 RECOGNITION AND UNION MEMBERSHIP SECTION 1 -- EXCLUSIVE BARGAINING AGENT. Subject to the provisions of the National Labor Relations Act, the Company recognizes the Union as the exclusive representative of all of the Bargaining Unit employees for the purposes of collective bargaining with respect to rates of pay, hours of employment, or other conditions of employment. SECTION 2 -- UNION MEMBERSHIP AND CHECKOFF. A. The Company will checkoff monthly dues, assessments and initiation fees each as designated by the International Secretary-Treasurer of the Union, as initiation or membership dues in the Union, on the basis of individually signed voluntary checkoff authorization cards on forms agreed to by the Company and the Union. B. At the time of employment, new employees will be provided the opportunity to voluntarily execute an authorization for the check off of Union dues, as they may or may not elect, on the form agreed upon. A copy of such authorization card for the checkoff of Union dues shall be forwarded to the Financial Secretary of the Local Union along with the membership application of such employee. 11 12 C. New checkoff authorization cards other than those provided for by Paragraph B above will be submitted to the Company on summary lists through the Financial Secretary of the Local Union as executed by new employees. D. Deductions on the basis of authorizations cards submitted to the Company shall commence with respect to dues for the month in which the Company receives such authorization card or in which such card becomes effective, whichever is later. Dues for a given month shall be deducted from the first pay closed and calculated in the succeeding month. E. In cases of earnings insufficient to cover deduction of dues, the dues shall be deducted from the next pay in which there are sufficient earnings, or a double deduction may be made from the first pay of the following month, provided, however, that the accumulation of dues shall be limited to two (2) months. The International Secretary-Treasurer of the Union shall be provided with a list of those employees for whom a double deduction has been made. F. The Union will be notified of the reason for non-transmission of dues in case of layoff, discharge, resignation, leave of absence, sick leave, retirement, death, or insufficient earnings. Unless the Company is otherwise notified, the only Union membership dues to be deducted for payment to the Union from the pay of the employee who has furnished an authorization shall be the monthly Union dues. The Company will deduct initiation fees when notified by notation on the lists referred to in Paragraph C of this Section, and assessments as designated by the International Secretary-Treasurer. G. The Company will implement the dues checkoff provisions of this Collective Bargaining Agreement in accordance with the Constitution of the International Union pursuant to reasonable instructions to be supplied by the Union. H. The Union shall indemnify and save the Company harmless against any and all claims, demands, suits or other forms of liability that shall arise out of or by reason of action taken or not taken by the Company for the purpose of complying with any of the provisions of this Section, or in reliance on any list, notice or assignment furnished under any of such provisions. ARTICLE 3 RATES OF PAY SECTION 1 -- STANDARD HOURLY WAGE SCALE. A. Wage Rates: The standard hourly wage scale rate for each job shall be as set forth in Appendix A of this Agreement and is recognized as the established regular rate of pay for all 12 13 hours of work. As used in this Agreement, the term "Regular Hourly Wage" shall mean the regular hourly wage rates set forth in Appendix A, without adjustment for overtime, premiums or shift differentials. B. Apprentice Training: At such time as all trade and craft job descriptions are agreed to and installed, a joint committee not to exceed four (4) members, two (2) each from the Company and the Union, shall be formed to develop an apprentice training program. The committee will be responsible for such things as composing the course curriculum, defining training periods, and coordinating with educational institutions. Apprentice vacancies will be posted at the Step 3 level and awarded consistent with Article 8, Seniority. C. Job Classifications: All jobs shall be described and classified by Management. The job description and classification for each job in effect shall continue in effect unless (1) Management changes the job content (requirements of the job as to the training, skill, responsibility, effort and working conditions) to the extent of one (1) full job class or more; (2) the job is terminated or not occupied during a period of one (1) year; or (3) the description and classification are changed by the mutual agreement of the officially designated representative of the Company and the Union. The Local Union Rate Committee will be involved in the development and implementation of all new job classifications and job descriptions. The Plant Union Committee and Management shall discuss and determine the accuracy of all job descriptions. The Union shall be responsible for the filing of grievances in a timely fashion (30 days). All jobs shall be described and classified by Management, taking into account, without being bound by, the information set forth in the manual for job classifications of production and maintenance jobs dated August 1, 1971. SECTION 2 -- SHIFT DIFFERENTIALS A. Wage Differential: For hours worked on the afternoon shift, there shall be paid a premium rate of $.18 per hour. For hours worked on the night shift, there shall be a paid premium rate of $.27 per hour. B. Applicable Hours: 1. For the purpose of applying the aforementioned shift differentials, an employee will be paid the shift differential for all hours that are worked on the afternoon shift at the afternoon shift rate of pay and/or the night shift at the night shift differential rate (as the case may be). 2. Shift differential shall be paid for allowed time or reporting time when the hours for which payment is made would have called for a shift differential if worked. 13 14 C. Shifts:Shifts shall be identified in accordance with the following: 1. Day Shift includes all hours worked between the hours of 8:00 a.m. and 4:00 p.m. 2. Afternoon Shift includes all hours worked between the hours of 4:00 p.m. and 12:00 midnight. 3. Night Shift includes all hours worked between the hours of 12:00 midnight and 8:00 a.m. SECTION 3 -- SUNDAY PREMIUM An employee shall be paid a premium of 1-1/4 times his Regular Hourly Wage as defined in Paragraph 1A above for all hours worked on Sunday which are not paid for on an overtime basis. For the purpose of this provision, Sunday shall be deemed to be the twenty-four (24) hours beginning with the shift-changing hour nearest to 12:01 a.m. Sunday. ARTICLE 4 HOURS OF WORK AND OVERTIME SECTION 1 -- NORMAL HOURS OF WORK. A. The normal workday shall be eight (8) hours of work in a twenty-four (24) hour period. The hours of work shall be consecutive. The normal work pattern shall be five (5) consecutive workdays beginning on the first of any seven (7) consecutive-day period. The seven (7) consecutive-day period is a period of 168 consecutive hours and may begin on any day of the calendar week and extend into the next calendar week. On shift changes, the 168 consecutive hours may become 152 consecutive hours depending upon the change in the shift. A work pattern of less or more than five (5) workdays in the seven (7) consecutive-day period shall not be considered as deviating from the normal work pattern provided the workdays are consecutive. The Company and the Union may agree to a regular work schedule which is not in accordance with this Paragraph 1A, however, any such schedule shall be deemed as normal hours of work. B. Schedules: All employees shall be scheduled on the basis of the normal work pattern except where; (a) such schedules regularly would require the payment of overtime; (b) deviations from the normal work pattern are necessary because of breakdowns or other matters beyond the control of Management; or (c) schedules deviating from the normal work pattern are established by agreement between plant management and the grievance committee. Schedules showing employees' workdays shall be posted or otherwise made known to employees in accordance with the prevailing practices but no later than Thursday of the week preceding the calendar week in which the schedule becomes effective unless otherwise provided by local 14 15 agreement. Management will establish a procedure, where such does not already exist, affording any employee whose last scheduled turn ends prior to the posting of his schedule for the following week, an opportunity to obtain information relating to his next scheduled turn. This procedure will also be applicable with respect to employees returning from vacation. Schedules may be changed by Management at any time provided, however, that any changes made after Thursday of the week preceding the calendar week in which the changes are to be effective shall be explained at the earliest practicable time to the grievance committeemen of the employee affected; and provided further that, with respect to any such schedules, no changes shall be made after Thursday except for breakdowns or other matters beyond the control of Management. Should changes be made in schedules contrary to this paragraph so that an employee is laid off and does not work on a day that he was scheduled to work, he shall be deemed to have reported for work on such day and shall be eligible for reporting allowance in accordance with the provisions of Section 5 of this Article 4. Should changes be made in schedules contrary to the provisions in Paragraph B (Schedules) so that an employee is laid off on any day within the five (5) scheduled days and is required to work on what would otherwise have been the sixth or seventh workday in the schedule on which he was scheduled to commence work, the employee shall be paid for such sixth or seventh day worked at overtime rates in accordance with Article 4, Section 3D. C. Definition of Terms: The payroll week shall consist of seven (7) consecutive days beginning at 12:01 a.m. Sunday or at the turn-changing hour nearest to that time. The workday for the purposes of this Section is the twenty-four (24) hour period beginning with the time the employee begins work, except that a tardy employee's workday shall begin at the time it would have begun had he not been tardy. The regular rate of pay shall mean the hourly rate which the employee would have received for the work had it been performed during non overtime hours. D. Guarantee of Hours: The above provisions of this Section shall not be construed as guaranteeing to any employee any number of hours of work per day or per week. Employees shall not be guaranteed any number of hours of work except to the extent provided in Section 5 of this Article 4. SECTION 2 -- STARTING TIME. The starting time of regular turns at the Geneva Plant shall be determined from time-to-time by Management, and Management shall make a positive effort to give notice of any change in any such starting time. SECTION 3 -- CONDITIONS UNDER WHICH OVERTIME RATES SHALL APPLY. Overtime at the rate of 1-1/2 times the regular rate of pay shall be paid for in the following order: 15 16 A. Hours worked in excess of eight (8) hours in a workday except as provided in "E" below. B. Hours worked in excess of forty (40) hours in a payroll week. C. Hours worked on the sixth or seventh workday in a payroll week during which work was performed on five (5) other workdays. D. Hours worked on the sixth or seventh workday of a seven (7) consecutive-day period during which the first five (5) days were worked, whether or not all of such days fall within the same payroll week, except when worked pursuant to schedules mutually agreed to as provided for in Subsection A; provided, however, that no overtime will be due under such circumstances unless the employee notifies his foreman of a claim for overtime within a period of one (1) week after such sixth or seventh day is worked and provided further that on shift changes the seven (7) consecutive-day period of 168 consecutive hours may become 152 consecutive hours depending upon the change in the shift. Payment of overtime rates shall not be duplicated for the same hours worked, but the higher of the applicable rates shall be used. Hours compensated for at overtime rates shall not be counted further for any purpose in determining overtime liability. E. Employees may be provided with an opportunity to work a nontraditional schedule of four (4) twelve-hour days on and four (4) twelve-hour days off or four (4) ten-hour days on and four (4) ten-hour days off (or such other nontraditional schedule as the Company and Union may mutually agree to). In such cases, employees who are to be covered by such a schedule may request a vote to determine whether the schedule proposed by Management is to be implemented. Should two-thirds of employees vote to approve the schedule, it will be implemented, subject to thirty (30) days written notice of cancellation by the Union. Nothing in this Section 3E shall be construed as restricting Management's right at any time to replace these schedules with a schedule based on the normal work pattern. The following rules shall apply to the payment of overtime, holiday and premium pay to employees: 1. Overtime compensation at the rate of one and one-half times the regular rate of the job worked shall be paid for hours worked in excess of the agreed to hours scheduled on any wok day, but in any event overtime shall be paid for hours worked over forty (40) in a payroll week. 2. Shift differential will be paid consistent with the provisions of Article 3, Section 2 of this Agreement. 3. Funeral and jury/witness pay shall be paid according to the hours of work scheduled on the eligible days. 16 17 4. An unworked Holiday that falls on one (1) of the employee's regularly scheduled days shall generate the equivalent number of hours of pay as was scheduled on the Holiday. An unworked Holiday that falls on an unscheduled day shall generate eight (8) hours of pay at the Regular Hourly Wage Rate. All hours actually worked on a Holiday shall be compensated in accordance with Article 5, Section 2B of the Agreement. 5. Employees working a non-traditional schedule will not be required to work more that sixteen (16) hours in a twenty-four (24) hour period. To aid in this commitment, covered employees should make every effort to cover vacancies created by sickness or absenteeism. 6. Covered employees will be permitted to schedule their vacations from days off to days off rather than on a calendar week basis. Except as expressly provided for above, all other rules and procedures relating to the payment of overtime, holiday and premium pay, as contained in this Agreement shall apply regardless of whether an employee is working an eight (8) hour shift or more than eight (8) hours. F. Overtime 1. The parties recognize that schedules that regularly require overtime over extended periods are undesirable and should not be used solely for the purpose of preventing the recall of laid-off or demoted employees. 2. When employees qualified to perform the work could be recalled because it is reasonably foreseeable that there will be work for such employees for a period of two (2) or more weeks, and Management determines that such work should nevertheless be done on an overtime basis instead of recalling such employees, it will first notify the Union and, upon the request of the appropriate grievance committeeman, will discuss its reasons and review with him any suggested alternative in an effort to reach a mutually satisfactory solution. Such discussions and review will constitute full compliance with the requirements of this Section. 3. Nothing in Subsection 1 and 2 above shall prejudice any other rights which may exist under any other provision of the agreement, nor affect local agreements existing as of the date of this Agreement 4. Where local agreements with respect to the distribution of overtime do not presently exist, the local plant management and the local union grievance committee should conclude promptly an agreement providing for the most 17 18 equitable overtime distribution consistent with the efficiency of the operation. SECTION 4 -- HOLIDAY LIABILITY. Hours compensated at overtime rates shall not be counted further for any purpose in determining overtime liability under the same or any other provision of this Agreement; provided, however, that a holiday whether worked or not, shall be counted for purposes of computing overtime liability under this Article. SECTION 5 -- REPORTING PAY. If an employee shall be required by Management to report for regularly-scheduled or call-out work on any day and he shall report at the time and place he was required to report, he shall be paid a minimum of four (4) hours pay at the Regular Hourly Wage which would have been applicable had he worked such four (4) hours in the assignment for which he was required to report. If there is no work available on the job for which the employee was scheduled or called out, the employee shall be paid at such Regular Hourly Wage for which the employee was scheduled or called out, provided such employee shall accept other job assignments for which he is qualified or forfeit the reporting pay provided herein. SECTION 6 -- ABSENTEEISM. Whenever an employee has just cause for reporting late or absenting himself from work, he shall, whenever practicable, give notice as far in advance as possible to his supervisor or through another person or system to be designated by the Company to receive such notice. 18 19 ARTICLE 5 HOLIDAYS SECTION 1 -- DAYS. Whenever used in this Agreement the term "holiday" means one of the following days:
1998 1999 ---- ---- New Year's Day New Year's Day Memorial Day Good Friday July 4th Memorial Day July 24th July 4th Labor Day July 24th Thanksgiving Labor Day Christmas Eve Thanksgiving Christmas Day Christmas Eve Christmas Day
2000 2001 ---- ---- New Year's Day New Year's Day Memorial Day July 4th July 24th Labor Day Thanksgiving Christmas Eve Christmas Day (1) To Be Determined
If any of such holidays shall fall on a Sunday, the following Monday (and not such Sunday) shall be observed as such holiday. For purposes of this Article, a holiday shall be deemed to be the twenty-four (24) hours beginning with the shift-changing hour nearest to 12:01 a.m. on the day of the holiday. SECTION 2 -- HOLIDAY PAY. A. An eligible employee who does not work on a holiday shall be paid eight (8) times the employee's Regular Hourly Wage, which shall mean the hourly rate which the employee 19 20 would have received for the work had it been performed during regular, non-overtime hours; provided, however, that if an eligible employee is scheduled to work on any such holiday, but fails to report and perform his scheduled or assigned work, he shall become ineligible to be paid for the unworked holiday, unless he has failed to report or perform such work because of verified sickness or because of a death in the immediate family (father, mother, father-in-law, mother-in-law, son-in-law, daughter-in-law, children, brothers, sisters, spouse or grandparents) or similar good cause approved in advance by the Company. B. An employee who has worked thirty (30) shifts since his last hire and who actually works on a holiday shall be paid for all time worked at an overtime rate of 2-1/4 times the Regular Hourly Wage of the job worked. C. As used in this Article, an eligible employee is one who: 1. Has worked thirty (30) shifts since his last hire; 2. Performs work or is on vacation in the pay period in which the holiday is observed; and 3. Works both on his last scheduled work day prior to and on his first scheduled work day following the day on which the holiday is observed, unless excused. SECTION 3 -- VACATION AND HOLIDAY PAY. An eligible employee who would otherwise be entitled to pay for an unworked holiday and who shall be scheduled pursuant to the provisions of Article 6 to take a vacation during a period when the holiday occurs, shall be paid for the unworked holiday in addition to his vacation pay. ARTICLE 6 VACATIONS SECTION 1 -- VACATION BENEFITS. An eligible employee who has attained the years of continuous service indicated in the following table in any subsequent calendar year during the continuation of this Agreement shall receive a vacation corresponding to such years of continuous service, as shown in the following table: 20 21
Years of Service Weeks of Vacation ---------------- ----------------- 1 year but less than 3 1 3 years but less than 10 2 10 years but less than 17 3 17 years but less than 25 4 25 years or more 5
SECTION 2 -- EMPLOYEE ELIGIBILITY. To be eligible for a vacation in a calendar year during the term of this Agreement, the employee must: A. Have one (1) year or more of continuous service; and B. Not have been absent from work for six (6) consecutive months or more in the preceding calendar year; except that in the case of an employee who completes one (1) year of continuous service in the vacation calendar year, he shall not have been absent from work for six (6) consecutive months or more during the twelve (12) months following the date of his original employment; provided, that an employee with more than one (1) year of continuous service who, in any year, shall be ineligible for a vacation by reason of the provisions of this paragraph as a result of an absence on account of layoff or illness shall receive one (1) week's vacation with pay in such year if he shall not have been absent from work for six (6) consecutive months or more in the twelve (12) consecutive calendar months next preceding such vacation. Any period of absence of an employee while absent due to a compensable industrial disability or military service in the year in which he incurred such disability, shall be deducted in determining the length of period of absence from work for the purpose of Article 6, Section 2. The period of a scheduled vacation taken by an employee while he is on layoff shall be deducted in determining the length of the period of absence from work during such layoff for the purposes of this Paragraph B. Any employee, even though otherwise eligible under this Article, forfeits the right to receive vacation benefits under this Article if he quits, retires, or is discharged prior to January 1 of the vacation year. For purposes of calculating vacation benefits, continuous service shall include credit for previous employment by United States Steel Corporation ("USS") at the Geneva Plant and shall date from the later of (1) the date of first employment or (2) date of re-employment following a break in continuous service. Should an active employee die on or before June 30 in any calendar year, his estate will be compensated for any unexpended vacation earned in that year in addition to half of the succeeding year's vacation entitlement. Should the death occur after June 30, his estate will 21 22 again be entitled to any unexpended vacation as well as full vacation entitlement for the succeeding year. SECTION 3 -- SCHEDULING OF VACATIONS. Vacations will, so far as practicable, be granted at times most desired by employees (longer service employees being given preference as to choice); but the final right to allot vacation periods and to change such allotments is exclusively reserved to the Company in order to insure the orderly operation of the plant. As soon as possible after January 1st of each year, the Company shall post a vacation schedule. In case the Company desires to schedule regular vacations for employees eligible during a shutdown period instead of in accordance with the previously established vacation schedule, the Company will give affected employees not less than forty-five (45) days notice of such intent; in the absence of such notice, an affected employee shall have the option to take his regular vacation during the shutdown period, or to be laid off during the shutdown and to take his regular vacation at the previously scheduled time. Management agrees to keep the vacation groupings the same as they were for the 1998 vacation year. In the event the conditions change which may affect the vacation groupings (i.e. combining lines of progression, jobs, etc.), the Union agrees to discuss changing the groupings to insure the efficient operation of the plant. SECTION 4 -- VACATION PAY COMPUTATION. Each employee granted a vacation will be paid at his average rate of earnings per hour for the prior calendar year. Average rate of earnings per hour shall be computed by: A. Totaling (1) pay received for all hours worked (total earnings excluding premium of overtime, holiday, Sunday, and shift differential), (2) vacation pay including pay in lieu of vacation, and (3) pay for unworked holidays, and B. Dividing such earnings by the total of (1) hours worked, (2) vacation hours paid for, including hours for which pay in lieu of vacation was paid, and (3) unworked holiday hours which were paid for. Hours of vacation pay for each vacation week shall be the average hours per week worked by the employee in the prior calendar year. Any weeks not having thirty-two (32) hours of actual work shall be excluded from the calculation. Average hours per week worked shall be computed by dividing such hours by the number of such weeks in which thirty-two (32) or more hours were worked. The minimum number of hours paid for each week of vacation shall be forty (40) and the maximum number of hours paid for each week of vacation shall be forty-eight (48). 22 23 The calendar week containing New Year's Day may be taken as a week of vacation for either the year preceding New Year's Day or the year in which New Year's Day falls, except when New Year's Day falls on Sunday, provided such vacation week has been scheduled as vacation in accordance with this Section. If the Comapny in its sole discretion schedules a shutdown of any operation during the calendar week containing Christmas Day, any employee who is not scheduled to work due to the shutdown in such week and who has completed his vacation entitlement for that year may elect to reschedule a week of vacation for which the employee has qualified and will be entitled in the following calendar year into the shutdown week; provided, however, that vacation pay for such vacation week, calculated as though the week were scheduled and taken in the next following year will be paid on the regular payday for the pay period in which the shutdown vacation falls; and provided further that no vacation pay for a vacation rescheduled hereunder will be paid to an employee who quits, retires, dies, or is discharged prior to January 1st of the year from which the shutdown vacation was rescheduled. In the application of this paragraph when the basis for calculation of an employee's vacation pay for the following calendar year is not available, his vacation payment hereunder shall be made on the basis for calculation of his vacation pay in the current calendar year with appropriate adjustment to be made when the basis for the following calendar year becomes available. Where an employee transfers from one (1) seniority unit to another subsequent to January 1st in any given year, he shall take his vacation in accordance with the schedule established in his old seniority unit except as orderly operations of his new seniority unit preclude it. He shall not be entitled to have any vacation schedule previously established in his new seniority unit changed because of his entry into that unit; should there be a conflict between the transferred employee and an employee in the unit, the employee in the unit shall retain his preference in competition with the transferred employee regardless of continuous service. ARTICLE 7 PRIOR USS SERVICE Except as otherwise provided in this Agreement, in calculating continuous service under any provision of this Agreement, prior United States Steel Corporation ("USS") continuous service shall be counted. 23 24 ARTICLE 8 SENIORITY SECTION 1 -- UNITS. Seniority shall be applied in the following departments: COKE PLANT DEPARTMENT Coke and Coal Chemicals Products Coke and Coal Chemicals Maintenance BLAST FURNACE DEPARTMENT Iron and Sinter Production Blast Furnace Maintenance Q-BOP DEPARTMENT Steel Producing Steel Producing Maintenance Foundry ROLLING MILL DEPARTMENT 45" & 132" Rolling Mills, Pipe Mill and Finishing Rolling Mill Maintenance CENTRAL MAINTENANCE AND TRANSPORTATION Central Maintenance Transportation and Yards UTILITIES DEPARTMENT Utilities Utilities Maintenance CASTER DEPARTMENT Caster Production Caster Maintenance 24 25 KEIGLEY QUARRY Keigley Quarry Products Keigley Quarry Maintenance CLERICAL AND TECHNICAL Accounting Business Planning Quality Assurance Geneva Maintenance Each seniority unit shall have its own seniority listing. All lines of progression, including identification of entry level positions, shall be established by mutual agreement. Should the Company and the Union fail to agree at the department level, the disputed line of progression will be referred to the parties responsible for grievance resolution at the second step. Should they be unable to agree, the Union may process the dispute to arbitration. SECTION 2 -- SENIORITY COMPUTATION. For the purposes of this Article 8, seniority shall be based upon Geneva Plant continuous service, which shall include prior continuous service with USS, and with the Company, at the Geneva Plant. In the event of a tie, the employee with the lowest badge number will be given the highest seniority standing. SECTION 3 -- FACTORS AFFECTING SENIORITY. In the promotion of employees to non-supervisory positions, and for the purpose of demotions or layoff in connection with decreasing the work force, and for the purpose of recalling to work of employees so laid off, the following factors shall be considered, and if factors B and C are relatively equal, length of continuous service shall govern: A. Length of continuous service; B. Ability to perform the work; C. Physical fitness. Determination of these factors shall be subject to grievance. 25 26 SECTION 4 -- PROMOTION TO SUPERVISORY POSITIONS AND UNION LEAVE OF ABSENCE. A. SUPERVISORY POSITION: An employee who removes himself from the bargaining unit by accepting a permanent job outside the bargaining unit shall lose all seniority status in the bargaining unit. B. TEMPORARY ASSIGNMENT: a. An employee who accepts a temporary job assignment or temporary management position outside the bargaining unit shall not lose any seniority status in the bargaining unit provided such assignment does not exceed a total of one (1) year and such additional days as may be mutually agreed to by the Company and the Union. After completing one (1) year on a job assignment outside the bargaining unit, or such additional time period as mutually agreed upon, a Bargaining Unit employee must work at least four (4) consecutive weeks (excluding vacation and sick leave) on a position consistent with his seniority rights within the bargaining unit before that individual may again be assigned outside of the bargaining unit without loss of seniority. b. Employees assigned to temporary positions will be identified as such on the weekly schedules in their home department. c. Should an employee accept a temporary job assignment or temporary management position outside the bargaining unit, he will become ineligible to compete inside the bidding procedures for either permanent or temporary vacancies which may become available within the bargaining unit during the period such employee has accepted such assignment or position. Any temporary job assignment outside the bargaining unit other than a temporary management position shall be limited to a six (6) month time limit unless mutually agreed to. d. Such temporary foreman assignments shall be limited to: (i) a foreman position resulting from increases in operating requirements over and above normal levels (not to exceed one (1) year unless mutually agreed to); (ii) the short-term absence of a foreman for reasons such as sickness, jury duty or vacation; and (iii) twenty-first turn coverage on continuous operations. e. Employees will be assigned as temporary foremen on a weekly basis (except in the case of twenty first turn coverage on continuous operations) and will not work in the bargaining unit during the week in which they are 26 27 assigned as temporary foremen. Employees will not be assigned as temporary foremen merely as a means of retaining them in employment or of recalling them for layoff at a time when the application of their bargaining unit seniority would not otherwise result in their retention in employment. f. An employee assigned as a temporary foreman will not issue discipline to employees, provided that this provision will not prevent a temporary foreman from relieving an employee from work for the balance of the turn for alleged misconduct. An employee will not be called by either party in the grievance procedure or arbitration to testify as a witness regarding any events involving discipline which occurred while the employee was assigned as a temporary foreman. C. UNION LEAVE: Leave of absence for a maximum of four (4) years will be granted to members of the Union selected to work full time for the Union in an official capacity, and the seniority of such employee shall be unbroken by such leave of absence. Upon written request by the District Director, United Steelworkers of America, and approval of the equivalent of the Company's Vice President for Human Resources, or their respective designated representative, leave of absence without loss of seniority will be granted. SECTION 5 -- BREAK IN SERVICE. An employee's continuous service shall be broken and prior employment not counted when: A. The employee voluntarily quits; B. The employee is discharged with just cause; C. The employee is terminated because he fails to promptly return when recalled from layoff or to respond within three (3) working days of the date a recall notice is delivered by (certified) mail to the employee's last address of record. In the event the recall involved an anticipated continuous employment period of two (2) weeks or less, the employee upon execution of a written waiver with the Company may refuse recall and remain on layoff. The recall waiver shall remain in effect until such time as either the employee revokes the waiver or he is recalled by the Company for an anticipated continuous employment period greater than two (2) weeks. D. The employee is absence due to layoff or disability for more than forty-eight (48) months; provided, however, absence due to a compensable disability incurred during the course of employment shall not break continuous service if such employee returned to work within 27 28 thirty (30) days after final payment of statutory compensation for such disability or after the end of the period used in calculating a lump-sum payment, as the case may be. SECTION 6 -- SENIORITY OF UNION OFFICERS. Each member of the Grievance Committee and each employee who at the time shall be the President or Vice President of the Union shall, for their respective terms of office, have top seniority rights within his seniority unit for the purposes of layoffs in connection with decreasing the work force within such unit; provided, however, that such person shall not be retained in the employ of the Company unless work which such person can perform is available in such unit. Retention at work in accordance with this Section shall not enable such employee to claim relative seniority status in excess of that which he otherwise would have had prior to such retention. The local President and Chairman of the Grievance Committee shall have top seniority rights within the Plant to work which they can perform. SECTION 7 -- INCUMBENCY. An employee who bids and has been assigned and regularly worked on a permanent vacancy, and who has not voluntarily relinquished his rights to such job, has incumbency rights on that job over other employees who have not held and regularly worked that job on a permanent basis. When an employee is displaced from his incumbent position due to a reduction in force and bids and accepts another job within the plant, he does not waive his rights to the incumbent position he held prior to being forced reduced. At the time the incumbent position from which he has been forced reduced becomes available, he must elect to return to that position when scheduled or give up all rights of incumbency on that job. If the employee elects to return to his previous incumbency, he waives all rights to the second position. The only time an employee will be allowed to hold two incumbencies is when he is force reduced from his original incumbency. At no time will an employee be allowed to hold incumbency rights on more than two positions. For training purposes, Management may reassign employees to their former incumbent positions for up to ninety (90) days during which time the employee will be paid the higher rate of the job he held when recalled or his former incumbent position. SECTION 8 -- REDUCTION IN FORCE. Demotions, layoffs and other reductions in force shall be made in descending job sequence within his line of progression recognizing current and former incumbency rights within each seniority unit, starting with the highest affected job, and with the employee on such job having the least length of Plant service. The Company shall not be obliged to provide training (other than deminimus reorientation) to employees in a reduction of force in order to continue retention rights. Sequence on recall of employees so laid off shall be in the reverse order. 28 29 SECTION 9 -- PERMANENT VACANCY AND TRANSFER RIGHTS. When a permanent vacancy exists, the following procedures shall apply: A. Step 1: Permanent vacancies within a seniority unit shall be filled from within the first step of competition in the line of progression below or above the job being filled. Each succeeding vacancy in the line of progression shall be filled in the same manner. B. Step 2: Any vacancy not filled in accordance with the Step 1 bidding procedure shall be posted in the department for a period of ten (10) days. The employees of the department shall be eligible to bid for said vacancy with first preference given to employees in the seniority unit of the vacancy. An employee who transfers under this step shall have the right to return to the position from which he transferred or the Company may return him to his former job because he cannot meet the requirements of the job, within five (5) days from the date of transfer. When an eligible employee accepts the position, he shall be ineligible to bid again for a period of nine (9) months. The Company will send a copy of the notice to the Union and will also provide the names of the bidders and the person receiving the job. If an employee accepts the position, he shall be ineligible to transfer again within nine (9) months. If an employee rejects the position at the time he is notified that he is a successful bidder, the nine (9) month ineligibility period will not apply. Should he initially accept the position and subsequently reject the bid, exercises his five (5) day return right or refuse transfer, the nine (9) month transfer restriction shall apply from the date of return or rejection. Prior to notification, an employee may at any time remove their name from the bid sheet. If after being awarded and accepting a position, a vacancy is posted during the nine (9) month ineligibility period and such position would represent a promotion of two job classes or more over the employee's current incumbent position, the employee may bid on such position consistent with the provisions of this paragraph. C. Step 3: A Step 3 notice of an available job opening(s) will be posted on a plant-wide basis simultaneously with the Step 2 posting. The Step 3 posting will inform employees of the job(s) which may be available if not filled at the Step 2 level. The job posting will provide employees with an opportunity to place their names on the Step 3 bid sheet prior to the time the Step 3 bid is closed. The Step 3 bid sheets located in the Human Resources Building will be closed at the time the Step 2 bid expires. If the position(s) is not filled at the Step 2 level, the resulting vacancy shall be filled on a plant-wide basis from the Step 3 bid sheet. When a vacancy is to be filled from the Step 3 bid sheet, the designated human resources representative will notify the appropriate employee and inform him of their selection. An employee who transfers under this Step shall have the right to return to the seniority unit from which he transferred or the Company may return him to his former unit because he cannot meet the requirements of the job, within fourteen (14) days from the date of transfer. If an employee is selected and accepts the position he shall be ineligible to transfer again within one (1) year. If an employee elects not to transfer at the time he is notified that he is a successful bidder, the one (1) year ineligibility period will not apply. Should he initially accept the position and subsequently reject the bid, exercise his fourteen (14) day return right or refuse transfer, the one (1) year transfer restriction 29 30 shall apply from the date of return or rejection. The Company will send a copy of the notice to the Union and will also provide the names of the bidders and the person receiving the job. D. An employee who is absent because of vacation, sickness, or Union business for the bidding period shall be allowed to bid on a vacancy that was posted during such period; however, such bid must be registered within seven (7) days of the date the employee returns to work, and provided further than an employee who is awarded such vacancy will be deemed to have permanently accepted such bid. E. Temporary Assignments: Permanent vacancies may be filled by temporary assignment until such time as the prevailing bidder is selected and assigned. During the Step 1 bidding procedure, the Company will make every effort to assign the senior employee who most likely would be the successful bidder. Such temporary assignment shall not result in the creation of any rights of incumbency. F. Temporary Increases: All vacancies resulting from anticipated increases in operating levels for a period of sixty (60) days or more, or vacancies created by promotion, death, discharge, voluntary termination, retirement or transfer out of the seniority unit shall be treated as permanent; provided, however, that in the event an increase in operating levels is not expected to continue, and does not, in fact, continue for more than sixty (60) days, any vacancies created shall be deemed temporary and not permanent for the purposes of this Article. The period of sixty (60) days or more will not be considered interrupted or abbreviated due to work interruptions caused by equipment failures, breakdowns, lack of material for processing and product flow problems adversely affecting the feed stock required to maintain a level of operations. G. Consent Decree. The Company agrees to be bound by Decree 1 filed in the United States District Court for the Northern District of Alabama, Southern Division, dated April 12, 1974, if, to the extent, and for so long as it is applicable to the Company. H. Seniority Lists. The Company shall supply each Union unit grievance committeeman with a complete unit seniority list on a quarterly basis unless otherwise mutually agreed to. SECTION 10 -- TEMPORARY VACANCIES. When it is necessary to fill a temporary vacancy known to be of more than two (2) weeks duration, such vacancy shall, to the greatest degree consistent with efficiency of the operation and the safety of employees, be filled on the basis of the seniority unit and the seniority used for promotional purposes, and shall be so filled no later than on the second weekly schedule following the date when the duration of the vacancy, as aforesaid, becomes known to Management. However, in case of a permanent vacancy on a job, the assignment of a junior employee to a temporary vacancy on such job shall not be used as a presumption of greater 30 31 ability in favor of such junior employee if such temporary vacancy was not made available to the senior employee. When temporary vacancies of two (2) weeks or less are filled, they shall be filled by promotion in the order as follows: 1. Promote the most senior of any displaced incumbents of the position to be filled who is currently working on the turn and occupying a job below the level of the vacancy in the line of progression. 2. Promote the most senior seniority-listed regular employee of the position immediately below the vacancy who is currently working on the turn involved. 3. Promote the most senior seniority-listed regular employee of the unit who is currently working on the position immediately below the vacancy on the turn involved. ARTICLE 9 PROBATIONARY PERIOD A new employee and one who is reemployed after a break in his continuous service, shall not acquire seniority until the expiration of 760 hours of actual work following his employment, at which time he shall receive credit for continuous service during such period. If said employee is terminated or discharged during the first 760 hours of actual work, said termination or discharge shall not be the subject of any claim, complaint, grievance or arbitration against the Company; provided, however, that this will not be used for purposes of discrimination because of race, color, religious creed, national origin, sex, age, disability, Veteran or special disabled Veteran status or because of membership in the Union. If said employee is rehired within six (6) months from the date of his first employment, any prior hours worked shall count toward the seven hundred sixty (760) hours of probation. ARTICLE 10 JURY AND WITNESS SERVICE An employee who is called for jury service or subpoenaed as a witness, except on his own behalf, shall be excused from work for the days on which he testifies or serves, up to and including sixty (60) business days. Service shall include reporting for jury duty. Such employee shall receive for each day of service on which he otherwise would have worked, the difference between the payment he receives for such service in excess of $5 and the amount calculated by the Company in accordance with the following formula. Such pay shall be based on the number of days such employee would have worked had he not been performing such service (plus any 31 32 Holiday in such period which he would not have worked) and the pay for each such day shall be eight (8) times his average straight-time hourly rate of earnings (excluding shift differentials and Sunday and overtime premiums) during the last payroll period worked prior to such service. The employee will present proof that he served as a juror or witness, or reported, and the amount of pay, if any, received therefor. An employee shall not receive such juror or witness pay when it duplicates pay received for time not worked for any other reason, and such pay shall not be computed as hours worked for purposes of determining overtime or premium pay liability. ARTICLE 11 BEREAVEMENT PAY When death occurs to an employee's legal spouse, mother, father, mother-in-law, father-in-law, son-in-law, daughter-in-law, son, daughter, brother, sister, grandparents or grandchildren (including stepfather, stepmother, stepchildren, stepbrother or stepsister when they have lived with the employee in an immediate family relationship), an employee, upon request, will be excused and paid for up to a maximum of three (3) shifts, or five (5) scheduled shifts up to a maximum of forty (40) hours in the case of the death of an employee's legal spouse, son, or daughter, including stepchildren when they have lived with the employee in an immediate family relationship (or for such fewer shifts as the employee may be absent) which shall fall within a three (3) consecutive calendar day period or five (5) consecutive calendar day period in the case of the death of an employee's legal spouse, son, or daughter, including stepchildren when they have lived with the employee in an immediate family relationship; provided, however, that one such calendar day shall be the day of the funeral and it is established that the employee attended the funeral. Payment shall be eight times his average straight-time hourly earnings. An employee will not receive funeral pay when it duplicates pay received for time not worked for any other reason. Time thus paid will not be counted as hours worked for purposes of determining overtime or premium pay liability. "Funeral" is defined as a service recognized by any organized religion, creed, or culture to which the employee or decedent belongs as the standard ceremony to observe the interment, cremation or similar disposition of remains of the family members set forth above. An employee will not receive funeral pay when it duplicates pay received for time not worked for any other reason, and such bereavement pay shall not be computed as hours worked for purposes of determining overtime or premium pay liability. 32 33 ARTICLE 12 MILITARY SERVICE The Company shall provide each employee who enters the Armed Services of the United States from employment with the Company all rights required to be given to said employee upon his return to the Company provided in the laws of the United States and the laws of the State of Utah. An employee with one (1) or more years of continuous service who is required to attend an encampment of the Reserve of the Armed Forces or the National Guard shall be paid, for a period not to exceed two weeks in any calendar year, the difference between the amount paid by the government (not including travel, subsistence or quarters allowance) and the amount calculated by the Company in accordance with the following formula. Such pay shall be based on the number of days such employee would have worked had he not been attending such encampment during such two (2) weeks (plus any holiday in such two (2) weeks which he would not have worked) and the pay for each such day shall be eight (8) times the employee's Regular Hourly Wage (as defined in Section 2A of Article 5 of this Agreement) during the last payroll period worked prior to the encampment. If the period of such encampment exceeds two (2) weeks in any calendar year, the period on which such pay shall be based shall be the first two (2) weeks he would have worked during such period. ARTICLE 13 SAFETY AND HEALTH SECTION 1 -- OBJECTIVE AND OBLIGATIONS OF THE PARTIES. A. Cooperation: The Company and the Union will cooperate in the objective of eliminating accidents and health hazards. The Company shall make reasonable provision for the safety and health of its employees at the Geneva Plant during the hours of their employment. The Company, the Union and the employees recognize their obligations and/or rights under existing Federal and State laws with respect to safety and health matters. B. Radiation: Where devices which emit ionizing radiation are used, the Company will continue to maintain safety standards with respect to such devices not less rigid than those adopted from time to time by the Nuclear Regulatory Commission and will maintain procedures designed to safeguard employees and will instruct them as to safe working procedures involving such devices. 33 34 C. Toxic Materials: Where the Company uses toxic materials, it shall inform the affected employees what hazards, if any, are involved and what precautions shall be taken to insure the safety and health of the employees. Upon the request of the Union Co-chairman of the joint safety and health committee (the "Joint Committee"), the Company shall provide in writing requested information from material safety data sheets or their equivalent on toxic substances to which employees are exposed in the workplace; provided that when the information is considered proprietary, the Company shall so advise the Union Co-chairman and provide sufficient information for the Union to make further inquiry. D. Sampling and Testing: The Company will continue a program of periodic in-plant air sampling and noise testing under the direction of qualified personnel. Where the Union Co-chairman alleges a significant on-the-job health hazard due to the in-plant air pollution, noise, or chemical or physical agents, the Company will also make such additional tests and investigations as are necessary and shall notify the Union Co-chairman when such a test is to take place. A report based on such additional tests and investigations shall be reviewed and discussed with the Joint Committee. For such surveys conducted at the request of the Union Co-chairman, a written summary of the sampling and testing results and conclusions of the investigation shall be provided to the Joint Committee. E. First Aid: The Company shall provide adequate first aid for all employees during their working hours, and as required, provide for prompt emergency transportation to an appropriate treatment facility for employees who become seriously ill or are injured on the job. Where necessary, the Company shall also provide or arrange for suitable transportation from such facility back to the Geneva Plant or the employee's home, as appropriate. An employee who, as a result of an industrial accident, is unable to return to his assigned job for the balance of the shift on which he was injured will be paid for any wages lost on that shift. SECTION 2 -- PROTECTIVE DEVICES, WEARING APPAREL AND EQUIPMENT. Protective devices, wearing apparel and other equipment necessary to properly protect employees from injury shall be provided by the Company. The Company shall provide at the Company's cost one (1) pair of prescription safety glasses at the time of hire and will replace damaged prescription safety glasses which create an unsafe condition for the employee. Damaged safety glasses will not be replaced where the damage is due to employee negligence. Goggles, gas masks, face shields, respirators, special purpose gloves, fireproof, waterproof or acid proof protective clothing when necessary and required shall be provided by the Company without cost, except that the Company may assess a fair charge to cover loss or willful destruction thereof by the employee. Proper heating and ventilating systems shall be installed where needed and maintained in good working condition. The Company shall provide, at the Company's cost, two (2) pairs of safety shoes to each employee. The first safety shoe allowance will be after May 1, 1998 and the second allowance will be after May 1, 2000. 34 35 SECTION 3 -- DISPUTES CONCERNING UNSAFE CONDITIONS. An employee or group of employees who believe that they are being required to work under conditions which are unsafe or unhealthy beyond the normal hazard inherent in the operation in question shall have the right to: (1) file a grievance in the second step of the complaint and grievance procedure for preferred handling in such procedure and arbitration and/or (2) relief from the job or jobs, without loss to their right to return to such job or jobs, and, at Management's discretion, assignment to such other employment as may be available in the Geneva Plant; provided, however, that no employee, other than communicating the facts relating to the safety of the job shall take any steps to prevent another employee from working on the job. If an employee has exercised his right to relief from the job under this Section, and the existence of such unsafe condition is in dispute, Management shall notify the Chairman of the Grievance Committee and the Division Manager, or their designees, shall investigate immediately. The Chairman of the Grievance Committee shall have the right to have a Union member of the Joint Committee present as an advisor. Should either Management or the Board conclude that an unsafe condition within the meaning of this Section 3 existed and should the employee not have been assigned to other available equal or higher-rated work, he shall be paid for the earnings he otherwise would have received. It is recognized that emergency circumstances may exist, and the local parties are authorized to make mutually satisfactory arrangements for immediate arbitration to handle such situations in an expeditious manner. SECTION 4 -- JOINT SAFETY AND HEALTH COMMITTEE. A. Committee: A safety and health committee consisting of a mutually agreed to number of employees from each department designated by the Union and an equal number of Management members, if Management so desires, shall be established (the "Joint Committee"). The Union and the Company shall designate their respective Co-chairmen and shall certify to each other in writing such Co-chairman and committee members. The Joint Committee shall hold monthly meetings at times determined by the Co-chairman who may also agree to hold special meetings. Each Co-chairman shall submit a proposed agenda to the other Co-chairman at least five (5) days prior to the monthly meeting. The Company Co-chairman shall provide the Union Co-Chairman with minutes of the monthly meeting. Prior to such monthly meetings, the Co-chairman or their designees may engage in an inspection of mutually selected areas of the Geneva Plant. At the conclusion of the inspection, a written report shall be prepared by the Co-chairman. Time consumed on Joint Committee work by Joint Committee members designated by the Union shall not be considered hours worked to be compensated by the Company. The function of the Joint Committee shall be to advise with plant management concerning safety and health and to discuss legitimate safety and health matters but not to handle complaints or grievances. In the discharge of its function, the Joint Committee shall: consider existing practices and rules relating to safety and health, formulate suggested changes in existing practices and rules, recommend adoption of new practices and rules, encourage cooperation with safe job 35 36 procedures and safety rules by all parties, review proposed new safety and health programs developed by Management and review accident statistics, trends and disabling injuries which have occurred in the Geneva Plant and make appropriate recommendations. When the Company introduces significant changes in technology or operations which may affect the safety or health of employees, the matter will be discussed in advance by the Joint Committee with the objective of reviewing necessary safety equipment, safe job procedures and safety training. B. Time Off for Committee Business: The Union Co-chairman or his designee will be afforded time off without pay as may be required to visit departments at all reasonable times for the purpose of transacting the legitimate business of the Joint Committee, after notice to and receiving the permission of, the head of the department to be visited or his designated representative and, if the Co-chairman or his designee is then at work, permission (which shall not be unreasonably withheld) from his own department head or his designated representative. If the Union Co-chairman or his designee is not at work, he shall be granted access to the plant at all reasonable times for the purpose of conducting the legitimate business of the Joint Committee after notice to, and receiving the permission of, the head of the department to be visited or his designated representative. C. New Equipment: When the Company introduces new personal protective apparel or extends the use of protective apparel to new areas or issues new rules relating to the use of protective apparel, the matter will be discussed with the members of the Joint Committee in advance with the objective of increasing cooperation. Should differences result from such discussions, a grievance may be filed in the Second Step by the Chairman of the Grievance Committee within thirty (30) days thereafter. In the event that the grievance progresses through the complaint and grievance procedure to arbitration, the Board shall determine whether such rule or requirement is appropriate to achieve the objective set forth in Section 1. D. Advice: Advice of the Joint Committee, together with supporting suggestions, recommendations and reasons shall be submitted to the Vice President of Operations for his consideration and for such action as he may consider consistent with the Company's responsibility to provide for the safety and health of its employees during the hours of their employment and mutual objective set forth in Section 1. E. Testimony and Investigations: In the event the Company requires an employee to testify at the formal investigation into the causes of a disabling injury or death or accidents which could have resulted in disabling injury or death, the Company shall notify the employee that he, the employee, may arrange to have the Union Co-chairman or his designee present as an observer at the proceedings for the period of time required to take the employee's testimony. The Union Co-chairman will be furnished with a copy of such record as is made of the employee's testimony. In addition, in the case of accidents which resulted in disabling injury or death or accidents which could have resulted in disabling injury or death and require a fact-finding investigation, the Company will within four (4) hours after such accident, notify the Union Co-chairman or his designee, who shall have the right to visit the scene of the accident promptly 36 37 upon such notification, if he so desires, accompanied by the Company Co-chairman or his designee and the Company will add the Union Co-chairman or his designee to the notification list for such accidents. After making its investigation, the Company will supply to the Union Co-chairman a statement of the nature of the injury, a description of the accident, and any recommendations available at that time, and will consider any recommendations he may wish to make regarding the report. In such cases, when requested by the Union Co-chairman, the Company Co-chairman or his designee will review the statement with the Union Co-chairman. Also, in such cases, the Company Co-chairman or his designee, when requested by the Union Co-chairman, will visit the scene of the accident with the Union Co-chairman or his designee. F. Reports to International Union: The Company will provide the International Union Safety and Health Department notification of any accident resulting in a fatality to a Union member within seventy-two (72) hours of the fatality. This notification shall be either oral or written and include the date of the fatality, the unit location of the fatality and, if known, the cause of the fatality. The Company will provide the International Union Safety and Health Department with a copy of the fatal accident report that is given to the local Joint Committee when such report becomes available. Any necessary discussion or other communication on this data between the Company and International Union will be with the individual designated to provide such information. Once each year the Company will, from the same source described in F above, provide to the International Union Safety and Health Department the OSHA Form 200 Summary of Occupational Injuries and Illnesses or its equivalent, the lost workday accident incidence frequency rate and the fatality frequency rate. SECTION 5 -- DISCIPLINARY RECORDS. Written records of disciplinary action against an employee involved for the violation of a safety rule but not involving a penalty of time off will not be used by the Company in any arbitration proceeding where such action occurred one (1) or more years prior to the date of the event which is the subject of such arbitration. When an employee has completed twenty-four (24) consecutive months of work without discipline involving a penalty or time off for violation of a safety rule, prior disciplinary penalties for such offenses not exceeding four (4) days suspension shall not be used for further disciplinary action. When a written safety observation report is made involving a violation of a safety procedure or rule by an employee which does not involve discipline, a copy of that report will be given to the employee. 37 38 SECTION 6 -- ALCOHOLISM AND DRUG ABUSE. Alcoholism and drug abuse are recognized by the parties to be treatable conditions. Without detracting from the existing rights and obligations of the parties recognized in the other provision of this Agreement, the Company and the Union agree to cooperate in encouraging employees afflicted with alcoholism or drug abuse to undergo a coordinated program directed to the objective of their rehabilitation. It is the policy of Geneva Steel and the Union to make every reasonable effort to provide a safe work environment free of drugs and alcohol. Employees using, consuming, selling, transferring, or possessing alcohol or illegal drugs on the Company's premises shall be subject to immediate discipline following appropriate investigation and review by the Company. Use of alcohol or illegal drugs prior to reporting for work which results in negative work performance or erratic conduct in the workplace is also grounds for discipline. In order to implement this policy, the Company may test all applicants for employment for drugs and alcohol and employees recalled from layoff after absences from work in excess of ninety (90) days. In addition, the Company may require current employees to undergo drug and alcohol testing, in order to investigate accidents, safety incidents in the workplace and possible individual employee impairment. Such testing shall be done promptly after the incident utilizing a N.I.D.A. Lab under the supervision of qualified medical personnel. The employee being tested may observe the sample being tested at the Plant Medical Facility should he or she so desire. Should an employee test positive as to any illegal drug and a confirming test supports the positive result, he shall be offered rehabilitation in the first such case only. All programs will be carried out with due regard to the employee's right to privacy. The Company will not require employees to submit to random or blanket drug screening. SECTION 7 -- SAFETY AND HEALTH TRAINING. A. General: The Company recognizes the special need to provide appropriate safety and health training to all employees. The Company will develop safety and health training that provides either the training described below or the basis for such training as it relates to the needs of the Company and the employee. Training programs shall recognize that there are different needs for safety and health training for newly hired employees, employees who are transferred or assigned to a new job and employees who require periodic retraining. B. Training of New Employees: Newly hire employees shall receive training in the general recognition of safety and health hazards, their statutory and basic labor contract rights and obligations with respect to health and safety and the purpose and function of the Company's 38 39 Safety, Health and Medical Departments, the Joint Committee and the International Union Safety and Health Department. In addition, upon initial assignment to a job, such employees shall receive training on the nature of the operation or process, the safety and health hazards of the job, the safe working procedures, the purpose, use and limitations of personal protective equipment required, and other controls or precautions associated with the job. The Union Co-chairman and the International Union Safety and Health Department or a designee shall, upon request, be afforded the opportunity to review the training program for newly hired employees at the plant level. C. Training of Other Employees: The training of employees other than those newly hired by the Company shall be directed to the hazards of the job or jobs on which they are required to work. Such training shall include hazard recognition, safe working procedures, purpose, use and limitations of appropriate specialized instruction. Once each calendar quarter, the chairpersons of the joint Management Safety Committee will hold a meeting to address any issues surrounding the training of employees as contemplated in this Section 7C. D. Retraining: As required by an employee's job and assignment area, periodic retraining shall be given on safe working procedures, hazard recognition, and other necessary procedures and precautions. SECTION 8 -- MEDICAL RECORDS. The Company shall comply with all applicable Federal (OSHA) and/or State (UOSH) regulations concerning the confidentiality of and access to employee medical records. ARTICLE 14 PENSIONS AND PROFIT SHARING A. The Company shall pay into the Defined Contribution Pension Plan a sum equal to 5% beginning May 1, 1998. The payment to the Pension Plan will be increased to 5-1/4% beginning May 1, 1999. B. A Defined Benefit Pension Plan effective May 1, 1998 is contained in the plan document, a copy of which will be provided to each employee. Such plan document constitutes a part of this Section as though incorporated herein. C. Employees shall be entitled to share ten percent (10%) of the Company's net profits before taxes (subject to certain adjustments) from its Geneva Plant steel operations as more fully described in Appendix D to this Agreement. 39 40 Notwithstanding any contrary provision in any Pension Plan description or plan document, the Company will not reduce the level of benefit called for in the plan provided under this contract during the term of this Agreement, unless such change in the benefit is agreed to by the Union or is required by applicable law. ARTICLE 15 INSURANCE The insurance benefits which shall become effective upon the effective date of this Agreement are set forth in Appendix B to this Agreement which is incorporated herein. In the event legislation is enacted creating a system of national or state health benefits coverage, either party shall have the right to reopen this provision of this Agreement. If the parties are unable to reach agreement, the matter should be submitted to binding arbitration for resolution. Notwithstanding any contrary provision in any Summary Plan Description and/or plan document, the Company will not reduce the level of benefits called for in the various health and benefit plans provided under this contract during the term of this Agreement, unless such reduction in the level of benefits is agreed to by the Union or required by applicable law. ARTICLE 16 ADJUSTMENTS OF GRIEVANCES SECTION 1 -- PURPOSE. A. Should any differences arise between the Company and the employees as to the meaning and application of the provisions of this Agreement, there shall not be any suspension of work on account of such differences, but an earnest effort shall be made to settle them promptly and in accordance with provisions of this Agreement in the manner hereinafter set forth. B. Failure to Appeal: If any decision is not appealed within the time limits to the next step, it shall be considered settled on the basis of the prior step, and the employee or employees covered by such complaint or grievance shall not have any further right or remedy with respect to any matter or claim covered by such complaint or grievance. SECTION 2 -- DEFINITIONS. A. "Complaint" shall mean a request or complaint. 40 41 B. "Grievance" shall mean a complaint of an employee which involves the interpretation or application of, or compliance with, the provisions of this Agreement. C. "Day" shall mean calendar day, but shall not include any Saturday, Sunday, or Holiday unless otherwise indicated herein. SECTION 3 -- PROCEDURE. A. Oral: An employee shall take any complaint to his foreman, with or without his Union representative as he may decide, within five (5) working days of the event or the time he reasonably should have known of the event. The matter shall be answered by the foreman within two (2) working days from the day it is presented. B. Step 1: If the complaint is not settled at the Oral Step, the Department Area Manager, Manager Labor Relations (if appropriate) and Union Grievance Committeeman, with the employee and any other necessary witnesses present, shall discuss the matter within seven (7) working days from the foreman's answer in Paragraph A above, and attempt to resolve the matter. At this level, the grievance form shall be filed by the Union Grievance Committeeman and the disposition of the grievance shall be noted on the grievance form. Disposition of the grievance at this level shall occur with five (5) working days following the completion of the discussion. If the disposition of the grievance is not satisfactory to the Union Grievance Committeeman, a written statement shall be prepared by the Union Grievance Committeeman attached to the grievance form which shall be submitted to the Labor Relations Department within seven (7) working days of the disposition of the grievance at Step 1. The Company will provide a written response to the Union within seven (7) working days of receipt of the Union's written statement. Written statements shall be brief and factual. They shall state what provisions of the Agreement are relied upon, the Company's response to Union reliance on these provisions, as well as the remedy sought. C. Step 2: The Union Grievance Committeeman is not satisfied with the disposition in Step 1 and the Union continues to maintain that the grievance is meritorious, the Labor Relations Department shall, within ten (10) working days of the receipt of the Union's written statement (or such other time as shall be mutually agreed to by the Company and the Union), cause a discussion between the Chairman of the Grievance Committee and the Union Grievance Committeeman and himself, together with the employee and such other persons as either side may reasonably wish to have in order to dispose of the matter. It shall be answered within seven (7) working days of the date of such meeting. The Chairman of the Grievance Committee shall have the authority to settle, withdraw, or continue processing the grievance. The Company Representative shall have the authority to settle the grievance. D. Step 3: If the Chairman of the Grievance Committee is not satisfied with the disposition in Step 2, the Union must appeal the grievance to Step 3 of the procedure within thirty (30) days of receipt of the disposition of the grievance from Step 2. The Union and the 41 42 Company will meet in an effort to resolve the grievance prior to an Arbitration hearing date being set. The parties involved in this review shall include the International Union Representative, the Local Union President, the Grievance Committee Chairman, the Company's Vice President of Human Resources, and the Manager of Labor Relations or his designated representative. The International Union Representative and the local Union President shall have the authority to settle, withdraw, or continue processing the grievance. The Vice President of Human Resources shall have the authority to settle the grievance. The review meeting shall be limited to the International Union Representative, the Local Union President, the Grievance Committee Chairman, the Company's Vice President of Human Resources, and the Manager of Labor Relations or his designated representative. No other attendees will be permitted unless mutually agreed upon in advance of the meeting. All settlements arrived at in this procedure will be in written form and signed by the aforementioned individuals. Whenever either party concludes that further discussions cannot contribute to the settlement of the grievance, the grievance may be appealed to arbitration. E. Arbitration: If the grievance is not resolved at the Step 3 level, then within thirty (30) working days from the disposition of the grievance at Step 3 the International Union may appeal the complaint to arbitration. The Company and the Union shall agree to an arbitration panel. If the Company and the Union cannot agree on an arbitrator from such list, the Union shall strike a name from the list and the Company shall do likewise and the process shall be repeated until one name remains which shall then be the arbitrator. The arbitrator shall be furnished with the written statements from both parties outlining the pertinent facts in Step 1. Thereafter, the arbitrator shall hear the complaint within twenty-one (21) days from the date he was selected, or upon a date jointly agreed to by the parties. The arbitrator will be asked to issue a decision within twenty (20) days from the date of the hearing, or fifteen (15) days from receipt of the transcript, whichever is later. The parties may mutually agree to have the arbitrator issue a decision on the basis of the written record submitted to him by the parties. The arbitrator shall assure himself that all necessary facts and consideration have been placed before him by both sides, and he shall have the authority to interpret and apply the provisions of this Agreement, but he shall not have the authority to alter any of its provisions. The parties shall share equally the compensation and expenses of the arbitration. The decision of the arbitrator shall be final and binding on the parties. SECTION 4 -- MISCELLANEOUS. A. Union Representation: Any employee who is summoned to meet in an office with a supervisor other than his own immediate supervisor for the purpose of discussing possible disciplinary action shall be entitled to be accompanied by a Union representative if he requests such representation, provided such representation is then available or if not then available, the employee's required attendance at such meeting shall be deferred only for such time during that shift as is necessary to provide opportunity for him to secure the attendance of such representative. The Union shall be entitled to a maximum of eleven (11) Grievance 42 43 Committeemen, and any officer who is also a Grievance Committeeman will be counted toward that maximum number. B. Group Grievances: All grievances shall be on an individual basis unless mutually agreed upon by the parties, which agreement shall not be unreasonably withheld. C. The complaint and grievance procedure may be utilized by the Union in processing complaints or grievances which allege a violation of the obligations of the Company to the Union as such. In processing such complaints or grievances, the Union shall observe the specified time limits in appealing and the Company shall observe the specified time limits in answering. The Union may not, pursuant to this provision, initiate a grievance absent a signed complaint form from an affected employee which alleges a violation of any individuals rights under this Agreement. In the event an employee dies, the Union may process on behalf of his legal heirs any claim he would have had relating to any monies due under any provision of this Agreement. D. Acceleration: The Grievance Committee Chairman can sign and process a grievance directly into Step 2 if the issue involves two (2) or more departments. If the Company's discussion or answer to a complaint or a grievance is not given within the prescribed time requirements in any Step, the Union, after notifying the Company, may refer or appeal to the next Step. E. Extensions: The time limits set forth in this Article may be extended by the written mutual agreement of the parties, such agreement shall not be unreasonably denied. F. Employee Disciplinary Record: Disciplinary records shall not be used after two (2) years from the date of the event which was the subject of the discipline, if the employee has been subject to no intervening disciplinary action. G. Prior Grievances: Any grievance or complaint existing or arising out of events which occurred prior to the date that the Company begins operation of the Geneva Plant shall have nothing to do with the Company or this Agreement. H. When possible, proceedings under this grievance procedure shall take place during normal shift hours. I. The Company's liability shall be limited to 120 days prior to filing of any grievance. In any settlement involving retroactive payments, the appropriate Union and Company representatives shall expeditiously determine the identity of the payees and the specific amount owned each payee. Payment shall be made promptly but, unless otherwise mutually agreed, if the payment is not made within sixty (60) days after such determination, the affected payee(s) will be paid interest from the date of such determination at the rate of seven percent (7%) per annum, unless the delay in payment is due to the actions of the Union or the payee(s). 43 44 J. When a grievance has been appealed to Step 3, a written summary developed from the Step 2 meeting shall be prepared by the Company. The record shall be jointly signed by the Company Representative and the Chairman of the Grievance Committee. If the Chairman of the Grievance Committee shall disagree with the written summary prepared by the Company, he shall set forth and sign his reasons for such disagreement, and the written summary, except for such disagreement, shall be regarded as agreed to. K. In the event that the Union processes a complaint or grievance concerning the discipline or discharge of an employee, the Company will not discipline employees who have been revealed to have violated a Company rule or policy as a result of the Union's investigation into such matters. The foregoing shall only be granted in those instances wherein the Union, as a part of the defense of the grievant, maintains that the discipline or discharge issued in the incident under grievance was inconsistent with the treatment of other employees under similar circumstances. Notwithstanding the foregoing, nothing in this Section 4.K. shall prejudice or preclude the Company's right to discipline or discharge any employee (i) for acts of misconduct which occur subsequent to the incident(s) identified by the Union in the Grievance Procedure, or (ii) for any acts at anytime of misconduct involving drugs, a serious safety violation or violence as defined in Article 17, Section 2 of this Agreement. ARTICLE 17 DISCHARGE AND DISCIPLINE OF EMPLOYEES SECTION 1 -- DISCHARGE. The Company may at any time suspend or discharge any employee for just cause. If such employee believes he was suspended or discharged without just cause, that employee or the Union may submit such complaint or grievance to the adjustment of grievances procedure contained in Article 16. SECTION 2 -- JUSTICE AND DIGNITY ON THE JOB. The following understandings have been reached for a Procedure for Justice and Dignity on the job applicable to discharge and suspension cases only. A. Management, after discharging an employee, or imposing a suspension, shall not remove the affected employee from active work on the job to which his seniority entitles him upon such discharge or suspension prior to a final determination of the merits of the discharge or suspension in accordance with the applicable provisions of the Basic Labor Agreement should the employee elect to file a complaint or grievance protesting Management's decision. For purposes of the operation of the option not to be removed from the job pursuant to this 44 45 Procedure, a complaint or grievance protesting a discharge or suspension must be filed within four (4) calendar days after notice of discharge or imposition of the suspension, as the case may be. In the event no complaint or grievance is filed within such time limit, the Company will not suspend or remove the affected employee from active work on the job to which his seniority entitles him prior to the day following the expiration of the time limit set forth in this paragraph. For any purpose other than operation of the option set forth above, the time limits for filing a complaint or grievance protesting a discharge or suspension shall continue to be those set forth in the Basic Labor Agreement. B. The parties recognize that it is essential that a proper balance be maintained between the right of an employee to be retained under this Procedure and the right of Management to manage the plant. Accordingly, to insure that balance, this Procedure will be inapplicable to discharges or suspensions involving any offenses which endanger the safety of other employees or members of supervision or the plant and its equipment. Such offenses shall include: theft; use and/or distribution on Company property of drugs, narcotics, and/or alcoholic beverages; possession of firearms on Company property; destruction of Company property; threatening bodily harm to, and/or striking, a member of supervision; fighting; such as insubordination as endangers the safety of other employees or members of supervision or the Plant and its equipment; or other acts of a similar nature. In addition, this Procedure will be inapplicable to a discharge or suspension involving activity prohibited by the provisions of Article 18 of this Agreement, and to any violation of the terms of a Last Chance Agreement. C. When an employee is retained pursuant to Paragraph A, and the employee's discharge or suspension is finally determined in the grievance procedure or in arbitration to be for just cause, the removal of the employee from the active employment rolls shall be effective for all purposes the day following the date of final resolution of the grievance. D. While a discharged employee is retained at work pursuant to Paragraph A and the employee is discharged again for a repeat of the same conduct, the employee will no longer be eligible to be retained at work under these provisions. Such removal from work will be effective on the day of the subsequent discharge. E. Nothing in this Procedure shall restrict or expand Management's right to relieve an employee for the balance of such employee's shift under the terms of the Basic Labor Agreement. ARTICLE 18 PROHIBITION OF STRIKES AND LOCKOUTS During the term of this Agreement, neither the Union nor any employee shall: (a) engage in or in any way encourage or sanction any strike or other action which shall interrupt or interfere with work or production at the Geneva Plant; or (b) prevent or attempt to prevent the access of 45 46 employees to the Geneva Plant. During the term of this Agreement, the Company shall not engage in any lockout of the employees of the Geneva Plant. ARTICLE 19 MANAGEMENT RIGHTS The Management of operations and the direction of the working forces and operations of the Geneva Plant, including, without limitation, the hiring, promoting and retiring of employees, the suspending, discharging or otherwise disciplining of employees for just cause, the laying off and calling to work of employees in connection with any reduction or increase in the working forces, the scheduling of work, and the control and regulation of the use of all equipment and other property of the Company, are the exclusive functions of the Management; provided, however, that in the exercise of such functions the Management shall observe the provisions of this Agreement. Neither Management nor the Union shall discriminate against any employee or applicant for employment because of his membership or lack of membership in, or lawful activity on behalf of or in connection with, the Union. ARTICLE 20 SCOPE OF AGREEMENT The Parties expressly declare that they have bargained between them on all phases of wages, hours and working conditions, and that the specific terms of this Agreement and any addenda thereto represent their full and complete understanding without reservation or unexpressed understanding. Any aspect of wages, hours or working conditions not covered by this Agreement is declared to have been expressly eliminated as a subject of grievance, bargaining or arbitration, and may not be raised for further bargaining or arbitration without the specific written consent of both parties. In accepting the considerations and limitations herein agreed to by the Company, the Union unqualifiedly waives all present and/or future rights during the term of the Agreement to require the Company to bargain collectively on any other aspect of wages, hours of work or working conditions affecting employment, whether specifically contained herein or not, this giving the Company the right to manage the business in all respects subject only to the express terms of this Agreement. 46 47 ARTICLE 21 LOCAL WORKING CONDITIONS, PAST PRACTICES, WORK RULES AND PRIOR AGREEMENTS SECTION 1 -- LOCAL WORKING CONDITIONS, PAST PRACTICES, WORK RULES. The term "local working conditions" as used herein means specific practices or customs which reflect detailed application of the subject matter within the scope of wages, hours of work, or other conditions of employment and includes local agreements, written or oral, on such matters. It is recognized that it is impracticable to set forth in this Agreement all of these working conditions, which are of a local nature only, or to state specifically in this Agreement which of these matters should be changed or eliminated. The following provisions provide general principles and procedures which explain the status of these matters and furnish necessary guideposts for the parties hereto and the Board. A. It is recognized that an employee does not have the right to have a local working condition established, in any given situation or where such condition has not existed, during the term of this Agreement or to have an existing local working condition changed or eliminated, except to the extent necessary to require the application of a specific provision of this Agreement. B. In no case shall local working conditions be effective to deprive any employee of rights under this Agreement. Should any employee believe that a local working condition is depriving him of the benefits of this Agreement, he shall have recourse to the complaint and grievance procedure and arbitration, if necessary, to require that the local working condition be changed or eliminated to provide the benefits established by this Agreement. C. Should there be any local working conditions in effect which provide benefits that are in excess of or in addition to the benefits established by this Agreement, they shall remain in effect for the term of this Agreement, except as they are changed or eliminated by mutual agreement or in accordance with Paragraph D below. D. The Company shall have the right to change or eliminate any local working condition if, as a result of action taken by Management under Article 19-Management Rights, the basis for the existence of the local working condition is changed or eliminated, thereby making it unnecessary to continue such local working condition; provided, however, that when such a change or elimination is made by the Company any affected employees shall have recourse to the complaint and grievance procedure and arbitration, if necessary, to have the Company justify its action. E. No local working condition shall hereafter be established or agreed to which changes or modifies any of the provisions of this Agreement, except as it is approved in writing by an International Officer of the Union and the Personnel Services Executive of the Company. 47 48 F. The settlement of a grievance prior to arbitration under this Section shall not constitute a precedent in the settlement of grievances in other situations in this area. G. Each party shall as a matter of policy encourage the prompt settlement of problems in this area by mutual agreement at the local level. ARTICLE 22 SHORT WORK WEEK FUND The Company shall establish a fund into which it will contribute $.10 for each hour worked by employees, to be known as the "Short Work Week Fund". The Fund shall be used to pay any employee for any week for which he is scheduled to work an amount equal to the product of his Regular Wage Rate times the difference between (1) 32 hours, and (2) the sum of the hours he actually worked, plus the hours he did not work but for which he was paid by the Company (excluding the first eight (8) hours for which he received pay for unworked Holidays in any week), plus the hours he was scheduled to work but did not work because of his failure to report for work as scheduled. The Company's obligation shall be limited to the prompt payment of the $.10 per hour into the Fund. Funds in excess of $600,000 may be used by the Company to offset costs as associated with the Long Term Disability Plan and the Continuance of medical insurance benefits to employees on layoff. ARTICLE 23 MISCELLANEOUS SECTION 1 - TERMINATION. This Agreement shall terminate at the expiration of sixty (60) days after either party shall give notice of termination to the other party, but in no event shall it terminate prior to April 30, 2001. 48 49 SECTION 2 -- MAILING OF NOTICES. Any notice to be given under this Agreement shall be given by registered or certified mail; be completed by and at the time of mailing; and if by the Company, be addressed to the Union at the following addresses: United Steelworkers of America District 12 360 West 5300 South, #350 Murray, Utah 84123 United Steelworkers of America Local Union 2701 1847 Columbia Lane Orem, Utah 84058 United Steelworkers of America Terry Bonds Director, District 12 12821 Industrial Road Houston, Texas 77015 And if by the Union to the Company at: Vice President, Human Resources Geneva Steel P.O. Box 2500 Provo, Utah 84603 Either party may, by like written notice, change the address to which registered mail notice to it shall be given. SECTION 3 -- RATIFICATION. This Agreement shall be binding on the parties hereto only after affirmative ratification by Local 2701 and approval of the Board of Directors of the Company. 49 50 IN WITNESS WHEREOF, we have hereunto set our hands the day and year first above written. UNITED STEELWORKERS GENEVA STEEL COMPANY OF AMERICA /s/ Joseph A. Cannon /s/ George Becker - ----------------------------- ------------------------------ Joseph A. Cannon George Becker CEO and Chairman of the Board President /s/ Ken C. Johnsen /s/ Leo W. Gerard - ----------------------------- ------------------------------ Ken C. Johnsen Leo W. Gerard Executive Vice President Secretary, Treasurer /s/ Carl E. Ramnitz /s/ Richard H. Davis - ----------------------------- ------------------------------ Carl E. Ramnitz Richard H. Davis V.P. of Human Resources V.P. of Administration /s/ Leon Lynch ------------------------------ Leon Lynch V.P. Human Affairs /s/ Terry Bonds ------------------------------ Terry Bonds District Director /s/ Dallas Alexander ------------------------------- Dallas Alexander Subdirector, District 38, Subdistrict 12 /s/ Dennis Kujala ------------------------------- Dennis Kujala President, Local 2701 /s/ Lionel Camara ------------------------------- Lionel Camara Chairman, Grievance Committee /s/ Jim Christensen ------------------------------- Jim Christensen Secretary, Grievance Committee /s/ Gary Ransom ------------------------------- Gary Ransom Grievanceman 50 51 APPENDIX A HOURLY WAGE RATES
JOB CLASS EFFECTIVE DATES --------------------------------------------------------------- APRIL 1, 1998 APRIL 1, 1999 APRIL 1, 2000 --------- ------------- ------------- ------------- 1 $10.10 $10.35 $10.66 2 $13.14 $13.47 $13.87 3 $13.30 $13.63 $14.04 4 $13.48 $13.82 $14.23 5 $13.64 $13.98 $14.40 6 $13.81 $14.16 $14.58 7 $13.98 $14.33 $14.76 8 $14.15 $14.50 $14.94 9 $14.32 $14.68 $15.12 10 $14.48 $14.84 $15.29 11 $14.65 $15.02 $15.47 12 $14.82 $15.19 $15.65 13 $14.99 $15.36 $15.82 14 $15.15 $15.53 $16.00 15 $15.32 $15.70 $16.17 16 $15.49 $15.88 $16.36 17 $15.66 $16.05 $16.53 18 $15.83 $16.23 $16.72 19 $15.99 $16.39 $16.88 20 $16.16 $16.56 $17.06 21 $16.33 $16.74 $17.24 22 $16.50 $16.91 $17.42 23 $16.67 $17.09 $17.60 24 $16.83 $17.25 $17.77 25 $17.00 $17.43 $17.95 26 $17.17 $17.60 $18.13 27 $17.34 $17.77 $18.30 28 $17.51 $17.95 $18.49 29 $17.67 $18.11 $18.65 30 $17.85 $18.30 $18.85 31 $18.01 $18.46 $19.01 32 $18.17 $18.62 $19.18 33 $18.35 $18.81 $19.37 34 $18.51 $18.97 $19.54
51 52 APPENDIX B INSURANCE BENEFITS MEDICAL INSURANCE The medical insurance which shall become effective upon the effective date of this Agreement is contained in a booklet entitled Geneva Steel Health Plan, a copy of which will be provided to each employee. Such booklet constitutes a part of this Appendix as though incorporated herein. LIFE INSURANCE Group life insurance in the amount of $25,000 per employee shall be provided by the Company. DEPENDENT LIFE INSURANCE Life Insurance for eligible dependents shall be provided by the Company in the amount of $5,000 for spouse and $2,000 for each child. ELIGIBILITY Full-time, permanent employees become eligible for the above benefits on the first day of the month thirty (30) days after hire. Pre-existing conditions will be excluded from coverage for a period of nine (9) months. CONTINUANCE In the event of reduction in force, the above-described benefits for full-time, permanent employees will continue according to the following schedule:
YEARS OF SERVICE INSURANCE CONTINUANCE ---------------- --------------------- 0 to 5 End of the month plus two (2) months 5 to 10 End of the month plus four (4) months 10 or more End of month plus six (6) months
In all other cases, the benefits cease on the last day worked. 52 53 SICKNESS AND ACCIDENT Employees who become totally disabled as a result of sickness or accident, as certified by a licensed physician, will be eligible to receive weekly sickness and accident benefits. Benefits will not be payable for any period during which an employee is not under the care of a licensed physician. The weekly sickness and accident benefits will commence on the eighth day following an illness and on the first day following an accident and continue in accordance with the following schedule:
YEARS OF SERVICE WEEKS ---------------- ----- 1st (After Probation) 13 1-20 Years 26 Over 20 Years 52
The amount of the weekly benefit during the term of this Agreement will be $350.00 effective May 1, 1998. In order for the Company to process claims in a timely fashion and to determine eligibility for benefits, a claim must be received by the Company within twenty-one (21) days of the commencement of the disability. If the employee exceeds twenty-one (21) days, and the employee demonstrates a good reason that he was unable to file the claim within twenty-one (21) days, an employee's benefits shall commence on the date of filing if the Company is able to establish the medical and other factual aspects of the claim and determines that the employee is eligible for benefits. If the employee is physically unable to comply with this procedure, he should have someone notify the Geneva Steel Benefits Office in writing of his disability before the end of the twenty-one (21) day period. Sickness and accident benefits will be administered according to the Company's processing procedures, and weekly benefits will be reduced under the following circumstances where other benefits are payable. Workers' Compensation: If an employee is otherwise entitled to sickness and accident benefits and he is making claim for Temporary Total Disability benefits pursuant to any Workers' Compensation or occupational disease law, the sickness and accident benefits will be paid only after satisfactory arrangements are made to assure that any payment of sickness and accident benefits shall be reimbursed by the employee if the claim for Workers' Compensation benefits is successful. Such arrangements shall include the employee's execution of necessary documents authorizing the deduction of any such overpayment from any payments becoming due as a result of such claim or from any amount payable the employee by or on behalf of the Company, including benefits, wages and pension payments. 53 54 Long-Term Disability: If an eligible employee becomes permanently and totally disabled defined as the inability to perform a bargaining unit job after one (1) full year of disability, he shall be eligible to receive a long-term disability benefit in the amount of $400 per month for a maximum of forty-eight (48) months. In order to be eligible for such benefit, an employee must (a) have fifteen (15) years or more of continuous service at the commencement of disability; and (b) be actively at work at the commencement of disability. 54 55 APPENDIX C COVERED SALARIED CLERICAL AND TECHNICAL EMPLOYEES 1. It is understood that the Clerical and Technical employees represented by USWA Local Union 2701, are covered by this Agreement between Geneva Steel and the United Steelworkers of America. 2. The employees of this Clerical and Technical Unit will be paid on a wage hourly pay scale as set forth in Appendix A. 3. The C & T positions will have a guarantee of forty (40) hours work per week, which includes unworked hours which are paid on holidays. The Company will pay the employees of the C & T unit forty (40) hours per week except if the employee is absent without leave. If an employee is ill, is involved in an accident which precludes him from working, or has a personal family emergency during their scheduled week, and, if otherwise qualified, he shall be paid for forty (40) hours that week. A supervisor may require certification of an illness by a licensed physician when they feel such verification is necessary. After an employee is absent from work due to sickness, for a period of seven (7) days, he becomes eligible to apply for S & A Benefits commencing on the eighth day of illness (see Appendix B). 55 56 APPENDIX D PROFIT SHARING PLAN FOR GENEVA STEEL BARGAINING UNIT EMPLOYEES A Profit Sharing Plan for eligible Geneva Steel Bargaining Unit employees (the "Profit Sharing Plan") will be in effect for the duration of the contract commencing May 1, 1998. The Profit Sharing Plan will be calculated and paid annually based on the Company's fiscal year accounting records. The Company's fiscal year ends on the last day of September of each year. A. The Profit Sharing Plan shall be based on the Company contributing to a pool (the "Profit Sharing Pool") ten percent (10%) of Geneva Steel's adjusted earnings before taxes and excluding extraordinary items ("A.E.B.T.") for the fiscal year if A.E.B.T. is positive. A.E.B.T. shall mean earnings before taxes excluding profit sharing, reduced by Allocated Capital Expenditures. Allocated Capital Expenditures shall mean twenty-five percent (25%) of all Capital Expenditures up to $50 million and thirty percent (30%) of all Capital Expenditures in excess of $50 million. Capital Expenditures shall mean the aggregate of all the Company's actual capital expenditures (in accordance with generally accepted accounting principles) for the fiscal year, including capital maintenance. If for any fiscal year the Company's Capital Expenditures exceed $85 million or the Company does not have sufficient cash (before payment of dividends) and/or the ability to borrow funds against its working capital line to pay profit sharing and have sufficient funds available to cover any then forecasted negative cash flow in the six months following the scheduled payment of the profit sharing, the Company shall at its option have the right to pay its Profit Sharing Pool obligation in the form of shares of the Company's common stock at a value then agreed to by the Company and the Union, or if they can't agree, at a value determined by an independent appraiser acceptable to the Company and the Union, or to defer the obligation for up to two (2) years with interest at eight percent (8%) per annum. If the parties are unable to agree on an independent appraiser, they shall select an appraiser in the manner set forth in Paragraph E below, substituting five (5) qualified appraisers for the five (5) auditors. B. All Bargaining Unit employees shall be eligible to participate in the Profit Sharing Plan if they were actively at work at any time during the subject fiscal year. Employees, other than employees who die or retire, whose employment is terminated, voluntarily or involuntarily, during the fiscal year shall not be eligible to participate in the Profit Sharing Plan for the subject year. Probationary employees during their probationary employment period shall not be eligible to participate in the Profit Sharing Plan under any circumstances nor shall the first 760 hours of work be considered as eligible hours of work under this Plan. C. The Profit Sharing Pool for each fiscal year, if any, as calculated pursuant to Paragraph A above shall be allocated to each eligible Bargaining Unit employee on the basis of each employee's Profit Sharing Plan Hours as compared to total Profit Sharing Plan Hours. An employee's Profit Sharing Plan Hours shall mean the lesser of (a) the sum of the hours the employee actually worked for which the employee is paid during the fiscal year plus the hours for 56 57 which the employee receives vacation pay, or (b) 2080 hours. Total Profit Sharing Plan Hours shall mean the total of all the eligible Bargaining Unit employees's Profit Sharing Plan Hours. D. The fiscal year Profit Sharing Plan payments to employees, if any, will be reduced by PDP payments made during the period for which the profit share is calculated. PDP payments made to all bargaining unit employees during the fiscal year will first be totaled in the aggregate. Once the Profit Sharing pool has been determined, the total PDP payments will then be deducted from the total amount in the Profit Sharing Pool. Profit Sharing Plan payments shall be made to eligible employees in a separate check during December following the fiscal year in which they were earned, unless payment is delayed pursuant to Paragraph F below or deferred pursuant to Paragraph A above. On or before October 31 of each year, the Company will issue to each eligible Bargaining Unit employee a summary of the employee's Profit Sharing Plan Hours for the subject fiscal year and the report to the Union referred to in Paragraph E below. On or before November 10, following the fiscal year any employee who objects to the number of hours set forth on his or her summary shall file a written statement setting forth the basis for the objection. The Union and the Company shall resolve any disputes promptly. If an individual written objection is not filed on or before November 10 following the fiscal year, any such objection will be barred from thereafter being filed. No employee may object on behalf of any other employee, nor may any employee object to the amount of the Profit Sharing Pool or the overall allocation thereof. E. No later than fifteen (15) days before the anticipated payment date, the Company will provide the Union with a report of the Company's independent certified public accountants certifying to the A.E.B.T. and Allocated Capital Expenditures as set forth above, all in accordance with generally accepted accounting principles. In addition, reasonable information to support the report will be furnished upon request. The Union shall have the right to retain, at its own expense, an independent certified public accountant for the purpose of verifying the report described above. In the event that the Company's CPA and the Union's CPA cannot resolve their differences, the Company and the Union shall select a third independent certified public accountant to resolve the matter. If the Company and the Union are unable to agree to an acceptable independent public accountant, the parties agree to select an independent accounting firm from a list of five major independent accounting firms, by a process of elimination through alternate striking of the firms until only one remains. The list of major independent accounting firms shall be agreed to in a separate letter of agreement. The accounting data supplied to the independent accounting firm shall be limited to data that are essential to verify the Profit Sharing Plan, which shall include PDP payment deductions, Adjusted Earnings Before Taxes, Actual Capital Expenditures, profit sharing hours, and, if applicable, cash flow justification. All confidential or proprietary information supplied or otherwise made available to the independent accounting firms any union representatives pursuant to this Agreement shall be held in the strictest confidence and used only for the purpose of verifying amounts to be distributed to employees under this plan. The cost of any such audit shall be shared equally by the Company and the Union. If the Union does not 57 58 request an independent third audit within forty-five (45) days of its receipt of the report from the Company's CPA described above, such report shall be deemed accepted, and the Union shall thereafter have no right to challenge the report to make a request for any audit for the subject fiscal year. F. The Company shall not make any Profit Sharing Plan payments to any person until all employee objections described in Paragraph D above have been resolved. G. Under no circumstances other than defined below shall the Company be required to contribute to the Profit Sharing Plan Pool, for any fiscal year more than the total amount calculated pursuant to Paragraph A above. To the extent that the Company, for any reason, over-funds the Profit Sharing Plan Pool for any fiscal year, the Company shall deduct the amount of such over-funding from the Profit Sharing Plan Pool for the next fiscal year or years in which the Profit Sharing Plan makes a payment until all the overpayment is recovered. If for any reason the Company should under-fund the Profit Sharing Plan Pool, the under-funding shall be repaid and distributed in accordance with this plan. H. Payments under the Profit Sharing Plan shall be included as compensation for income tax, F.I.C.A., union dues and pension purposes, but shall not be a part of an employee's pay for any other purpose and shall not be used in the calculation of any other Company payment, allowance or benefit. 58 59 APPENDIX E TURN COORDINATORS The Union and the Company recognize a need for proper manning and efficient utilization of turn coordinators. A turn coordinator is a true working member of the crew, who has the responsibility to direct the activities of others. In order to address and resolve differences concerning this position, the parties have discussed and agreed to the following: 1. The Company will identify to the Union, turn coordinator assignments and current personnel who are working as turn coordinators. Future turn coordinator vacancies in those positions will be filled on a seniority basis from within the line of progression. Employees awarded those positions will be paid three job classes above the highest job they supervise. If, due to an increase in operations or to fill for temporary vacancies, additional turn coordinators are needed, they will be assigned in seniority order from a list of employees who have expressed an interest in being trained as turn coordinators and who have satisfactorily completed a voluntary leadership training program established by the Company at the Company's expense. Employees electing to train as a turn coordinator will (1) have the requirements and responsibilities (i.e. personnel and crew attendance, safety, work performance, etc.) reviewed with them; (2) have their training period outlined; (3) have the evaluation system explained and their performance reviewed with them a minimum of once every two (2) weeks. If an employee is removed from the turn coordinator position, either voluntarily or at the discretion of Management, he will return to his former incumbent position. Should the employee feel that his/her removal from that position was unwarranted, they may initiate a grievance consistent with Article 16 of the Agreement. 59 60 APPENDIX F SUCCESSORSHIP The Company agrees that it will not directly or indirectly sell, convey, assign, or otherwise transfer any plant or operation or significant part thereof covered by a Labor Agreement with the United Steelworkers of America to any other party ("Buyer") who intends to operate the business as the Company had, unless the following conditions have been satisfied prior to the closing date of the sale: A. The Buyer shall have entered into an Agreement with the Union recognizing it as the bargaining representative for the employees within the existing bargaining units. B. The Buyer shall have entered into an Agreement with the Union establishing the terms and conditions of employment to be effective as of the closing date. This provision is not intended to apply to any transactions solely between the Company and any of its subsidiaries or affiliates, or its parent company including any of its subsidiaries or affiliates; nor is it intended to apply to transactions involving the sale of stock, except if (i) a plant or operation or significant part thereof, which is covered by such Labor Agreement(s), is sold to a third party pursuant to a transaction involving the sale of stock of a subsidiary of the Company or (ii) a transaction or series of transactions results in a change of Control of the Company. For purposes of this Appendix F, "Control" when used with respect to any business entity means the power to direct, but not merely influence, the management and policies of such business entity, directly or indirectly, whether through voting power or by contract or otherwise. This Appendix F shall not apply to an offering of registered securities that are sold to greater than twelve (12) investors. 60 61 APPENDIX G MEMORANDUM OF AGREEMENT In order to better implement and apply the provisions of Article 13, Section 6 Alcoholism and Drug Abuse, and to comply with existing state and federal laws, the Company and the Union have discussed and agree to the following terms and conditions as an addendum to Article 13, Section 6, and as such it is not intended to change or alter any other provisions of the Collective Bargaining Agreement. 1. The initial cutoff levels for the following six (6) drugs or classes of drugs shall be used when screening specimens to determine whether or not they are negative. Marijuana Metabolites 50 ng/ml Cocaine Metabolites 300 ng/ml Opiate Metabolites 300 ng/ml Phencyclidine 25 ng/ml Amphetamines 1,000 ng/ml Alcohol 80 mg/dl Any results at or above the foregoing levels will be considered a positive test result. In the event NIDA lowers the cutoff level for any of the substances listed above, the parties agree to lower the level accordingly. 2. When an employee is discharged following a positive drug or alcohol test, a Step 1 meeting will be held with appropriate Management and Union representatives within five (5) working days of the date of discharge. If it is determined in the Step 1 meeting that the discharged employee is to be offered a "Last Chance Agreement", the Company representative from Human Resources will explain the differences in the two types of Last Chance Agreements which may be offered, and the procedure the employee is required to follow prior to reinstatement. The Company representative and the Union Grievance Committeeman will work together to impress upon the employee his/her requirements to strictly comply with the terms of the Last Chance Agreement which is offered. 3. The two Last Chance Agreements to be used are attached as Exhibit I and II of this Agreement. The first Agreement (Exhibit I) is to be offered in situations where the discharged employee recognizes that he/she may have a drug and/or alcohol abuse problem. Consequently, the employee will be required to go to the Employee Assistance Program for an evaluation, such evaluation shall take into consideration the employee's duration of usage of drugs and/or alcohol, the addictiveness of such substance and the standard treatment for such condition, and if required, complete a rehabilitation program. The second type of Agreement 61 62 (Exhibit II) will be used when the employee maintains that he/she does not have an abuse problem and that the drug and/or alcohol problem can be corrected without the assistance of a rehabilitation program. At a minimum, however, an employee who is offered the second type of Agreement must attend a drug and alcohol awareness class. 4. The Company and the Union agree to establish a "Company/Union Drug and Alcohol Abuse Committee." The Committee will consist of two (2) members from the Union (the President and the Grievance Committee Chairman), and two members of management. In the event an employee discharged for drugs or alcohol is from the Grievance Committee Chairman's home department, the Secretary of the Grievance Committee will replace the Grievance Committee Chairman in that one (1) instance. The two Company members will be from Human Resources or one member may be a Management representative from a department other than the one in which the discharged employee works. The Committee will function as outlined in the provisions of this Agreement. 5. In addition to testing an employee for drugs and alcohol consistent with the provisions of Article 13, Section 6, the Company may also test an employee who has signed a Last Chance Agreement at any time for a period of one (1) year following the signing of either type of Last Chance Agreement. Further, the Company may also test the employee who is working under the terms of a Last Chance Agreement any time he/she returns from any absence from work in excess of seven (7) days (excluding vacations) for a period of up to five (5) years after the signing of the Last Chance Agreement. An employee will not be randomly drug or alcohol tested pursuant to this provision during the period of time that his enrollment in a rehabilitation program has been temporarily delayed through no fault of the employee. The period may not exceed fourteen (14) days unless mutually agreed to by the parties. The Last Chance Agreement will expire after a period of five (5) years after the signing of the Agreement, provided there are no further infractions of this type in that period of time. 6. If an employee tests positive for drugs or alcohol after signing a Last Chance Agreement, he/she will be immediately suspended from work. The employee will remain on suspension until the Company/Union Drug and Alcohol Abuse Committee have an opportunity to meet with the suspended employee. The meeting will be held within seven (7) working days of the date of the employee's suspension. The intent of the meeting will be to hear and discuss the employee's explanation for his/her second positive drug and/or alcohol test. If the Committee determines that the employee had extenuating circumstances which led to legitimate and documented reasons for his/her actions (i.e. recent divorce, death in the immediate family, etc.), the employee may be reinstated with an extended suspension and a reinstruction that any additional positive drug or alcohol tests 62 63 will result in discharge. If the Committee determines that the employee did not have a legitimate reason for a second positive test (i.e. the deer hunt, poker game, etc.), the employee's suspension will be converted to discharge. 7. The Company will supply the Union and the employee with a release of information form which an employee may elect to sign. The release will allow the appropriate Company Representative to supply the employee with the drug and/or alcohol test results (including the level at which the employee tested), and to supply that information to the Union. 8. This Agreement will become effective on the date of the Collective Bargaining Agreement, and it will have no bearing or affect on any drug and/or alcohol related cases which occurred prior to June 14, 1993. 63 64 EXHIBIT I MEMORANDUM OF AGREEMENT The following Agreement provides John Doe #00000 with the opportunity to resolve any and all issues related to his discharge (date) for reporting to the plant and/or working under the influence of illegal drugs (or alcohol). Mr. Doe has had the following conditions reviewed with him by the Company and the Union and agrees that he must comply with the following: 1. Mr. Does must meet with a professional counselor from the Employee Assistance Program in order to evaluate the extent of his condition and a recommendation for treatment. If a treatment program is recommended, or the employee selects a program which exceeds the E.A.P. recommendations, he must successfully complete the drug (or alcohol) rehabilitation program and supply management with proof of attendance to and successful completion of said program. Mr. Doe will be returned to employment provided he is medically certified as competent to do so by both a qualified representative of the rehabilitation institution and a physician. 2. If a treatment program is recommended and at any time Mr. Doe fails to comply with the requirements of that rehabilitation program, such that the intent of the rehabilitation effort cannot be met, the agreement to return grievant to work will become null and void with his status as an employee being converted to discharge. Further, if the rehabilitation effort is complete and after having returned to work, he again returns to an alcoholic or drug afflicted state or tests positive for illegal drugs or is found working in a condition unfit for work, he understands he will be suspended pending a review by the Company/Union Drug and Alcohol Abuse Committee. If the Committee determines that Mr. Doe was clearly responsible for his actions, the suspension will be converted to a discharge. If Mr. Doe fails to comply with the terms of the agreement and is subsequently discharged, he understands he will not be eligible to be rehired as an employee of Geneva Steel. 3. The discharge issued to Mr. Doe will be converted to a suspension to cover a period of time from (date) until the day he returns to work at Geneva Steel. 4. Management has complied fully with Article 13, Section 6 -- Alcoholism and Drug Abuse by allowing the employee to return to active employment following his evaluation and, if required, involvement in a drug (or alcohol) rehabilitation program. With the signing of this Agreement, Mr. Doe acknowledged he is not entitled to any further consideration under Section 6. 5. Mr. Doe understands that he must report off in a timely fashion and properly substantiate any absences as required by Management consistent with department report off and absenteeism policies. 64 65 6. Mr. Doe agrees to submit to a drug or alcohol test at any time during the next year from the signing of this Agreement, solely at Management's discretion, as condition of his continued employment at Geneva Steel. 7. Mr. Doe agrees to submit to a drug or alcohol test any time he returns from an absence from work in excess of seven (7) days (excluding vacations) for a period of five (5) years from the signing of this Agreement. 8. This Agreement is without prejudice or precedent and shall not be referred to in the handling of similar issues should they arise. - ----------------------------- --------------------------------- Union Representative Management Representative - ------------------- --------------------- Date Date I have read, understand, and agree with the terms of this Agreement. - ----------------------------- ---------------------- Signature Date 65 66 EXHIBIT II MEMORANDUM OF AGREEMENT The following Agreement provides John Doe #00000 with the opportunity to resolve any and all issues related to his discharge of (date) for working under the influence of illegal drugs (or alcohol). Mr. Doe has had the following conditions reviewed with him by the Company and the Union and agrees that he must comply with the following: 1. Management has complied fully with Article 13, Section 6 -- Alcoholism and Drug Abuse by returning the employee to active employment following his positive drug (or alcohol) test on (date). With the signing of this Agreement, Mr. Doe acknowledges he is not entitled to any further consideration under Section 6. 2. Mr. Doe has informed the Company and the Union that he is physically able to perform the full scope of his job duties and does not require any form of rehabilitation. Such being the case, if at any time in the future, Mr. Doe is again found to be working in an unfit condition or tests positive for illegal drugs (or alcohol), he understands he will be suspended pending a review by the Company/Union Drug and Alcohol Abuse Committee. If the Committee determines that Mr. Doe was clearly responsible for his actions, the suspension will be converted to a discharge. If Mr. Doe fails to comply with the terms of this Agreement and is subsequently discharged, he understands he will not be eligible to be rehired as an employee of Geneva Steel. 3. The discharge issued to Mr. Doe will be converted to a suspension to cover the period of time from (date) until the day he returns to work at Geneva Steel. 4. Mr. Doe understands that he must report off in a timely fashion and properly substantiate any absences as required by Management consistent with department report off and absenteeism policies. 5. Mr. Doe agrees to submit to a drug or alcohol test at anytime during the next year from the signing of this Agreement, solely at Management's discretion, as a condition of his continued employment at Geneva Steel. 6. Mr. Doe agrees to submit to a drug or alcohol test any time he returns from an absence from work in excess of seven (7) days (excluding vacations) for a period of five (5) years following the signing of this Agreement. 66 67 7. This Agreement is without prejudice or precedent and shall not be referred to in the handling of similar issues should they arise. - ----------------------------- --------------------------------- Union Representative Management Representative - ------------------- --------------------- Date Date I have read, understand, and agree with the terms of this Agreement. - ----------------------------- ---------------------- Signature Date 67 68 APPENDIX H PERFORMANCE DIVIDEND PLAN FOR GENEVA STEEL BARGAINING UNIT EMPLOYEES INTRODUCTION The Performance Dividend Plan (PDP) is designed to provide incentive payments to Bargaining Unit employees which recognize their contribution to increased productivity as compared to base levels. The PDP provides a dividend for increased Prime Shipped Tons. The PDP will be calculated each month and a performance dividend for the month will be included in the employee's pay in the following month consistent with the calculations set forth below. DEFINITIONS Shipped Tons Shipped Tons include every ton of steel which is produced at the Geneva Plant, as defined in the Collective Bargaining Agreement, as hot rolled product through the 132" Mill facility, slabs shipped and sold in slab form to commercial customers and not further processed in any form at Geneva, and cast foundry merchant products for merchant sales, and is actually shipped to any customer during the month for which the calculation is being made. Secondary Shipped Tons Seconds include any steel product which when produced is defective in relation to the order or specification for which it was made (such as defects in chemistry, gauge, width, length, shape or surface) or which is damaged in the course of production, handling or shipping, regardless of when or where that defect or damage is discovered. Prime Shipped Tons Prime Shipped Tons are defined as Shipped Tons minus Secondary Shipped Tons. Base Prime Shipped Tons Because this program is designed to pay a dividend, for performance above stated levels, a "base" has been defined for Prime Shipped Tons. The actual base number for each month will vary, depending on the number of days in the month. A table showing the Base Prime Shipped Tons for each month is set forth in Determinants and Base Quantities below. 68 69 Fixed Dividend Percent A fixed dividend of 2.5% will be paid for the month when the Actual Prime Shipped Tons exceeds the Base Prime Shipped Tons established for that month. Incremental Prime Shipped Tons Incremental Prime Shipped Tons are the tons calculated by subtracting the Base Prime Shipped Tons from the Actual Prime Shipped Tons. Incremental Prime Shipped Tons Determinant The PDP is designed to pay an increasing dividend for each Prime Shipped Ton above the monthly base. To determine how much each Incremental Prime Shipped Ton above the Base Prime Shipped Ton is worth, there is a "Determinant", which, when applied to the incremental tons above the base, will produce a PDP%. The PDP% when applied to the individual base rate, will determine the dollar per hour for the PDP payment. The following table shows the incremental Prime Shipped Tons Determinant. 69 70 PERFORMANCE DIVIDEND PLAN DETERMINANTS AND BASE QUANTITIES Prime Shipped Tons 1. Fixed Dividend %: Prime Shipped Tons over Base Prime Shipped Tons for the month = 2.5% 2. Incremental Prime Shipped Tons Determinants:
Dividend % Per Incremental Month Prime Shipped Ton ----- ----------------- February .00016657% February (Leap Year) .00016082% April, June, September, .00015546% November January, March, May, July, .00015045% August, October, December
3. Base Prime Shipped Tons Quantities:
Base Prime Shipped Month Tons Per Month ----- -------------- February 103,562 February (Leap Year) 107,260 April, June, September, 110,959 November January, March, May, July, 114,657 August, October, December
70 71 PRIME SHIPPED TONS RULES 1. The PDP will go into effect on the effective date of the Collective Bargaining Agreement and will remain in effect for the duration of the Agreement. Eligible employees will be those defined as participants under the Profit Sharing Plan for Geneva Steel Bargaining Unit employees, Appendix D, Paragraph B. 2. The PDP will be calculated each month and a performance dividend for the month will be included in the employee's pay in the following month consistent with the calculations set forth in the Determinants and Base Quantities shown above. 3. PDP payments under this plan shall be included as compensation for income tax, FICA, union dues, pension purposes, and as otherwise required by law, but shall not be part of employee's pay for any other purpose. 4. For purposes of calculating an individual's PDP payout, the Performance Dividend will be applied to the lesser of the first 173.3 hours worked or the number of hours the employee actually worked during the month. 5. The fiscal year Profit Sharing Plan payments to employees, if any, will be reduced by PDP payments made during the period for which the profit share is calculated. 6. If an employee's PDP payment is less than $.33/hour based on the Company's plan, the Company pays the employee $.33/hour on the PDP hours determined for the month. 71 72 APPENDIX I 401(K) PLAN Effective March 1, 1996, the Company will provided a twenty-five percent (25%) match to employee contributions of up to four percent (4%) to the 401(K) Plan. The matching contribution may be made in cash or in Company stock. Example: If an employee contributes $100 of his or her gross pay, the Company will add an additional $25 in cash or Company stock. 72 73 APPENDIX J VOLUNTARY EMPLOYEE BENEFICIARY ASSOCIATION (VEBA) TRUST A tax-exempt trust under Section 501(c)(9) of the Internal Revenue Code ("VEBA Trust") to fund post-retirement benefits for future retirees from the USWA Bargaining Unit was established as part of the 1995 negotiations. The parties agree to the following modifications with respect to the VEBA trust: 1. Future Company contributions to the VEBA Trust shall consist of, and be limited to: (i) the amount by which forfeitures have reduced or will reduce the Company's pension contributions to the Geneva Steel Union Employees Savings and Pension Plan from April 1, 1998 through March 31, 2001, (ii) $.15 for each hour of work performed by Union employees for the Company from May 1, 1998 through March 31, 1999; (iii) $.20 for each hour of work performed by Union employees for the Company from April 1, 1999 through March 31, 2000; and (iv) $.25 for each hour of work performed by Union employees for the Company from April 1, 2000 through March 31, 2001. 2. There will the three (3) VEBA Trustees appointed by the Company and three (3) VEBA Trustees appointed by the Union, with majority of appointees of each party required for decision making. In the event of a deadlock, the dispute shall be submitted to impartial binding arbitration under procedures to be established. The Trust will pay the reasonable and necessary administrative costs related to the VEBA Trust, excluding fiduciary insurance coverage for Trustees which will be paid by the Company. 3. The VEBA Trustees shall develop a plan of retiree (including dependents and surviving spouses) medical and life insurance benefits that has the objective of approximating the coverage providing for active Union employees. In order to preserve a reasonable portion of Trust assets for Union employees retiring after the term of this Agreement, the Trustees may require retiree premium contributions by retirees and surviving spouses comparable to other Basic Steel companies. In addition, Trustees may alter benefits and/or premium contributions to preserve Trust assets based on the level of Company contributions, investment returns, increases in the cost of providing benefits, and in the event of changes in the Company's financial circumstances that would substantially affect anticipated VEBA Trust funding. 4. The Company and Union will agree upon revised VEBA Trust language incorporating the above principles. 73 74 APPENDIX K LETTER February 18, 1998 Mr. Dallas Alexander United Steelworkers of America Subdistrict 5 5300 South 360 West, Suite 350 Murray, Utah 84123 Re: Right to Make Offer on Sale of Assets Dear Mr. Alexander: In connection with the recently completed negotiations between the United Steelworkers of America ("USWA") and Geneva Steel Company (the "Company"), the parties have reached the following understanding: 1. a. Should the Company decide or be presented with an offer to sell or otherwise transfer: (i) a controlling interest in the corporate entity which owns all or a substantial portion of its assets (a "Controlling Interest"), or (ii) all or a substantial portion of its facilities ("Facilities") (either or both, the "Assets"), it will so notify the USWA in writing and grant to the USWA the right to organize a transaction to purchase the Assets. In no case, however, shall the Company enter into any agreement or understanding to sell the Assets without first complying with the provisions of this letter unless compliance with such prohibition would, based upon an opinion of counsel, constitute a breach by an director of such director's obligations to the Company or its shareholders. For purposes of this provision, a Controlling Interest shall be defined as fifty percent (50%) of the common equity stock of the Company or with respect to a business entity, the power to direct, but not merely influence, the management and policies of such business entity, directly or indirectly, whether through voting power or by contract or otherwise. b. Subject to the USWA and the Company entering into a Confidentiality Agreement, the Company will provide the USWA with information and access to Company personnel and facilities needed to determine whether it wishes to make an offer. Such information and access shall be of the type customarily provided to similarly situated prospective purchasers for such Assets. 74 75 Mr. Dallas Alexander February 18, 1998 Page 2 - ------------------------- c. During the first thirty (30) days from the date the Company notifies the USWA pursuant to Paragraph 1.a above, the Company will not enter into a contract for the sale of the Assets unless compliance with such prohibition would, based upon an opinion of counsel, constitute a breach by any director of such director's obligations to the Company and its shareholders. The USWA shall be entitled to submit a written offer to purchase the Assets at any time during such thirty (30) day period. d. During the next sixty (60) day period, the Company will be free to accept offers from other entities for the Assets and the USWA will be entitled to submit an offer during such period if submitted prior to acceptance by the Company of such other entity's offer. During such period, the Company shall provide the USWA five (5) business days notice prior to accepting an offer from an entity other than the USWA. e. In the event the thirty (30) day period referred to in Paragraph 1.c has elapsed, the Company shall be entitled, subject to this Paragraph 1.e and Paragraph 1.f, to enter into an agreement to sell such Assets to any purchaser, including the USWA, provided that such a transaction must close within one (1) year after the end of such period. If the Assets have not been sold during such one (1) year period, the Company must comply again with the provisions of this letter agreement before selling such Assets. f. In the event that the USWA submits an offer within the time periods set forth in paragraphs 1.c or 1.d above and prior to the Company's acceptance of an offer during the period set forth in 1.d above, the terms of this paragraph shall apply. The Company shall be entitled to enter into a binding purchase agreement with regard to the Assets with an entity other than the USWA provided that the transaction contemplated by such purchase agreement is, in the reasonable business judgement of the Board of Directors of the Company, more favorable to the Company than the USWA offer. In evaluating such offers, the Board of Directors of the Company may take into account any relevant factors, such as, without limitation, the purchase price, form of consideration, down payment, break up fees, security, structure, timing, identity of the offeror, risk of non- consummation, impact on business of the Company, other obligations of the Company and other relevant legal, contractual, financial and political considerations. Nothing contained herein shall require the Company to accept any offer by an entity, including the USWA, for the purchase of the Assets. In the 75 76 Mr. Dallas Alexander February 18, 1998 Page 3 - --------------------- event that the Company elects to accept an offer, the Company shall not be under any obligation to accept an offer from the USWA if it is not the most favorable offer or to negotiate with the USWA concerning such offer. 2. The rights granted the USWA under this letter agreement may not be transferred or assigned by the USWA except that its rights may be assigned to and exercised by an acquisition entity established by or for the USWA-represented employees covered by the above-referenced labor agreement; and, further provided, that said employees shall own directly or indirectly through an employee stock ownership (or similar) plan, a material portion of the voting equity interests in such acquisition entity. 3. Notwithstanding the foregoing, the Company's failure to abide by the provisions of this Agreement shall not be the basis of preventing the sale of assets; rather, the remedy of the USWA shall be limited to actual damages which the Company and the USWA agree shall be limited to not more than $10 million. 4. This Agreement shall remain in effect for the term of the Agreement between the USWA and Geneva Steel Company, dated May 1, 1998 (the "Collective Bargaining Agreement") and shall expire at the termination date of said Collective Bargaining Agreement. 5. Notwithstanding any other term of this Agreement, the provisions of this Agreement shall be of no legal effect to the extent such terms are inconsistent with the duties and obligations of the Company under any financing agreement previously entered into in good faith by the Company. The foregoing right to bid shall not be deemed to cover an offering of registered securities that are sold to greater than twelve (12) investors. 6. "Confidentiality Agreement" as used herein shall mean a written agreement which is reasonably acceptable to the Company and entered into between the Company and a prospective purchaser (including, if applicable, the USWA) governing the furnishing, confidential treatment and use of any non-public, proprietary and/or confidential information, whether written or oral, which the Company may provide to a prospective purchaser regarding the Company and/or Assets the Company may offer for sale. In the event the Company and the USWA are unable to agree upon, and execute, such a Confidentiality Agreement, the Company shall not be obligated to deliver to the USWA any of said non-public, proprietary and/or confidential information. 76 77 Mr. Dallas Alexander February 18, 1998 Page 4 - ------------------------ If the foregoing confirms our mutual understandings and agreements, please sign and return to me the duplicate original copy of this letter agreement at your earliest opportunity. Sincerely, GENEVA STEEL COMPANY By: /s/ Carl E. Ramnitz -------------------------------------- Carl E. Ramnitz Vice President Human Resources ACKNOWLEDGED AND AGREED TO this ____day of ______1998. UNITED STEELWORKERS OF AMERICA By: /s/ Dallas Alexander ----------------------------- Dallas Alexander 77 78 APPENDIX L PARTIES TO THE AGREEMENT The parties to this Agreement shall be the United Steelworkers of America (the "Union" or the "USWA") and Geneva Steel Company ("Geneva" or the "Company") and any future Parent Company. Geneva agrees that it will not consummate a transaction, the result of which would cause the Company to come under the Control of another company or business entity ("Parent Company") without first ensuring that said Parent Company becomes a signatory to this Agreement. The foregoing sentence shall not apply to an offering of registered securities that are sold to greater than twelve (12) investors. For purposes of this Appendix L, Control shall be defined as ownership of fifty percent (50%) of the common equity of the Company. 78 79 APPENDIX M LETTER OF AGREEMENT ON NEUTRALITY February 18, 1998 Mr. Dallas Alexander United Steelworkers of America Subdistrict 5 5300 South 360 West, Suite 350 Murray, Utah 84123 Dear Mr. Alexander: This will confirm our understanding reached during the 1998 Negotiations. A. NEUTRALITY The Company and the Union agree that the Company's continued success and our employee's continued job security hinge upon a constructive and harmonious relationship between the Company and the Union built on trust, integrity, and mutual respect. We are committed to continuing efforts to foster and maintain such a relationship. We also know from experience that when both parties are involved in an organizing campaign directed at unrepresented Company employees there is a risk that election conduct and campaign activities may have a harmful effect on parties' relationship. Therefore, it is incumbent on both parties to take appropriate steps to insure that all facets of an organizing campaign will be conducted in a constructive and positive manner which does not misrepresent to employees the facts and circumstances surrounding their employment and in a manner which neither demeans the Company or the Union as an organization nor their respective representatives as individuals. To underscore the Company's commitment in this matter, it agrees to adopt a position of neutrality in the event that the Union seeks to represent any non-represented employees of the Company. Neutrality means that the Company shall not, in any way, hinder the Union's conduct of an organizing campaign, nor shall it demean the Union as an organization or its representatives 79 80 Mr. Dallas Alexander February 18, 1998 Page 2 - ------------------- as individuals. Also, the Company shall not provide any support or assistance of any kind to any person or group opposing Union organization of the Company's employees. For its part, the Union agrees that all facets of its organizing campaign will be conducted in a constructive and positive manner which does not misrepresent to employees the facts and circumstances surrounding their employment. The Union shall not hinder the Company's conduct of its business nor shall it demean the Company as an organization or its representatives as individuals. The Company's commitment to remain neutral shall cease if during the course of an organizing campaign, the Union or its agents intentionally or repeatedly (after having the matter called to the Union's attention) misrepresent to the employees the facts and circumstances surrounding their employment or conduct a campaign demeaning the integrity or character of the Company or its representatives. B. HIRING 1. For all hiring in a Covered Workplace (as defined in Section F-4 herein) in any unit(s) appropriate for bargaining (prior to the existence of a Collective Bargaining Agreement), the Company shall extend preferential consideration in hiring over outside applicants to qualified interested employees covered by this Labor Agreement with the USWA (including laid off employees hereunder), all in accordance with the following. 2. The Company shall treat applicants who are employees covered by this Labor Agreement as presumptively qualified for such hiring if they perform or have performed the same or similar jobs as those to be filled. Nevertheless, it is understood that the Company shall have the right to reject a particular applicant covered by this Labor Agreement, provided that the Company can demonstrate that such applicant lacks reasonable and necessary qualifications or that other applicants are more relevantly qualified, and provided further that this Company right shall not be used for the purpose of defeating the existence of a Union majority among the representative complement of employees in such bargaining unit(s). In addition, the Company reserves the right to reject applicants to preclude an unreasonable dilution of skills at an existing facility. 80 81 Mr. Dallas Alexander February 18, 1998 Page 3 - -------------------- 3. In determining whether to hire any applicant at a Covered Workplace (whether or not such applicant is an employee covered by this Labor Agreement), the Company shall refrain from using any interview, test, or other selection procedure designed and intended, among other things, to eliminate or otherwise disadvantage applicants based on their attitudes or behavior toward unions or collective bargaining. 4. In each case covered hereunder, the parties shall meet prior to any hiring to discuss in good faith the detailed application of the above principles and to develop procedures for the consideration and hiring of interested employees covered by the Company's Labor Agreement with the USWA. C. SCOPE OF THE UNIT As soon as practicable after notification by the Union of its interest in organizing unrepresented employees, the parties will meet to attempt to reach an agreement on any issues relating to the scope, appropriateness and makeup of the unit sought by the USWA. In the event that the Company and the Union are unable to agree on any such issues, either party may refer the matter to the Dispute Resolution Procedure contained in Section H of this Neutrality Agreement. D. ACCESS TO COMPANY FACILITIES Upon written request, such request to be made no more frequently than twice a year, the Company shall grant access to its facilities to the Union for an elapsed period not to exceed sixty (60) days for the purpose of distributing literature and meeting with unrepresented Company employees. Distribution of Union literature shall not compromise safety or production or disrupt access or egress. Distribution of Union literature inside Company facilities and meetings with unrepresented Company employees inside Company facilities shall be limited to non-work areas during non-work time. Union representatives shall notify appropriate Company labor relations officials before engaging in the above activities to schedule access to Company facilities and arrange for access, including, if requested, tables in non-work areas and shall not disrupt the normal business of the facility. 81 82 Mr. Dallas Alexander February 18, 1998 Page 4 - ---------------------- E. UNION RECOGNITION In the event that the Union demands recognition on the basis of a card majority, the parties will request that the American Arbitration Association, or other mutually agreeable third-party neutral, conduct a card check within ten (10) days of the making of the request. The American Arbitration Association or third-party neutral shall compare the authorization cards submitted by the Union against original handwriting exemplars of the entire bargaining unit furnished by the Company and shall determine if a simple majority of the eligible employees has signed cards. The list of eligible employees shall be jointly prepared by the Union and the Company. If the Union secures a simple majority of authorization cards, as certified in the procedure described above, of the employees in an appropriate bargaining unit, the Company, and any other entity required to do so under the terms of this letter agreement, shall recognize the Union as the exclusive representative of such employees without a secret ballot election conducted by the National Labor Relations Board. The authorization cards must unambiguously state that the signing employees desire to designate the Union as their exclusive representative for collective bargaining purposes. F. SCOPE OF THIS NEUTRALITY AND RECOGNITION AGREEMENT 1. Rules with Respect to Affiliates and Parent Corporation For purposes of this letter agreement, the Company also includes (in addition to the Company): (i) any business entity which owns a controlling interest in the Company (a "Parent Company"), (ii) any Affiliate of a Parent Company (any one or combination of (i) and (ii) a "Related Party") or (iii) any Affiliate of the Company, and the obligations and commitments in this letter applicable to the Company are applicable to a Related Party and/or any Affiliate of the Company. For purposes of this letter agreement, "Affiliate" means any business entity, including but not limited to, a corporation, partnership or limited liability company, in which the company now (i) owns, directly or indirectly, more than fifty percent (50%) of the equity of such entity or (ii) exercises Control. 82 83 Mr. Dallas Alexander February 18, 1998 Page 5 - ---------------------- For purposes of this letter agreement, "Control" or "Controlling Interest" when used with respect to any business entity means the power to direct, but not merely influence, the management and policies of such business entity, directly or indirectly, whether through voting power or by contract or otherwise. 2. Rules with Respect to Other Covered Entities a. For purposes of this letter agreement, Other Covered Entity means any business entity, including but not limited to, a corporation, partnership or limited liability company, engaged in the Business, in which the Company currently has an investment or makes an investment after the date hereof and in which the Company directly or indirectly: (i) owns more than forty percent (40%) of the entity of such entity or (ii) owns less than forty percent (40%) equity interest, but (a) becomes a material investor (equal to at least twenty percent (20%) of the equity ownership of the entity), (b) makes a material investment or series of investments (which in the aggregate are equal to at least twenty-five percent (25%) of the book equity of the Company at the time such investment(s) is (are) made) or (c) exercises Control over the entity. Other Covered Entity shall also include any business entity including, but not limited to a corporation, partnership or limited liability company, engaged in the Business, in which the Company holds less than a forty percent (40%) equity interest and in which the Company and other companies which are obligated to the Union under a "Neutrality" provision similar to the provisions hereof hold interests which when combined with the Company's interest constitute a Controlling Interest. It is understood that the relationship between the Company and any Affiliate or Other Covered Entity shall be a "Covered Relationship." For purposes of this letter agreement, the "Business" means (i) the mining, refining, processing, production, handling, or transportation of raw materials used in the making of steel, (ii) steelmaking, steel-finishing, steel-processing or steel-fabricating or (iii) other similar business. b. The Company shall not hereafter enter into any agreement or arrangements which would, by virtue of such agreement or arrangement, create an "Other Covered Entity" without first ensuring that said Other Covered Entity adopts this letter agreement, but solely with respect to the other Covered Entity and any entity thereafter created, directly or indirectly, by said Other Covered Entity. 83 84 Mr. Dallas Alexander February 18, 1998 Page 6 - ---------------------- c. With respect to any entity with which the Company currently has a Covered Relationship, the Company shall cause such Other Covered Entity to become party to this Neutrality Agreement and achieve compliance with its provisions. 3. Rules with Respect to a Parent Company The Company agrees that it will not consummate a transaction, the result of which would directly or indirectly cause the Company to come under the Control of another Company (a "New Parent") without first ensuring that said New Parent to the extent it is engaged in the Business, and any entity that is engaged in the Business with which the New Parent thereafter establishes a Covered Relationship, agrees to be bound by this Neutrality Agreement. This paragraph shall not apply to an offering of registered securities that are sold to greater than 12 investors. 4. Covered Workplace For purposes of this Neutrality Agreement a "Covered Workplace" shall mean any workplace which employs or intends to employ employees who are eligible to become represented by a labor organization and which is required to adopt this letter agreement pursuant to the terms hereof. G. BARGAINING IN NEWLY-ORGANIZED UNITS Where the Company recognizes the Union pursuant to the above procedures, the parties shall meet within fourteen (14) days to begin negotiations for a collective bargaining agreement covering the new bargaining unit. The Union agrees that the new collective bargaining agreement shall reflect the spirit of partnership between the Company and the Union and that the model for such new agreement with regard to employment security, work systems and working conditions shall be the current contract between the Union and the Company, modified with respect to wages, benefits and practices to take into account the industry and the geographic location of the newly organized entity. If, after sixty (60) days from the commencement of such negotiations, the parties are unable to successfully negotiate a labor agreement, the matter shall be submitted to interest arbitration in accordance with procedures to be developed by the parties. 84 85 Mr. Dallas Alexander February 18, 1998 Page 7 - ------------------------ H. DISPUTE RESOLUTION Any alleged violation or dispute involving the terms of the foregoing, including unit determination, may be brought by either party to a Joint Board of Arbitration made up of one (1) representative each of the Company and the Union. If the alleged violation or dispute cannot be resolved by the Joint Board of Arbitration such dispute shall be referred to an arbitrator selected from the Arbitration Panel. A hearing shall be held fourteen (14) days from the referral and the arbitrator shall issue a decision within five (5) days thereafter. Such decision shall be in writing but need only succinctly explain the basis for the findings. All decisions by the arbitrator pursuant to this letter shall be based on the terms of this letter and the applicable provisions of the law. GENEVA STEEL COMPANY By: /s/ Carl E. Ramnitz ---------------------------------- Carl E. Ramnitz Vice President Human Resources ACKNOWLEDGED AND AGREED TO this ____day of _____________1998. UNITED STEELWORKERS OF AMERICA By: /s/ Dallas Alexander ------------------------------ Dallas Alexander 85 86 APPENDIX N PARTNERSHIP AGREEMENT MEMORANDUM OF UNDERSTANDING ON UNION AND EMPLOYEE INVOLVEMENT SECTION 1 -- PURPOSE AND INTENT. The Union and the Company agree that their goal is to attain the objectives set forth in this Memorandum. They also agree that these goals can best be accomplished when information and decision-making authority as well as responsibility are shared at all levels of the business. Accordingly, the parties have agreed to work toward the objective of establishing a strategic partnership. This commitment to working together on an ongoing basis must extend from the Board Room and the Executive Office to the Shop Floor and the Union offices and be driven by a shared vision of the needs for continuous improvement in joint decision-making processes, employee participation, the parties' relationship, and all aspects of the business. The purpose of this Memorandum is to provide a framework for Union and employee participation in joint decision making; full and continuing access by appropriate Union representatives to the books, records and information relevant to the purposes and objectives of this Memorandum; encouraging the implementation of new and innovative approaches to the way work is performed; and the establishment of a comprehensive training and education program, all as further described herein. The parties recognize that the changes contemplated by this Memorandum must evolve. Accordingly, the local parties must have the flexibility to design participative structures that best meet their needs at any given time and that can change as Company circumstances and experience warrant. SECTION 2 -- OBJECTIVES. In furtherance of their understanding on long-term employment security, the parties have agreed to pursue the following objectives and commitments: A. Improving the quality, service, productivity and competitiveness of the business and its products and seeking profitability on a sustained basis; 86 87 B. Work environments that are safer, fairer, more equitable, less authoritarian and less stressful; C. The ability to respond rapidly to changes in the marketplace, in products and in customer needs; D. Increased worker responsibility and influence in workplace decision-making; E. Joint mechanisms by which technology will serve the interests of both the business and the workers affected by the change; F. Full and timely access by the Union and all employees to information concerning Company decisions affecting the working lives of employees; G. Understanding the current state of competitiveness and its relationship to "World Class" standards; H. Reduction of all overhead costs, including managerial, supervisory, and other non-bargaining costs; I. Encouraging the use of problem solving approaches to issues; J. Commitment to higher skill development, better jobs, education and more productive utilization of a skilled work force; K. Compliance with public policy and environmental laws and regulations; L. Acceptance and support by the Company of the Union and acknowledgment of its role as an essential vehicle in attaining these objectives; M. Acceptance and support by the Union of the Company and acknowledgment by the Union of its role as an essential vehicle in attaining these objectives. SECTION 3 -- FULL AND CONTINUING ACCESS TO INFORMATION. At all times during the term of the Basic Labor Agreement, appropriate Union representatives (including consultants and advisors) shall have access to financial and operational information that is relevant to the development and implementation of the Business Plan as well as reasonable access to Company employees and advisors who are responsible for such information. As used in this Memorandum, the term "Business Plan" shall refer to the Company's short-term business plan and long-term strategic and operating plan, including such elements as those involving products, pricing, markets, capital spending, short and long-term cash flow forecasts, and the method and manner of funding or financing the Business Plan. 87 88 Without limiting the foregoing, the Company shall provide the appropriate Union representatives with early practicable notification of any contemplated significant transactions involving mergers, acquisitions, and continuing updates regarding dispositions, joint ventures and new facilities to be constructed or established by the Company, its subsidiaries, joint ventures, or other entities in which the Company has a financial interest. Access to and the use of the types of information described in this paragraph will be covered by a confidentiality agreement in form and substance satisfactory to the parties. The Union will provide the Company with information regarding Union activities, organizational changes, bargaining and political objectives, other plans or developments that might affect the Company and appropriate access to the Union officers and its Executive Board. SECTION 4 -- COMPREHENSIVE TRAINING AND EDUCATION PROGRAM FOR COMMITTEE MEMBERS, BARGAINING UNIT EMPLOYEES, AND NON-BARGAINING UNIT EMPLOYEES. The parties recognize that the goals of this Memorandum can be attained only by a commitment to comprehensive and ongoing training and education. Accordingly, the Joint Leadership Committee (described below) shall establish training programs necessary to the purposes of this Memorandum. Without limiting the comprehensiveness or continuity of the training and education required by this Memorandum, such activities will, unless otherwise agreed to, include at least the following minimum standards and guidelines: A. Both Company and Union representatives shall receive training by their respective organizations in how, consistent with their organization's goals, they can accomplish the objectives of this Memorandum through participation and involvement activities and such training shall, unless otherwise agreed to, include up to the following levels, it being understood that during the first year of this Agreement the following are minimum levels: 1. All members of the Joint Leadership Committee and Facilitators and Assistants: five (5) days per year. 2. All members of the Department Boards and any Joint Problem Solving Teams: twelve days per year. 3. All other leadership figures of the local parties to this Memorandum: five (5) days per year. B. By mutual agreement, the Joint Leadership Committee shall sponsor a program for at least annual orientation and appropriate training of all members of joint committees created under this Memorandum. 88 89 C. The Joint Leadership Committee shall develop a training program designed to increase the skills of Bargaining Unit and Non-Bargaining Unit employees concerning the purposes of this Memorandum. Such program shall commence with instruction on how best to pursue organizational objectives through participation activities, such instruction to satisfy the following minimum levels: for Bargaining Unit employees, a one-day Union-taught orientation session; for front line supervisors, managers, and other excluded personnel a one-day management-taught orientation session. D. The Company shall fund all training programs referred to in this Section. This shall include reasonable and necessary expenses incurred by employees and employee time spent in such training as though it were time worked and employees shall suffer no loss of earnings as a result thereof. The Joint Leadership Committee shall establish reasonable policies and procedures for the application of this paragraph. E. Training referred to in this Section, other than Union training, shall be jointly developed and implemented. SECTION 5 -- PARTNERSHIP MECHANISMS. A. Joint Leadership Committee 1. Appointment and Composition A Joint Leadership Committee ("J.L.C.") shall be established. The Co-Chairmen of this Board will be Chief Executive Officer of the Company and the District Director. The other members shall include the Vice President-Human Resources, plant manager of the plant, the Union staff representative, the Local Union President, and Local Union members appointed by the Local Union President. If any one of the designated Union representatives is serving on a similar committee at another steel company (to which the Company objects) or is otherwise unable to serve on the J.L.C., the District Director shall appoint an alternate. The J.L.C. total number of members shall not exceed ten and shall have an equal number of management and Union representatives. 2. Meetings a. The J.L.C. shall hold its meetings at least quarterly and, whenever possible, in conjunction with the Company's business planning meetings. These meetings will be for the purpose of reviewing and ensuring progress in the development and implementation of Partnership programs. A 89 90 review of and discussion of the current business status and future outlook for the Company will be a regular agenda item at these meetings. b. All members of the J.L.C. shall have the opportunity to attend and participate on a monthly basis in a normal staff meeting of top management officials. Such members of the J.L.C. shall give reasonable advance notice of their desire to attend any such meeting and shall cooperate with the Company in the scheduling and arranging of such attendance and participation, the availability of which shall not be unreasonably withheld by the Company. Nothing in this Memorandum shall permit the Union members of the J.L.C. to participate in the portion of any managerial meetings in which the subject matter involves the Company's strategy for collective bargaining negotiations, grievances and other labor relations issues or legal claims, including, without limitation, lawsuits or administrative proceedings involving the Union or employees of the Company, salaried compensation, management development activities, and similar personnel matters. 3. Information Subject to Section 3, the Joint Leadership Committee shall receive detailed and in-depth reports regarding all significant business and labor matters relating to: the Business Plan; technological changes and plans; manpower planning; safety and health measures; customer evaluation; major organizational issues; facilities utilization; and other significant issues and concerns raised by the members of the J.L.C. 4. Reports Consistent with Section 2 above, the J.L.C. shall report to Local Union and management personnel (which shall include all members of Plant-wide and Department-level Boards as well as any Problem Solving Committees they may establish) on matters such as: activities of the J.L.C., major issues being considered by the J.L.C. and information relevant thereto; other information to keep the Local Union leadership and management informed and capable of further discussion of issues related to the Plant and the Union. 5. Role of the Joint Leadership Committee a. The Union members of the Joint Leadership Committee shall have joint decision-making authority with respect to the Business Plan as defined in section 3 above as well as significant technological changes as defined in Section 5.A.(6)(b) of this Memorandum. 90 91 b. The J.L.C. will be responsible for developing and implementing programs to achieve the objectives of Section 2 of this Memorandum. c. The Joint Leadership Committee shall work toward achieving improved productivity levels through the Plant, bearing in mind the competition in the products produced at the Plant. To this end, the J.L.C. shall have the ongoing responsibility to ensure that they and the Department-level Boards (described below): (1) Understand and communicate the current state of competitiveness and its relationship to "World Class" standards. (2) Identify areas and activities for special emphasis on improvement, and work with the appropriate Departmental Boards in implementing plans for such improvements. (3) Identify and address inter-departmental, inter-unit or other barriers which are impeding improvement. (4) Monitor the management of employees available as a result of productivity improvements and the value received from their efforts. (5) Establish budgets for partnership programs. 6. Scope of Responsibility a. Workplace Redesign (1) Authorization At the request of the J.L.C. (which shall include the assent of a majority of the union members of the J.L.C.) The parties may agree to establish an Approved Work Redesign Program. An Approved Work Redesign Program within the meaning of this Memorandum is a workplace redesign program that includes: the establishment of operating work groups or teams of self-directed work teams or groups; or the implementation of other new and improved ways of performing work. (2) Required Elements 91 92 Any workplace redesign program in the bargaining unit that involves the establishment of operating work groups or teams or self-directed work teams or groups must be: a joint endeavor; cause the workplace to be more open, more safe, more equitable, less authoritarian and less stressful; eliminate unnecessary supervision; change the role of supervisors from directing to coaching; and give the workers greater influence, responsibility and input into day-to-day operations, including, if the J.L.C. so determines, planning, scheduling and administrative functions not traditionally performed by bargaining unit members. b. Technological Change The J.L.C. shall establish a new technology development and implementation program (Technological Change Program) which shall include the following elements: (1) Advance Notice The Company shall provide the J.L.C. advance notice of any proposed significant technological change no later than the time the Company's outline of various options with respect thereto is first developed. Such notice shall be in writing, shall contain to the extent possible supporting information outlined below, and shall include updates of new or revised information necessary to full and current understanding of the proposed change. In the case of emergency technological changes, the Company shall give the maximum notice and information possible under the circumstances. (2) Information Within the time periods referred to above, the Company shall give the J.L.C. the following information: (a) a description of the purpose and function of the technological change, and how it would fit into existing operations and processes; (b) the estimated cost of the technology, a cost justification of it, and the proposed timetable for it; 92 93 (c) disclosure of any service or maintenance warranties or contracts provided or required by the vendor (if any); (d) the number and type of jobs (both inside and outside the bargaining unit) which would be changed, added, or eliminated by the technological change; (e) the anticipated impact on the skill requirements of the work force; (f) details of any training programs connected with the new technology (including duration, content, and who will perform the training); (g) an outline of other options which were considered by the Company before formulating its proposed changes; and (h) the expected impact of the change on job content, pace of work, safety and health training needs, and contracting out. Union representatives on the J.L.C. may request and receive reasonable access to Company personnel knowledgeable about any proposed technological change (including outside consultants) to review, discuss, and receive follow-up information concerning any technological changes proposed by the Company or Union or their effects on the bargaining unit. The use of the information contemplated by this subsection will be covered by a confidentiality agreement in form and substance satisfactory to the parties. (3) Union Joint Decision-making Authority with Respect to Technological Change The Union members of the J.L.C. shall have joint decision-making authority with their Company counterparts over both the decision to make technological change and the effects of such change. With respect to the effects of such change they shall consider the following: the number and type of jobs required by the changed technology; the skill and training requirements for each such job; the details of any new or changed training associated with the technology; the inclusion of such job in the bargaining unit; any new work rules or operating procedures associated with the 93 94 technology; and any health, safety, or environmental programs required by the technology. (4) As used herein, the term "technology" shall mean significant advances in machinery, equipment, controls and materials, and changes in software that significantly change the content of bargaining unit jobs. The phrase "technological change" shall mean introduction of new technology, significant changes in existing technology, or both. B. Department-level Boards 1. The J.L.C. shall establish Department-level Board Committees in specific departments or operational units for purposes as outlined herein, and as agreed to by the parties. The Department-level Board Union co-chair shall be appointed by the Local Union President and the Company co-chair shall be appointed by management. Additional members of the Department Board Committee shall be drawn equally from the Company and Union. 2. Department Boards shall study matters assigned to them by the J.L.C. or as they may agree upon and report any findings back to the J.L.C. Such matters may relate to, among other things, continuous improvement in quality, customer satisfaction, productivity, costs, job enrichment/enhancement, safety and improved work life. Upon direction of the J.L.C., Department Boards may: (i) devise measurements and goals to meet plans adopted by the J.L.C.; and (ii) be responsible for communicating plans, results, business information, and overall employee involvement updates to the employees in their area and to the Joint Leadership Committee. 3. Department Boards shall receive the resources (including problem solving training and information) necessary for them to determine the best solution to specific problems. They shall not have the authority to modify, detract, or delete any portion of the Local Seniority Agreement or the Basic Labor Agreement. C. Problem Solving Teams 1. The J.L.C. may create one or more Problem Solving Teams to study and report back on a specific problem or project. They shall receive the 94 95 resources (including problem solving training and information) necessary for them to determine the best solution to specific problems. SECTION 6 -- EMPLOYEE COMMUNICATIONS. A. Critical to the accomplishment of the objectives of this Memorandum is timely, ongoing, and unimpeded communication between and among the committees created by this Memorandum and employees. Accordingly, the parties agree as follows: 1. The results of any meetings of Joint Committees created by this Memorandum, including the information and opinions exchanged, the conclusions reached, and the level of participation achieved may be conveyed as the parties shall decide to all employees through their working groups by joint communication from Union representatives and department supervision. 2. J.L.C. shall encourage behaviors, attitudes, forums, and opportunities that enlist the know-how and ingenuity of workers in achieving the goals of this Memorandum. The J.L.C. may convene meetings of any combination of employees, Department Boards, and Problem Solving Committees to advance the purposes of this Memorandum. 3. As the activities fostered by this Memorandum proceed, it is expected that joint committees will need to consult with and observe the work of committees at other Plants outside the Company. The J.L.C. may consider appropriate means for disseminating reports of the activities of the Department Boards or Problem Solving Teams among each other. SECTION 7 -- SAFEGUARDS AND RESOURCES. A. No joint committee may amend or modify the Basic Labor Agreement. B. No committee authorized by this Memorandum may effect any action with respect to contractual grievances. C. Service on any Plant-wide, Departmental, or Problem Solving Team created under this Memorandum shall be voluntary. D. The Union will strive to be a full participant in the processes and mechanisms established by this Memorandum and Bargaining Unit employees will be encouraged and expected to perform their duties within the parameters established 95 96 hereunder. However, no employee may be disciplined or discharged for lack of commitment to participation or involvement processes. E. Employee participation and training shall normally occur during normal work hours and the employee shall be compensated and reimbursed in the same manner as set forth in Section 4.D. above. F. No committee established under this Memorandum may recommend or effect the hiring, discipline, or discharge of any employee. G. At the invitation of the Co-Chairs of any committee created hereunder, appropriate Union representatives, Company representatives or outside experts may attend a Committee meeting. H. All meeting time and necessary and reasonable expenses of joint committees shall be paid for by the Company and employees attending such meetings shall be compensated and reimbursed in the same manner as set forth in Section 4.D. above. I. Union members on joint committees shall be entitled to: adequate opportunity on Company time to caucus for purposes of study, preparation, consultation, and review, and shall be compensated and reimbursed in the same manner as set forth in Section 4.D. above. Requests for caucus time shall be made to the appropriate Company management representative in a timely manner, and such requests shall not be unreasonably denied. J. Joint committees may agree to employ experts from within or outside the Company as consultants, advisors or instructors and such experts shall be jointly selected and assigned. K. Decisions on the selection or retention of facilitators shall be made by the J.L.C. whose members shall give due regard for the needs of their constituents. SECTION 8 -- FINAL DECISION MAKING AUTHORITY. A. The parties have entered into this Partnership Agreement for the purpose of making the Union and the employees participants in the joint decision making process of the Company. After sharing information and fully discussing and exchanging ideas and fully considering all views about issues of mutual interest and concern to the parties, decisions should be reached that are satisfactory to all. It shall be the goal of the Committee to abide by a consensus decision-making 96 97 model in rendering decisions, resolving issues and implementing plans for the success and well-being of the enterprise and its employees. The Joint Leadership Committee shall bear responsibility for making decisions and resolving issues relative to development and implementation of policies and procedures (as well as the nature of employee involvement) in matters which regard, but are not limited to, the following: 1. Counseling with respect to work-related problems; 2. Monitoring compensation plans, if any, agreed upon by the parties, such as bonus payment plans; 3. Interpersonal skill development for all members of the enterprise through training in leadership, consensus decision-making, issue resolution and team building; and 4. Establishment of mutually agreed upon work patterns and schedules. B. Finally, in the event joint decision-making is unable to produce agreement over a matter as to which, absent this Memorandum, management has the right to make a unilateral decision, the management person responsible shall have the right to make a final decision concerning such matter, and such decision shall not be subject to the grievance procedure. With respect to any matter in this Memorandum which deals, in part, with various matters as to which Management has not heretofore had the unilateral right to make decisions, this Memorandum gives Management no greater right to make unilateral decisions regarding such matters than it would have in the absence of this Memorandum. In all events, the process of decision making under this Memorandum (including the full participation of the Union representatives and employees in the process as provided in this Memorandum and the Company's commitments concerning information, access, and training in this Memorandum) is subject to the grievance procedure and arbitration. As to a particular decision, the Company's failure to follow the procedural requirements of this Memorandum shall not be the basis for preventing the implementation of that decision. The dispute shall be heard by an Arbitrator provided for under the grievance and arbitration provisions of the Collective Bargaining Agreement. 97 98 April 14, 1998 Mr. Dallas Alexander United Steelworkers of America Subdistrict 5 5300 South 360 West, Suite 350 Murray, Utah 84123 Dear Dallas: As part of the 1998 labor agreement, the parties have entered into a comprehensive partnership agreement that includes a joint effort to accomplish gains in productivity and to take advantage of attrition by instituting modern work practices. In order to help assure the success of this extremely important program, the company and union agree that the newly established Joint Leadership Committee will immediately explore upon its establishment the assignment of a Bargaining Unit employee as a full-time facilitator assigned to work under the direction of the co-chairs of the partnership committee. Sincerely yours, GENEVA STEEL COMPANY By: /s/ Carl E. Ramnitz ------------------------------------ Carl E. Ramnitz Vice President Human Resources ACKNOWLEDGED AND AGREED TO this ____ day of _______________, 1998. UNITED STEELWORKERS OF AMERICA By: /s/ Dallas Alexander ------------------------------------- Dallas Alexander 98 99 APPENDIX O MEMORANDUM OF UNDERSTANDING ON THE REVITALIZATION OF TRADE AND CRAFT TRAINING The parties are committed to the establishment and preservation of a highly skilled, efficient maintenance workforce in sufficient number to carry out a successful maintenance program. It is also their purpose to accomplish the foregoing as much as possible with Bargaining Unit employees. Therefore the following shall apply: A. Trade and Craft Review Committee Within three (3) months of the effective date of the 1998 Basic Labor Agreement, the local parties will establish a Joint Trade and Craft Plan Committee, made up of two (2) representatives designated by the Local Union, and an equal number of representatives designated by the Company, at least one (1) of whom shall be experienced in maintenance supervision or maintenance management. The Committee will meet regularly and will receive required technical assistance from appropriate Company or Union resources. B. Study of Trade and Craft Workforce The Committee will be responsible for examining the present maintenance workforce, considering such future changes in maintenance requirements that can be identified, and developing the specific information described below: 1. determine the number of maintenance employees in each trade or craft; 2. develop an age profile for all craft employees; 3. assess the anticipated attrition rates for the maintenance workforce over the next five (5) years; 4. assess the availability of employees in the plant's workforce who are qualified to enter craft training programs; 5. identify potential avenues by which employees can receive basic education training to qualify for craft training programs; 6. evaluate the appropriateness of existing and new craft training programs, and the necessity of developing additional craft training programs, giving due 99 100 consideration to changing technology and future skill needs. Recommend changes to standards, type, and length of training as appropriate. 7. examine current craft overtime levels; 8. examine methods by which productivity can be improved through additional training of craft employees; 9. examine the plant's projected new construction, replacement, and rehabilitation programs during the next five years, recognizing that such programs are susceptible to termination, modification, and scheduling change, and assess potential craft involvement in such work; and 10. assess the level of plant trade and craft forces necessary to meet reasonably anticipated long-term future maintenance needs, bearing in mind all the above items and given the anticipated modernization and possible future workforce restructuring. The Study will commence immediately upon the establishment of the Committee. C. Maintenance Training Plan Within six (6) months from the date of its establishment, the Committee will submit a report to the Union Sub-district director and the Company Vice President of Human Resources, setting forth its findings with respect to the matters set forth in Section B. In addition, the Committee will develop a recommendation for implementation of a Trade and Craft Training Plan designed to fill anticipated maintenance needs. The recommended plan will include an implementation date, the minimum number of employees to be trained or retrained in each trade or craft within a defined period, the method of training, and provisions for upgrading the skills of incumbent trade or craft employees. In developing the plan, the following guidelines/goals shall apply: 1. provide sufficient number of trained trade and craft employees to meet long-term future maintenance needs, without the use of excessive overtime, and in accordance with the contracting out provisions of the Basic Labor Agreement, bearing in mind anticipated modernization and possible future workforce restructuring; 2. make reasonable efforts to draw qualifiable trainees for trade and craft occupations from the ranks of the current workforce; and 100 101 3. complete training as quickly as feasible, consistent with the actual requirements of the trade or craft job, as determined by the Committee, and giving due consideration to the cost of such training. The Committee report will include separate statements by the parties with respect to any finding or recommendation to which they disagree. D. Action by the Union and Company (i.e. District Director & Vice President of Human Resources) Within sixty (60) days of receipt of the report submitted by the Committee, the Chairmen may: (1) approve an agreed-upon plan submitted by the parties; (2) modify any plan as they may mutually agree; or (3) disagree, in whole or in part, with respect to any recommendations contained in a submitted plan. With respect to any plan components as to which the Chairmen disagree, the dispute will be promptly referred to an Arbitrator selected from the Arbitration Panel, the arbitration to be conducted pursuant to procedures to be agreed upon by the Chairmen of the Committee. The dispute will be resolved on the basis of a "final offer" submission by the parties at a hearing. The Arbitrator will determine which of the submissions best meets the guidelines and goals spelled out in Section C of this Memorandum of Understanding. The Arbitrator shall have the power to determine the procedures pursuant to which the hearing is conducted. E. Preservation of Plan Except where the training or continued training of additional trade and craft employees is no longer justified due to changed conditions such as depressed economic periods and/or facility shutdowns, the agreed to plan shall not be discontinued during the term of the Basic Labor Agreement. Approved by: GENEVA STEEL COMPANY UNITED STEELWORKERS OF AMERICA By: /s/ Carl E. Ramnitz By: /s/ Dallas Alexander ----------------------------- -------------------------------- Carl E. Ramnitz Dallas Alexander Date:___________________________ Date:_______________________________ 101 102 APPENDIX P JOINT REVIEW OF OUTSIDE COMMERCIAL ENTITIES Mr. Dallas Alexander United Steelworkers of America Subdistrict 5 5300 South 360 West, Suite 350 Murray, Utah 84123 Dear Mr. Alexander: During the 1998 negotiations, the Union expressed interest in improving the quality of the Company's purchasing and supply relationships. This letter will serve to confirm our understandings on this subject. In our discussions, the Company confirmed that it already seeks to promote a practice of using only vendors and suppliers meeting minimum standards of corporate responsibility. In this connection, the Union has raised two concerns: first, as a procedural matter, that the Union be given a voice in the selection of bidders, suppliers, vendors, providers, consultants, and the like (hereinafter "Outside Commercial Entitles") meeting the criteria for business responsibility outlined in this letter of understanding; and second, that the parties' joint definition of "responsible" Outside Commercial Entities be clarified to include respect for and compliance with the public policies and other standards enumerated below. The parties agree that a joint committee consisting of three members appointed by the Company and three members appointed by the Union will be established (the "OCE Committee") within 60 days to review all arrangements (new or existing) with Outside Commercial Entities which, prior to the establishment of the OCE Committee, fell within the responsibility of Management. In conducting their review and approval process, the OCE Committee shall consider as its decision-making criteria the performance of the Outside Commercial Entities with respect to the following: * cost, service and competitive bidding; * performance in achieving safe and healthful workplaces and compliance with applicable occupational safety and health laws and regulations; * adherence to employment and workplace laws and regulations, including Title VII of the Civil Rights Act, Executive Orders on equal employment opportunity and the Americans with Disabilities Act; 102 103 * environmental record and performance under applicable environmental law and regulation; and * demonstrated commitment to the creation and retention of high-skill, high paying jobs in America, particularly in those communities in which the Company operates. As soon as practicable after the effective date of this Agreement, the OCE Committee shall adopt a plan for the systematic and regular review of the Company's relationships with outside commercial entities. In the event joint review is unable to produce agreement over a matter as to which, absent this letter, management has the right to make a unilateral decision, the management person responsible shall have the right to make a final decision concerning such matter, and such decision shall not be subject to the grievance procedure. This letter of understanding shall not be construed to affect any rights and obligations of the parties under the contracting out clause of the Basic Labor Agreement. Sincerely yours, GENEVA STEEL COMPANY BY: /s/ Carl E. Ramnitz ------------------------------------- Carl E. Ramnitz Vice President of Human Resources ACKNOWLEDGED AND AGREED TO this ____ day of ____________, 1998. UNITED STEELWORKERS OF AMERICA By: /s/ Dallas Alexander --------------------------------- Its:____________________________ 103 104 APPENDIX Q LEAVE OF ABSENCE POLICY FOR INTERNATIONAL UNION EMPLOYEES March 17, 1998 Mr. Dallas Alexander United Steelworkers of America Subdistrict 5 5300 South 360 West, Suite 350 Murray, Utah 84123 Dear Dallas: The Subject of Company leaves of absence for employees who leave their employment with the Company to become employees or elected officials of the International Union (International Union employees or elected officials shall not for definition purposes of this policy include any local Union employees or elected officials) was discussed by the parties during the negotiations. 1. As a result of that discussion, the parties have reached the following agreement with respect to any person who: (a) First becomes an Officer or Director of the International Union after April 1, 1998 or (b) Becomes an employee of the International Union and whose probationary period expires on or after April 1, 1998. (c) Was an Officer or Director or employee of the International Union prior to April 1, 1998, but was not as of that date accruing service for Company pension purposes (for time spent as an Officer, Director or employee of the International Union) pursuant to a valid agreement providing for such accrual. 2. An individual described in paragraph 1 shall be granted a leave of absence from the Company concurrent with the period of his permanent employment with the International Union. 104 105 Mr. Dallas Alexander Page 2 March 17, 1998 - ----------------------- 3. Once an individual described in paragraph 1 is made a permanent employee of the International Union (by completing his probationary period) that person shall, from that point forward and while he retains his leave of absence status with the Company, not receive any service credit for Company pension purposes. 4. Such person shall accumulate continuous service for purposes of recall to employment and for all other purposes under the Labor Agreement, except pensions, provided that he shall not be entitled to receive any contractual benefits during the period of his leave of absence or receive retiree health care benefits from the Company if he is eligible for coverage in the International Union health care plan for retirees. Very truly yours, Carl E. Ramnitz Vice President Human Resources Confirmed: /s/ Dallas Alexander - ----------------------------- Dallas Alexander Date: - ------------------------------ 105 106 APPENDIX R FAMILY AND MEDICAL LEAVE ACT The Company and the Union affirm their compliance with and implementation of the Family and Medical Leave Act of 1993 (FMLA) and further agree to the following particulars regarding employee eligibility and entitlement. 1. GENERAL A. The FMLA provides for up to twelve (12) weeks of unpaid leave each year for eligible employees to take care of a serious health condition of certain family members or of employees themselves, and for the birth, adoption or foster placement of a child. The law also requires the continuation of certain benefits under certain conditions while on leave and includes certain notice requirements in order to obtain the leave. B. A copy of the summary of the law and employee rights thereunder is available at the Employee Benefits Office and will be issued upon request and at the time any FMLA leave is requested. The required posting under FMLA will be maintained by the Company. C. FMLA under this Appendix shall be available to any employee who has six (6) months or more of continuous service as calculated pursuant to the Seniority provisions of the Labor Agreement. D. This Appendix shall become effective on April 1, 1998. Any covered employee then on leave of absence which would otherwise be covered under the FMLA will be designated on FMLA leave beginning April 1, 1998. An employee already on designated FMLA leave as of April 1, 1998 will not begin a new 12-week maximum leave entitlement, but will be subject to all other terms and conditions of this Appendix. 2. ELIGIBILITY AND ENTITLEMENT A. There shall be no hours worked requirement for the twelve (12) months preceding the start of the leave. B. The twelve (12) weeks unpaid leave entitlement under the FMLA shall be measured on a rolling twelve (12) month period measured backward from the date any FMLA leave is used. 106 107 C. A pregnant employee who continues at work until certified as totally disabled shall, effective at the conclusion of the period of disability, be entitled to a Parental Leave for a period of up to twelve (12) weeks. 3. INTERMITTENT OR REDUCED LEAVE SCHEDULING A. An employee seeking leave in other than continuous weeks must certify to Management why such schedule is necessary, and must schedule the time off in the manner least disruptive to the Plant's operating needs. B. Where leave is sought other than in full day increments, the employee may be assigned by Management to any available position consistent with the Collective Bargaining Agreement and paid an equivalent rate for that position, for the portion of the shift actually worked. The employee may not displace anyone who was assigned to the employee's normal position for the period of absence except at Management's discretion. C. Where leave is sought in increments of less than a full work week, if Management, consistent with the Collective Bargaining Agreement, is able to accommodate the need for time off by adjusting the employee's work schedule (including, but not limited to, altering the shift assignment or the scheduled workdays), no leave need be provided. D. Where leave is requested in other than continuous weeks and where Management considers it desirable to do so in order to avoid disruption to the operation, absent mutual agreement between the parties the employee may be assigned to an open comparable position, without regard to the employee's own seniority, for the period of time during which intermittent leave may be required. The employee shall be paid an equivalent rate for the assigned position. 4. NOTICE A. In the case of unforeseeable leave sought for care of the serious health condition of the employee or a family member, the Department Head and Employee Benefits Office shall be notified as soon as possible (within forty-eight hours) of learning of the need for leave, and the need, expected duration, and schedule of the leave explained. 1. In the case of such leave, following the initial notice provided above, a written notice shall be provided as soon as possible, but in no event more than fifteen (15) calendar days from the time the need for the leave arises. This notice shall be accompanied by a certification signed by the attending physician or other health care provider and shall include: 107 108 (a) the date on which the condition commenced; (b) the probable duration of the condition; (c) appropriate medical information regarding diagnosis, regimen of treatment and need for hospitalization, sufficient to enable the Company to reasonably review the request; and (d) medical information for employee's serious health condition that he is unable to perform work, or for family member why it is necessary for the employee to provide care to the family member and an estimate of the amount of the employee's time necessary for that care. 2. Where the leave is to be taken in other than a single continuous period of time, the notice shall also include: (a) the date on which the medical treatment is expected to be given; (b) the duration of such treatment; (c) the medical necessity for leave to be granted on an intermittent basis; and (d) the expected duration of the need for an intermittent schedule. 3. Certification forms can be obtained from the Employee Benefits Office. 5. PAY DURING FMLA LEAVE A. Employees seeking FMLA leave under this Appendix may be required by management to utilize up to one week of unused paid vacation in either single days or a full week. B. An employee may request to utilize additional paid vacation during the FMLA leave time. Management reserves the right to approve such a request where it involves a change in the vacation schedule. C. Except for the substitution of paid vacation and the utilization of Sickness and Accident, or Workers' Compensation benefits, all time off provided shall be unpaid. Time off without pay granted pursuant to the FMLA shall be considered as time not worked through choice of the employee and may not be utilized in connection with a claim by the employee under any provision of this Agreement for any wages, benefit or entitlement, eligibility for which is related to hours worked unless the employee otherwise meets the eligibility requirements for such wage, benefit or entitlement. This exclusion includes, but is not limited to, such matters as reporting pay, overtime, profit-sharing, PDP, guaranteed hours, holiday pay, or short week benefit. 108 109 6. TERMINATION OF LEAVE A. The anticipated duration of the leave sought shall be established at the time the leave is granted. Upon termination of a leave, the employee shall be reinstated to the same or an equivalent position as that held at the time the leave commenced, consistent with his seniority, unless there was an intervening event including but not limited to a reorganization or force reduction. In the latter event, the employee shall be reinstated to the same position or status which would have been held after the intervening event if leave had not been taken. B. An employee who wishes to return from leave prior to the scheduled return date must give the Department Head and Employee Benefits Office twelve (12) days notice of his desire to return, unless the Employee Benefits Office agrees to a shorter period in a particular case. C. An employee on FMLA will be eligible for sickness and accident benefits in the event of an illness or injury arising during the FMLA leave, if all other requirements for S & A eligibility are met. At the end of eligibility for S & A benefits, the employee may return to FMLA leave status, if eligible, until the date FMLA leave was originally scheduled to end. The weeks for which S & A benefits are paid will not be counted toward the 12-week maximum. 7. CONTINUOUS SERVICE Leave of absence under this program shall not constitute a break in the employee's length of continuous service, and the period of such leave shall be included in his length of continuous service under the Labor and Benefits Agreements. 8. BENEFIT CONTINUATION A. All employees will continue in benefit coverage during such leave, provided the employee is otherwise eligible for such coverage under provisions of the FMLA and the employee continues making any normally required premium or other payments in a manner acceptable to the Company. B. In the event an employee fails to return to work or quits after the employee's FMLA leave period has been concluded, the Company will waive its right to seek to recover health insurance premiums for health insurance coverage provided by the Company during such leave, notwithstanding the provision of the FMLA which permits recovery of health insurance premiums under specified circumstances. 109 110 9. GOOD FAITH EFFORTS In the event problems develop in implementing this Appendix, whether as a result of changes in the law or regulations or otherwise, the parties agree to use their best efforts to resolve them in a manner designed to assure minimal disruption to the operation, minimize absenteeism, and provide an employee the time necessary to meet family and personal emergencies and obligations. 110 111 APPENDIX S EMPLOYMENT SECURITY PLAN A. EFFECTIVE DATE 1. This Employment Security Plan (ESP) shall become effective for eligible employees, as defined in Paragraph C below, the first full week following the effective date of this Agreement. B. GUARANTEE 1. Employees eligible for this ESP may not be laid off during the term of this Agreement except as provided below. If a disaster occurs, the ESP will be terminated. For the purposes of this agreement, disaster is defined as: a. The permanent shutdown of the plant. b. A petition in bankruptcy for reorganization or liquidation is filed, and the Court finds that it is necessary to reject this agreement and issues an order under the bankruptcy laws authorizing such rejection. c. Severe financial difficulties short of bankruptcy filing. Such financial difficulties must represent a clear and present danger to the Company's viability. Disputes concerning this paragraph shall be subject to immediate arbitration pursuant to a special emergency procedure to be agreed upon by the parties, but in no event longer than 30 calendar days from a request by either for arbitration. Termination can occur under this paragraph only by mutual agreement of the parties or upon a finding by the arbitrator that the financial difficulty asserted by the Company does in fact represent a clear and present danger to the Company's continued viability. 2. In addition, in the event of a strike, or work stoppage by employees covered by the Basic Labor Agreement, the ESP will be suspended for the duration of such strike or work stoppage. 3. In addition, in the event of a breakdown or outage which is expected to last for two (2) weeks or more, the ESP may, by mutual agreement, be suspended for affected employees only, for the duration of the breakdown or outage. 111 112 4. Should a strike or work stoppage by others, or a natural disaster, result in a need to reduce planned work activity, the ESP may, by mutual agreement, be suspended until normal operations are restored. 5. In addition, in the event of a significant decrease in the level of plant operations which is expected to last less than six months, employees affected by the decrease in the level of plant operations and eligible for this ESP pursuant to Paragraph C below may, by mutual agreement, be temporarily scheduled on a thirty-two (32) hours a week basis. Any implementation issues or procedures that arise under this paragraph will be addressed by the local plant implementation committee. 6. In the case of a permanent shutdown of a department or a substantial portion of a department, layoffs will be permitted but only in accordance with the following: a. The appropriate local parties shall promptly meet and consider alternatives designed to provide employment to displaced employees, in accordance with agreed-upon procedures. Absent agreement, subsection b. Shall apply. b. Displaced employees in such departments or displaced employees on occupations traditionally, routinely, and regularly dedicated primarily to such departments, and displaced maintenance employees who are displaced from their line of progression as a result of a shutdown of the department or a substantial portion of the department shall be entitled to displace junior employees in accordance with existing seniority rights and labor pool rights. Displaced employees, including those displaced as the result of the exercise of bumping rights referred to in this subparagraph, may be laid off and, if laid off, shall have no entitlement to the protections of this ESP until they are subsequently recalled and become eligible for such protection pursuant to the provisions of this ESP. c. "Substantial portion" of a department shall be determined in a manner consistent with the way that term is generally understood in the basic steel industry. 7. The guarantee provided to active eligible employees by this ESP, except as provided in paragraph 5, is defined as the opportunity to earn forty (40) hours of pay (including hours paid for but not worked, work opportunities declined by the employee, disciplinary time off, absenteeism, report-off for Union business, but excluding overtime pay and premium pay) during any payroll week. An eligible employee on approved leave of absence or medically laid off during any payroll week shall be considered as having been provided employment security during that week, it being understood that the pay, if any, that such an employee is 112 113 entitled to receive while on approved leave of absence or medical layoff is that provided by applicable law or the labor agreement, not the earning opportunity set forth in the ESP. Similarly, employees working agreed-upon non-normal schedules (i.e., 12 hour, 10 hour, etc.) will be covered in weeks when scheduled fewer than 40 hours but only to the extent of the hours they are normally scheduled during such weeks. C. ELIGIBILITY 1. All employees with at least three years of continuous service and who are active as of April 1, 1998, are eligible for the protections of this ESP. An active employee who does not have a least three years of continuous service as of the effective date of this Plan shall be eligible for this ESP upon attaining three years of continuous service unless he is on layoff at that time, in which case he shall become eligible when he returns to active employment. An employee with three years of continuous service and who is inactive as of the effective date of this Plan shall become eligible for this ESP upon his return to active status. Employees who are laid off in accordance with Paragraph B.6. involving shutdowns that occur after the effective date of this Agreement may become eligible for this ESP only when they return to work. 2. Any full-time employee hired after the effective date of this ESP shall be eligible for this ESP under its provisions upon attaining three years of continuous service, unless he is on layoff at that time, in which case he shall become eligible when he returns to active employment. 3. Employees eligible for employment security must continue to fully satisfy the terms and conditions of employment. D. IMPLEMENTATION The local parties will meet for the purpose of reaching agreement on the implementation of this ESP, including the placement of employees who would have been laid off but for this ESP. Those agreements shall become part of this ESP, and may not be changed except as agreed to by the local plant implementation committee. E. RATE OF PAY An employee who would have been laid off but for this ESP and who is working in a new job assignment shall receive: 1. The established rate of pay, including applicable incentives or bonuses, of the job performed, or 113 114 2. In the case of an assignment not falling within the description of an established job, the rate of pay determined by the local plant implementation committee; however, where the local plant implementation committee is unable to reach agreement, the rate of pay for such an assignment shall be the standard hourly wage rate for Job Class 2. F. VOLUNTARY LAYOFF PRACTICES AND AGREEMENTS 1. Upon the effective date of this ESP, all existing practices, agreements, or working conditions which permit voluntary layoffs will be maintained. No employee who elects voluntary layoff shall be disqualified from or lose accrual toward long term layoff protection benefits if, while he is on such layoff, a triggering event under Paragraph B occurs which precludes the employee's return to active employment. G. EXISTING RIGHTS 1. Except as expressly provided in this ESP, nothing in the ESP shall interfere with, limit, detract from, or adversely affect in any way the rights and obligations of the parties set forth in other provisions of the Basic Labor Agreement. 114 115 April 9, 1998 Mr. Dallas Alexander United Steelworkers of America Subdistrict 5 5300 South 360 West, Suite 350 Murray, Utah 84123 Re: Productivity Dear Mr. Alexander: The parties recognize that employment security and productivity improvements are inseparably linked to attaining sustained profitability. Accordingly, the parties agree to the following in order to maximize the effective utilization of the work force and equipment and to achieve continuous improvement through attrition and by implementing new and innovative approaches to the way work is performed. 1. To accomplish gains in productivity and take advantage of attrition to the fullest extent possible, the Partnership Committee will work vigorously to institute modern work practices which can include, but are not limited to, self-directed work teams, job restructuring, seniority unit restructuring, job assignment changes, operator-assisted maintenance, and practice and scheduling changes. 2. This process will be managed by the Partnership Committee which may call upon Department Level Board Committees to facilitate changes agreed to pursuant to this letter to avoid filling or backfilling attrition vacancies. The Participation Teams will have a duty and responsibility to work in good faith to facilitate attrition-based force reductions and to drive continuous improvement through the establishment of measurements of performances and productivity goals. Goals will be based on a continual improvement in the Company's competitive position. 3. In November of each year, the Partnership Committee will develop a proposed attrition-based force reduction plan and the respective measurements of performance for the coming year. The pace of work force reductions will be continuously monitored by the Partnership Committee. On or about October 1 of each year, an assessment will be made of the attrition reductions to date. In the event that attrition is occurring at a rate which will substantially exceed or fail to reach any goals adopted pursuant to this letter, the parties will modify the attrition reduction plan for the following year. 115 116 Mr. Dallas Alexander April 9, 1998 Page 2 - ------------------------- 4. This agreement shall become a part of the Employment Security Plan. Very truly yours, GENEVA STEEL COMPANY By: /s/ Carl E. Ramnitz ------------------------------------ Carl E. Ramnitz Vice President Human Resources ACKNOWLEDGED AND AGREED TO this ____ day of April, 1998. UNITED STEELWORKERS OF AMERICA By: /s/ Dallas Alexander ----------------------------- Dallas Alexander 116 117 MEMORANDUM OF AGREEMENT JOB ASSIGNMENTS FROM THE EMPLOYMENT SECURITY POOL Pursuant to Section D of the Employment Security Plan (the "Plan"), the parties agree as follows: 1. Any eligible employee who, absent the Plan would have been laid off after exercising all seniority rights, including applicable seniority pool rights, shall be placed in the Employment Security Pool. 2. Any employee in the Employment Security Pool may be assigned such duties as the Company elects, including but not limited to: a. Training or retraining. b. Any bargaining unit work which would otherwise be contracted out; provided, however, that such assignment shall be without prejudice to any right the Company may have to contract out such work and shall be deemed to not interrupt an otherwise consistent practice under Article I in the Agreement. c. Any bargaining unit work which could be performed at regular rates, rather than at overtime rates. d. Any work which otherwise would not be performed; provided, however, that the Company may discontinue such work at any time. e. Any bargaining unit work for which no employee not in the Employment Security Pool has a permanent right. f. Any work normally performed by non-bargaining unit personnel; provided, however, that such assignment shall be without prejudice to the Company's right to discontinue the assignment of such work to Bargaining Unit employees. 3. Any employee assigned to the Pool will not have the right to select an assignment within the Pool regardless of seniority. 4. Any employee who would otherwise be assigned to the Employment Security Pool has at the time of such demotion the option of taking a voluntary layoff. If the voluntary layoff is selected, the employee is required to stay on layoff for thirty (30) calendar days, unless called back to a job above the Employment Security Pool. If the employee would like to return to work after thirty (30) days, and is otherwise entitled to work pursuant to the terms of the Employment Security Plan, the employee must sign a return to work slip at the Geneva Employment Office. Such employee will be returned to work the week following submission of the signed request. 117 118 This agreement shall become a part of the Plan. UNITED STEELWORKERS OF AMERICA GENEVA STEEL COMPANY By: /s/ Dallas Alexander By: /s/ Carl E. Ramnitz -------------------------- ------------------------- Dallas Alexander Carl E. Ramnitz 118 119 April 9, 1998 Mr. Dallas Alexander United Steelworkers of America Subdistrict 5 5300 South 360 West, Suite 350 Murray, Utah 84123 Re: Employment Security Implementation Committee Dear Mr. Alexander: With the adoption of the Employment Security Plan, the parties agree to the establishment of an implementation committee to address issues that may arise under the Plan. An Implementation Committee shall be established in the plant, and shall be comprised of at least three members appointed by the Local Union and an equal number appointed by the Company. The Implementation Committee shall meet weekly to resolve, consistent with the Labor Agreement, any implementation issue that may arise. After the ESP has been in place, the Committee shall meet as required, or upon the request of three committee members. The costs of meeting, including lost time if necessary, shall be met by the Company. Very truly yours, GENEVA STEEL COMPANY By: /s/ Carl E. Ramnitz ------------------------------------ Carl E. Ramnitz Vice President Human Resources ACKNOWLEDGED AND AGREED TO this ____ day of April, 1998. UNITED STEELWORKERS OF AMERICA By: /s/ Dallas Alexander --------------------------------- Dallas Alexander 119 120 April 16, 1998 Mr. Dallas Alexander United Steelworkers of America Subdistrict 5 5300 South 360 West, Suite 350 Murray, Utah 84123 Dear Mr. Alexander: In connection with our establishment of an Employment Security Plan ("ESP") as a part of the 1998 Labor Agreement, it was agreed that the provisions of Paragraph B.6. relating to the shutdown of a department or a substantial portion thereof, should apply to employees displaced as a result of certain changes in technology. For purposes of this letter, changes in technology shall be defined as installation of (i) additional or new slab heating capacity (e.g., walking beam furnace), (ii) new technology for ironmaking (e.g., Hismelt, Corex), (iii) tilting spouts at the blast furnace, or (iv) substantial pipe mill modernization. Very truly yours, GENEVA STEEL COMPANY By: /s/ Carl E. Ramnitz ------------------------------------ Carl E. Ramnitz Vice President Human Resources ACKNOWLEDGED AND AGREED TO this ____ day of April, 1998. UNITED STEELWORKERS OF AMERICA By: /s/ Dallas Alexander --------------------------------- Dallas Alexander 120 121 April 16, 1998 Mr. Dallas Alexander United Steelworkers of America Subdistrict 5 5300 South 360 West, Suite 350 Murray, Utah 84123 Re: Employment Security Dear Mr. Alexander: In recognition of Geneva Steel's size, and geographical location, the parties have agreed that notwithstanding any other provision of this Employment Security Plan ("ESP"): The ESP shall be suspended on the first day of the first calendar week immediately following any week in which the actual or scheduled production on the 132" Mill falls below 34,885 tons per week. The Company will not sell slabs purposely to erode the work performed by the Bargaining Unit through application of the foregoing sentence. The ESP shall be similarly suspended, but only with respect to the number of employees directly or indirectly affected thereby, in the event that the actual turns on the Pipe Mill fall below ten (10) eight (8) hour turns per week and/or hot-rolled, flat-plate production on the 132" Mill falls below 5,581 tons per week. If actual or scheduled production returns to a level above the foregoing levels for a four (4) week period, the ESP will be reinstated on the first day of the first calendar week immediately following four (4) week period. Very truly yours, GENEVA STEEL COMPANY By: /s/ Carl E. Ramnitz ------------------------------------ Carl E. Ramnitz Vice President Human Resources ACKNOWLEDGED AND AGREED TO this ____ day of April, 1998. UNITED STEELWORKERS OF AMERICA By: /s/ Dallas Alexander --------------------------------- Dallas Alexander 121 122 April 16, 1998 Mr. Dallas Alexander United Steelworkers of America Subdistrict 5 5300 South 360 West, Suite 350 Murray, Utah 84123 Re: Employment Security Dear Mr. Alexander: Notwithstanding any other provision of the ESP, the layoff protections afforded thereunder shall not apply (i) September 1, 1998, or (ii) when the number of employees permanently separated from employment (quits and retirements) after the date hereof, in addition to those on layoff, reaches a total of 200, whichever comes first. Very truly yours, GENEVA STEEL COMPANY By: /s/ Carl E. Ramnitz ------------------------------------- Carl E. Ramnitz Vice President Human Resources ACKNOWLEDGED AND AGREED TO this ____ day of April, 1998. UNITED STEELWORKERS OF AMERICA By: /s/ Dallas Alexander ---------------------------------- Dallas Alexander 122 123 APPENDIX T LETTER OF AGREEMENT RE: CONTRACTING OUT Mr. Dallas Alexander District 12, Subdistrict 5 United Steelworkers of America 5300 S. 360 W., Suite 350 Murray, Utah 84123 Dear Mr. Alexander: This letter will confirm an understanding reached in the 1998 negotiations. In that bargaining, the Union sought clarification of an issue arising under the contracting out provisions of other steel company basic labor agreements. The Union pointed to a group of arbitration decisions addressing the question whether the assignment or transfer of bargaining unit work to other company locations outside the bargaining unit or to other units at the same location (represented by unions other than the USWA) falls within the provisions of the contracting out clause. At least one reported case answers in the affirmative, while other decisions go the other way. In our 1998 negotiations, the Union advanced persuasive reasons for why our contracting out clause, as currently proposed, adopts the approach of the affirmative decision referred to above. Nonetheless, to clarify the point and remove any doubt, the Union sought this letter of understanding to express our mutual agreement on the point. Accordingly, the contracting out clause of our agreement shall be understood to apply to the assignment or transfer of bargaining work to other company locations outside the bargaining unit. Sincerely, GENEVA STEEL COMPANY By: /s/ Carl E. Ramnitz ------------------------------------ Carl E. Ramnitz Vice President Human Resources 123 124 Mr. Dallas Alexander Subdistrict 5 United Steelworkers of America 5300 South 360 West, Suite 350 Murray, Utah 84123 Re: Letter Agreement on Work, i.e., "As Is, Where Is" Dear Mr. Alexander: This will confirm our understanding that an "As Is, Where Is," sale of assets is a legitimate commercial transaction that is a business decision not designed to deprive Bargaining Unit employees of work assignments. If such sale of assets involves the use of a vendor or contractor to perform a service (i.e. scrap preparation) and such assets are returned for the Company's use or sale as part of the transaction, such transaction shall be considered as contracting out and subject to the provisions of Article 1, Section 3 of this Agreement. "As Is, Where Is" shall be deemed to include only assets sold in-place at the Company and shall exclude natural resources. Sincerely, GENEVA STEEL COMPANY By: /s/ Carl E. Ramnitz --------------------------------- Carl E. Ramnitz Vice President Human Resources ACKNOWLEDGED AND AGREED TO this ____ day of ___________, 1998. UNITED STEELWORKERS OF AMERICA By: /s/ Dallas Alexander -------------------------------- Dallas Alexander 124 EX-10.36 7 SECOND AMENDMENT TO TACONITE PELLET SALES AGRMNT. 1 Exhibit 10.36 SECOND AMENDMENT TO TACONITE PELLET SALES AGREEMENT THIS SECOND AMENDMENT TO TACONITE PELLET SALES AGREEMENT (the "Amendment") is made and entered into as of the 30th day of September, 1998 by and between GENEVA STEEL COMPANY, a Utah corporation ("Buyer") and USX CORPORATION, a Delaware corporation ("Seller"). WITNESSETH: WHEREAS, Buyer and Seller heretofore entered into a certain TACONITE PELLET SALES AGREEMENT, effective (by its terms) as of September 1, 1994, as amended on July 25, 1997 (collectively, the "Agreement") covering Buyer's purchase and Seller's sale of taconite pellets in accordance with the terms and conditions as provided under the Agreement; and WHEREAS, Buyer and Seller, for various business-related reasons, mutually desire to amend the term and certain other provisions of the Agreement as hereinafter provided. NOW, THEREFORE, in consideration of the foregoing premises and the covenants herein contained, Buyer and Seller, intending to be legally bound, hereby agree as follows: 1. Term. Article I of the Agreement is hereby amended by substituting the date "December 31, 1999" in lieu of the date "August 31, 1999" in the second line thereof. 2. Quantity. Article II, Section A of the Agreement is hereby amended by inserting "December 31, 1999" in lieu of "August 31, 1999" in the last line of the table of Minimum Tons and Maximum Tons for each Contract Year of the Agreement as set forth in said Section A. 2 3. Fifth Contract Year. Article V, Section E of the Agreement is hereby amended by substituting the date "December 31, 1999" in lieu of the date "August 31, 1999" in the seventh and eight lines of said Section E. IN WITNESS WHEREOF, Buyer and Seller have caused this Amendment to be executed by their respective authorized representatives, effective on the day and year first above written. GENEVA STEEL COMPANY a Utah corporation By: /s/ Ken C. Johnsen -------------------------------- Ken C. Johnsen Executive Vice President USX CORPORATION a Delaware corporation By: /s/ Keith H. Jansen -------------------------------- Its: Director-Raw Materials 2 EX-13 8 SELECT PORTIONS OF THE ANNUAL REPORT 1 Exhibit 13 SELECTED FINANCIAL DATA (Dollars in thousands, except per share and per ton data)
OPERATING STATISTICS 1998 1997 1996 1995 1994 --------- --------- --------- -------- --------- Net sales $ 720,453 $ 726,669 $ 712,657 $665,699 $ 486,062 Gross margin 61,321 60,691 50,350 71,508 15,514 Income (loss) from operations 21,394 38,204 25,729 47,713 (6,791) Income (loss) before extraordinary item (18,943) (1,268) (7,238) 11,604 (16,696) Net income (loss) (18,943) (1,268) (7,238) 11,604 (26,230) Net income (loss) applicable to common shares (30,715) (11,608) (16,327) 3,606 (33,276) Diluted net income (loss) per common share before extraordinary item (1.90) (.74) (1.07) .24 (1.57) Diluted net income (loss) per common share (1.90) (.74) (1.07) .24 (2.20) BALANCE SHEET STATISTICS Cash and cash equivalents $ -- $ -- $ 597 $ 12,808 $ -- Working capital (298,416) 67,063 71,065 33,045 46,797 Current ratio .39 1.66 1.64 1.29 1.49 Net property, plant and equipment 411,174 458,315 454,523 470,390 453,286 Total assets 605,165 646,070 657,386 628,797 606,815 Long-term debt -- 399,906 388,431 342,033 357,348 Redeemable preferred stock 56,917 56,169 55,437 51,031 43,032 Stockholders' equity 53,208 82,603 92,827 108,074 103,664 Long-term debt as a percentage of stockholders' equity -- 484% 418% 316% 345% ADDITIONAL STATISTICS Operating income (loss) per ton shipped $ 10.68 $ 17.90 $ 12.00 $ 24.99 $ (4.63) Capital expenditures (1) 10,893 47,724 26,378 68,025 164,918 Depreciation and amortization 44,182 44,959 44,415 39,308 29,870 Cash flows from operating activities 25,847 32,070 (19,520) 84,130 (28,018) Raw steel production (tons in thousands) 2,390 2,460 2,428 2,145 1,890 Steel products shipped (tons in thousands) 2,003 2,135 2,145 1,909 1,467
(1) Capital expenditures for the year ended September 30, 1998 included an offset of $12.5 million relating to an insurance claim settlement. Absent the offset, capital expenditures were $23.4 million for the year ended September 30, 1998. PRICE RANGE OF COMMON STOCK The following table sets forth, for the periods indicated, the high and low sales prices for the Class A common stock as reported on the NYSE Composite Tape.
Fiscal Year Ended September 30, 1997 HIGH LOW First Quarter ended December 31 $ 4 1/2 $ 2 3/4 Second Quarter ended March 31 3 5/8 2 Third Quarter ended June 30 3 1/2 2 1/4 Fourth Quarter ended September 30 4 1/4 2 5/8
Fiscal Year Ended September 30, 1998 HIGH LOW First Quarter ended December 31 $ 3 7/8 $ 1 15/16 Second Quarter ended March 31 3 11/16 1 15/16 Third Quarter ended June 30 4 1/4 2 1/4 Fourth Quarter ended September 30 2 5/8 1 3/16
2 As of November 30, 1998, the Company had 14,700,478 shares of Class A common stock outstanding, held by 654 stockholders of record, and 19,151,348 shares of Class B common stock outstanding, held by five stockholders of record. The Class B common stock is convertible into Class A common stock at ten shares of Class B for one share of Class A. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth the percentage relationship of certain cost and expense items to net sales for the years indicated:
Year Ended September 30, -------------------------------- 1998 1997 1996 ------ ------ ------ Net sales 100.0% 100.0% 100.0% Cost of sales 91.5 91.6 92.9 ------ ------ ------ Gross margin 8.5 8.4 7.1 Selling, general and administrative expenses 3.0 3.1 3.5 Write-down of impaired assets 2.5 -- -- ------ ------ ------ Income from operations 3.0 5.3 3.6 Other income (expense): Interest and other income 0.0 0.0 0.1 Interest expense (5.9) (5.6) (5.1) Other expense -- -- (0.2) ------ ------ ------ Loss before benefit for income taxes (2.9) (0.3) (1.6) Benefit for income taxes (0.3) (0.1) (0.6) ------ ------ ------ Net loss (2.6) (0.2)% (1.0)% ====== ====== ======
The following table sets forth the sales product mix as a percentage of net sales for the years indicated:
Year Ended September 30, ------------------------------ 1998 1997 1996 ------ ------ ------ Plate 62.1% 45.4% 45.0% Sheet 18.2 30.2 29.7 Pipe 10.5 9.6 6.6 Slab 7.0 11.9 15.9 Non-steel 2.2 2.9 2.8 ------ ------ ------ 100.0% 100.0% 100.0% ====== ====== ======
4 Fiscal Year Ended September 30, 1998 Compared With Fiscal Year Ended September 30, 1997 Net sales decreased 0.9% due to decreased shipments of approximately 131,500 tons, mostly offset by an increase in overall average selling prices and a net shift in product mix to higher-priced plate and pipe products from lower-priced sheet and slab products for the year ended September 30, 1998 as compared to the previous fiscal year. The weighted average sales price (net of transportation costs) per ton of plate, pipe, sheet and slab products increased by 0.5%, 2.4%, 1.2% and 2.0%, respectively, in the year ended September 30, 1998 compared to the previous fiscal year. The increases in prices were due primarily to strong steel demand through the first three quarters of the 1998 fiscal year as well as other market factors. Selling prices on all products declined significantly during the fourth quarter of the 1998 fiscal year primarily as a result of increased supply from imports as discussed below. Shipped tonnage of plate and pipe products increased approximately 308,400 tons or 35.0%, and 9,300 tons or 5.5%, respectively, while shipped tonnage of sheet and slab products decreased approximately 294,400 tons or 40.9%, and 154,800 tons or 42.4%, respectively, between the two periods. Consistent with the Company's strategic objectives, plate shipments increased as a result of expanded utilization of outside processors to level and cut plate from coils, improved operations of the Company's cut-to-length facilities and strong demand through June 30, 1998. During the fourth quarter of 1998, 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 increased supply of imports and other market conditions, the Company's overall price realization and shipments will continue to decrease significantly in the first quarter of fiscal year 1999 and are expected to remain at low levels at least through the second quarter of fiscal 1999 and negatively impact the financial performance of the Company during such periods. As of November 30, 1998, the Company had estimated total orders on hand of approximately 74,000 tons compared to approximately 309,000 tons as of November 30, 1997. 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 strength of the United States economy relative to 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 steel industry began experiencing an unprecedented surge in imports. Approximately 40% of recent domestic plate and hot roll sheet consumption has been supplied by imports. Imports have similarly increased in each of the Company's other product lines. The surge in imports from various countries is 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 strong markets for steel consumption. The Company, as well as other domestic steel producers, believes that foreign producers are selling product into the U.S. market at dumped prices and are adversely affecting domestic shipments and pricing. While a previous import surge in 1996 primarily involved only flat plate, the current surge includes all of the Company's products. As a result, from May 1998 to November 1998, the Company's plate and sheet prices fell by 12.2% and 12.7%, respectively. Concurrently, the Company has been forced to reduce production by approximately 50%, resulting in higher costs per ton and production inefficiencies, as well as a significant decline in operating results and cash flow. During September 1998 through November 1998, the Company's total shipments were approximately 302,000 tons as compared to 493,000 tons for the same period in 1997. On September 30, 1998, the Company and eleven other domestic steel producers filed anti-dumping actions against hot- rolled coiled steel imports form Russia, Japan and Brazil (the "Coiled Products Cases"). The group also filed a subsidy (countervailing duty) case against Brazil. In mid November 1998, the International Trade Commission (the "ITC") made a unanimous affirmative preliminary injury determination. Preliminary dumping margins will be announced by the Department of Commerce ("DOC") in February 1999, with final margins announced between May-July 1999. The ITC is expected to make its final injury determination between July-September 1999. If affirmative, the final determinations by the ITC and 5 DOC will result in duties against imported hot-rolled coil products from the offending countries. Under applicable law, the U.S. Administration may settle some or all of the cases if the settlement has the effect of removing the injury or threat of injury caused by the imports. Settlements, called suspension agreements, typically involve import volume and/or price limitations The Company and other U.S. producers will participate in these reviews in support of a five year extension of these orders. The outcome of these reviews cannot currently be predicted. Imports of hot-rolled coil products from the subject countries that arrive in the U.S. after mid-November 1998 are at risk that duties eventually imposed in the Coiled Products Cases could be applied retroactively to that date. Consequently, the Company expects that such imports will likely decline. As a result, the Company expects that its production levels, shipments and pricing of those products will increase as imports decline and excess inventory levels are reduced. There is, however, no assurance that the trade cases will be successful, that duties will be imposed, that imports from countries not named in the Coiled Products Cases will not increase or that domestic shipments or prices will rise. The Company continues to monitor imports of all its products and will very likely 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 such an unprecedented world financial crisis; consequently, imports could pose continuing or increasing problems for the domestic steel industry and the Company. A five year sunset review of anti-dumping countervailing duty orders against the countries on plate will begin November 1999 and should be concluded by the end of 2000. 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 significantly 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 will extend its responsibility for the marketing of the Company's steel products to throughout the continental United States. Mannesmann previously marketed the Company's products in fifteen midwestern states and to certain customers in the eastern United States. The Company expects that this new arrangement will strengthen its domestic sales efforts. The Company's existing sales force will remain Company employees, but will be directed by Mannesmann. The Company has 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. Mannesmann then sells the product to end customers at the same sales price Mannesmann paid the Company plus a variable commission. The Company remains responsible for customer credit and product quality problems. The Company estimates that when fully implemented successfully, the new arrangement will significantly reduce its working capital balances and, as a result, improve the Company's liquidity by approximately $17 to $25 million. Although the Company estimates that full implementation of the Mannesmann agreement will have the foregoing positive net liquidity effect, the agreement will also reduce inventory and accounts receivable balances otherwise included in the Company's borrowing base under the Revolving Credit Facility. Full implementation of the Mannesmann agreement is expected to be completed during the third quarter of fiscal 1999. There can be no assurance that the Mannesmann agreement can be fully implemented quickly or that the new sales approach will be successful. 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, remained relatively constant at 91.5% for the year ended September 30, 1998 as compared to the previous fiscal year as a result of an increase in average selling prices per ton offset by increased product costs per ton. The overall average cost of sales per ton shipped increased approximately $17 per ton between the two periods, primarily as a result of a significant shift in product mix to higher-cost plate and pipe products from lower-cost sheet and slab products and increased operating costs. Operating costs increased as a result of reduced product yields, lower overall production volume, increased depreciation expense, increased wages and benefits and other increased operating costs. These higher costs were partially offset by increased production throughput rates for most products and reduced inbound freight rates. In an effort to reduce labor costs, the Company implemented a voluntary resignation program and an early retirement option during the fiscal year for union-eligible employees. In return for voluntary resignations (excluding retirements), the 6 program provided each of up to 200 active union-eligible employees that submitted their resignations on or prior to July 31, 1998 a one-time, lump-sum payment of $10,000, full vesting in the Company's 401-k and defined contribution pension plans and two-months of additional medical and dental insurance benefits. With respect to voluntary retirements, the program provided for a one-time, lump-sum payment of $10,000 to each of up to 150 active union-eligible employees who voluntarily retire prior to December 31, 1998. This benefit is in addition to any other benefits payable under the collective bargaining agreement. The Company recognized charges in the fourth fiscal quarter of 1998 to reflect the cost of the foregoing programs. Since implementing the programs, the Company has achieved 209 permanent reductions of union-eligible employees through the programs and normal attrition. In addition, the Company has laid off 453 union- eligible employees because of reduced production levels. Since January 1, 1998, the Company has also reduced its non-union workforce by 149 employees through terminations, layoffs and normal attrition. The reductions are one of several steps being taken by the Company to improve short and long-term operating results. The Company anticipates further staff and workforce restructuring as it streamlines business and production processes. Depreciation costs included in cost of sales decreased approximately $0.7 million for the year ended September 30, 1998 compared with the same period in the previous fiscal year. This decrease was due to offsets for depreciation expense previously taken on equipment reimbursed as part of the settlement of an insurance claim relating to a January 1996 power outage (the "Insurance Settlement"). This decrease was partially offset by increases in the asset base as a result of completion of the rolling mill finishing stand upgrades and a reline and repairs to a blast furnace. Selling, general and administrative expenses for the year ended September 30, 1998 decreased approximately $0.4 million as compared to the same period in the previous fiscal year. These lower expenses resulted primarily from selling, general and administrative offsets of $2.1 million recorded as a result of the Insurance Settlement and cost savings related to the staff and support personnel reductions. These lower expenses were offset in part by increased outside services associated with, among other things, training costs relating to implementation of enterprise-wide business systems. Interest expense increased approximately $1.8 million during the year ended September 30, 1998 as compared to the same period in the previous fiscal year as a result of higher average levels of borrowing. For the years ended September 30, 1998 and 1997, the Company recognized a benefit for income taxes by carrying back the loss against income from a prior period. For the year ended September 30, 1998, the Company was only able to carryback a portion of its loss. As of September 30, 1998, the Company has a net operating loss carryforward for book purposes of approximately $6.1 million. Fiscal Year Ended September 30, 1997 Compared With Fiscal Year Ended September 30, 1996 Net sales increased 2.0% due to a shift in product mix to higher-priced pipe and plate products from lower-priced slab products offset in part by a decrease in shipments of approximately 10,200 tons and a decrease in overall average selling prices for the year ended September 30, 1997 as compared to the previous fiscal year. The weighted average sales price (net of transportation costs) per ton of plate, pipe and slab products decreased by 2.4%, 1.6% and 0.6%, respectively, while the weighted average sales price of sheet products increased by 3.5% in the year ended September 30, 1997 compared to the previous fiscal year. The decrease in plate prices was due to continued pricing pressure from unfairly traded imports and other market factors. Shipped tonnage of plate and pipe increased approximately 44,900 tons or 5.4% and 56,300 tons or 50.2%, respectively, while shipped tonnage of sheet and slab products decreased approximately 200 tons or 0.03% and 111,200 tons or 23.3%, respectively, between the two periods. During the third and fourth quarters a shortage of railcars increased costs and caused shipments to be slightly lower than expected. Consistent with the Company's strategic objectives, plate shipments increased, in part through utilization of outside processors to level and cut plate from coils. The Company continued to sell slabs to maximize production from the continuous caster while efforts to increase rolling mill throughput continued. In November 1996, the Company, together with another domestic plate producer, filed anti-dumping petitions with the Department of Commerce and the International Trade Commission against imports of cut-to-length carbon plate from the Russian Federation, Ukraine, the People's Republic of China and the Republic of South Africa (the "Plate Trade Cases"). The petitions alleged large dumping margins and also set forth the injury to the U.S. industry caused by dumped imports from the 7 subject countries. The United States Department of Commerce issued a final affirmative determination of dumping for each country in October 1997, finding substantial dumping margins on cut-to-length steel plate imports from those countries. In December 1997, the International Trade Commission ( "ITC") voted unanimously that the United States industry producing cut-to-length carbon steel plate was injured due to imports of dumped cut-to-length plate from the People's Republic of China, the Russian Federation, Ukraine and the Republic of South Africa. The United States negotiated suspension agreements that became effective upon the affirmative final conclusive determination in November 1997. Those agreements limit imports of cut-to-length carbon steel plate from the four countries to a total of approximately 440,000 tons per year for the next five years, a reduction of about two-thirds from 1996 import levels, and provide import price limits intended to remove the injurious impact of the imports. Any violation or abrogation of the suspension agreements will result in immediate imposition of the dumping duties found by the Commerce Department. The Company's cost of sales, as a percentage of net sales, decreased to 91.6% for the year ended September 30, 1997 from 92.9% for the previous fiscal year as a result of an increase in net sales in fiscal year 1997. The overall average cost of sales per ton shipped increased approximately $3 per ton between the two periods primarily as a result of the shift in product mix to higher-cost plate and pipe products from lower-cost slab products as well as an increase in operating costs. Operating costs increased as a result of increased natural gas and other fuel costs, increased hot metal costs associated with a blast furnace reline and repairs, production disruptions associated with the rolling mill finishing stand upgrades, higher wages and benefits and other increased costs. The increases in costs were partially offset by significant improvements in production yield and throughput rates, although these operating improvements regressed late in the year. Depreciation costs included in cost of sales increased approximately $1.0 million for the year ended September 30, 1997 compared with the previous fiscal year. This increase was due to increases in the asset base resulting primarily from the No. 1 blast furnace reline and repair. Selling, general and administrative expenses for the year ended September 30, 1997 decreased approximately $2.1 million as compared to the previous fiscal year. These lower expenses resulted primarily from Company efforts to reduce administrative staff, to decrease outside services and to reduce other costs. Interest expense increased approximately $4.5 million during the year ended September 30, 1997 as compared to the previous fiscal year, as a result of significantly lower capitalized interest and higher levels of borrowing. The higher levels of borrowing resulted, in part, from the termination of the Company's receivables securitization facility and the termination of the Company's previous prepayment arrangement with Mannesmann. In May 1996, the Company terminated its receivables securitization facility in connection with an amendment to and restatement of the Company's revolving credit facility. As a result, other expense decreased approximately $1.7 million for the year ended September 30, 1998, as compared with the previous fiscal year. Liquidity and Capital Resources The Company's liquidity requirements arise from 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. A portion of the proceeds from the 11 1/8% Senior Notes offering was used to repurchase, at par value, approximately $70 million aggregate principal amount of term debt. 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. The Redeemable Preferred Stock consists of 400,000 shares, no par 8 value, with a liquidation preference of approximately $151 per share as of September 30, 1998. 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 Revolving Credit Facility. Restricted payment limitations under the Company's Senior Notes precluded payment of the quarterly preferred stock dividends beginning with the dividend due June 15, 1996. Unpaid dividends were approximately $25.3 million at September 30, 1998. Based on the Company's current financial situation, the Company does not expect to pay dividends on the Redeemable Preferred Stock in the foreseeable future. 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. Both the Redeemable Preferred Stock and/or the Exchange Debentures are redeemable, at the Company's option, subject to certain redemption premiums. While not affecting net income (loss), dividends and the accretion required over time to amortize the original issue discount associated with the Redeemable Preferred Stock will negatively impact quarterly earnings per share by approximately $.20 per share. 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. 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. A portion of the proceeds from the 9 1/2% Senior Notes offering was used to repay the Company's remaining outstanding term debt of approximately $90 million aggregate principal amount and to pay contractual prepayment premiums of approximately $12.3 million. On May 14, 1996, the Company amended and restated its revolving credit facility (the "Revolving Credit Facility") with a syndicate of banks led by Citicorp USA, Inc., as agent. The Revolving Credit Facility is used primarily for the working capital and capital expenditure needs of the Company. The Revolving Credit Facility, in the amount of up to $125 million, is secured by the Company's inventories, accounts receivable, general intangibles, and proceeds thereof, and expires on May 14, 2000. Interest is payable monthly at the defined base rate (8.50% at September 30, 1998) plus 1.50% or the defined LIBOR rate (5.00% at September 30, 1997) plus 2.75%. The Company pays a monthly commitment fee based on an annual rate of .50% of the average unused portion of the borrowing limit under the Revolving Credit Facility. The amount available to the Company under the Revolving Credit Facility has generally ranged between 50 to 60 percent, in the aggregate, of eligible inventories plus 85 percent of eligible accounts receivable. Borrowing availability under the Revolving Credit Facility is also subject to other financial tests and covenants. As of September 30, 1998, the Company's eligible inventories and accounts receivable supported access to $117.1 million under the Revolving Credit Facility. As of September 30, 1998, the Company had $60.8 million in borrowings and $10.8 million in letters of credit outstanding under the Revolving Credit Facility, leaving $45.5 million in additional borrowing availability. As a consequence of reduced production and sales volumes, the Company's inventory and account receivable borrowing base has declined since September 30, 1998. In addition, borrowings under the Revolving Credit Facility have been used to fund operating losses and reductions in accounts payable. Consequently, the Company's borrowing availability under the Revolving Credit Facility has declined. As of December 18, 1998, borrowing availability was $21.3 million, with $58.2 million in borrowings and $10.8 million in letters of credit outstanding. As the Mannesmann agreement described above is fully implemented, it is expected to generate liquidity for the Company but will also reduce the borrowing base under the Revolving Credit Facility. As a result of the Company's recent financial performance, the Company recently sought and received an amendment to the Revolving Credit Facility with respect to both the tangible net worth and interest coverage covenants, among other things. The Company will require additional modifications, waivers or forbearances to those and other terms of the Revolving Credit Facility prior to January 7, 1999. The Company has held several meetings with the banking group for the Revolving Credit Facility. The Company anticipates that the banking group will grant short-term covenant relief either by way of a waiver or a 9 forbearance with respect to certain potential or actual defaults. The Company believes that such waiver or forbearance would not be granted if the Company intended to make the interest payment due January 15, 1999 on the 9 1/2% Senior Notes, as discussed below. The banking group will, however, continue to closely monitor the Company's liquidity and may withdraw its waiver or forbearance or take other action with respect to, among other things, the terms upon which the Company may borrow or the Company's continued access to borrowings. There can be no assurance that the Company will receive the waiver or forbearance, that the banking group will not require other changes in the terms upon which borrowings under the Revolving Credit Facility are made, or that the banking group will continue to permit the Company to incur borrowings thereunder, in which event the Company's operations would be substantially curtailed and its financial condition materially adversely affected. The terms of the Revolving Credit Facility and of the Company's Senior Notes include cross default and other customary provisions. Financial covenants contained in the Revolving Credit Facility and/or the Senior Notes also include, among others, a limitation on dividends and distributions on capital stock of the Company, a tangible net worth requirement, a cash interest coverage requirement, a cumulative capital expenditure limitation, limitations on the incurrence of additional indebtedness unless certain financial tests are satisfied, a limitation on mergers, consolidations and dispositions of assets and limitations on liens. In the event of a change in control, the Company must offer to purchase all Senior Notes then outstanding at a premium. 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 $25.8 million for the year ended September 30, 1998, as compared with net cash provided by operating activities of $32.1 million for the year ended September 30, 1997. The sources of cash for operating activities during the year ended September 30, 1998, included depreciation and amortization of $44.2 million, a decrease in prepaid expenses of $13.8 million, an increase in accrued liabilities of $1.6 million and an increase in accrued interest payable of $0.5 million. These sources of cash were offset in part by an increase in inventories of $15.1 million, a decrease in accounts payable of $12.2 million, an increase in accounts receivable of $3.3 million, a net loss before the write-down of impaired assets of $3.2 million and a decrease in accrued payroll and related taxes of $0.5 million. Finished goods inventories have increased as a result of, among other things, use of outside processors and transloading centers and increased volumes. On August 11, 1998, the Company settled a lawsuit against Commerce and Industry Insurance Company relating to an insurance claim arising from a January 1996 power outage. Under the terms of the settlement, the Company received $24.5 million in September 1998 ($11.0 million is included above in the decrease in prepaid expenses). The Company is required to make substantial interest payments on the Senior Notes. Currently, the Company's annual cash interest expense, including the Revolving Credit Facility, is approximately $40 million. As a result of reduced shipments and price realization caused primarily by the recent surge in imports of the Company's products, the Company's liquidity has declined significantly. As stated earlier, the Company had approximately $21.3 million in borrowing availability under its Revolving Credit Facility as of December 18, 1998. In light of the uncertainties surrounding both near-term market conditions and continued access to borrowings under the Revolving Credit Facility, the Company has elected to preserve liquidity by not making the interest payment of approximately $9.0 million due January 15, 1999 on the Company's 9 1/2% Senior Notes, which will result in a default under the terms thereof. Such a default, if not timely cured, gives right to the legal remedies available under the relevant bond indenture, including the possibility of acceleration. Similarly, under the terms of the Senior Notes, nonpayment of interest on one of the two series results in a cross default with respect to the other and may violate other terms thereof. The Revolving Credit Facility also contains a similar cross default provision. The Company anticipates that, as a part of the waiver or forbearance described above, the banking group for the Revolving Credit Facility will temporarily waive or forbear from acting upon such a cross default. The Company has retained financial and legal advisors, who are reviewing the financial alternatives available to the Company, including without limitation a possible debt restructuring. On April 17, 1998, the United Steelworkers of America and the Company reached agreement on a new, three year labor contract. The labor agreement includes increases in wages, pensions, and other benefits that are expected to increase the Company's labor costs by an average of slightly more than three percent a year. As a part of the contract, the parties also agreed upon several initiatives intended to improve profitability and assist the Company in restructuring its workforce. The agreement was ratified by the local bargaining unit in May 1998. 10 Capital expenditures were $10.9 million, $47.7 million and $26.4 million for fiscal years 1998, 1997 and 1996, respectively. Capital expenditures for 1998 were lower than expected primarily as a result of the Company reducing certain capital expenditures in light of market conditions late in the fiscal year. Capital expenditures for fiscal year 1999 are estimated at approximately $15 to $20 million, which includes implementation of new business and financial software and various other projects designed to reduce costs and increase product quality and throughput. Given current market conditions and the uncertainties created thereby, the Company is continuing to closely monitor its capital spending levels. The Company is implementing 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 is currently estimated to cost $8.0 to $10.0 million ($5.0 million of which has been spent as of September 30, 1998), with implementation completed in 1999 (see year 2000 discussion below). Depending on market, operational, liquidity and other factors, the Company may elect 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 September 30, 1998, the Company had spent (net of DOE reimbursement) approximately $1.2 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) third party 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 Company is performing final integration testing and validation on various other SAP modules. The human resource and payroll module is expected to be implemented on January 1, 1999. In early 1999, the Company will also implement other SAP modules, including sales and distribution, materials management, production planning, and product costing and other management information systems. The HP hardware, operating systems and software installed are year 2000 ready. The Company expects to test these hardware, operating systems and software applications in early 1999 to confirm year 2000 readiness. 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 expects to work with vendors to test the year 2000 readiness of such hardware, operating systems and software application systems. The Company is also reviewing and testing 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 second quarter of calendar 1999. The Company has significant relationships with various third parties, and the failure of any of these third paries 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, financial institutions, material and product suppliers, 11 transportation providers, and the Company's significant customers. The Company expects to audit/review each major third-party supplier to confirm their year 2000 readiness. The audit/review process will continue into the first and second calendar quarters of 1999. Through September 30, 1998, the Company has incurred approximately $5 million in costs to improve the Company's information technology systems and for year 2000 readiness efforts. Of this amount, most represents the costs of implementing and transitioning to new computer hardware and software for its SAP enterprise-wide business systems. Approximately 90% of these costs have been capitalized. Training and re-engineering efforts have been expensed. The Company anticipates incurring an additional $3 to $5 million in connection with the year 2000 readiness efforts. The Company expects to have all year 2000 readiness efforts completed by September 30, 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 their 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 Company's ability to improve and optimize operations as well as ontime 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 plate and sheet markets, 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 remain lower at least in the first and second fiscal quarters of 1999, the potential commercial and liquidity benefits of the Mannesmann agreement, the successful implementation of the Mannesmann agreement, the Company's anticipated additional personnel reductions among the management and union-eligible employees, the Company's ability to maintain previous personnel reductions, continued access to the Revolving Credit Facility and obtaining a waiver or forbearance with respect to certain potential or actual defaults under the Revolving Credit Facility or the Senior Notes, the future actions of the banking group for the Company's Revolving Credit Facility, the Company's ability to restrict capital spending, the effect of SAP implementation, the Company's plan 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. 12 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, product demand and other market factors such as increased domestic production capacity. The short-term and long-term liquidity of the Company also is dependent upon several other factors, including continued access to the Company's Revolving Credit Facility, reaction to the Company's failure to make the January 15, 1999 interest payment under the 9 1/2% Senior Notes, 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 current financial situation and covenant compliance issues relating to its Revolving Credit Facility and its decision not to pay the January 15 interest payment under the 9 1/2% Senior Notes, the Company's financial flexibility is limited. During the months ahead, the Company will be forced to make difficult decisions regarding, among other things, the future direction and capital structure of the Company. 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. 13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Geneva Steel Company: We have audited the accompanying consolidated balance sheets of Geneva Steel Company (a Utah corporation) and subsidiaries as of September 30, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Geneva Steel Company and subsidiaries as of September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998 in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has experienced recurring net losses applicable to common shares of $30.7 million, $11.6 million and $16.3 million during the years ended September 30, 1998, 1997 and 1996, respectively. Restricted payment limitations under the Company's Senior Notes preclude payment of preferred stock dividends. Additionally, as a result of lower shipments and declining prices resulting from increases of imports into the Company's markets, the Company may suffer a significant loss applicable to common shares and a negative cash flow from operations for the year ending September 30, 1999. These market conditions and their effect on the Company's liquidity may further restrict the Company's use of cash which may result in the Company not making interest payments related to its Senior Notes. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are partially described in Note 1. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. Salt Lake City, Utah December 4, 1998 14 CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
September 30, ------------------------- ASSETS 1998 1997 --------- --------- Current Assets: Cash and cash equivalents $ -- $ -- Accounts receivable, less allowance for doubtful accounts of $6,411 and $4,564, respectively 63,430 60,163 Inventories 113,724 100,081 Deferred income taxes 8,118 3,059 Prepaid expenses and other 2,964 5,291 Related party receivable 270 753 --------- --------- Total current assets 188,506 169,347 --------- --------- Property, Plant and Equipment: Land 1,990 1,990 Buildings 16,119 16,109 Machinery and equipment 640,363 645,807 Mineral property and development costs 1,000 8,425 --------- --------- 659,472 672,331 Less accumulated depreciation (248,298) (214,016) --------- --------- Net property, plant and equipment 411,174 458,315 --------- --------- Other Assets 5,485 18,408 --------- --------- $ 605,165 $ 646,070 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 15 CONSOLIDATED BALANCE SHEETS (Continued) (Dollars in thousands)
September 30, ------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 --------- --------- Current Liabilities: Senior notes $ 325,000 $ -- Revolving credit facility 60,769 -- Accounts payable 34,117 46,348 Accrued liabilities 25,005 23,671 Accrued payroll and related taxes 9,454 11,715 Accrued dividends payable 25,315 14,290 Accrued interest payable 5,080 4,559 Accrued pension and profit sharing costs 2,182 1,701 --------- --------- Total current liabilities 486,922 102,284 --------- --------- Long-Term Debt -- 399,906 --------- --------- Deferred Income Tax Liabilities 8,118 5,108 --------- --------- Commitments and Contingencies (Note 6) Redeemable Preferred Stock, Series B, no par value; 400,000 shares authorized, issued and outstanding, with a liquidation value of $60,443 56,917 56,169 --------- --------- Stockholders' Equity: Preferred stock, no par value; 3,600,000 shares authorized for all series, excluding Series B, none issued -- -- Common stock- Class A, no par value; 60,000,000 shares authorized, 14,705,265 shares issued 87,979 87,979 Class B, no par value; 50,000,000 shares authorized, 19,151,348 shares issued and outstanding 10,110 10,110 Warrants to purchase Class A common stock 5,360 5,360 Accumulated deficit (47,749) (11,399) Less 4,787 and 719,042 Class A common stock treasury shares, respectively, at cost (2,492) (9,447) --------- --------- Total stockholders' equity 53,208 82,603 --------- --------- $ 605,165 $ 646,070 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 16 CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)
Year Ended September 30, ----------------------------------------- 1998 1997 1996 --------- --------- --------- Net sales $ 720,453 $ 726,669 $ 712,657 Cost of sales 659,132 665,978 662,307 --------- --------- --------- Gross margin 61,321 60,691 50,350 Selling, general and administrative expenses 22,116 22,487 24,621 Write-down of impaired assets 17,811 -- -- --------- --------- --------- Income from operations 21,394 38,204 25,729 --------- --------- --------- Other income (expense): Interest and other income 356 412 552 Interest expense (42,483) (40,657) (36,199) Other expense -- -- (1,749) --------- --------- --------- (42,127) (40,245) (37,396) --------- --------- --------- Loss before benefit for income taxes (20,733) (2,041) (11,667) Benefit for income taxes (1,790) (773) (4,429) --------- --------- --------- Net loss (18,943) (1,268) (7,238) Less redeemable preferred stock dividends and accretion for original issue discount 11,772 10,340 9,089 --------- --------- --------- Basic and diluted net loss applicable to common shares $ (30,715) $ (11,608) $ (16,327) ========= ========= ========= Basic and diluted net loss per common share $ (1.90) $ (.74) $ (1.07) ========= ========= ========= Weighted average common shares outstanding 16,155 15,660 15,309 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 17 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands)
Shares Issued Amount -------------------------- ----------------------- WARRANTS TO PURCHASE RETAINED COMMON COMMON COMMON COMMON COMMON EARNINGS CLASS A CLASS B CLASS A CLASS B CLASS A (DEFICIT) ---------- ----------- --------- --------- ---------- --------- Balance at September 30, 1995 14,695,265 19,251,348 $ 87,926 $ 10,163 $ 5,360 $ 22,754 Conversion of Class B common stock into Class A common stock 10,000 (100,000) 53 (53) -- -- Issuance of Class A common stock to employee savings plan -- -- -- -- -- (1,350) Redeemable preferred stock dividends -- -- -- -- -- (8,372) Redeemable preferred stock accretion for original issue discount -- -- -- -- -- (717) Net loss -- -- -- -- -- (7,238) ---------- ----------- --------- --------- --------- --------- Balance at September 30, 1996 14,705,265 19,151,348 87,979 10,110 5,360 5,077 Issuance of Class A common stock to employee savings plan -- -- -- -- -- (4,868) Redeemable preferred stock dividends -- -- -- -- -- (9,608) Redeemable preferred stock accretion for original issue discount -- -- -- -- -- (732) Net loss -- -- -- -- -- (1,268) ---------- ----------- --------- --------- --------- --------- Balance at September 30, 1997 14,705,265 19,151,348 87,979 10,110 5,360 (11,399) Issuance of Class A common stock to employee savings plan -- -- -- -- -- (5,635) Redeemable preferred stock dividends -- -- -- -- -- (11,025) Redeemable preferred stock accretion for original issue discount -- -- -- -- -- (747) Net loss -- -- -- -- -- (18,943) ---------- ----------- --------- --------- --------- --------- Balance at September 30, 1998 14,705,265 19,151,348 $ 87,979 $ 10,110 $ 5,360 $ (47,749) ========== =========== ========= ========= ========= =========
TREASURY STOCK TOTAL --------- --------- Balance at September 30, 1995 $ (18,129) $ 108,074 Conversion of Class B common stock into Class A common stock -- -- Issuance of Class A common stock to employee savings plan 2,430 1,080 Redeemable preferred stock dividends -- (8,372) Redeemable preferred stock accretion for original issue discount -- (717) Net loss -- (7,238) --------- --------- Balance at September 30, 1996 (15,699) 92,827 Issuance of Class A common stock to employee savings plan 6,252 1,384 Redeemable preferred stock dividends -- (9,608) Redeemable preferred stock accretion for original issue discount -- (732) Net loss -- (1,268) --------- --------- Balance at September 30, 1997 (9,447) 82,603 Issuance of Class A common stock to employee savings plan 6,955 1,320 Redeemable preferred stock dividends -- (11,025) Redeemable preferred stock accretion for original issue discount -- (747) Net loss -- (18,943) --------- --------- Balance at September 30, 1998 $ (2,492) $ 53,208 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 18 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Increase (Decrease) in Cash and Cash Equivalents
Year Ended September 30, ------------------------------------ 1998 1997 1996 -------- -------- -------- Cash flows from operating activities: Net loss $(18,943) $ (1,268) $ (7,238) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation 42,272 43,048 42,077 Amortization of loan fees 1,910 1,911 2,338 Deferred income tax benefit (2,049) (760) (3,569) (Gain) loss on asset disposal (30) 863 (46) Write-down of impaired assets 17,811 -- -- (Increase) decrease in current assets - Accounts receivable, net (3,267) 16,364 (41,349) Inventories (15,143) (6,942) (3,230) Prepaid expenses and other 13,821 (2,634) (749) Increase (decrease) in current liabilities - Accounts payable (12,231) (13,227) (8,364) Accrued liabilities 1,635 2,991 (692) Accrued payroll and related taxes (941) 2,232 1,279 Production prepayments -- (9,763) (237) Accrued interest payable 521 (187) 136 Accrued pension and profit sharing costs 481 (558) 124 -------- -------- -------- Net cash provided by (used for) operating activities 25,847 32,070 (19,520) -------- -------- -------- Cash flows from investing activities: Purchase of property, plant and equipment (10,893) (47,724) (26,378) Proceeds from sale of property, plant and equipment 34 21 213 Change in other assets -- 1,238 (11,361) -------- -------- -------- Net cash used for investing activities $(10,859) $(46,465) $(37,526) -------- -------- --------
The accompanying notes to consolidated financial statements are an integral part of these statements. 19 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands) Increase (Decrease) in Cash and Cash Equivalents
Year Ended September 30, ------------------------------------ 1998 1997 1996 -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of long-term debt $ 25,649 $ 51,987 $ 59,752 Payments on long-term debt (39,785) (40,513) (13,354) Payments for deferred loan costs and other assets -- (4) (1,563) Change in bank overdraft (852) 2,328 -- -------- -------- -------- Net cash provided by (used for) financing activities (14,988) 13,798 44,835 -------- -------- -------- Net decrease in cash and cash equivalents -- (597) (12,211) Cash and cash equivalents at beginning of year -- 597 12,808 -------- -------- -------- Cash and cash equivalents at end of year $ -- $ -- $ 597 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest (net of amount capitalized) $ 40,052 $ 38,934 $ 34,386 Income taxes -- -- 367
Supplemental schedule of noncash financing activities: For the year ended September 30, 1996, the Company increased the redeemable preferred stock liquidation preference by $3,690 in lieu of paying cash dividends. For the years ended September 30, 1998, 1997 and 1996, redeemable preferred stock was increased by $747, $732 and $717, respectively, for the accretion required over time to amortize the original issue discount on the redeemable preferred stock incurred at the time of issuance. As of September 30, 1998, accrued dividends of $25,315 were unpaid. The accompanying notes to consolidated financial statements are an integral part of these statements. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 NATURE OF OPERATIONS AND BUSINESS CONDITIONS The Company's steel mill manufactures a wide range of coiled and flat plate, sheet, pipe and slabs for sale to various distributors, steel processors or end-users primarily in the western and central United States. The Company has experienced recurring net losses applicable to common shares of $30.7 million, $11.6 million and $16.3 million during the years ended September 30, 1998, 1997 and 1996, respectively. Restricted payment limitations under the Company's Senior Notes preclude payment of preferred stock dividends. Additionally, as a result of lower shipments and declining prices resulting from increases of imports into the Company's markets, the Company may suffer a significant net loss applicable to common shares and a negative cash flow from operations for the year ending September 30, 1999. These market conditions and their effect on the Company's liquidity may further restrict the Company's use of cash which may result in the Company not making interest payments related to its senior notes. These matters raise substantial doubt about the Company's ability to continue as a going concern. The Company's continued existence is dependent upon several factors including the Company's ability to return to normal production and shipment levels. The Company's near and long-term operating strategies focus on exploiting existing and potential competitive advantages while eliminating or mitigating competitive disadvantages. In response to current market conditions and as a part of its ongoing corporate strategy, the Company is pursuing several initiatives intended to increase liquidity and better position the Company to compete under current market conditions. Several completed and ongoing initiatives are as follows: Since September 30, 1997, the Company has reduced administrative staff by approximately 36 percent, operating management by 50 percent, and production employees by 16 percent. These headcount reductions are expected to significantly reduce overall operating expense on an annualized basis. The Company has also placed 460 employees on layoff status. The Company must offer employment to laid-off employees when production volume increases. Nevertheless, to the extent these employees do not desire to return, the Company intends to capture the attrition created thereby to the maximum extent possible. The Company is also successfully implementing an union-management partnership designed to reduce costs and increase efficiency. The Company has and is pursuing aggressive cost cutting programs. As compared to November 1997, the Company's monthly spending for administrative costs (including employment costs) in November 1998 declined by $1.1 million, or 22 percent. Similarly, the Company's monthly spending on products and services for operations has declined significantly. This reduction is, in part, due to lower production levels. Nevertheless, operations spending generally increases as production declines. The Company is currently completing installation of an enterprise-wide business system that it expects will further reduce employment costs and result in other significant cost savings. On November 2, 1998, the Company signed a new, three-year agreement with Mannesmann Pipe and Steel ("Mannesmann"). Under the agreement, Mannesmann will market the Company's steel products throughout the continental United States. Mannesmann previously marketed the Company's products in multiple midwestern states and to certain customers in the eastern United States. The Company's existing sales force will remain Geneva Steel employees, but will be directed by Mannesmann. The Company has 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 inventory as soon as it has been assigned to or otherwise identified with a particular order. Mannesmann then sells the products to end customers at the same sales price Mannesmann paid the Company plus a variable commission. The Company remains responsible for customer credit and product quality problems. The Company estimates that, when fully implemented, the new arrangement will significantly reduce its working capital balances and, as a result, will improve the Company's liquidity by approximately $17 to $25 million. 21 Current market conditions have forced the Company to operate only one of its three blast furnaces and to similarly reduce production throughout the mill. Reduced production levels adversely affect production efficiencies, significantly increasing product cost per ton. The Company is attempting to optimize production efficiency at these lower volume levels by, among other things, reducing shifts, idling certain facilities and altering production scheduling. Current market conditions have and are significantly affecting the Company's operating results and liquidity. During the months ahead, the Company will be forced to make difficult decisions regarding, among other things, the future direction and capital structure of the Company. The Company has retained financial and legal advisors, who are reviewing the financial alternatives available to the Company, including without limitation a possible debt restructuring. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of Geneva Steel Company and its wholly-owned subsidiaries (collectively, the "Company"). Intercompany balances and transactions have been eliminated in consolidation. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid income-earning securities with an initial maturity of ninety days or less to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates fair market value. The Company's cash management system utilizes a revolving credit facility with a syndicate of banks (see Note 3). Inventories Inventories include costs of material, labor and manufacturing overhead. Inventories are stated at the lower of cost (using a weighted-average method) or market value. The composition of inventories as of September 30, 1998 and 1997 was as follows (dollars in thousands):
1998 1997 -------- -------- Raw materials $ 29,250 $ 26,783 Semi-finished and finished goods 78,746 65,406 Operating materials 5,728 7,892 -------- -------- $113,724 $100,081 ======== ========
Operating materials consist primarily of production molds, platforms for the production molds and furnace lining refractories. Insurance Claim Receivable In August 1998, the Company settled its insurance claim related to a January 1996 plant-wide power outage associated with unusual weather conditions and an operator error. The Company received $24.5 million in September 1998 to resolve the claim. The Company's carrier under the primary layer of insurance previously paid the Company $5.0 million in the fall of 1996. During fiscal years 1997 and 1996, the Company recorded $3.7 million and $12.3 million, respectively, as an offset to cost of goods sold in the accompanying consolidated financial statements. Upon settlement of the claim, the Company recorded a $2.1 million offset to selling, general, and administrative expense, a reduction in property, plant and equipment of approximately $12.5 million and operating cost offsets of approximately $3.0 million primarily for depreciation expense previously taken on the reimbursed equipment in the accompanying consolidated financial statements. 22 As of September 30, 1997, the Company had an insurance claim receivable of $11.0 million included in other assets in the accompanying consolidated financial statements. Property, Plant and Equipment Property, plant and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives as follows: Buildings 31.5 years Machinery and Equipment 2-30 years Interest related to the construction or major rebuild of facilities is capitalized and amortized over the estimated life of the related asset. Capitalization of interest ceases when the asset is placed in service. The Company capitalized approximately $0.3 million, $0.5 million and $2.1 million of interest during the years ended September 30, 1998, 1997 and 1996, respectively. Maintenance and repairs are charged to expense as incurred and costs of improvements and betterments are capitalized. Upon disposal, related costs and accumulated depreciation are removed from the accounts and resulting gains or losses are reflected in income. Major spare parts and back-up facilities for machinery and equipment are capitalized and included in machinery and equipment in the accompanying consolidated financial statements. Major spare parts are depreciated using the straight-line method over the useful lives of the related machinery and equipment. Costs incurred in connection with the construction or major rebuild of facilities are capitalized as construction in progress. No depreciation is recognized on these assets until placed in service. As of September 30, 1998 and 1997, approximately $13.6 million and $43.7 million, respectively, of construction in progress was included in machinery and equipment in the accompanying consolidated financial statements. Mineral property and development costs are depleted using the units of production method based upon estimated recoverable reserves. Accumulated depletion is included in accumulated depreciation in the accompanying consolidated financial statements. The Company wrote-down certain impaired mineral property development costs during 1998 by approximately $6.6 million (see discussion below). Other Assets Other assets consist primarily of deferred loan costs incurred in connection with obtaining long-term financing. The deferred loan costs are being amortized on a straight-line basis over the term of the applicable financing agreement. Accumulated amortization of deferred loan costs totaled $8.5 million and $6.6 million at September 30, 1998 and 1997, respectively. At September 30, 1997, other assets also included the insurance claim receivable described above of approximately $11.0 million. Revenue Recognition Sales are recognized when the product is shipped to the customer. Sales are reduced by the amount of estimated customer claims. As of September 30, 1998 and 1997, reserves for estimated customer claims of $4.8 million and $2.9 million, were included in the allowance for doubtful accounts in the accompanying consolidated financial statements. Income Taxes The Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade receivables. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the 23 Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses which, when realized, have been within the range of management's expectations. Accounting for the Impairment of Long-Lived Assets The Company accounts for impairment of long-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" which was issued in March 1995. SFAS No. 121 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. In accordance with SFAS No. 121, the Company uses an estimate of the future undiscounted net cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. During fiscal year 1998, the Company wrote down approximately $17.8 million of impaired long-lived assets. The write-down included $8.5 million of in-line scarfing equipment, $6.6 million of mineral property development costs and 2.7 million of other machinery and equipment. Based on the operating record of the Company's continuous caster and recent reduced production levels, the Company believes that sustained use of the in-line scarfing equipment is unlikely. In addition, the use by the Company of iron-ore pellets purchased from third parties and recent reduced production levels has caused the Company to decrease the estimated value to it of the mineral development costs. Based on the Company's expectation of future undiscounted net cash flow, these assets have been written-down to their impaired value. Basic and Diluted Net Income (Loss) Per Common Share In February 1997, SFAS No. 128 "Earnings Per Share" was issued. This statement specifies requirements for computation, presentation and disclosure of earnings per share ("EPS"). SFAS No. 128 simplifies the standards for computing EPS and replaces the presentations of Primary EPS and Fully Diluted EPS with Basic EPS and Diluted EPS. The Company adopted SFAS No. 128 during the quarter ended December 31, 1997. The adoption of SFAS No. 128 did not result in an adjustment to the basic net loss per common share for the years ended September 30, 1998, 1997 and 1996, presented in the accompanying consolidated statements of operations. 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 years ended September 30, 1998, 1997 and 1996, 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. For the year ended September 30, 1998, 2,075,322 common stock equivalents were not included in the calculation of diluted weighted average common shares outstanding because they were antidilutive. Class B common stock is included in the weighted average number of common shares outstanding as 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 loss for the years ended September 30, 1998, 1997 and 1996 was adjusted for redeemable preferred stock dividends and the accretion required over time to amortize the original issue discount on the redeemable preferred stock incurred at the time of issuance. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components. This statement requires an "all-inclusive" approach which specifies that all revenues, expenses, gains and losses recognized during the period be reported in income, regardless of whether they are considered to be results of operations of the period. The statement is effective for fiscal years beginning after December 15, 1997, and accordingly, the Company will adopt SFAS No. 130 in fiscal year 1999. The Company believes that adoption of SFAS No. 130 will not have a material impact on its consolidated financial statements In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires that public enterprises report certain information about operating segments. The statement specifies disclosure requirements about the products and services of a company, the geographic areas in which it operates, and its major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997, and accordingly, the Company will adopt this statement in fiscal year 1999. 24 In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value. The statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. This statement is effective for fiscal years beginning after June 15, 1999, and is not expected to have a material impact on the Company's consolidated financial statements. 3 LONG-TERM DEBT The aggregate amounts of principal maturities of long-term debt as of September 30, 1998 and 1997 consisted of the following (dollars in thousands):
1998 1997 -------- -------- Senior term notes issued publicly, interest payable January 15 and July 15 at 9.5%, principal due January 15, 2004, unsecured $190,000 $190,000 Senior term notes issued publicly, interest payable March 15 and September 15 at 11.125 %, principal due March 15, 2001, unsecured 135,000 135,000 Revolving credit facility from a syndicate of banks, interest payable monthly at the defined base rate (8.50% at September 30, 1998, plus 1.50% or the defined LIBOR rate (5.00% at September 30, 1998) plus 2.75%, due May 14, 2000 (see discussion below), secured by inventories and accounts receivable 60,769 74,906 -------- -------- 385,769 399,906 Less current portion of Senior Notes and Revolving Credit Facility 385,769 -- -------- -------- $ -- $399,906 ======== ========
On May 14, 1996, the Company amended and restated its revolving credit facility (the "Revolving Credit Facility") with a syndicate of banks led by Citicorp USA, Inc., as agent. The Revolving Credit Facility is used primarily for the working capital and capital expenditure needs of the Company. The Revolving Credit Facility, in the amount of up to $125 million, is secured by the Company's inventories, accounts receivable, general intangibles, and proceeds thereof, and expires on May 14, 2000. Interest is payable monthly at the defined base rate (8.50% at September 30, 1998) plus 1.50%, or the defined LIBOR rate (5.00% at September 30, 1998) plus 2.75%. The Company pays a monthly commitment fee based on an annual rate of .50% of the average unused portion of the borrowing limit under the Revolving Credit Facility. The amount available to the Company under the Revolving Credit Facility has generally ranged between 50 and 60 percent, in the aggregate, of eligible inventories plus 85 percent of eligible accounts receivable. Borrowing availability under the Revolving Credit Facility is also subject to other financial tests and covenants. As of September 30, 1998, the Company's eligible inventories and accounts receivable supported access to $117.1 million under the Revolving Credit Facility. As of September 30, 1998, the Company had $60.8 million in borrowings and $10.8 million in letters of credit outstanding under the Revolving Credit Facility, leaving $45.5 million in additional borrowing availability. Certain deferred fees associated with establishing the Company's receivables securitization facility were expensed during the year ended September 30, 1996. As a result of the Company's recent financial performance, the Company recently sought and received an amendment to the Revolving Credit Facility with respect to both the tangible net worth and interest coverage covenants, among other things. The Company will require additional modifications, waivers or forbearances to those and other terms of the Revolving Credit Facility prior to January 7, 1999. The Company has held several meetings with the banking group for the Revolving Credit Facility. The Company anticipates that the banking group will grant short-term covenant relief either by way of a waiver or a forbearance with respect to certain potential or actual defaults. The Company believes that such waiver or forbearance would not be granted under the terms of the existing agreement if the Company intended to make the interest payment due January 15, 1999 on the 9 1/2% Senior Notes. The banking group will, however, continue to closely monitor the Company's liquidity and 25 may withdraw its waiver or forbearance or take other action with respect to, among other things, the terms upon which the Company may borrow or the Company's continued access to borrowings. There can be no assurance that the Company will receive the waiver or forbearance, that the banking group will not require other changes in the terms upon which borrowings under the Revolving Credit Facility are made, or that the banking group will continue to permit the Company to incur borrowings thereunder, in which event the Company's operations would be substantially curtailed and its financial condition materially adversely affected. The terms of the Revolving Credit Facility and the Company's $190 million 9 1/2% Senior Notes issued in January 1994 (the "9 1/2% Senior Notes") and $135 million 11 1/8% Senior Notes issued in March 1993 (the "11 1/8% Senior Notes" and together with the 9 1/2% Senior Notes the "Senior Notes") include cross default and other customary provisions. Financial covenants contained in the Revolving Credit Facility and/or the Senior Notes also include, among others, a limitation on dividends and distributions on capital stock of the Company, a tangible net worth requirement, a cash interest coverage requirement, a cumulative capital expenditure limitation, a limitation on the incurrence of additional indebtedness unless certain financial tests are satisfied, a limitation on mergers, consolidations and dispositions of assets and limitations on liens. Based on such covenants, as of September 30, 1998, the Company was restricted from payment of cash dividends. In the event of a change in control, the Company must offer to purchase all Senior Notes then outstanding at a premium. In light of the uncertainties surrounding both near-term market conditions and continued access to borrowings under the Revolving Credit Facility, the Company has elected to preserve liquidity by not making the interest payment of approximately $9.0 million due January 15, 1999 on the Company's 9 1/2% Senior Notes, which will result in a default under the terms thereof. Such a default, if not timely cured, gives right to the legal remedies available under the relevant bond indenture, including the possibility of acceleration. Similarly, under the terms of the Senior Notes, nonpayment of interest on one of the two series results in a cross default with respect to the other and may violate other terms thereof. The Revolving Credit Facility also contains a similar cross default provision. The Company anticipates that, as a part of the waiver or forbearance described above, the banking group for the Revolving Credit Facility will temporarily waive or forbear from acting upon such a cross default. The Company estimates that the aggregate fair market value of its debt and related obligations was approximately $137.4 million as of September 30, 1998. These estimates were based on quoted market prices or current rates offered for debt with similar terms and maturities. 4 MAJOR CUSTOMER (DISTRIBUTOR) AND INTERNATIONAL SALES During the years ended September 30, 1998, 1997, and 1996, the Company derived approximately 33%, 33% and 31%, respectively, of its net sales through one customer, which is a distributor to other companies. International sales during the years ended September 30, 1998, 1997 and 1996 did not exceed 10%. EX-23 9 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statement on Form S-8, File No. 33-40867 and the Company's previously filed Registration Statement on Form S-3, File No. 33-64548. ARTHUR ANDERSEN LLP Salt Lake City, Utah December 28, 1998 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO. 1,000 U.S DOLLARS YEAR SEP-30-1998 OCT-01-1997 SEP-30-1998 1 0 0 63,430 6,411 113,724 188,506 659,472 (248,298) 605,165 486,922 0 56,917 0 95,597 (42,389) 605,165 720,453 720,453 659,132 659,132 39,927 5,076 42,127 (20,733) (1,790) (18,943) 0 0 0 (18,943) (1.90) (1.90)
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