-----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, P2TiLEXdHYaF3NIUHol0/rfahugpJ1Xbea3KsZ7wirh2i+hRVmP8NKqyQp5+PVRq imBUh3PgKM4xYXaXfufCgg== 0000950149-99-001496.txt : 19990817 0000950149-99-001496.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950149-99-001496 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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-Q SEC ACT: SEC FILE NUMBER: 001-10459 FILM NUMBER: 99691266 BUSINESS ADDRESS: STREET 1: 10 SOUTH GENEVA ROAD CITY: VINEYARD STATE: UT ZIP: 84058 BUSINESS PHONE: 8012279000 MAIL ADDRESS: STREET 1: PO BOX 2500 CITY: PROVO STATE: UT ZIP: 84603 10-Q 1 QUARTERLY REPORT FOR PERIOD ENDED 6/30/1999 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________ Commission File #1-10459 GENEVA STEEL COMPANY (Exact name of registrant as specified in its charter) UTAH 93-0942346 (State of Incorporation) (I.R.S. Employer Identification No.) 10 South Geneva Road Vineyard, Utah (Address of principal executive offices) 84058 (Zip Code) Registrant's telephone number, including area code: (801) 227-9000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each class of the issuer's common stock, as of the latest practicable date. 15,008,767 and 18,451,348 shares of Class A and Class B common stock, respectively, outstanding as of August 10, 1999. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENEVA STEEL COMPANY (DEBTOR-IN-POSSESSION) CONDENSED BALANCE SHEETS (Dollars in thousands) (Unaudited) ASSETS
June 30, September 30, 1999 1998 --------- --------- Current assets: Cash $ -- $ -- Accounts receivable, net 15,380 63,430 Inventories 60,531 113,724 Deferred income taxes 16,005 8,118 Prepaid expenses and other 11,577 2,964 Related party receivable -- 270 --------- --------- Total current assets 103,493 188,506 --------- --------- Property, plant and equipment: Land 1,990 1,990 Buildings 16,119 16,119 Machinery and equipment 647,580 640,363 Mineral property and development costs 1,000 1,000 --------- --------- 666,689 659,472 Less accumulated depreciation (281,438) (248,298) --------- --------- Net property, plant and equipment 385,251 411,174 --------- --------- Other assets 5,070 5,485 --------- --------- $ 493,814 $ 605,165 ========= =========
The accompanying notes to condensed financial statements are an integral part of these condensed balance sheets. Page 2 of 27 3 GENEVA STEEL COMPANY (DEBTOR-IN-POSSESSION) CONDENSED BALANCE SHEETS (Continued) (Dollars in thousands) (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, September 30, 1999 1998 --------- --------- Liabilities not subject to compromise: Senior notes $ -- $ 325,000 Revolving credit facility 57,530 60,769 Accounts payable 10,266 34,117 Accrued liabilities 14,515 25,005 Accrued payroll and related taxes 6,850 9,454 Accrued dividends payable -- 25,315 Accrued interest payable -- 5,080 Accrued pension and profit sharing costs 1,872 2,182 --------- --------- Total current liabilities 91,033 486,922 --------- --------- Liabilities subject to compromise: Senior notes 325,000 -- Accounts payable 27,771 -- Accrued dividends payable 28,492 -- Accrued interest payable 15,409 -- Accrued liabilities 4,562 -- --------- --------- 401,234 -- --------- --------- Deferred income tax liabilities 16,005 8,118 --------- --------- Redeemable preferred stock (subject to compromise) 55,814 56,917 --------- --------- Stockholders' equity (deficit): Preferred stock -- -- Common stock: Class A 92,022 87,979 Class B 9,741 10,110 Warrants to purchase Class A common stock 4,255 5,360 Accumulated deficit (176,290) (47,749) Class A common stock held in treasury, at cost -- (2,492) --------- --------- Total stockholders' equity (deficit) (70,272) 53,208 --------- --------- $ 493,814 $ 605,165 ========= =========
The accompanying notes to condensed financial statements are an integral part of these condensed balance sheets. Page 3 of 27 4 GENEVA STEEL COMPANY (DEBTOR-IN-POSSESSION) CONDENSED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (In thousands, except per share data) (Unaudited)
1999 1998 --------- --------- Net sales $ 87,000 $ 188,735 Cost of sales 108,535 168,589 --------- --------- Gross margin (21,535) 20,146 Selling, general and administrative expenses 3,785 6,179 --------- --------- Income (loss) from operations (25,320) 13,967 --------- --------- Other income (expense): Interest and other income 574 89 Interest expense (1,975) (10,777) (total contractual interest of $10,242 in the 1999 quarter) --------- --------- (1,401) (10,688) --------- --------- Income (loss) before reorganization item and provision for income taxes (26,721) 3,279 Reorganization item: Professional fees 2,770 -- --------- --------- Income (loss) before provision for income taxes (29,491) 3,279 Provision for income taxes -- 1,266 --------- --------- Net income (loss) (29,491) 2,013 Less redeemable preferred stock dividends and accretion for original issue discount 186 2,989 --------- --------- Net loss applicable to common shares $ (29,677) $ (976) ========= ========= Basic and diluted net loss per common share $ (1.76) $ (.06) ========= ========= Weighted average basic and diluted common shares outstanding 16,854 16,227 ========= =========
The accompanying notes to condensed financial statements are an integral part of these condensed statements. Page 4 of 27 5 GENEVA STEEL COMPANY (DEBTOR-IN-POSSESSION) CONDENSED STATEMENTS OF OPERATIONS NINE MONTHS ENDED JUNE 30, 1999 AND 1998 (In thousands, except per share data) (Unaudited)
1999 1998 --------- --------- Net sales $ 225,044 $ 562,653 Cost of sales 307,677 508,712 --------- --------- Gross margin (82,633) 53,941 Selling, general and administrative expenses 18,455 17,718 --------- --------- Income (loss) from operations (101,088) 36,223 --------- --------- Other income (expense): Interest and other income 931 240 Interest expense (17,510) (31,859) (total contractual interest of $31,327 in 1999) --------- --------- (16,579) (31,619) --------- --------- Income (loss) before reorganization item and provision for income taxes (117,667) 4,604 Reorganization item: Professional fees 3,920 -- --------- --------- Income (loss) before provision for income taxes (121,587) 4,604 Provision for income taxes -- 1,914 --------- --------- Net income (loss) (121,587) 2,690 Less redeemable preferred stock dividends and accretion for original issue discount 4,643 8,684 --------- --------- Net loss applicable to common shares $(126,230) $ (5,994) ========= ========= Basic and diluted net loss per common share $ (7.55) $ (.37) ========= ========= Weighted average basic and diluted common shares outstanding 16,727 16,088 ========= =========
The accompanying notes to condensed financial statements are an integral part of these condensed statements. Page 5 of 27 6 GENEVA STEEL COMPANY (DEBTOR-IN POSSESSION) CONDENSED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 1999 AND 1998 (Dollars in thousands) (Unaudited) Increase (Decrease) in Cash
1999 1998 --------- --------- Cash flows from operating activities: Net income (loss) $(121,587) $ 2,690 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 33,602 34,898 Amortization 1,995 1,433 Deferred income taxes -- 1,656 Gain on asset disposal (166) -- (Increase) decrease in current assets- Accounts receivable, net 48,050 (16,634) Inventories 53,193 (20,650) Prepaid expenses and other (8,343) 2,372 Increase (decrease) in current liabilities-- Accounts payable 3,920 (9,779) Accrued liabilities (5,015) 4,774 Accrued payroll and related taxes (2,422) (800) Accrued interest payable 10,329 8,487 Accrued pension and profit sharing costs (310) 454 --------- --------- Net cash provided by operating activities 13,246 8,901 --------- --------- Cash flows from investing activities: Purchases of property, plant and equipment (7,698) (17,882) Proceeds from sale of property, plant and equipment 184 -- --------- --------- Net cash used for investing activities $ (7,514) $ (17,882) --------- ---------
The accompanying notes to condensed financial statements are an integral part of these condensed statements. Page 6 of 27 7 GENEVA STEEL COMPANY (DEBTOR-IN-POSSESSION) CONDENSED STATEMENTS OF CASH FLOWS (Continued) NINE MONTHS ENDED JUNE 30, 1999 AND 1998 (Dollars in thousands) (Unaudited)
1999 1998 -------- -------- Cash flows from financing activities: Proceeds from revolving credit facility $ 17,522 $ 25,648 Payments on revolving credit facility (20,762) (14,890) Payments of deferred loan fees (1,580) -- Change in bank overdraft (912) (1,782) Other -- 5 -------- -------- Net cash provided by (used in) financing activities (5,732) 8,981 -------- -------- Net change in cash -- -- Cash at beginning of period -- -- -------- -------- Cash at end of period $ -- $ -- ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) $ 5,717 $ 21,939
Supplemental schedule of noncash financing activities: For the nine months ended June 30, 1999 and 1998, the Company increased the redeemable preferred stock by $657 and $559, respectively, for the accretion required over time to amortize the original issue discount on the redeemable preferred stock incurred at the time of issuance. At June 30, 1999, the Company had accrued dividends payable of $28,492 (total contractual dividends of $33,630). During the nine months ended June 30, 1999, warrants to purchase 233,502 shares of Class A common stock were exercised at $11 per share. The exercise price was paid to the Company with 11,642 shares of redeemable preferred stock as provided for in the redeemable preferred stock agreement. The accompanying notes to condensed financial statements are an integral part of these condensed statements. Page 7 of 27 8 GENEVA STEEL COMPANY (DEBTOR-IN-POSSESSION) NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) (1) VOLUNTARY FILING FOR RELIEF UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE On February 1, 1999, the Company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Utah, Central Division. The filing was made necessary by a lack of sufficient liquidity. The Company's operating results for fiscal 1998 and for the first three fiscal quarters of 1999 were severely affected by, among other things, a dramatic surge in steel imports beginning in the summer of 1998. As a consequence of record-high levels of low-priced steel imports and the resultant deteriorating market conditions, the Company's overall price realization and shipments declined precipitously. Decreased liquidity made it impossible for the Company to service its debt and fund ongoing operations. Therefore, the Company sought protection under Chapter 11 of the Bankruptcy Code. The Company has responded to the surge in imports by significantly decreasing production, reducing costs and pursuing trade cases against dumped and/or subsidized steel imports. Prior to the bankruptcy filing, the Company did not make the $9 million interest payment due January 15, 1999 under the terms of the Company's 9 1/2% Senior Notes due 2004. The Bankruptcy Code generally prohibits the Company from making payments on unsecured, pre-petition debt, including the 9 1/2% Senior Notes due 2004 and the 11 1/8% Senior Notes due 2001, except as provided in a confirmed plan of reorganization. The Company is continuing operations in Chapter 11 and has a $125 million debtor-in-possession credit facility in place (see Note 5). As of February 1, 1999, the Company discontinued accruing interest on the senior notes and dividends on its redeemable preferred stock. Contractual interest on the senior notes for the three months ended June 30, 1999 was $8.3 million, which is not included in the accompanying financial statements. Contractual dividends on the redeemable preferred stock as of June 30, 1999, was approximately $33.6 million, which is $5.1 million in excess of dividends accrued in the accompanying balance sheet. (2) INTERIM CONDENSED FINANCIAL STATEMENTS The accompanying condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The accompanying unaudited condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position and results of operations of the Company. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K. Page 8 of 27 9 (3) INVENTORIES Inventories were comprised of the following components (in thousands):
June 30, September 30, 1999 1998 -------- -------- Raw materials $ 13,828 $ 29,250 Semi-finished and finished goods 41,147 78,746 Operating materials 5,556 5,728 -------- -------- $ 60,531 $113,724 ======== ========
(4) BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE Basic net income (loss) per common share is calculated based upon the weighted average number of common shares outstanding during the periods. Diluted net income (loss) per common share is calculated based upon the weighted average number of common shares outstanding plus the assumed exercise of all dilutive securities using the treasury stock method. For the three and nine months ended June 30, 1999 and 1998, stock options and warrants prior to conversion are not included in the calculation of diluted net loss per common share because their inclusion would be antidilutive. Class B common stock is included in the weighted average number of common shares outstanding at one share for every ten shares outstanding because the Class B common stock is convertible to Class A common stock at this same rate. The net income (loss) for the three and nine months ended June 30, 1999 and 1998 was adjusted for redeemable preferred stock dividends only through January 31, 1999. The accretion required over time to amortize the original issue discount on the redeemable preferred stock incurred at the time of issuance was adjusted for the entire time periods. (5) $125 MILLION DEBTOR-IN-POSSESSION CREDIT FACILITY On February 19, 1999, the U.S. District Court for the District of Utah granted the Company's motion to approve a new $125 million debtor-in-possession credit facility with Congress Financial Corporation (the "Credit Facility"). The Credit Facility expires on the earlier of the consummation of a plan of reorganization or February 19, 2001. The Credit Facility replaced the Company's previous revolving credit facility with a syndicate of banks led by Citicorp USA, Inc. as agent, and, by including the property, plant and equipment in the collateral base, is intended to provide additional liquidity. The Credit Facility is secured by, among other things, accounts receivable; inventory; and property, plant and equipment. Actual borrowing availability is subject to a borrowing base calculation and the right of the lender to establish various reserves, which it has done. The amount available to the Company under the Credit Facility is approximately 60%, in the aggregate, of eligible inventories, plus 85% of eligible accounts receivable, plus 80% of the orderly liquidation value of eligible equipment up to a maximum of $40 million, less reserves on the various collateral established by the lender. Borrowing Page 9 of 27 10 availability under the Credit Facility is also subject to other covenants. As of August 11, 1999, the Company's eligible inventories, accounts receivable and eligible equipment supported access to $66.4 million in borrowings under the Credit Facility. As of August 11, 1999, the Company had $8.9 million available under the Credit Facility, with $55.2 million in borrowings and $2.3 million in letters of credit outstanding. There can, however, be no assurance as to the amount of availability that will be provided in the future or that the lender will not require additional reserves in the future. (6) MANNESMANN MARKETING AGREEMENT On November 2, 1998, the Company signed a new, three-year agreement with Mannesmann Pipe and Steel ("Mannesmann"). Under the agreement, Mannesmann is responsible for marketing the Company's steel products throughout the continental United States. Mannesmann previously marketed the Company's steel products in fifteen midwestern states and to certain customers in the eastern United States. The Company's existing sales force will remain Company employees, but will be directed by Mannesmann. The Company also made several other organizational changes designed to improve product distribution and on-time delivery. The Mannesmann agreement requires Mannesmann to purchase and pay for the Company's finished goods inventory as soon as it has been assigned to or otherwise identified with a particular order. This requirement was implemented beginning in April 1999. Mannesmann then sells the products to end customers at the same sales price Mannesmann paid the Company plus a variable commission. As of June 30, 1999, the Company had received $9.1 million from Mannesmann for the purchase of finished goods inventory that was assigned to a discrete order. The Company recognizes the sale of this inventory when it is shipped. Therefore, the Company only records the receipt of funds and the corresponding inventory reduction for the cost of the inventory in the accompanying financial statements until shipment occurs. The Company remains responsible for customer credit and product quality. On or before August 31, 1999, the Company has the right to terminate the Mannesmann agreement effective December 31, 1999. At present, no decision to terminate the agreement has been made. Termination of the Mannesmann agreement would likely have a negative impact on the cash flow and liquidity of the Company. Page 10 of 27 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview On February 1, 1999, the Company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Utah, Central Division. The filing was made necessary by a lack of sufficient liquidity. The Company's operating results for fiscal 1998 and for the first three fiscal quarters of 1999 were severely affected by, among other things, a dramatic surge in steel imports beginning in the summer of 1998. As a consequence of record-high levels of low-priced steel imports and the resultant deteriorating market conditions, the Company's overall price realization and shipments declined precipitously. Decreased liquidity made it impossible for the Company to service its debt and fund ongoing operations. Therefore, the Company sought protection under Chapter 11 of the Bankruptcy Code. The Company has responded to the surge in imports by significantly decreasing production, reducing costs and pursuing trade cases against dumped and/or subsidized steel imports (See Results of Operations). Prior to the bankruptcy filing, the Company did not make the $9 million interest payment due January 15, 1999 under the terms of the Company's 9 1/2% Senior Notes due 2004. The Bankruptcy Code generally prohibits the Company from making payments on unsecured, pre-petition debt, including the 9 1/2% Senior Notes due 2004 and the 11 1/8% Senior Notes due 2001, except as provided in a confirmed plan of reorganization. The Company is continuing operations in Chapter 11 and has a $125 million debtor-in- possession credit facility in place (See Liquidity and Capital Resources). As of February 1, 1999, the Company discontinued accruing interest on the senior notes and dividends on its redeemable preferred stock. Contractual interest on the senior notes for the three months ended June 30, 1999 was $8.3 million, which is not included in the accompanying financial statement. Contractual dividends on the redeemable preferred stock as of June 30, 1999, was approximately $33.6 million, which is $5.1 million in excess of dividends accrued in the accompanying balance sheet. Page 11 of 27 12 Results of Operations The following table sets forth the percentage relationship of certain cost and expense items to net sales for the periods indicated:
Three Months Ended Nine Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 ------ ------ ------ ------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 124.8 89.3 136.7 90.4 ------ ------ ------ ------ Gross margin (24.8) 10.7 (36.7) 9.6 Selling, general and administrative expenses 4.3 3.3 8.2 3.2 ------ ------ ------ ------ Income (loss) from operations (29.1) 7.4 (44.9) 6.4 ------ ------ ------ ------ Other income (expense): Interest and other income 0.7 0.1 0.4 -- Interest expense (2.3) (5.7) (7.8) (5.6) ------ ------ ------ ------ (1.6) (5.6) (7.4) (5.6) Income (loss) before reorganization item and provision for income taxes (30.7) 1.8 (52.3) 0.8 Reorganization item 3.2 -- 1.7 -- ------ ------ ------ ------ Income (loss) before provision for income taxes (33.9) 1.8 (54.0) 0.8 Provision for income taxes -- 0.7 -- 0.3 ------ ------ ------ ------ Net income (loss) (33.9)% 1.1% (54.0)% 0.5% ====== ====== ====== ======
The following table sets forth the sales product mix as a percentage of net sales for the periods indicated:
Three Months Ended Nine Months Ended June 30, June 30, --------------------- --------------------- 1999 1998 1999 1998 ------ ------ ------ ------ Plate 53.2% 67.1% 59.5% 59.8% Sheet 28.9 17.1 19.2 18.7 Pipe 10.8 8.8 10.0 11.5 Slab 4.3 5.2 8.2 7.9 Non-Steel 2.8 1.8 3.1 2.1 ------ ------ ------ ------ 100.0% 100.0% 100.0% 100.0% ====== ====== ====== ======
Page 12 of 27 13 THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998 Net sales decreased 53.9% primarily due to decreased shipments of approximately 190,300 tons and decreased overall average selling prices for the three months ended June 30, 1999 as compared to the same period in the previous fiscal year. The weighted average sales price (net of transportation costs) per ton of plate, pipe, sheet and slab products decreased by 27.3%, 21.3%, 23.0% and 29.2%, respectively, in the three months ended June 30, 1999 compared to the same period in the previous fiscal year. Shipped tonnage of plate, pipe and slab products decreased approximately 161,900 tons or 49.8%, 11,000 tons or 27.8% and 18,200 tons or 45.9%, respectively, while shipped tonnage of sheet products increased approximately 800 tons or 0.8%, between the two periods. The decreases in prices and volumes were primarily a result of increased supply from imports as discussed below, as well as other market factors. During the fourth quarter of fiscal year 1998 and the first three quarters of fiscal year 1999, order entry, shipments and pricing for all of the Company's products were adversely affected by, among other things, increased imports. As a result of the trade cases described below, the Company's overall price realization and shipments are expected to increase slightly during the fourth quarter of fiscal year 1999, but the negative impact of high import levels and the resultant increase in steel inventories, together with other market factors, will continue to adversely affect the financial performance of the Company during such period. As of July 31, 1999, the Company had estimated total orders on hand of approximately 112,000 tons compared to approximately 304,000 tons as of July 31, 1998. The Company's low backlog is in part due to operating at one-blast furnace compared to two-blast furnaces. Foreign competition is a significant factor in the steel industry and has adversely affected product prices in the United States and tonnage sold by domestic producers. The intensity of foreign competition is substantially driven by fluctuations in the value of the United States dollar against several other currencies as well as the level of demand for steel in the United States economy relative to steel demand in foreign economies. In addition, many foreign steel producers are controlled or subsidized by foreign governments whose decisions concerning production and exports may be influenced in part by political and social policy considerations as well as by prevailing market conditions and profit opportunities. Historically, coiled and flat plate imports have represented approximately 20% of total U.S. consumption. In the summer of 1998, the domestic steel industry began experiencing an unprecedented surge in imports resulting in a loss of market share for domestic steel producers as well as a significant increase in inventories held for sale. During such surge, as much as 40% of domestic plate and hot-rolled coiled sheet consumption was supplied by imports. The surge in imports from various countries was in part the result of depressed economies in various regions, which have greatly reduced steel consumption, causing steel producers to dramatically increase exports to the United States, one of the few relatively strong markets for steel consumption. The Company, as well as other domestic steel producers, believes that foreign producers were and are selling product into the U.S. market at dumped and/or subsidized prices that adversely affect domestic shipments and pricing. Page 13 of 27 14 While a previous import surge in 1996 primarily involved cut-to-length plate, the current surge has included all of the Company's products. As a result, from May 1998 to June 1999, the Company's plate and sheet prices fell by 27% and 28%, respectively. Concurrently, the Company has been forced to reduce production by as much as 50%, resulting in higher costs per ton and production inefficiencies, as well as a significant decline in operating results and cash flow. During the three months ended June 30, 1999, the Company's total shipments were approximately 317,200 tons, as compared to 523,800 tons for the same period in the previous year. As a result of the partial import relief described below, production and order entry rates have increased modestly. In addition, the Company has announced various price increases for certain of its products, as have certain other domestic producers. The announced price increases are expected to gradually improve price realization. There can, however, be no assurance that market conditions will allow the Company to attain the announced increases. On September 30, 1998, the Company and eleven other domestic steel producers filed anti-dumping actions against hot-rolled coiled steel imports from Russia, Japan and Brazil. The group also filed a subsidy (countervailing duty) case against Brazil (all cases described in this paragraph are referred to as the "Coiled Products Cases"). In April 1999, the Department of Commerce ("DOC") issued a final determination that imports of hot-rolled coiled sheet from Japan were dumped at margins ranging from 17-65%. In June 1999 the International Trade Commission (the "ITC") reached a unanimous 6-0 final determination that imports of hot-rolled coiled sheet from Japan caused injury to the U.S. industry. As a result, an antidumping duty order has taken effect against imports from Japan and will last for a minimum duration of five years. During that time, the amount of dumping duty deposits due from U.S. importers of the merchandise may vary based upon the results of annual administrative reviews. The Company believes that in the near term the imposition of these antidumping duties will almost completely eliminate hot-rolled coiled sheet imports from Japan, which totaled 2.7 million tons in 1998. On July 6 and 12, 1999, respectively, the DOC simultaneously issued suspension agreements and final dumping duty determinations as to imports of hot-rolled coiled sheet from Brazil and Russia, and a suspension agreement and final countervailing duty determination as to imports of hot-rolled coiled sheet from Brazil. The Brazilian countervailing duty suspension agreement provides for a quantative limitation of no more than 290,000 metric tons annually of hot-rolled coiled sheet from Brazil and the Brazilian antidumping suspension agreement provides that tonnage can be sold at prices no lower during the five-year period than a reference price of $327 a metric ton, $297 a short ton ex-dock duty paid, in the U.S. market. Based on the fact that these reference prices were above current domestic prices, that the agreement provided that this price was a floor price which would increase as domestic prices increased above $344 per metric ton, $310 per short ton, and that the agreement shielded the U.S. industry from the devaluations of the Brazilian currency during the five years of the agreement, the Company and certain other petitioners supported this suspension agreement. The DOC announced countervailing duty findings of approximately 7%, and antidumping duties of approximately 40%, as to imports from Brazil. The ITC is expected to make final affirmative injury determinations. Therefore, if Brazilian producers Page 14 of 27 15 violate the suspension agreements, these duty amounts would likely be immediately imposed. The suspension agreement on hot-rolled coiled sheet from Russia provides for no shipments for the remainder of 1999, 325,000 metric tons for 2000, 500,000 metric tons for 2001, 675,000 metric tons for 2002, and 725,000 metric tons for 2003. It sets a minimum export price of $255 per metric ton F.O.B. Russia, which is subject to quarterly changes based on a formula relating to other import prices. All of the petitioners objected to the Russian suspension agreement because of the allowed continuation of dumped products at prices below U.S. market prices. However, the quantative restrictions represent a significant decrease from the 3.8 million tons of hot-rolled coiled sheet imports from Russia in 1998. In addition to the hot-rolled coiled sheet suspension agreement, the DOC also entered into a general steel trade agreement with Russia which provides for reduction in imports of other flat-rolled steel products. Simultaneous with the announcement of these agreements, the DOC announced final dumping duties ranging from 57-157%, and the ITC is expected to shortly issue a final affirmative injury determination. Therefore, if the hot-rolled coiled sheet suspension agreement is violated during the next five years, these duty amounts would likely be immediately imposed. The success of the three Coiled Products Cases is expected significantly to reduce imports from these three countries from the seven million tons in 1998. As a result, the Company expects that its production levels, shipments and pricing of hot-rolled coiled sheet products will continue to increase modestly as imports decline and excess inventory levels are reduced. This trend could, however, reverse itself if other countries significantly increase imports or if domestic demand for hot-rolled coiled sheet declines. On February 22, 1999, five domestic steel producers filed anti-dumping actions against cut-to-length plate imports from the Czech Republic, France, India, Indonesia, Italy, Macedonia, Japan and South Korea. Also, countervailing duty cases were filed against France, India, Indonesia, Italy, Macedonia and South Korea (all cases described in this paragraph are referred to as the "Cut-to-length Plate Cases"). In April 1999, the ITC made a unanimous affirmative preliminary injury determination with respect to all the respondent countries except the Czech Republic and Macedonia, which were dismissed from the cases. On July 12 and 13, 1999, the DOC announced preliminary margins in the cases ranging from 3.67 - 59.12%. Bonds in these amounts are now required on imports. The DOC will issue final determinations in November or December, with final ITC determinations expected in December 1999 or January 2000. There can be no assurance as to the ultimate effect of the Coiled Products Cases or Cut-to-length Plate Cases, that imports from countries not named in the Coiled Products Cases or the Cut-to-length Plate Cases will not increase or that domestic shipments or prices will rise. The Company continues to monitor imports of all products it produces and may file additional trade cases or take other trade action in the future. Existing trade laws and regulations may be inadequate to prevent the adverse impact of dumped and/or subsidized steel imports; consequently, such imports could pose continuing or increasing problems for the domestic steel industry and the Company. Page 15 of 27 16 Five-year sunset reviews of various cut-to-length plate cases decided in 1994 will begin in September 1999. The Company and other U.S. producers are allowed to participate in those reviews in support of a five-year extension of the orders. The outcome of these reviews cannot currently be predicted, but the failure to extend such dumping duties could have a future material adverse effect. Domestic competition remains intense and imported steel continues to adversely affect the market. Moreover, additional production capacity is being added in the domestic market. The Company sells substantially all of its products in the spot market at prevailing market prices. The Company believes its percentage of such sales is higher than that of most of the other domestic integrated producers. Consequently, the Company may be affected by price increases or decreases more quickly than many of its competitors. The Company intends to react to price increases or decreases in the market as required by competitive conditions. On November 2, 1998, the Company signed a new, three-year agreement with Mannesmann Pipe and Steel ("Mannesmann"). Under the agreement, Mannesmann is responsible for marketing the Company's steel products throughout the continental United States. Mannesmann previously marketed the Company's steel products in fifteen midwestern states and to certain customers in the eastern United States. The Company's existing sales force will remain Company employees, but will be directed by Mannesmann. The Company also made several other organizational changes designed to improve product distribution and on-time delivery. The Mannesmann agreement requires Mannesmann to purchase and pay for the Company's finished goods inventory as soon as it has been assigned to or otherwise identified with a particular order. This requirement was implemented beginning in April 1999. Mannesmann then sells the products to end customers at the same sales price Mannesmann paid the Company plus a variable commission. As of June 30, 1999, the Company had received $9.1 million from Mannesmann for the purchase of finished goods inventory that was assigned to a discrete order. The Company recognizes the sale of this inventory when it is shipped. Therefore, the Company only records the receipt of funds and the corresponding inventory reduction for the cost of the inventory in its financial statements until shipment occurs. The Company remains responsible for customer credit and product quality. On or before August 31, 1999, the Company has the right to terminate the Mannesmann agreement effective December 31, 1999. At present, no decision to terminate the agreement has been made. Termination of the Mannesmann agreement would likely have a negative impact on the cash flow and liquidity of the Company. Cost of sales includes raw materials, labor costs, energy costs, depreciation and other operating and support costs associated with the production process. The Company's cost of sales, as a percentage of net sales, increased to 124.8% for the three months ended June 30, 1999 as compared to 89.3% for the same period in the previous fiscal year. The overall average cost of sales per ton shipped increased approximately $20 per ton between the two periods, primarily as a result of production inefficiencies associated with operating at significantly less than capacity. As described above, the significant surge in foreign imports and resulting low level of orders, Page 16 of 27 17 together with other market factors, caused production levels to be significantly less than capacity. Operating costs per ton increased in part because fixed costs were allocated over fewer tons. In addition, the Company, in response to falling prices, wrote-down the cost of its inventories to market price, resulting in an adjustment of approximately $4.1 million which increased cost of sales in the three months ended June 30, 1999. The Company has undergone several rounds of personnel reductions and other cost cuts in an attempt to at least partially offset the adverse cost effects of lower production rates. Based on market conditions, the Company is currently attempting to minimize production inefficiencies by limiting its production to a full, one-blast furnace level. The Company will resume a two-blast furnace operation when order entry rates and pricing indicate that the Company can attain operational results superior to a full, one-blast furnace operation. A two-blast furnace operation would create additional working capital needs for the Company. The Company anticipates instigating a two-blast furnace operation in September or October 1999. There can, however, be no assurance that market conditions will ultimately justify a two-blast furnace operation or that the Company will be able to obtain the requisite working capital from vendor credit, expanded borrowing capacity, or other sources to support increased production levels. Depreciation costs included in cost of sales decreased approximately $0.1 million for the three months ended June 30, 1999, compared with the same period in the previous fiscal year. This decrease was due to a lower asset base as a result of a write-down at the end of fiscal year 1998 of approximately $16.3 million for impaired, fixed assets. Selling, general and administrative expenses for the three months ended June 30, 1999 decreased approximately $2.4 million as compared to the same period in the previous fiscal year. These lower expenses were due in part to cost savings related to staff and support personnel reductions. During the three months ended June 30, 1999, the Company recorded approximately $2.8 million of professional fees related to its Chapter 11 reorganization efforts which included the fees and expenses of the bondholders and unsecured creditors committees. These fees were not included in selling, general and administrative expenses. Interest expense decreased approximately $8.8 million during the three months ended June 30, 1999 as compared to the same period in the previous fiscal year. As of February 1, 1999, the Company discontinued accruing interest on the senior notes. Contractual interest on the senior notes for the three months ended June 30, 1999 was $8.3 million, which is not recorded in the financial statements. In addition, lower production volumes resulting in lower working capital needs decreased the average borrowings outstanding compared to the same period in the previous fiscal year. NINE MONTHS ENDED JUNE 30, 1999 COMPARED WITH NINE MONTHS ENDED JUNE 30, 1998 Net sales decreased 60.0% due primarily to decreased shipments of approximately 775,400 tons and decreased overall average selling prices for the nine months ended June 30, 1999 compared to the same period in the previous Page 17 of 27 18 fiscal year. The weighted average sales price (net of transportation costs) per ton of plate, pipe, sheet and slab products decreased by 19.7%, 19.0%, 22.0% and 24.8%, respectively, for the nine months ended June 30, 1999 compared to the same period in the previous fiscal year. Shipped tonnage of plate, pipe, sheet and slab products decreased approximately 449,300 tons or 50.4%, 85,800 tons or 57.1%, 158,800 tons or 47.4% and 81,500 tons or 44.6%, respectively, between the two periods. The decreases in prices and volumes were primarily a result of increased supply from imports as discussed above, as well as other market factors. The Company's cost of sales, as a percentage of net sales, increased to 136.7% for the nine months ended June 30, 1999 as compared to 90.4% for the same period in the previous fiscal year. The overall average cost of sales per ton shipped increased approximately $66 per ton between the two periods, primarily as a result of production inefficiencies associated with operating at significantly less than capacity. As described above, the significant surge in foreign imports and resulting low level of orders caused production levels to be significantly less than capacity. Operating costs per ton increased in part because fixed costs were allocated over fewer tons. In addition, the Company, in response to falling prices, wrote-down the cost of its inventories to market price, resulting in an adjustment of approximately $5.8 million which increased cost of sales in the nine months ended June 30, 1999. Depreciation costs included in cost of sales decreased approximately $1.3 million for the nine months ended June 30, 1999 compared with the same period in the previous fiscal year. This decrease was due to a lower asset base as a result of approximately $16.3 million of impaired fixed assets being written-down at the end of fiscal year 1998. Selling, general and administrative expense for the nine months ended June 30, 1999 increased approximately $0.7 million as compared to the same period in the previous fiscal year. These higher expenses were due to increased expenses of approximately $4.0 million for allowance of doubtful accounts associated with the depressed steel market that is affecting certain of the Company's customers. These higher expenses were offset in part by cost savings related to staff and support personnel reductions. Subsequent to the Company's filing of a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on February 1, 1999, the Company recorded approximately $3.9 million of professional fees related to the reorganization which included the fees and expenses of the bondholders and unsecured creditors committees, which were not included in selling, general and administrative expenses. Interest expense decreased approximately $14.3 million during the nine months ended June 30, 1999 as compared to the same period in the previous fiscal year. As of February 1, 1999, the Company discontinued accruing interest on the senior notes. Contractual interest on the senior notes for the nine months ended June 30, 1999 was $24.8 million, which is $13.8 million in excess of recorded interest expense on the senior notes. In addition, lower production volumes resulting in lower working capital needs decreased the average borrowings outstanding compared to the same period in the previous fiscal year. Page 18 of 27 19 LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements arise from operating expenses, capital expenditures and working capital requirements, including interest payments. In the past, the Company has met these requirements principally from the sale of equity; the incurrence of long-term indebtedness, including borrowings under the Company's credit facilities; equipment lease financing and cash provided by operations. In March 1993, the Company issued in a public offering $135 million principal amount of 11 1/8% senior notes (the "11 1/8% Senior Notes" and, together with the 9 1/2% Senior Notes discussed below, the "Senior Notes"). The 11 1/8% Senior Notes mature in 2001, are unsecured, and require interest payments semi-annually on March 15 and September 15. Since March 1998, the 11 1/8% Senior Notes are redeemable, in whole or in part, at the option of the Company, subject to certain redemption premiums. The Bankruptcy Code generally prohibits the Company from making payments on unsecured, pre-petition debt, including the 9 1/2% Senior Notes due in January 2004 and the 11 1/8% Senior Notes due in March 2001, except as provided in a confirmed plan of reorganization. As discussed above, the Company has not been accruing interest on the Senior Notes since February 1, 1999, the date the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. In connection with the offering of the 11 1/8% Senior Notes, the Company issued $40 million of 14% cumulative redeemable exchangeable preferred stock (the "Redeemable Preferred Stock") at a price of $100 per share and warrants to purchase an aggregate of 1,132,000 shares of Class A common stock. As of June 30, 1999, the Redeemable Preferred Stock consisted of 388,358 shares, no par value, with a liquidation preference of approximately $151 per share. As allowed pursuant to the Redeemable Preferred Stock Agreement, 11,642 shares of Redeemable Preferred Stock have been used to pay for the exercise of warrants to purchase 233,502 shares of Class A common stock. Dividends accrue at a rate equal to 14% per annum of the liquidation preference and, except as provided below, are payable quarterly in cash from funds legally available therefor. For dividend periods ending before April 1996, the Company had the option to add dividends to the liquidation preference in lieu of payment in cash. Prior to April 1996, the Company elected to add the dividends to the liquidation preference. The Redeemable Preferred Stock is exchangeable, at the Company's option, into subordinated debentures of the Company due 2003 (the "Exchange Debentures"). The Company is obligated to redeem all of the Redeemable Preferred Stock in March 2003 from funds legally available therefor. The Company's ability to pay cash dividends on the Redeemable Preferred Stock is subject to the covenants and tests contained in the indentures governing the Senior Notes and in the Company's Credit Facility. Restricted payment limitations under the Senior Notes precluded payment of the quarterly preferred stock dividends beginning with the dividend due June 15, 1996. Unpaid dividends accumulate until paid and accrue additional dividends at a rate of 14% per annum. As a result of the Company's inability to pay four full quarterly dividends, the holders of the Redeemable Preferred Stock elected two directors on May 30, 1997. The right of such holders to elect directors continues until the Company has paid all dividends in arrears and has paid the dividends due for two consecutive quarters thereafter. As of February 1, 1999, the Company discontinued recording dividends on the Redeemable Preferred Stock. Page 19 of 27 20 Unpaid contractual dividends as of June 30, 1999, were approximately $33.6 million, which is $5.1 million in excess of dividends accrued in the Company's balance sheet. The Company will not pay dividends on the Redeemable Preferred Stock during the pendency of its Chapter 11 proceeding. Both the Redeemable Preferred Stock and/or the Exchange Debentures are redeemable, at the Company's option, subject to certain redemption premiums. The warrants to purchase the Company's Class A common stock are exercisable at $11 per share, subject to adjustment in certain circumstances, and expire in March 2000. At June 30, 1999, warrants to purchase 898,498 shares of Class A common stock were outstanding. In February 1994, the Company completed a public offering of $190 million principal amount of 9 1/2% senior notes (the "9 1/2% Senior Notes"). The 9 1/2% Senior Notes mature in 2004, are unsecured, and require interest payments semi-annually on January 15 and July 15. After January 1999, the 9 1/2% Senior Notes are redeemable, in whole or in part, at the option of the Company, subject to certain redemption premiums. In January 1999, the Company did not make a $9.0 million interest payment due on the 9 1/2% Senior Notes. The Bankruptcy Code generally prohibits the Company from making payments on unsecured pre-petition debt, including the 9 1/2% Senior Notes due in January 2004 and the 11 1/8% Senior Notes due in March 2001, except as provided in a confirmed plan of reorganization. As discussed above, the Company has not been accruing interest on the Senior Notes since February 1, 1999, the date the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On February 19, 1999, the U.S. District Court for the District of Utah granted the Company's motion to approve a new, $125 million debtor-in- possession credit facility with Congress Financial Corporation (the "Credit Facility"). The Credit Facility expires on the earlier of the consummation of a plan of reorganization or February 19, 2001. The Credit Facility replaced the Company's previous revolving credit facility with a syndicate of banks led by Citicorp USA, Inc. as agent, and, by including property, plant and equipment in the collateral base, is intended to provide additional liquidity. The Credit Facility is secured by, among other things, accounts receivable; inventory; and property, plant and equipment. Actual borrowing availability is subject to a borrowing base calculation and the right of the lender to establish various reserves, which it has done. The amount available to the Company under the Credit Facility is expected to be approximately 60%, in the aggregate, of eligible inventories, plus 85% of eligible accounts receivable, plus 80% of the orderly liquidation value of eligible equipment up to a maximum of $40 million, less reserves on the various collateral established by the lender. Borrowing availability under the Credit Facility is also subject to other covenants. As of August 11, 1999, the Company's eligible inventories, accounts receivable and eligible equipment supported access to $66.4 million in borrowings under the Credit Facility. As of August 11, 1999, the Company had $8.9 million available under the Credit Facility, with $55.2 million in borrowings and $2.3 million in letters of credit outstanding. There can, however, be no assurance as to the amount of availability that will be provided in the future or that the lender will not require additional reserves in the future. The terms of the Credit Facility include cross default and other customary provisions. Page 20 of 27 21 Besides the above-described financing activities, the Company's major source of liquidity over time has been cash provided by operating activities. Net cash provided by operating activities was $13.2 million for the nine months ended June 30, 1999, as compared with net cash provided by operating activities of $8.9 million for the nine months ended June 30, 1998. The sources of cash for operating activities during the nine months ended June 30, 1999 included depreciation and amortization of $35.6 million, a decrease in accounts receivable of $48.1 million associated primarily with reduced sales volume and the implementation of the Mannesmann agreement, a decrease in inventories of $53.2 million primarily as a result of lower production levels, an increase in accrued interest payable of $10.3 million and an increase in accounts payable of $3.9 million. These sources of cash were substantially offset by a net loss of $121.6 million, an increase in prepaid expenses of $8.3 million, a decrease in accrued liabilities of $5.0 million and a decrease in accrued payroll and related taxes of $2.4 million. At current production and pricing levels, the Company's production activities continue to consume cash. The Company continues to pursue activities to minimize the liquidity impact thereof. Nevertheless, an improvement in market conditions is likely necessary for the Company's production activities to become cash flow positive. The Company is attempting to improve its liquidity by offering certain non- core assets for sale. Subsequent to June 30, 1999, the Company finalized an agreement to sell its large diameter pipe mill equipment for $4.5 million and continues to offer other non-core assets for sale. The sale of the large diameter pipe mill equipment has been approved by the Credit Facility lenders and the bankruptcy court. The large diameter pipe mill equipment has been idled for many years. The Company was recently informed by the purchaser of the equipment that payment may not be timely made because of complications involved in the purchaser's resale of the equipment. The Company believes that it is entitled to timely payment pursuant to the terms of the contract and will seek available legal remedies. There can, however, be no assurance as to the timing or certainty of the receipt of such payment. Capital expenditures were $7.7 million and $17.9 million for the nine months ended June 30, 1999 and 1998, respectively. Capital expenditures for fiscal year 1999 are estimated at approximately $10 to $12 million, which includes implementation of new business and financial software and various other projects. Given current market conditions and the uncertainties created thereby, the Company is continuing to limit its capital spending. The Company has implemented SAP software, an enterprise-wide business system. The Company expects to benefit significantly from such implementation, including addressing the year 2000 issues inherent in its mainframe legacy systems. The project cost was $9.0 million. The Company is continuing to refine the configuration of the software and train its employees to better use the software. There can be no assurance that in the near term the Company will realize the expected benefits of SAP. Depending on market, operational, liquidity and other factors, the Company may elect further to adjust the design, timing and budgeted expenditures of its capital plan. The Company is a member of a limited liability Company which has entered into a cooperative agreement with the United States Department of Energy ("DOE") for the demonstration of a cokeless ironmaking facility and associated power generation and air separation facilities. As of June 30, 1999, the Page 21 of 27 22 Company had spent (net of DOE reimbursement) approximately $1.1 million in connection with the project. Expenditures on the project are subject to government cost sharing arrangements. Completion of the project remains subject to several contingencies. YEAR 2000 ISSUES The Company is actively assessing and correcting potential year 2000 information system issues in the following areas: (i) the Company's information technology systems; (ii) the Company's non-information technology systems (i.e., machinery, equipment and devices which utilize built-in or embedded technology); and (iii)suppliers and customers. The Company is undertaking its year 2000 review in the following phases: awareness (education and sensitivity to the year 2000 issue), identification (identifying the equipment processes or systems which are susceptible to the year 2000 issue), assessment (determining the potential impact of year 2000 on the equipment, processes and systems identified during the previous phase and assessing the need for testing and remediation), testing/verification (testing to determine if an item is year 2000 ready or the degree to which it is deficient), and implementation (carrying out necessary remedial efforts to address year 2000 readiness, including validation of upgrades, patches or other year 2000 fixes). During fiscal year 1997, the Company selected and started the implementation of SAP software, an enterprise-wide business system. This system affects nearly every aspect of the Company's operations. During fiscal year 1998, the Company installed new, year 2000 compliant HP computer hardware and SAP modules for financial accounting, purchasing and accounts payable, raw materials inventory control and accounts receivable. The human resource and payroll module was implemented on January 1, 1999. On February 1, 1999, the Company completed the last phase of the SAP implementation, which includes sales distribution, materials management, production planning, product costing, and other management information systems. The HP hardware, operating systems and software installed with the SAP project are believed to be year 2000 compliant. The Company has identified other hardware, operating systems and software applications used in its process control and other information systems and is in the process of obtaining year 2000 compliance information from the providers of such hardware, operating systems and applications software. The Company is working with vendors to test the year 2000 readiness of such hardware, operating systems and software application systems. The Company is also reviewing, testing and correcting internally developed software applications for the year 2000 issue. The Company has substantially completed inventorying its non-information technology systems and is assessing the year 2000 issues to determine appropriate testing and remediation. The Company anticipates completing the assessment of its major non-information technology systems and to start any necessary testing and implementation efforts for business critical non- information technology systems in the third quarter of calendar 1999. The Company has significant relationships with various third parties, and the failure of any of these third parties to achieve year 2000 compliance could have a material adverse impact on the Company's business, operating results and financial condition. These third parties include energy and utility suppliers, Page 22 of 27 23 financial institutions, material and product suppliers, transportation providers, and the Company's significant customers. The Company expects to review each major third-party supplier to confirm their year 2000 readiness. The audit/review process will continue into the third calendar quarter of 1999. Through June 30, 1999, the Company had capitalized approximately $9.0 million in costs to improve the Company's information technology systems and for year 2000 readiness efforts. The costs include consulting, implementing and transitioning to new computer hardware and software for the SAP enterprise- wide business systems. In addition, costs for training and re-engineering efforts have been expensed. The Company expects to have all year 2000 readiness efforts completed by October 31, 1999. The Company is in the process of preparing contingency plans for critical areas to address year 2000 failures if remedial efforts are not fully successful. The Company's contingency plans are expected to target the Company's most reasonably likely worst case scenarios and to include items such as maintaining an inventory buffer, providing for redundant information technology systems and establishing alternative third-party logistics. The Company's contingency plans will be based in part on the results of third-party supplier questionnaires, and thus are not fully developed at this time. Completion of initial contingency plans is targeted for the summer of 1999 (which plans will thereafter be revised from time to time as deemed appropriate). No assurance can be given that the Company will not be materially adversely affected by year 2000 issues. The Company may experience material unanticipated problems and costs caused by undetected errors or defects in its internal information technology and non-information technology systems. In addition, the failure of third-parties to timely address year 2000 issues could have a material adverse impact on the Company's business, operations and financial condition. If, for example, third party suppliers become unable to deliver necessary materials, parts or other supplies, the Company would be unable to timely manufacture products. Similarly, if shipping and freight carriers were unable to ship product, the Company would be unable to deliver product to customers. The foregoing discussion of the Company's year 2000 readiness includes forward-looking statements, including estimates of the timeframes and costs for addressing the known year 2000 issues confronting the Company, and is based on management's current estimates, which were derived using numerous assumptions. There can be no assurance that these estimates will be achieved, and actual events and results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability of personnel with required remediation skills, the ability of the Company to identify and correct or replace all relevant computer code and the success of third parties with whom the Company does business in addressing their year 2000 issues. FACTORS AFFECTING FUTURE RESULTS This report contains a number of forward-looking statements, including, without limitation, statements contained in this report relating to the Page 23 of 27 24 Company's ability to improve and optimize operations as well as on-time delivery and customer service, the Company's objective to increase higher- margin sales while reducing lower-margin sales, the Company's ability to compete with the additional production capacity being added in the domestic market, the Company's ability to compete against imports and the effect of imports and trade cases on the domestic market, the outcome of trade cases, the Company's expectation that prices and shipments will gradually improve, the commercial and liquidity benefits of the Mannesmann agreement, the successful implementation of the Mannesmann agreement, the Company's ability to successfully reorganize under Chapter 11 of the Bankruptcy Code, continued access to and adequacy of the Credit Facility, the Company's ability to restrict capital spending, the Company's ability to sell certain non-core assets and collect the proceeds therefrom, the effect of SAP implementation, the Company's plans to become year 2000 compliant, the effect of inflation and any other statements contained herein to the effect that the Company or its management "believes," "expects," "anticipates," "plans" or other similar expressions. There are a number of important factors that could cause actual events or the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth herein. The Company's future operations will be impacted by, among other factors, pricing, product mix, throughput levels and production efficiencies. The Company has efforts underway to improve throughput rates and production efficiencies and to continue shifting its product mix to higher-margin products. There can be no assurance that the Company's efforts will be successful or that sufficient demand will exist to support the Company's throughput capacity. Pricing and shipment levels in future periods are key variables to the Company's future operating results that remain subject to significant uncertainty. These variables will be affected by several factors including the level of imports, future capacity additions and product demand. The short-term and long-term liquidity of the Company also is dependent upon several other factors, including continued access to the Credit Facility; vendors credit support; the reactions of customers and others to the Company's bankruptcy filing; cash needs to fund working capital as volume increases; availability of capital; foreign currency fluctuations; competitive and market forces; capital expenditures and general economic conditions. Moreover, the United States steel market is subject to cyclical fluctuations that may affect the amount of cash internally generated by the Company and the ability of the Company to obtain external financing. In addition, because of the Company's recent bankruptcy filing and liquidity position, the Company's financial flexibility is limited. Many of the foregoing factors, of which the Company does not have complete control, may materially affect the performance and financial condition of the Company. Inflation can be expected to have an effect on many of the Company's operating costs and expenses. Due to worldwide competition in the steel industry, the Company may not be able to pass through such increased costs to its customers. Page 24 of 27 25 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On February 1, 1999, the Company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Utah, Central Division. The filing was made necessary by a lack of sufficient liquidity. The Company's operating results for fiscal 1998 and for the first three fiscal quarters of 1999 were severely affected by, among other things, a dramatic surge in steel imports beginning in the summer of 1998. As a consequence of record-high levels of low-priced steel imports and the resultant deteriorating market conditions, the Company's overall price realization and shipments declined precipitously. Decreased liquidity made it impossible for the Company to service its debt and fund ongoing operations. Therefore, the Company sought protection under Chapter 11 of the Bankruptcy Code. The Company has responded to the surge in imports by significantly decreasing production, reducing costs and pursuing trade cases against dumped and/or subsidized steel imports. The Bankruptcy Code generally prohibits the Company from making payments on unsecured, pre- petition debt, including the 9 1/2% Senior Notes due 2004 and the 11 1/8% Senior Notes due 2001, except as provided in a confirmed plan of reorganization. The Company is continuing operations in Chapter 11 and has a $125 million debtor-in-possession credit facility in place. ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company did not make its interest payment of approximately $9.0 million due January 15, 1999 on the Company's 9 1/2% Senior Notes and its interest payment of approximately $7.5 million due March 15, 1999 on the Company's 11 1/8% Senior Notes, which resulted in a default under the terms thereof. The defaults were not cured by the Company. As described above, the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on February 1, 1999. The Bankruptcy Code generally prohibits the Company from making payments on unsecured, pre-petition debt, including the Senior Notes, except as provided in a confirmed plan of reorganization. Interest payment defaults under the Senior Notes are excluded as a cross default under the terms of the Credit Facility. As of February 1, 1999, the Company discontinued accruing interest on the Senior Notes and dividends on its Redeemable Preferred Stock. Contractual interest on the Senior Notes for the three months ended June 30, 1999 was $8.3 million, which is not included in the financial statements. Contractual dividends on the Redeemable Preferred Stock as of June 30, 1999, was approximately $33.6 million, which is $5.1 million in excess of dividends accrued in the Company's balance sheet. Page 25 of 27 26 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits.
Exhibit Filed Number Exhibit Herewith ------ ------- -------- 10.1 Amendment No. 1 to Loan and Security X Agreement by and between Congress Financial Corporation and Geneva Steel Company as Debtor and Debtor-in-Possession as Borrower, dated July 31, 1999 10.2 Agreement for purchase and sale of Large Diameter Pipe X Mill at Geneva Steel between Mitsubishi International Corporation and Geneva Steel Company, dated June 21, 1999 10.3 Letter agreement between Mannesmann Pipe and Steel Corporation X and Geneva Steel Company dated July 30, 1999 27 Financial Data Schedule X
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the three months ended June 30, 1999. Page 26 of 27 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENEVA STEEL COMPANY By: \s\ Dennis L. Wanlass ------------------------------------- Vice President, Treasurer and Chief Financial Officer Dated: August 16, 1999 Page 27 of 27 28 EXHIBIT INDEX
Exhibit Number Exhibit ------ ------- 10.1 Amendment No. 1 to Loan and Security Agreement by and between Congress Financial Corporation and Geneva Steel Company as Debtor and Debtor-in-Possession as Borrower, dated July 31, 1999 10.2 Agreement for purchase and sale of Large Diameter Pipe Mill at Geneva Steel between Mitsubishi International Corporation and Geneva Steel Company, dated June 21, 1999 10.3 Letter agreement between Mannesmann Pipe and Steel Corporation and Geneva Steel Company dated July 30, 1999 27 Financial Data Schedule
EX-10.1 2 AMENDMENT NO.1 TO LOAN AND SECURITY AGREEMENT 1 Exhibit 10.1 AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT July 31, 1999 Geneva Steel Company 10 South Geneva Road Vineyard, Utah 84058 Ladies and Gentlemen: Geneva Steel Company, Debtor and Debtor-in-Possession (together with its successors and assigns, "Borrower") has entered into financing arrangements with Congress Financial Corporation, a Delaware corporation (together with its successors and assigns, "Lender") pursuant to which Lender may make loans and advances and provide other financial accommodations to Borrower as set forth in the Loan and Security Agreement, dated February 19, 1999, between Borrower and Lender (as the same is amended hereby and may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the "Loan Agreement") and the other agreements, documents and instruments referred to therein or at any time executed and/or delivered in connection therewith or related thereto, including this Amendment (all of the foregoing, together with the Loan Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, being collectively referred to herein as the "Financing Agreements"). Borrower has requested that (i) Lender agree to amend the Loan Agreement so as to permit Borrower to create an additional encumbrance and to incur additional indebtedness under the Loan Agreement in connection with entering into insurance premium financing arrangements and (ii) Lender consent to the sale by Borrower to Mitsubishi International Corporation ("Purchaser") of certain equipment as set forth in Schedule A annexed hereto (the "Pipe Mill Equipment") pursuant to the Agreement for Purchase and Sale of Large Diameter Pipe Mill, dated as of June 21, 1999, between Borrower and Purchaser (the "Purchase Agreement"). Lender is willing to agree to such amendment and consent, subject to the terms and conditions contained herein. By this Amendment, Borrower and Lender intend to evidence such amendment and consent. In consideration of the foregoing, and the agreements and covenants contained herein, the parties hereto agree as follows: 2 1. Definitions. For purposes of this Amendment, unless otherwise defined herein, all terms used herein, including, but not limited to, those terms used and/or defined in the recitals above, shall have the respective meanings assigned to such terms in the Loan Agreement. 2. Amendments. 2.1. Encumbrances. Section 9.8 of the Loan Agreement is hereby amended by adding a new Section 9.8(k) thereto as follows: "(k) liens and security interests of AFCO Credit Corporation ("AFCO") on the unearned or returned premiums with respect to certain of the insurance policies maintained by Borrower payable as a result of the cancellation of such policies, provided, that, (i) Lender shall have received a list and description, in form and substance satisfactory to Lender, of the insurance policies, the unearned premiums for which are subject to such liens and security interests and (ii) Lender shall have received evidence, in form and substance satisfactory to Lender, that AFCO does not have any security interest or other interest or claim in or to any assets of Borrower other than claims to unearned or returned premiums payable as a result of the cancellation of such policies." 2.2. Indebtedness. Section 9.9 of the Loan Agreement is hereby amended by adding a new Section 9.9(h) thereto as follows: "(h) Indebtedness of Borrower to AFCO in respect of unearned premiums payable on certain insurance policies maintained by Borrower pursuant to the terms of the Premium Finance Agreement, Disclosure Statement and Security Agreement between Borrower and AFCO, provided, that, (i) in no event shall the total amount of such Indebtedness outstanding at any time exceed $3,000,000, (ii) Lender shall have received true, correct and complete copies of all agreements, documents and instruments evidencing or otherwise related to such Indebtedness, as duly authorized, executed and delivered by the parties thereto, (iii) Borrower shall not, directly or indirectly, (A) amend, modify, alter or change the terms of the agreements with respect to such Indebtedness; except, that, Borrower may, after prior written notice to Lender, amend, modify, alter or change the terms thereof so as to extend the maturity thereof to defer the timing of any payments in respect thereof, or to forgive or cancel any portion of such Indebtedness (other than pursuant to payments thereof), or to reduce the interest rate or any fees in connection therewith, or (B) redeem, retire, defease, purchase or otherwise deposit or invest any sums for such purpose and (iv) Borrower shall furnish to Lender all notices or demands in connection with such Indebtedness either received by Borrower or on its behalf after receipt thereof, or sent by Borrower or on its behalf, concurrently with the sending thereof, as the case may be." 3. Consent. In accordance with the request by Borrower, subject to the terms and conditions contained herein, Lender hereby consents to the sale by Borrower of the Pipe Mill Equipment in accordance with the terms of the Purchase Agreement as in effect on the date - 2 - 3 hereof, and Lender hereby releases in favor of Borrower, as of the date hereof all liens and security interests, to the extent held by Lender, in and to the Pipe Mill Equipment, subject to the satisfaction of each of the conditions set forth in Section 6 herein as determined by Lender. The amount received from the sale of the Pipe Mill Equipment shall not be considered in the application of the limitation on the amount of worn-out or obsolete Equipment which may be sold by Borrower pursuant to Section 9.7(b)(ii) of the Loan Agreement. 4. Availability Reserve. In connection with the consent provided for herein, Lender shall, upon the consummation of the sale of Pipe Mill Equipment contemplated by the Purchase Agreement, establish an Availability Reserve equal to $1,500,000 in accordance with Section 1.4 of the Loan Agreement to reduce the amount of Supplemental Revolving Loans otherwise available to Borrower. 5. Representations, Warranties and Covenants. Borrower represents, warrants and covenants with and to Lender as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a condition of the effectiveness of this Amendment and a continuing condition of the making or providing of any Loans or Letter of Credit Accommodations by Lender to Borrower: 5.1. This Amendment has been duly authorized, executed and delivered by Borrower and is in full force and effect, and the agreements and obligations of Borrower contained herein constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their terms. 5.2. All of the representations and warranties set forth in the Financing Agreements, as amended hereby, are true and correct in all material respects after giving effect to the provisions of this Amendment, except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct in all material respects as of such specified date. 5.3. The failure of Borrower to comply with the covenants, conditions and agreements contained herein or in any other agreement, document or instrument at any time executed or delivered by Borrower or any other person with, to or in favor of Lender shall constitute an Event of Default under the Financing Agreements; provided, that, notwithstanding anything to the contrary contained in Section 10.1(n) of the Loan Agreement, any default by Borrower under its arrangements with AFCO shall only constitute an Event of Default if such default by Borrower under its arrangements with AFCO continues for more than ten (10) days. 5.4. On or about the date of this Amendment, Borrower has sold to Purchaser all of the Pipe Mill Equipment pursuant to the Purchase Agreement as in effect on the date hereof. - 3 - 4 5.5. After giving effect to the provisions herein, no Event of Default or act, condition or event, which with notice or passage of time or both, would constitute an Event of Default exists or has occurred. 5.6. On or before the date hereof, Borrower has delivered, or caused to be delivered to Lender, a true, correct and complete copy of the Purchase Agreement as executed by the parties thereto, together with all schedules and exhibits thereto. 5.7. The security interests in and liens of Lender upon all assets and properties of Borrower, other than the Pipe Mill Equipment, are and shall continue to be in full force and effect, including but not limited to, all amounts at any time payable to Borrower or any of its affiliates, and all rights, benefits and remedies of Borrower, pursuant to the Purchase Agreement. 5.8. Borrower shall cause all amounts at any time payable to Borrower or any of its affiliates pursuant to the Purchase Agreement or any related agreements to be paid by Purchaser directly to Lender for application to the Obligations. 5.9. In the event Borrower or any of its affiliates receives any amounts at any time payable to Borrower or its affiliates pursuant to the Purchase Agreements or any related agreements, documents and instruments, such amounts shall be collected by Borrower or its affiliates as the property of Lender and held by it or them in trust for Lender and shall on the day received be remitted to Lender in the form received, with any necessary assignments or endorsements for application to the Obligations of Borrower to Lender in such order and manner as Lender may determine. 6. Conditions Precedent. 6.1. The effectiveness of the terms and conditions of this Amendment shall only be effective upon the satisfaction of each of the following conditions precedent: 6.2. the receipt by Lender in cash or other immediately available funds, of all of the proceeds of the sale of the Pipe Mill Equipment by Borrower to Purchaser pursuant to the Purchase Agreement for application by Lender to the Obligations of Borrower in such order and manner as Lender may determine; 6.3. the receipt by Lender of a true, correct and complete copy of the Purchase Agreement, together with all exhibits and schedules thereto. 6.4. the receipt by Lender of a certified copy of the signed Order as duly entered by the Bankruptcy Court for the District of Utah in the Chapter 11 case approving the insurance premium financing as set forth herein; -4- 5 6.5. the receipt by Lender of an original of this Amendment, duly authorized, executed and delivered by Borrower. 7. General. 7.1. Effect of this Amendment. Except as modified pursuant hereto, no other changes or modifications to the Financing Agreements are intended or implied and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the date hereof. Any acknowledgment or consent contained herein shall not be considered to constitute an acknowledgment or consent to any other or further action by Borrower or to entitle Borrower to any other consent. To the extent of conflict between the terms of this Amendment and the Financing Agreements, the terms of this Amendment shall control. 7.2. Further Assurances. The parties hereto shall execute and deliver such additional documents and take such additional action as may be necessary or desirable to effectuate the provisions and purposes of this Amendment. 7.3. Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the internal laws of the State of New York (without giving effect to principles of conflicts of laws). 7.4. Binding Effect. This Amendment is binding upon and shall inure to the benefit of Lender, Borrower and their respective successors and assigns. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] - 5 - 6 7.5. Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original but all of which when taken together shall constitute one and the same instrument. Very truly yours, CONGRESS FINANCIAL CORPORATION By: \s\ Thomas McGregor ----------------------------------- Title: Vice President -------------------------------- ACKNOWLEDGED AND AGREED TO: GENEVA STEEL COMPANY, Debtor and Debtor-in-Possession By: \s\ Ken C. Johnsen -------------------------------------- Title: Executive Vice President ----------------------------------- - 6 - EX-10.2 3 AGREEMENT FOR PURCHASE AND SALE OF PIPE MILL 1 Exhibit 10.2 AGREEMENT FOR PURCHASE AND SALE OF LARGE DIAMETER PIPE MILL AT GENEVA STEEL Between MITSUBISHI INTERNATIONAL CORPORATION of New York, New York and GENEVA STEEL COMPANY of Vineyard, Utah June 21, 1999 2 AGREEMENT FOR PURCHASE AND SALE OF LARGE DIAMETER PIPE MILL AT GENEVA STEEL This Agreement for Purchase and Sale of Large Diameter Pipe Mill (the "Agreement") dated as of June 21, 1999 is entered into by and between MITSUBISHI INTERNATIONAL CORPORATION of New York, New York ("BUYER") and GENEVA STEEL COMPANY, Debtor and Debtor-in-Possession, of Vineyard, Utah ("SELLER"), under the terms and conditions as outlined in the following sections. SECTION 1 SCOPE OF AGREEMENT 1.1 Subject to the terms and conditions of this Agreement , BUYER agrees to buy and SELLER agrees to sell the used Large Diameter Pipe Mill and related equipment located on the premises of SELLER in Vineyard, Utah, USA (the "Premises") and which is more particularly listed and described in Appendix 1 which is made a part hereof, together with any existing spares designed to function solely with such equipment, as agreed upon by BUYER and SELLER, and any existing drawings, manuals and production and maintenance records for such equipment in SELLER's possession as of the date hereof (collectively, the "EQUIPMENT"). The EQUIPMENT shall not include cranes (except as provided in Section 1.1.1. of Appendix 1) or real property or any items that are real property improvements or fixtures. SELLER shall not remove any of the EQUIPMENT from the Premises after the date of this Agreement; provided, however, that SELLER shall not be responsible for any shortages unless it can be shown by BUYER that such EQUIPMENT was in existence at the Premises on the date hereof. In no event shall SELLER be liable for any EQUIPMENT removed from the Premises by BUYER or its contractors, employees, or representatives due to the failure of BUYER to adequately secure the site of the EQUIPMENT as provided herein. After the transfer of title to the EQUIPMENT and the receipt of the Contract Price (defined below) by SELLER (the "Closing"), BUYER, BUYER's client or BUYER's contractor shall be solely responsible to secure the site of the EQUIPMENT for dismantling and removal. Notwithstanding anything in Appendix 1 to the contrary, the EQUIPMENT shall not include any electrical main systems, transformers, breakers or switches. 1.2 The EQUIPMENT is being sold "as is" and "where is" in all respects. Except as specifically provided herein, SELLER makes no warranties or representations whatsoever regarding the Premises or the EQUIPMENT, or any other matter in any way related to the Premises or the EQUIPMENT, including, but not limited to, merchantability, fitness for a specific use, title to the EQUIPMENT (except as set forth in Section 6.2 hereof), existence (except as contemplated in Section 1.1 hereof), utilities, ability to dismantle or transport the EQUIPMENT, operational capability, use, value or condition (environmental and otherwise) of the EQUIPMENT. BUYER has inspected the EQUIPMENT and is of sufficient sophistication, technical expertise 1 3 and financial ability to evaluate the merits of the purchase of the EQUIPMENT. Other than as specifically provided in this Agreement, BUYER is not relying on, and hereby specifically waives any claim of liability based on, any statement, representation, warranty, promise, covenant, or undertaking by SELLER or any other person representing or purporting to represent SELLER in connection with the EQUIPMENT or the Premises. SECTION 2 BANKRUPTCY AND CONSENT MATTERS 2.1 For the purposes of this Agreement, the terms "363 Order" and "Final Order" shall have the following definitions: 2.1.1 "363 Order" means an order of the Bankruptcy Court (as defined below), in form and substance reasonably satisfactory to BUYER and SELLER, approving the sale of the EQUIPMENT by SELLER to BUYER under this Agreement pursuant to Sections 105 and 363 of the Bankruptcy Code, free and clear of any Encumbrances (as defined below) except as specifically set forth in this Agreement, and finding that BUYER is a "good faith purchaser" including for purposes of Section 363(m) of the Bankruptcy Code. 2.1.2 "Final Order" means an order of the Bankruptcy Court (as defined below) (a) as to which the time to appeal shall have expired and as to which no appeal shall then be pending, or (b) if an appeal shall have been filed or sought, either (i) no stay of the order shall be in effect or (ii) if such stay shall have been granted by the Bankruptcy Court, then (A) the stay shall have been dissolved or (B) a final order of the district court having jurisdiction to hear such appeal shall have affirmed the order and the time allowed to appeal from such affirmance or to seek review or rehearing thereof shall have expired and the taking or granting of any further hearing, appeal or petition for certiorari shall not be permissible; provided, that the possibility that a motion under Rule 60 of the Federal Rules of Civil Procedure, or any analogous rule under the U.S. Bankruptcy Rules or local court rules, may be filed with respect to such order shall not prevent such order from being considered a Final Order. 2.2 The (a) sale of the Equipment pursuant to this Agreement, (b) rights and obligations of the parties hereto, and (c) effectiveness of this Agreement, shall be subject to (i) the approval of the transaction contemplated by this Agreement by the United States Bankruptcy Court for the District of Utah (the "Bankruptcy Court"), before which the bankruptcy proceeding under Chapter 11 of the Bankruptcy Code involving the SELLER as Debtor and Debtor-in- Possession was commenced and, (ii) the terms and conditions of the Bankruptcy Approval (as defined in Section 2.3) meeting the reasonable approval of SELLER and BUYER, which approval shall not be unreasonably withheld or delayed. 2 4 2.3 The approval of the Bankruptcy Court shall be evidenced by the entry by the Bankruptcy Court of the 363 Order prior to the Closing Date (as defined below), in substantially the form contemplated by this Agreement, which order shall not have been reversed, stayed, modified or amended in any manner adverse to BUYER, and which shall have become a Final Order which remains valid and binding and in full force and effect (the "Bankruptcy Approval"). In the event such Bankruptcy Approval is not obtained by SELLER within sixty (60) days after the filing by SELLER of the motion for the 363 Order, or such other period as the parties may agree in writing (the "Approval Period"), this Agreement and the rights and obligations of the parties hereunder shall be null and void and of no further force or effect upon written notice by SELLER to BUYER; provided that if the Bankruptcy Approval is being diligently pursued by SELLER, either party hereto may extend the Approval Period for an additional thirty (30) days by giving written notice to the other party of such extension prior to the expiration of the original Approval Period. 2.4 In addition to anything contained in Section 2.1.1 hereof, and notwithstanding anything to the contrary contained herein, SELLER shall endeavor to have the Final Order include the provisions set forth in Subsections 2.4.1, 2.4.2 and 2.4.3. 2.4.1 Pursuant to sections 363(b), 363(f) and 105(a) of the Bankruptcy Code, on the Closing Date the EQUIPMENT and all of SELLER's right, title and interest therein shall be transferred to BUYER in accordance with this Agreement and shall be free and clear of (i) all mortgages, security interests, conditional sale and/or title retention agreements, pledges, liens, judgments, demands, encumbrances, restrictions, constructive or resulting trusts, or charges of any kind or nature (collectively referred to as "Liens") and (ii) all debts arising in any way in connection with any acts of SELLER, claims (as that term is defined in section 101(5) of the Bankruptcy Code), obligations, demands, guarantees, options, rights, contractual commitments, restrictions, interests, and matters of any kind or nature, including, but not limited to, any restrictions on the use, transfer or other attributes of ownership, to the extent arising prior to the closing of this Agreement or relating to acts occurring prior to the closing of this Agreement, and whether imposed by agreement, understanding, law, equity or otherwise (collectively referred to as "Claims", and together with Liens, the "Encumbrances"). All such Encumbrances, as well as any and all Liens, Claims, demands, actions, causes of action, rights, obligations, liabilities, guarantees, damages, costs, expenses and other losses of every kind and nature, whether known or unknown, whether accrued or not accrued, whether choate or inchoate, and whether contingent or liquidated, which may exist or might have existed against SELLER or its affiliates prior to the closing of the Agreement including but not limited to any successor liability at law or in equity by the holders of any Liens and/or Claims, shall be released, terminated and discharged as to the EQUIPMENT 3 5 with all such Encumbrances attaching to the proceeds of the sale of the EQUIPMENT. 2.4.2 All persons and entities holding Encumbrances of any kind and nature with respect to the EQUIPMENT are hereby forever barred and permanently enjoined from asserting such Encumbrances of any kind and nature against the EQUIPMENT or BUYER or its successors, assigns or affiliates. 2.4.3 In no event shall BUYER be liable for any amounts or pre-Closing Date liabilities or obligations arising from and related to the EQUIPMENT. SELLER acknowledges that the failure of the Bankruptcy Court to include in the 363 Order the language of Subsections 2.4.1, 2.4.2 and 2.4.3 or language with the same effect shall be a basis for BUYER to withhold its consent to the Bankruptcy Approval; provided that, if, in granting the 363 Order, the Bankruptcy Court limits the scope of the release, termination and discharge of successor liability arising out of the transfer of the EQUIPMENT as described in the last sentence of Subsection 2.4.1, such limitation as to the release, termination and discharge of successor liability alone shall not provide a basis for BUYER to withhold its consent to the Bankruptcy Approval. BUYER's consent to the Bankruptcy Approval shall be a condition precedent to the rights and obligations of the parties hereunder. 2.5 At its sole cost and expense, SELLER shall, as promptly as practicable after the date of the Agreement, file with the Bankruptcy Court the necessary motions, notices and supporting papers, and a form of 363 Order, all in form and substance reasonably satisfactory to BUYER, seeking Bankruptcy Approval approving this Agreement and SELLER's performance hereunder, and SELLER shall use its commercially reasonable efforts to obtain entry of the 363 Order. BUYER agrees that it will take such actions as are reasonably requested by SELLER to assist in obtaining the Bankruptcy Approval, including by furnishing affidavits or other documents or information for filing with the Bankruptcy Court for purposes, among other things, of providing necessary assurances of performance by BUYER and demonstrating that the BUYER is a "good faith" purchaser under Section 363(m) of the Bankruptcy Code. In the event the 363 Order shall be appealed, SELLER shall at its sole cost and expense use all reasonable efforts to defend such appeals. 2.6 SELLER shall provide BUYER with copies of all motions, notices and supporting papers, and form of 363 Order motion, to be filed by SELLER with the Bankruptcy Court relating to the matters herein prior to the filing thereof and shall not file any such document with the Bankruptcy Court in connection with this Agreement without BUYER's prior approval, unless due to emergency time constraints or as otherwise necessary in SELLER's opinion, for SELLER to fulfill its obligations under the Bankruptcy Code. 4 6 2.7 To the extent such matters are within SELLER's control, SELLER shall provide adequate notice to BUYER of, and afford BUYER opportunity to attend and participate in, all bankruptcy motions, orders, hearings and other proceedings relating to the subject matter in this Section 2. 2.8 In the event that at any time and from time to time prior to receipt of the Bankruptcy Approval by the parties, SELLER receives another bona fide offer or offers from any third party with a higher purchase price or more favorable terms and conditions to SELLER with respect to the EQUIPMENT (each, an "Other Offer") which SELLER desires to accept, SELLER shall give written notice to BUYER (the "Offer Notice") of such Other Offer, including a copy of the document reflecting such Other Offer. Unless otherwise agreed to by SELLER and BUYER, BUYER shall have a period of five (5) business days after receipt of such Offer Notice either (i) to terminate this Agreement (which Agreement shall then become null and void with no further rights or obligations hereunder) or (ii) unconditionally agree in writing to modify this Agreement to include the material terms and conditions set forth in the Offer Notice. If BUYER fails to timely so notify SELLER of its termination of this Agreement or its unconditional acceptance of the terms and conditions set forth in the Offer Notice, this Agreement shall automatically terminate and thereafter this Agreement shall be null and void and neither SELLER nor BUYER shall have any further rights or obligations hereunder. 2.9 The rights and obligations of the parties hereto are subject to the further condition that SELLER shall have received the consent of Congress Financial Corporation, a Delaware corporation ("Congress Financial"), to SELLER's entry into this Agreement and the consummation of the transaction contemplated hereby. Promptly after the signing of this Agreement by the parties hereto, SELLER shall request such consent by Congress Financial and use its commercially reasonable efforts in an attempt to obtain such consent by Congress Financial. In the event such consent by Congress Financial is not obtained on or before the receipt of Bankruptcy Approval by the parties hereto, this Agreement and the rights and obligations of the parties hereunder shall be null and void and of no further force or effect upon written notice by SELLER to BUYER. SECTION 3 PRICE 3.1 The total purchase price for the EQUIPMENT described in Section 1 of this Agreement (the "Contract Price") is US$4,555,000.00 (Four Million Five Hundred Fifty-Five Thousand US Dollars). 3.2 The Contract Price is firm. 5 7 3.3 Any sales, use or other tax (other than income taxes of BUYER) payable to the State of Utah in connection with the sale of the EQUIPMENT by SELLER to BUYER shall be paid by SELLER. SECTION 4 PAYMENT AND TERMS OF PAYMENT 4.1 All payments under this Agreement shall be paid in U.S. Dollars. 4.2 The Contract Price of US$4,555,000.00 (Four Million Five Hundred Fifty-Five Thousand US Dollars) shall be paid by BUYER to SELLER in the following manner: 4.2.1 A down payment of 20% of the Contract Price, or $911,000.00 (Nine Hundred Eleven Thousand US Dollars) (the "First Payment"), shall be paid to SELLER by wire-transferred funds (same day availability) within ten (10) days after Bankruptcy Approval. 4.2.2 The balance of the Contract Price, or $3,644,000.00 (Three Million Six Hundred Forty-Four Thousand US Dollars) (the"Final Payment"), shall be paid to SELLER by wire-transferred fund (same day availability) no later than the last to occur of (i) fifteen (15) days after Bankruptcy Approval or (iii) thirty (30) days after the signing of this Agreement (the "Closing Date"). SECTION 5 EQUIPMENT REMOVAL & SCHEDULES 5.1 BUYER shall be responsible for using a qualified U.S. contractor for dismantling and removal of the EQUIPMENT from the Premises and loading the EQUIPMENT onto shipment containers, flat racks, trucks and/or rail cars at the Premises provided by BUYER. After dismantling and removal of the EQUIPMENT from the Premises, BUYER shall be responsible for performing a site clean-up of the Premises, including a clean sweep of the site and placing safety barriers around open pit areas which resulted from the dismantling and removal of the EQUIPMENT. SELLER shall allow BUYER, BUYER's client and BUYER's contractor access to the Premises for the purpose of dismantling and removing the EQUIPMENT provided that such entry shall be subject to the conditions precedent that SELLER shall have received the entire Contract Price and that BUYER, BUYER's client and BUYER's contractors shall have each entered into an agreement in form and substance satisfactory to SELLER addressing coordination, insurance, liability, indemnification, utilities, staging, battery limits, labor relations, transportation, security and other matters in connection with the dismantling and removal of the EQUIPMENT and the operation of SELLER's plant and other facilities. 6 8 5.2 The dismantling of the EQUIPMENT shall commence after payment in full of the Contract Price but no later than sixty (60) days after the Bankruptcy Approval. The period for dismantling and removal of the EQUIPMENT at the Premises as contemplated by Section 4.1 shall not exceed eight (8) months from the date of the Bankruptcy Approval; provided however that (i) such period shall be extended a day for each day that the critical path for removal of the EQUIPMENT by BUYER is delayed solely by the wrongful acts or omissions of SELLER in the performance (or non-performance) of SELLER's obligations hereunder, and (ii) BUYER shall be entitled to an additional one-time thirty (30) day extension of such period (whether or not extended by operation of clause (i) above) by written notice thereof to SELLER so long as (a) BUYER is diligently pursuing dismantling and removal of the EQUIPMENT, (b) any delay in such dismantling and/or removal was not caused by BUYER, BUYER's client or BUYER's contractor, and (c) BUYER is not otherwise in default hereunder. If BUYER does not completely dismantle and remove the EQUIPMENT within such eight (8) month period, as such period may be extended pursuant to the immediately foregoing sentence, BUYER shall be in material breach hereof and SELLER, in addition to its other rights and remedies at law or in equity, shall have the right to remove the EQUIPMENT from the Premises and dispose of such EQUIPMENT, or any part thereof, as SELLER may in its sole judgment deem appropriate and apply the proceeds thereof in partial recoupment of its damages and other costs and expenses (including attorneys' and consultants' fees) incurred in connection with such default; provided that any proceeds in excess of such damages, costs and expenses shall be paid to SELLER upon SELLER's reasonable request. 5.3 Both SELLER and BUYER shall each have a designated representative on site during the entire period of EQUIPMENT dismantling, removal and loading in order to coordinate with each other. In addition, subject to Section 5.1 hereof, SELLER shall permit representatives of BUYER, BUYER's client and BUYER's contractor to be on site at SELLER's Premises during such period for the purpose of inspecting the EQUIPMENT, observing the performance of the dismantling, removal and loading of the EQUIPMENT, and match- marking the EQUIPMENT. The representatives of BUYER, BUYER's client and BUYER's contractors shall abide by all applicable laws, and by SELLER's rules and regulations of which they have received written notice, with respect to safety at the Premises. 5.4 SELLER shall be responsible for removal and disposal of any and all known hazardous materials, and all known hazardous and non-hazardous oils and fluids present in the EQUIPMENT, to a commercially acceptable level prior to the commencement of the EQUIPMENT dismantling, removal and loading, and shall otherwise be responsible for compliance prior to the Closing of the EQUIPMENT with all federal, state and local laws, ordinances, regulations, permits and approvals applicable to the EQUIPMENT and the Premises, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA") and rules and regulations of the Occupational Safety and Health Administration ("OSHA"), the Environmental 7 9 Protection Agency ("EPA") and similar state, county and municipal agencies with jurisdiction over such matters. The foregoing sentence shall not obligate SELLER to modify, upgrade or change the EQUIPMENT or otherwise alter the as-is nature of this transaction, SELLER's obligations being limited to the removal of such materials, oils and fluids. BUYER is responsible for disposal of any residual non-hazardous hydraulic oils or fluids discovered in the machine components during EQUIPMENT dismantling, removal and loading, and SELLER is responsible for disposal of any residual hazardous materials, oils and fluids discovered in the EQUIPMENT during dismantling, removal and loading at the Premises. Removal of such EQUIPMENT from the Premises shall be deemed to be BUYER's acknowledgment and approval of the satisfactory removal and disposal of such materials, oils and fluids by SELLER. SELLER shall have no responsibility or liability for any such materials, oils or fluids discovered in the EQUIPMENT after removal from the Premises. 5.5 Without limiting the generality of Section 5.4 hereof, BUYER shall cause each person performing any dismantling, removal or loading work or services for BUYER, BUYER's client or BUYER's contractor, to comply with all of the obligations set forth on Exhibit A hereto. Notwithstanding anything in this Agreement (including Exhibit A) to the contrary, neither BUYER, BUYER's client nor BUYER's contractor shall be liable for any environmental condition of the Premises to the extent that such condition existed prior to the entry by BUYER, BUYER's client or BUYER's contractor on the Premises. 5.6 SELLER shall provide BUYER and BUYER's contractor with access to and use of cranes currently available on the Premises as reasonably necessary for the dismantling, removal and loading. SELLER will allow BUYER's contractor to make an opening in one side of the building wall to allow larger EQUIPMENT in and out of the facility so long as such opening can be made without impairing the structural integrity of the building. SELLER shall provide BUYER and BUYER's contractor with the use of its utilities, staging areas and facilities at the Premises as necessary for the dismantling, loading and removal of the EQUIPMENT as contemplated herein at no additional cost or expense. 5.7 Prior to entering the Premises, BUYER, BUYER's client and BUYER's contractor shall provide SELLER with a certificate of insurance, or certified copies of insurance policies if requested by SELLER, evidencing that the insurance coverage described on Exhibit B hereto is in full force and will remain in full force during the entire dismantling and removal period. Failure to do so shall be a material default by BUYER of its obligations hereunder. 5.8 Subject to the terms, conditions and limitations of this Agreement, including but not limited to the provisions of Section 5.1 hereof, SELLER hereby grants to BUYER a non-exclusive easement for vehicular and pedestrian ingress and egress to and from the site of the EQUIPMENT to Geneva Road, such easement to be located on the existing roadways on the Premises, as such roadways may be relocated and established from time to time, for the sole 8 10 and limited purpose of allowing BUYER, BUYER's client and BUYER's contractor(s) to dismantle, remove and load the EQUIPMENT pursuant to the terms of this Agreement. Such easement shall automatically terminate upon the removal of the EQUIPMENT from the Premises or the termination of this Agreement, whichever first occurs. SECTION 6 TRANSFER OF OWNERSHIP 6.1 Title to and ownership of the EQUIPMENT shall be transferred from SELLER to BUYER at the time the Final Payment is received by SELLER. SELLER shall issue to BUYER a bill of sale (without representation or warranty except as provided in this Agreement) evidencing such transfer of title and ownership, such bill of sale to be substantially in the form of Exhibit C hereto. 6.2 SELLER hereby represents and warrants to BUYER, as of the date hereof and as of the Closing, as follows: 6.2.1 Subject to obtaining the Bankruptcy Approval, this Agreement has been duly executed by SELLER and constitutes a valid and binding obligation of SELLER, enforceable in accordance with its terms except that enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws of general application and general principles of equity. 6.2.2 Except for obtaining the Bankruptcy Approval and the approval of Congress Financial, no further consent or approval is necessary for the valid execution and delivery by SELLER of this Agreement and all other documents necessary or advisable to consummate the transactions contemplated hereby and thereby, or the valid performance by SELLER of its obligations under this Agreement and all other documents necessary or advisable to consummate the transactions contemplated hereby and thereby. 6.2.3 SELLER shall indemnify, protect, defend and hold harmless BUYER from and against any and all claims (including claims for contribution and/or indemnification), demands, causes of action, losses, damages, liabilities, suits, costs and expenses, including without limitation, attorneys' fees and court costs, asserted against or suffered or incurred by BUYER by reason of, arising out of or in connection with (a) a breach or violation of any representation or warranty of SELLER set forth in this Agreement or in any other document executed by SELLER in connection hereunder, (b) a misrepresentation or inaccurate statement of fact made by SELLER in this Agreement or in any other document executed by SELLER in connection herewith, or (c) a default by SELLER in the performance of or failure of SELLER to perform any of its obligations or agreements set forth in this Agreement or in any other document executed by SELLER in connection herewith. 9 11 6.2.4 The EQUIPMENT will be conveyed to BUYER with good title and free from any Encumbrances to the extent provided by the Bankruptcy Approval. 6.2.5 The sale of the EQUIPMENT by SELLER as contemplated hereunder shall not violate or abridge any applicable laws or the right, title and interest of third parties in intellectual property. 6.3 BUYER represents and warrants to SELLER, as of the date hereof and as of the Closing, as follows: 6.3.1 This Agreement has been duly executed by BUYER and constitutes a valid and binding obligation of BUYER, enforceable in accordance with its terms except that enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws of general application and general principles of equity; 6.3.2 BUYER is not a party to, subject to, or bound by, any restrictions, lease, contact, indenture, trust, agreement of any nature, mortgage, deed of trust, loan agreement, security agreement, judgment, order, writ, injunction or decrees of any court or governmental body, that prohibits, impairs or affects in any way this Agreement or the consummation of the transactions contemplated by this Agreement; 6.3.3 No further consent or approval is necessary for the valid execution and delivery by BUYER of this Agreement and all other documents necessary or advisable to consummate the transactions contemplated hereby and thereby, or the valid performance by BUYER of its obligations under this Agreement and all other documents necessary or advisable to consummate the transactions contemplated hereby and thereby. 6.3.4 BUYER shall indemnify, protect, defend and hold harmless SELLER from and against any and all claims (including claims for contribution and/or indemnification), demands, causes of action, losses, damages, liabilities, suits, costs and expenses, including, without limitation, attorneys' fees and court costs, asserted against or suffered or incurred by SELLER by reason of, arising out of or in connection with (a) a breach or violation of any representation or warranty of BUYER set forth in this Agreement or in any other document executed by BUYER in connection herewith, (b) a misrepresentation or an inaccurate statement of fact made by BUYER in this Agreement or in any other document executed by BUYER in connection herewith, or (c) a default by BUYER in the performance of or failure of BUYER to perform any of its obligations or agreements set forth in this Agreement or in any other document executed by BUYER in connection herewith. 10 12 6.3.5 Commencing with the Final Payment of the Contract Price, all risk of loss, condemnation, damage or destruction related to the EQUIPMENT shall be borne by BUYER. If after the date of this Agreement but prior to Final Payment the EQUIPMENT is damaged by an event covered by SELLER's property insurance policy, BUYER shall be entitled to a credit against the Contract Price in an amount equal to the amount of insurance proceeds actually received by SELLER net of any costs, expenses (including attorneys' and consultants' fees and costs), deductibles or other sums expended by SELLER in pursuing such insurance claim. SECTION 7 GOVERNING LAW 7.1 This Agreement is to be construed and interpreted in accordance with the laws of the State of Utah, USA, except for those portions of such laws which would give preference to the laws of another jurisdiction. Any action, suit or proceeding arising out of or relating in any way to this Agreement shall be commenced and maintained in the courts of the State of Utah, each party consenting to the exercise of personal jurisdiction of such courts as if such parties were personally present in such State. SECTION 8 FORCE MAJEURE 8.1 "Force Majeure" shall mean any of the following causes to the extent that any such cause was neither foreseen nor reasonably foreseeable and is beyond the reasonable control of the party affected thereby: acts or omissions of third parties (excluding consultants, contractors or others in privity of contract with BUYER or SELLER (each a "Consultant")), any acts of government or government authority (including, without limitation, the failure to issue, the delay in issuing or the revocation after issuance of work permits, export licenses or consents relating to the sale of the EQUIPMENT as contemplated hereunder), acts of God, strikes or other collective action of labor, fires, floods, storm, tornado, earthquake, explosions, or any other cause, whether similar or dissimilar to those specifically enumerated herein, which is unforeseen or unforeseeable and is beyond the reasonable control of the party affected thereby; provided, however, that nothing herein shall require the settlement of any labor dispute or other controversy against the will of the party affected thereby. 8.2 Neither BUYER nor SELLER shall be liable for any delay or failure in the keeping or performance of its obligations under this Agreement during the time and to the extent that any such failure arises by reason of Force Majeure; provided that an event of Force Majeure shall not relieve BUYER of its obligation to timely pay to SELLER the Contract Price as provided in Sections 3 and 4 hereof except in the case of the destruction of the EQUIPMENT prior to Final Payment. 11 13 8.3 In the event of an event of Force Majeure, the party affected thereby shall promptly give written notice (setting forth full particulars) to the other party, and shall resume the keeping and performance of the respective obligation after the cause of Force Majeure has come to an end. 8.4 If an event of Force Majeure occurs and continues for a period of thirty (30) calendar days from the date of occurrence of such event, the parties shall meet and make reasonable efforts to resolve the problem. SECTION 9 DAMAGES 9.1 If BUYER defaults in the performance of its obligations under this Agreement due to the reasons other than those caused by Force Majeure as outlined in Section 8, SELLER shall give written notice to BUYER designating such default. BUYER shall have a period of ten (10) days following the giving of such notice within which to correct, or in the case of a default which reasonably cannot be corrected within such ten (10)-day period, within which to commence action to correct, the default of which BUYER has received notice. If BUYER shall fail to correct such default within said ten (10)-day period or, if applicable, to commence action to correct such default within such ten (10)-day period and thereafter to diligently pursue the same to completion, SELLER shall be entitled to commence an action to recover damages from BUYER, and/or to compel specific performance by BUYER, and to recover all costs and expenses incidental to such an action, including reasonable attorneys' fees and costs. 9.2 If SELLER defaults in the performance of its obligations under this Agreement due to the reasons other than those caused by Force Majeure as outlined in Section 8, BUYER shall give written notice to SELLER designating such default, and thereafter SELLER shall have a period of ten (10) days within which to correct, or in the case of a default which reasonably cannot be corrected within such ten (10)-day period, within which to commence action to correct, the default of which SELLER has received notice. If SELLER shall fail to correct such default within said ten (10)-day period or, if applicable, to commence action to correct such default within such ten (10)-day period and thereafter to diligently pursue the same to completion, BUYER shall be entitled to commence an action to recover damages from SELLER and/or compel specific performance by SELLER, and to recover all costs and expense incidental to such an action, including reasonable attorneys' fees and costs. SECTION 10 NOTICES 10.1 All notices that are required or are permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered or sent by certified airmail postage 12 14 prepaid, return receipt requested, or delivered by a recognized overnight courier service with evidence of delivery, at the following addresses: If to BUYER: MITSUBISHI INTERNATIONAL CORPORATION Address: 520 Madison Avenue, New York, New York 10022-4223 Phone: (212) 605-2639 FAX: (212) 308-4708 Attention: Kazushi Okawa Department Manager - Heavy Machinery Department If to SELLER: GENEVA STEEL COMPANY Address: 10 South Geneva Road Vineyard, Utah 84058 Phone: (801) 227-9321 FAX: (801) 227-9141 Attention: Ken C. Johnsen Executive Vice President 10.2 Such address may be changed at any time and from time to time by written notice given by one party to the other. SECTION 11 MISCELLANEOUS 11.1 If either SELLER or BUYER have incurred or agreed to pay for any other obligations, contingent or otherwise, for broker's or finder's fees with respect to matters provided for in this Agreement , the party incurring any such obligations shall be solely responsible therefor. BUYER and SELLER warrant that there are no brokers involved in this transaction other than Van Deilen Industries, Inc. (the "Broker"). BUYER will indemnify and hold SELLER harmless from any and all claims, expenses or damages (including attorneys' fees) for broker's commissions arising from the Broker or any of BUYER's actions. SELLER will indemnify and hold harmless BUYER from any and all claims, expenses or damages (including attorneys' fees) for broker's commissions (excluding the Broker's commission) arising from any of SELLER's actions. 11.2 Notwithstanding anything in this Agreement to the contrary, neither SELLER nor BUYER shall be liable for any consequential damages arising out of or related in any way to this 13 15 Agreement or the breach of this Agreement, including, but not limited to, lost profit or breach of collateral agreements. 11.3 This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 11.4 This Agreement, together with the exhibits attached hereto, constitutes the entire agreement between the parties and supersedes and cancels all prior negotiations, warranties, representations, undertakings or agreements between the parties. No statement or representation shall be considered a part of this Agreement or binding upon the parties unless the same shall be expressly contained herein. This Agreement may not be modified in any manner except by an instrument in writing signed by SELLER and BUYER. There are no verbal agreements which modify or affect this Agreement. 11.5 This Agreement may be executed in any number of counterparts, each of which when so executed shall be an original but all of which shall constitute in the aggregate but one and the same document. 11.6 The captions contained herein are for purposes of identification and convenience only and do not define, limit or prescribe the scope of this Agreement and shall not be considered part of this Agreement. 11.7 If a legal action or other proceeding is brought for enforcement of this Agreement or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement , the party that prevails shall be entitled to recover reasonable attorney's fees, actual costs and expenses incurred, in addition to any other relief to which such party may be entitled. 11.8 BUYER and SELLER agree to execute such additional documents and take such further actions as may be reasonably required to carry out each of the provisions and the intent of this Agreement. 11.9 Whenever possible, each provision of this Agreement and every related document shall be interpreted in such a manner as to be consistent and valid under applicable law; but if any provision of any of the foregoing shall be invalid or prohibited under applicable law, such provision shall be ineffective to the extent of such invalidity or prohibition, without invalidating the remainder of such provision or the remaining provisions of this Agreement or said documents. 11.10 If the final date of any period set forth herein shall fall upon a Saturday, Sunday or recognized legal holiday in the State of Utah, then the time period related thereto shall be 14 16 extended to the next day which is not a Saturday, Sunday or recognized legal holiday under the laws of Utah. 11.11 The parties hereto acknowledge that this Agreement has been prepared after extensive negotiations and the opportunity for each party to review the Agreement with and obtain advice from their respective legal counsel. In construing the Agreement, the fact that one party or the other may have drafted its various provisions shall not affect the interpretation of such provisions. 11.12 The covenants, representations and warranties set forth herein shall survive the delivery of, and shall not be merged into, the bill of sale or any other document executed in connection with the purchase and sale of the EQUIPMENT. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their authorized representatives as of the day and year first above written. BUYER: MITSUBISHI INTERNATIONAL CORPORATION By: \s\ Hajime Katsumura ------------------------------------- Title: Senior Vice President and COO ---------------------------------- Printed Name: Hajime Katsumura --------------------------- SELLER: GENEVA STEEL COMPANY, Debtor and Debtor-in-Possession By: /s/ Ken C. Johnsen ------------------------------------- Ken C. Johnsen Executive Vice President 15 17 APPENDIX 1 SCOPE OF SUPPLY The EQUIPMENT listed below represents the major items to be included in this sale. All other available components not listed but determined by SELLER to be pertaining to the EQUIPMENT will be included, except for the cranes and building. A.1 MAJOR EQUIPMENT LISTING 1. Large Diameter Pipe Mill 1.1 Plate Receiving and Handling Plate is shipped from rolling mill on plate cars which are spotted in plate receiving bay. Receiving bay crane operator unloads plate, stacks plate in stockpiles, and feeds unsticked crane by placing material in stacks beneath the unsticked. This magna vacuum crane, operating in sequence with planer, picks up single plate from stack, placing it on planer entry conveyor. 1.1.1 Unsticked Crane Eder unit, 15-ton capacity, 64'-5" span, double drum hoist with hooks on 18-foot centers, crane runway 25'-6" long, maximum lift of hooks 14'-6", consists of a bridge drive, GE 10 HP, 900 RPM, A.C. motor; a hoist drive, GE 75 HP, 1200 RPM, A.C. motor; and a 7.5 KW Allis Callers magnet power supply. 1.2 Plate Planing Single plates are squared and planed, both sides simultaneously, on two Baldwin Southward planers, capacity 40'-6" plate 1 1/2" thick, 60" to 125" wide. 1.2.1 Entry Conveyor Flat plate conveyor 75'-9" long, 9-0" wide, consisting of sections LA, LB1, and LB2, for moving plate into planer at 154 FPM. 1.2.2 Plate Planers Two Baldwin Southward plate planers 52'-5 1/4" long for edge preparation of plate, complete with bed section, end columns, top beams, traveling tool holder carriages, plate centering devices, plate feed roll system, plate clamping units and two 75 HP planer carriage drives. 1-1 18 1.2.3 Planer Rubout Conveyor Two speed conveyor for handling planed plate and centering plate for entry into edge breaker. Conveying speed 227 FPM out of planer and 90 FPM into edge breaker, complete with plate centering side guide. 1.2.4 Plate Transfer Conveyor Plate transfer conveyor for moving plate from edge break exit to U-press entry, chain type, 48' C-C of sprockets, with driven conveyor chains spaced at 26'0" C-C. Fifteen rows of idler roll conveyors support the plate during transfer. Conveyor driven by GE, 1 HP, 1720 RPM, 60 cycle, 220/440 volt motor, Model 5K203D17 through Link Belt gear reducer size T.M. 40, 195:1 ratio, 9 RPM, Model No. 393Z2-V. 1.3 Plate Forming 1.3.1 Edge breaker McKay Machine Company unit for edge forming line pipe plate: Capacity 60" to 126" plate width, in lengths 20' to 40'-6", plate thickness .188" to .750", and yield strength to 100,000 psi. Complete with tooling to edge form 20 through 40" diameter pipe. The machine contains four work roll stations, five drive roll stands, and forms the plate at 90 FPM. The main drive consists of four 50 HP, 1200 RPM, Westinghouse motors, 440/3/60, TEFC, NEMA design "D" 5-8% slip, on Frame No. 444U, through four Horsburgh & Scott gear reducers No. L.D. 3600, 79.55:1 ratio, triple reduction units. 1.3.2 U-Press One Verson 2000 ton plate U-ing press machine No. 2000-HD4-4927, 132" width between columns and 492" long. Shut height between upper and lower platen 68", 110" fully opened, press is composed of four sections, each 123" long and containing hydraulic power pumping station driven by Reliance 50 HP, 870 RPM motor to an oilgear pump type DX-6025, rated 2500 psi at 60 GPM on a 350 gallon reservoir; 22 1/2" bore, 42" stroke, and 21 1/2" rod diameter power cylinder; a U-press entry conveyor, a rise and fall type, with plate transfer speed of 227 feet per minutes; and a U-press - O-press transfer conveyor, track mounted car 28'-0" long with three Foote Bros. Conveyor drives and a single U'ed can side support unit. 1-2 19 1.3.3 O-Press 16,000 ton, three section, Verson O-Press No. HD-3-4927, 60" clear width, 492" long, tooled for forming 20", 22", 24", 26", 30", 33", 34", 36", and 40" O.D. large diameter pipe. U'ed and O'ed pipe cans are conveyed through press on 3 Verson idler cushion rolls, Type 2W-1424, Serial No. 11703, each cushion roll mounted on 14" bore, 24" stroke air cylinder and power side pressure rolls with 4 Reliance 3 HP, 1740 RPM, 240/480, 3 phase, 60 cycle electric motors in Frame No. CB-225, through 4 Foote Bros. Gear reducers No. 613-1. Each Verson press section contains a hydraulic power source driven by one 125 HP, Reliance motor, 875 RPM, through oilgear pump model DX-15024, 2500 psi, with 1135 gallon oil reservoir; and hydraulic cyclinders, one 63 1/4" straight shaft cylinder 45" stroke, and two 21 1/4" bore cylinders with 19 3/4" rod and 45" stroke. 1.4 Tack Welding Fixture A 40'-6" structural frame, supports 13 hydraulically powered chain pipe clamps, two idler and two powered conveyor rolls, a set of powered pipe rotating units, and welding Equipment consisting of two NCG weld wire feed motors, two NCG portable welder controllers Model WC 50, and two Tweco Model P-5 Mig-guns. The two power supplies are 600 amp units - NCG Model DRU600. Hydraulic power is supplied from I.D. welder hydraulic pumping station. 1.5 Inside Seam Welders Basic Equipment consists of five automatic Unionmelt process, double submerged arc welders, mounted on a 43-foot boom with a traveling operator console and carriage. Each welder is tooled with clamp bands and shoes for 20", 22", 24", 26", 30", 33", 34", 36", and 40" O.D. pipe. Each welder consists of the following components: 1.5.1 Welding Equipment Two 1,500 amp Westinghouse A.C. arc welding transformers, and one 1,000 amp Westinghouse transformer, three unionmelt type UEH-1 automatic welding head assemblies, two Linde voltage and control assemblies, one Linde UEC-1, and two Linde UEC-6 controls, one 41-foot copper chillbar hydraulic cylinder actuated to assure complete backup, and three weld wire roll pack payoff units, which allows three wire welding. 1-3 20 1.5.1.1 Carriage Drive System A Reliance 5 HP D.C. adjustable speed motor, frame 2110, Hewitt Robins, Gear Reducers 30:1 Ratio - Type O, Size 50 Hypower and double rack and pinion transmission system are provided tracks for the weld carriage are "Vee" guide rails and a "Vee" rail wheels. Power tracks are provided for weld power, electrical drive power, flux vacuum pickup ground wires and air blowing of scale. 1.5.1.2 Flux Recovery Equipment Boom mounted vacuum pickup head removes unfused flux from the pipe following welding. The material enters a cyclone precipitator which gravity feeds into a 30" diameter Sweco separator Model 2A. Flux is screened and directed into three receiving hoppers according to size. Fused flux that stays in the pipe is removed in the pipe tilting pit and transported to the flux separator by bucket elevator. (Missing One Conveyor) 1.5.2 Hydraulic Power Source Three Ingersoll-Rand two-stage motor pumps, 7 1/2 HP, 40 GPM at 130 psi Model No. 1-MRVN and two Wilson Snyder high pressure triplex pumps, Model 336P with 4.44:1 gear ratio, driven by 125 HP, 1800 RPM, 440/3/60 Westinghouse motors, Frame No. 445-US rated for 61 GPM at 3180 psi. Low pressure pumps feed into two accumulators rated at 150 psi, capacity 625 gallons each. (Missing Pumps and Motors) 1.5.3 Hydraulic Pipe Clamping Equipment West end of the pipe is clamped in a fixed type end clamp. The remainder of the pipe is clamped with nine 8" bore x 10 1/2" stroke hydraulic cylinders, trunnion mounted at the head end, connected through a linkage to each end of a steel clamp band and secure each pipe during seam welding. 1.6 Outside Seam Welders Four automatic triple submerged arc, unionmelt process, A.C. welders mounted on a driven carriage, are driven on a "Vee" rail and have the same motor and gear reducer as the 5 inside seam welders. Double rack and pinion drive is also used. The Equipment is designed to weld 20" through 40" diameter pipe. Each welding machine consists 1-4 21 of the following: three Linde weld wire feed motors, Type DS-H, Part No. 25V26 with #15 gear train; three weld payoff reels, 200# capacity each; three CWS built weld heads adjustable vertically and transversely; three Westinghouse welding transformers, A.C. primary voltage 440, primary current 190 amps, single phase, welding current 1,500 amps, 1 hour continuous load, volts 40, 60 KW at rated load, with Linde controls Nos. UEC-1 and UEC-6. 1.6.1 Flux System Two Cyclone assemblies consisting of two invincible 7 1/2 HP vacuum generators and cyclones, magnetic separators, vibrating conveyor and flux blender are provided for recovery. Unfused flux is picked up by a weld carriage mounted vacuum system off the cyclone and recirculated into the system. 1.6.2 Carriage Drive System A Reliance 5 HP D.C. adjustable speed motor frame 2110, Hewitt Robbins, gear reducers 30:1 ratio Type O Size 50 hypower and double rack and pinion transmission system are provided. Weld carriage track is a "Vee" rail on both sides and power tracks are provided for weld power, electrical drive power flux vacuum pickup air for scale blowing and ground wire for welder carriage. 1.6.3 Pipe Handling Equipment One set of pipe turning rolls consisting of a driven and an idler boggie wheel pipe rotator. Each unit is raised and lowered by a 10" bore, 4" stroke air cylinder and driven roll powered by a Foote Bros. Louis Allis gearmotor #33A-203 Type IX, rated 1 HP, and 16.5 RPM output with a Stearns brake #H.B. 2A. One set of pipe elevating ground shoe saddles tooled with spacers for 20", 22", 24", 26", 30", 33", 34", 36" and 40" diameter pipe. Each saddle is elevated by a 4" bore, 27" stroke hydraulic cylinder with 6" rod extension. 1.7 Hydraulic Expander Consolidated Western designed and built for expanding and hydro-testing large diameter pipe in 40'-6" to 30'-7" lengths, wall thickness to 3/4" maximum and grades to X-60. Machine has sixteen pipe holding die halves, each die tooled for processing 20", 22", 24", 26", 30", 33", 34", 36", and 40" pipe. Pipe is mechanically rolled into open dies, power end cylinder engage pipe forcing opposite end onto the internal belling ring seal. Pipe is filled and dies locked. Expand pressure is applied forcing pipe 1-5 22 against dies, pressure is reduced to hydrotest pressure with end dies lowered during test. 1.7.1 Expander Pipe End Preparation 1.7.1.1 End tabs are removed automatically by a horizontally rotating framed roll mounted in Conveyor Line L-17 at Column Row 20. Pipe is automatically positioned, with the seam at bottom, by a set of pipe turning rolls and a feeler limit switch, all located in Conveyor Line L-17. Conveyor then reverses driving east end tab into breaker removing same, pipe is then kicked onto expander preparation skid. 1.7.1.2 Inside weld seams are chipped smooth to contour of pipe, a distance of 4" from each pipe end, manually, by two chippers. Pipe is held on two sets of double pipe escapements, each station having a driven set of pipe positioning rolls. Pipe is then moved to an end grinding station, located in Conveyor L-30, at Column Row 17, where a single grinder manually smooths the area where end tab was located. Powered set pipe positioning rolls constitutes the Equipment at this station. 1.7.2 Pipe Washer Located immediately ahead of the expander entry, pipe is automatically internally washed. Pipe rolls into a double escapement where a set of powered pipe rotators pick the pipe off the skids and rotate while a fire nozzle washes pipe clean. Limit switches, operating in conjunction with solenoid control valves, automatically state and stop the cycle. 1.7.3 Pipe Handling Equipment Conveyor L-23 is designed to end position and rotate incoming pipe to the proper position prior to entering the expander. A combination lift and metering escapement then sets the pipe in position to enter the expander. A pipe letdown assembly stops, holds, and lowers pipe onto expander exit skids. 1.7.4 Hydraulic Equipment 1.7.4.1 High Pressure Pumps 1-6 23 Four Kobe motor pumps, pump Frame No. 3CRE, 236.5 RPM, 20.6 GPM output at 3000 psi, with 40 HP, 1200 RPM, 440/3/60 electrical motor; 3 Kobe motor pumps, pump Frame No. 3CRE, 322 RPM, 28.05 GPM output at 3000 psi, with 40 HP, 1200 RPM, 440/3/60 electrical motor; 2 Kobe motor pumps, pump Frame No. 3CRE, 266 RPM, 23.1 GPM at 3000 psi, with 40 HP, 1200 RPM, 440/3/60, electrical motor. (Missing 3 Motors and Pumps) 1.7.4.2 Fill Pumps Four Worthington motor pumps, pump No. 8L1-2500 GPM at 50' TDH, with 40 HP, 1800 RPM, 440/3/60 electrical motor. 1.7.4.3 Accumulators One low pressure fill accumulator 11,000 gallon capacity, rated at 100 psi; one medium pressure air ballast accumulator 160 gallon usable capacity, 1900 gallon total capacity, 3000 psi working pressure; two high pressure air ballast accumulators, one 160 gallon capacity usable, 1900 gallon total, 3000 psi working pressure, one 95 gallon usable capacity, 1150 gallon total capacity, 3000 psi working pressure; one filter water supply tank 1750 gallon capacity; one low pressure air ballast prefill accumulator 2200 gallon capacity, 150 psi working pressure; one expand water storage tank 63,000 gallon capacity. 1.7.5 Hydraulic Power Equipment 1.7.5.1 Main power cylinder 43" bore, 6'-6" stroke with 20" diameter rod, 5000 psi hydraulic cylinder. 1.7.5.2 Die hoist cylinders, 16 units, 5 1/2" bore, 5'-1 3/4" stroke, 1500 psi custom built hydraulic cylinders. 1.7.5.3 Die lock bar cylinders, 8 assemblies, each with 7" bore, 8" stroke, 1000 psi hydraulic cylinder, mounted between a double guide shaft and yoke assembly. 1.7.5.4 Stripper cylinders fill end only, four 4" bore, 3" stroke, hydraulic cylinders. 1-7 24 1.7.5.5 Hydraulic intensifier cylinders, two 16 1/2" bore, 50 1/2" stroke units, with 11 7/8" rod, 5000 psi working pressure. 1.7.5.6 Hydraulic ratio cylinder, 5000 psi working pressure, 16 1/2" bore, 65" stroke, with 6 1/2" diameter rod and rod sleeve inserts of various outside diameters for proper output pressures when processing 20", 22", 24", 26", 30", 33", 34", 36", and 40" pipe. 1.8 Pipe End Facing Two Consolidated Western designed and built rotary pipe end facing machines tooled for processing 20", 24", 26", 30", 34", 36", and 40" diameter pipe. The machines have a fixed centerline, with adjustable height conveyors, to compensate for the various pipe sizes. Rotating tool holding arm contains two Carbide insert type cutting tools located 180(0) apart. Each facer consists of the following components: 1.8.1 Drive Assembly Rotating cutting heads driven by 50 HP, 1800 RPM, 440/3/60 electrical motor on Frame No. 405, with a solenoid operated magnetic brake, 160# foot torque, Cutler-Hammer Type 105, bored for 1 7/8" diameter shaft. Foote Bros. helical gear reducer ratio 28.6:1, Size 20 M.D. with special 7" diameter output shaft. (Missing 50 HP motor and magnetic brake) 1.8.2 Hydraulic Equipment A single 5" bore, 6" stroke, hydraulic cylinder controlled by 1/2" Vickers traverse control valve #C-1237-K, moves end face machine through the facing cycle. A single 7" bore, 19" stroke, hydraulic cylinder powers the end facer pipe clamp arms. Three Vickers two-stage pumps, 23.45 GPM at 250 psi and 4.7 GPM at 1000 psi, Model No. VC-138-A-30B-4, mounted on 150 gallon capacity tank and driven by 5 HP, 1200 RPM 440/3/60 electric motor, Frame No. 284, provide high pressure hydraulic medium. 1.9 Pipe Weighing and Measuring A CWS designed and built electronic scale consisting of a structural weigh bridge, 21'-11 1/2" long, mounted on four load cells Baldwin No. C3P1, capacity 10,000# each. Baldwin electronic weight indicator with nixie light readout, 15,000# maximum capacity, graduated in 10 pound increments. Length measuring Equipment consists of manually read and positioned tape. 1-8 25 1.10 Pipe Repair Facilities 1.10.1 I.D. Weld Repair One semi-automatic submerged arc portable welder, Lincoln #S-7059, 440/3/60, Serial No. A-241808, with 600 amp power source. (Missing one conveyor) 1.10.2 O.D. Weld Repair Four portable welding machines, three 400 amp Lincoln units and one 300 amp G.E. unit, operated by hand arc welders at two welding stations, constitute O.D. weld repair facilities. (Missing machine) 1.10.3 Pipe Burn-Off Designed,rotating pipe burn-off units, for cutting 20" to 40" pipe, each machine consists of a structural frame mounted on four 2-ton Duff Norton jacks, with guide rods, for centering the burn-off machine. A plasma arc cutting torch mounted on a rotating face plate, are driven by a Vickers adjustable speed drive #HAS-1, with a 30:1 speed variation ratio and an output speed range of 55 to 1680, through a Falk speed reducer #400, ratio 50:1, Type AD. These units use the same control, power supply and torch as the small mill. 1.11 Inspection Facilities 1.11.1 Plate Ultrasonic Inspection Equipment (Missing) 1.11.2 Preliminary visual inside weld seam inspection station, located on Skids L-6, consists of a set of double pipe escapements and a set of powered pipe rotating rolls with decking at each pipe end to permit inspector access to pipe. 1.11.3 Preliminary visual outside weld seam inspection station, installed at Skids L- 10, contains a set of double pipe escapements, set of powered pipe rotating rolls, and decking full length of pipe. 1.11.4 Pipe end x-ray station, installed in Conveyor L-20 adjacent to Column Row 12, consists of a General Electric industrial x-ray unit, Model DX-175, 12 MA continuous duty, with one x-ray tube head and one 7 1/2" KVA transformer. X-ray booth 7'-0" x 8'-0" structural steel with 3/16" lead sheeting. X-ray dark room, structural steel frame building 12' x 6' x 8' high, furnished with a Pakorol XM automatic x-ray film processor and dryer 1-9 26 complete with chemical filtration device, two 25 gallon replenisher tanks, and automatic replenish and temperature control. 1.11.5 Two fluoroscopic inspection facilities, installed parallel to Conveyor L-20, between Col. 4 and 12. Each contains a movable operator cubicle, structural steel framed with lead sheathing and glass 10'-4" x 5'-10", 7'-0" high; one 42-foot boom holding a Picker image tube assembly #3515H and an image amplifier tube No. T4ON-3 with 8 3/4" input phosphor; one pipe moving and handling carriage with turning rolls, letdowns, kickers, and driven by a Louis Allis adjustospede drive, Type COGX-ACM, 7 1/2" HP and Louis Allis gear reducer Line "A" gear Frame No. 424, 38.4:1 ratio, through a cable drum with an endless cable; Picker 150 KV industrial unit, Cat. No. 6157B with KL-1 control, #3373B starter, #585G transformer, four T40G-2P valve tubes, one #3516B power supply, and one #45765 SKVA stabilizer. 1.11.6 Company final inspection station, located on Skid L-12, immediately north of Conveyor L-18, contains turning rolls and escapements with overhead fluorescent lights at two stations, one for inside seam final visual inspection and one for outside seam final inspection. 1.11.7 Customer Inspection Station (Missing) 1.12 L. D. Pipe Shipping (Not Included) 1.13 Internal Pipe Coating Coating is performed by an outside Agreement or who sets up on Skids Nos. L-17 and L-18 (Skids Missing). Pipe is delivered by Geneva to painting entry skid on Conveyor L- 25. The Equipment includes: Butler Type Building 60'-0" x 240', 15 feet to square; pipe cleaning Equipment consists of boom-mounted rotating brushes, with detergent saturated steam as cleaning medium. Clear water rinse completes cleaning process, force air heaters dry the pipe, boom-mounted rotating paint spray head applies the internal coating full length of each pipe joint. 1.14 L.D. Pipe Mill EOT Cranes (Not Included) 1.15 Conveyors and Skids 1.15.1 L.D. pipe conveyors are of two types, South San Francisco with hourglass idlers, and Foote Bros. with Mathews type idlers. South San Francisco type conveyor contains channel mounted hourglass idler conveyor rolls with drive assembly composed of 1 1/2HP, 1750 RPM, 440/3/60 motor on Frame No. 1-10 27 204, and a 30:1 speed reducer chain driven to a 16 x 400 solid rubber tire, 25 RPM output. Drive assembly is base plate mounted, hinged at one end and hung from spring mounted bolts at opposite end. Total conveyor footage of this type 1350 L.F. Foote Bros. type conveyor contains 2430 L.F. consisting of Mathews type flat roll idlers, each idler assembly containing two rolls, base mounted to form a "Vee" trough with 140(0) included angle, Drive assembly is composed of 2 HP Foote Bros. electric motors, 1735 RPM, 440/3/60 TEFC with a worm gear reducer, 56 RPM output. Two half-hourglass drive rolls completes the assembly. 1.15.2 L.D. skids, constructed from "I" beams welded to "I" beam posts, pipe is stored or rolled on two parallel skids spaced approximately 23 feet apart, these form a set of skids. Total footage of skid sets in the L.D. pipe area 1740 feet. Note: No Tooling or Parts available for making 33" O.D. pipes. A.2 SPARE PARTS All available spare parts applicable to the EQUIPMENT that are existing at the plant at the time this Agreement is entered into by the parties. A.3 TECHNICAL DOCUMENTATION All drawings, operating manuals and production and maintenance records in SELLER's possession pertaining to the EQUIPMENT that are existing at the plant at the time this Agreement is entered into by the parties. 1-11 28 MAIN DRAWING LIST Pipe Equipment and X-Ray Unstacker Pipe Conveyors and Skids Hydraulic Systems #1, #2, #3 Accumulators Turning Rolls from Other Plants Plate Planer - Maywood Plate Planer - So. San Francisco Plate Puller - So. San Francisco U-ing Press O-ing Press Tack Welder Seam Welder Flux Recovery Changeover Equipment Seam Welder Hydraulic Expander Plate and Pipe Driers End Facers Oxy-Acetylene Pipe Cutoff Weighing and Measuring Equipment Round Seam Welder Changeover Equipment Spare Parts Scrap Handling Large Diameter - General Plate Turner End Tab Forming and Receiving Bay Plate Shear End Tab Removal and O.D. Weld Repair Pipe Inspection Equipment Strain Aging Plate Inspection and Repair Scale Removal Hammer Proposal Drawings 1-12 29 ADDITIONAL DRAWINGS PMP261 A L. D. Pipe Mill I.D. & O.D. Welder Machine PMP291 D L. D. Pipe Mill Forming Area "U"-ing Press Rocker Detail of long inserts PMP307 D L. D. Pipe Mill Final Inspection Area Cat Walk Col #7 to Col #10 on E Row Plan & Elevation PMP308 D L. D. Pipe Mill Final Inspection Area Cat Walk Col. #7 to Col. #10 on E Row, Details & Section PMP309 D L. D. Pipe Mill Final Inspection Area Car Walk Co. #7 to Col. #10 on E Row, Detail & Plan PMP321 D L. D. Pipe Mill Hydraulic Power Pump Station, Hydraulic Oil Filter Unit Assembly PMP322 D L. D. Pipe Mill Hydraulic Power Pump Station, Hydraulic Oil Filter Unit Casing Weldmet PMP323 C L. D. Pipe Mill Hydraulic Power Pump Station, Hydraulic Oil Filter Unit, Casing Detail PMP324 B L. D. Pipe Mill Hydraulic Power Pump Station, Hydraulic Oil Filter Unit, Stand Pipe Detail PMP325 B L. D. Pipe Mill Hydraulic Power Pump Station, Hydraulic Oil Filter Unit, Baffle Plates Detail PMP356 D L. D. Pipe Mill Primary Flow Diagram, Pipe Processing, Geneva Pipe Mill PMP404 D L. D. Pipe Mill Plate Edge Planer, Plate Aligning Hydromotor, Motor Body Detail PMP100 B L. D. Pipe Mill Tacking Jig, Spiral Can Indicator, Detail of Scale PMP101 B L. D. Pipe Mill Tacking Jig, Spiral Can Indicator, Sliding Pointer Detail PMP102 B L. D. Pipe Mill Plate Edge Planer, Underside Deburring Tool, 1 x 1 1/2x 6" Long Circle C
1-13 30 PMP103 B L. D. Pipe Mill, I.D Welders, Meter Panel PMP104 D L. D. Pipe Mill Inside Seam Welders, Welder Head Assembly PMP105 D L. D. Pipe Mill Inside Seam Welders, Welder Head and Flux Hopper, Detail PMP106 D L. D. Pipe Mill Inside Seam Welders, Rod Feed Motor Platform & Boom Extension, Detail PMP107 B L. D. Pipe Mill Inside Seam Welders, Nozzle Block, Detail PMP108 B L. D. Pipe Mill Inside Seam Welders, Nozzle Block Holder, Detail PMP109 B L. D. Pipe Mill Inside Seam Welders, Trail Nozzle Block Bus Bar, Detail PMP110 B L. D. Pipe Mill Inside Seam Welders, Lead Nozzle Block Bus Bar, Detail PMP111 B L. D. Pipe Mill Inside Seam Welder, Lead & Trail Wire Guide Block, Detail PMP112 B L. D. Pipe Mill Inside Seam Welders, Guide Wheel Mounting, Bracket, Detail PMP113 B L. D. Pipe Mill Inside Seam Welder, Nozzle & Bus Bar, Insulations, Detail PMP114 B L. D. Pipe Mill Inside Seam Welder, Misc. Parts, Guide Wheel, Details PMP115 B L. D. Pipe Mill Inside Seam Welders, Nozzle Block Holder and Bus Bar Assembly PMP116 B L. D. Pipe Mill Inside Seam Welders, Un-fused Flux Nozzle, Detail PMP117 B L. D. Pipe Mill Inside Seam Welder, Lead & Trail Wire Guide Block Assembly PMP124 B L. D. Pipe Mill Inside Seam Welders, Meter Panel, Hole Covers PMP125 A L. D. Pipe Mill Inside & Outside Seam Welders, Leghi Crack Test, Test Plate PMP157 B L. D. Pipe Mill Flux Pick-up Nozzle, O.D. Welders, Detail PMP158 D L. D. Pipe Mill Flux Pick-up Nozzle, I.D. Welders, Detail
1-14 31 PMP162 A L. D. Pipe Mill I.D. & O.D. Welder Nozzle, Detail PMP217 B L. D. Pipe Mill I.D. & O.D. Welders, Commericas Iossum Pump Duct Filter, Detail PMP218 B L. D. Pipe Mill O.D. Welder, Flux Conveyor System, 8 x 4 Pan Side Board PMP219 D L. D. Pipe Mill Inside Seam Welders, Unfused Flux Recovery System, Modification PMP220 D L. D. Pipe Mill Inside Seam Welders, Unfused Flux Recovery System, Separator Support Frame PMP221 D L. D. Pipe Mill Outside Seam Welders, Ground Contact Shoe - Bus, Detail PMP222 D L. D. Pipe Mill Outside Seam Welders, Insulated Ground Shoe, Installation PMP226 A L. D. Pipe Mill, Pipe Marking Stencil, Neill Price International Inc., Stencil Detail PMP227 D L. D. Pipe Mill X-Ray Inspection, X-Ray Core, Detail PMP231 D L. D. Pipe Mill Pipe Marking Stencil, National Iranian Oil Co., Export Order PMP232 A L. D. Pipe Mill I.D. & O.D. Welder Nozzle, Carbide Insert Wire Guide, Detail (Ref. PMP152) PMP233 A L. D. Pipe Mill Pipe Marking Stencil, National Iranian Oil Co., Neill Price Export Order PMP237 D L. D. Pipe Mill I.D. Welding Machines, Flux Dust Disposal Conveyor, General Layout
1-15 32 EXHIBIT A TO AGREEMENT FOR PURCHASE AND SALE Environmental Provisions BUYER acknowledges that it understands that the Premises are located on the site of a steel manufacturing facility and that the Premises may have involved the use of Hazardous Materials. In dismantling and removing the EQUIPMENT, BUYER shall comply with all applicable federal, state and local laws, rules and regulations and shall comply with all applicable Environmental Laws, as hereinafter defined, concerning Hazardous Material, as hereinafter defined. 1. Upon BUYER's knowledge, BUYER shall immediately advise SELLER in writing of (i) any and all Environmental Liabilities and Costs imposed on BUYER, (ii) the presence of any Hazardous Materials on, under or about the Premises, and (iii) copies of all communications with any person or federal, state and local governments or agencies relating any legal proceedings, action, claim, suit, administrative proceedings, or other governmental action relating to any noncompliance with any Environmental Laws. 2. BUYER shall promptly take any and all necessary remedial action in response to the storage, use, disposal, transportation, discharge, or release of any Hazardous Materials by BUYER on, under or about the Premises; provided however, that BUYER shall first obtain SELLER's approval of any proposed remedial action. In the event BUYER undertakes any such remedial action, it shall conduct and complete such remedial action: (i) in compliance with all applicable federal, state and local laws, regulations, rules, ordinances and policies and any applicable Environmental Laws; (ii) to the satisfaction of SELLER; and (iii) in accordance with the orders and directives of all federal, state and local governments or agencies. 3. BUYER shall defend, indemnify and hold SELLER harmless from and against any and all actual or potential claims for any Environmental Liabilities and Costs to the extent that such are caused by the actions of the Buyer, including but not limited to any use, handling, production, transportation, disposal or storage of any Hazardous Materials in or on the Premises by BUYER or its agents, assigns, invitees, contractors or representatives, or any person acting with the consent of BUYER. In addition, BUYER agrees that in the event any Hazardous Material brought upon the Premises by BUYER or its agents, assigns, invitees, contractors or representatives, is caused to be removed from the Premises, the number, or other designation, assigned by BUYER, or any federal, state or local governments or agencies, for such Hazardous Material shall be solely in the name of BUYER and BUYER shall assume any and all liability for such removed Hazardous Material. BUYER's liability to SELLER shall arise upon the earlier to occur of (a) discovery of any release of any Hazardous Materials on, under or about the Premises or (b) the institution of any claims for any Environmental Liabilities and Costs, and not upon the realization of loss or damage, and BUYER agrees to pay to SELLER from time to time, immediately upon SELLER's request, an A-1 33 amount equal to such Environmental Liabilities and Costs, as reasonably determined by SELLER, subject to the final determination of any dispute or proceeding undertaken by BUYER in good faith to contest imposition of such expenses by governmental authorities. SELLER shall have the right to join and participate in, as a party if it so elects, in any legal or administrative proceedings or actions relating to BUYER's activities or occupancy or use of the Premises initiated in connection with any Environmental Liabilities and Costs and each party shall pay its own attorneys' fees in connection therewith. Except as provided in this Contract, neither party is relieved from any responsibility or liability under any applicable Environmental Law. 4. As used herein, (a) "Environmental Law" means all federal, state and local laws, statutes, ordinances and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any judicial or administrative interpretation thereof, including, without limitation, any judicial or administrative order, consent decree or judgment, relating to the regulation and protection of human health, safety, the environment and natural resources, (b) "Hazardous Material" means any radioactive, hazardous or toxic substances, material, waste or similar term, including, but not limited to, petroleum and petroleum products, the presence of which at the Premises or the discharge or emission of which from the Premises, or the use, generation, manufacture, collection, storage, treatment, disposal or transportation of which, is regulated by any Environmental Law, (c) "Remedial Actions" means all actions required or voluntarily undertaken to (i) clean up, remove, treat or in any other way detoxify or address Hazardous Materials; (ii) prevent the release or threatened release or minimize the further release of Hazardous Materials so that they do not migrate or endanger or threaten to endanger public health or welfare, natural resources, or the environment; or (iii) perform pre-remedial studies and investigations and post-remedial monitoring and care, and (d) "Environmental Liabilities and Costs" means any liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including, without limitation, all fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any person (including, but not limited to, any federal, state or local governments or agencies), whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, including, without limitation, any portion thereof arising under any Environmental Law, permit, order or agreement with any person or federal, state or local governments or agencies, and which relate to any environmental, health or safety condition of the Premises, or activities of BUYER (or its agents, assigns, invitees, contractors, representatives, or other persons for whom they may be legally responsible), past, present or future, except to the extent any such condition is shown to be due to the activities of a party or parties other than BUYER (or its agents, assigns, invitees, contractors, representatives, or other persons for whom they may be legally responsible). A-2 34 EXHIBIT B TO AGREEMENT FOR PURCHASE AND SALE Insurance Provisions BUYER shall, as a part of the Contract Price and without limiting its obligations or liabilities hereunder, obtain and maintain during the term of this Contract or longer, as may be indicated below, the following insurance coverages with limits not less than those shown below with a company or companies authorized to do business in Utah and acceptable to SELLER and under forms of policies satisfactory to SELLER: 1. Workers' Compensation and Employer's Liability Insurance. Workers compensation insurance shall be provided covering all employees of BUYER directly or indirectly engaged in any activities in connection with this Contract in accordance with all statutory requirements (whether now existing or hereafter imposed) of all states with jurisdiction over such employee-employer relationship. Such insurance shall be written for the required statutory amounts. In addition, employer's liability insurance, including occupational disease coverage, shall be provided with the following policy limits and shall include broad form other states and voluntary compensation endorsements (references are to standard Insurance Services Office current forms): $1,000,000 Each Accident - Bodily Injury by disease $1,000,000 Policy Limit - Bodily Injury by disease $1,000,000 Each Disease - Bodily Injury by disease 2. Commercial General Liability Insurance. A 1988 ISO commercial general liability insurance policy shall be provided on an occurrence basis with the following annually renewing policy limits and the following terms and coverage: (a) no deductible and coverage limits of $2,000,000 for bodily injury and property damage per occurrence, $2,000,000 general aggregate. (b) providing coverage up to the policy limits for all sums which the insureds shall become legally obliged to pay for damages because of bodily injury (including death at any time resulting therefrom) sustained by any person or persons or because of damage to or destruction of property caused by an occurrence or accident arising out of any operations carried on in connection with this Contract. (c) including blanket coverage for broad form contractual liability for the Work. (d) including the following coverage endorsements (references are to standard Insurance Services Office current forms): B-1 35 (1) Blanket X, C and U Coverage; (2) Premises-Operations Liability; (3) Products and Completed Operations Liability for a period of not less than three (3) years after final acceptance of the Work; (4) Owner's and Contractor's Protective Liability; (5) Employers Liability; (6) Non-Owned Automobile Liability; (7) Bodily injury and property damage; (8) Elevators; (9) Broad form contractual liability and broad form property damage; (10) Fire legal liability; and (11) Personal injury (deleting employee and contractual exclusions)
3. Comprehensive Automobile Liability Insurance. A comprehensive automobile liability policy shall be provided on a standard form providing coverage for bodily injury, property damage and uninsured vehicles for all occurrences whether occurring at the SELLER Works or elsewhere. The limit of liability shall not be less than $1,000,000.00 combined single limit for bodily injury and property damage per occurrence. Such insurance shall cover the use of all owned, non-owned. and hired vehicles used in connection with the Work. 4. Excess Liability Insurance. An excess liability insurance policy will be provided following the form of the insurance policies provided for in the immediately foregoing Sections 1, 2 and 3, subject to a limit of not less than $5,000,000 per occurrence and annual aggregate limits. 5. Additional Insured; Waiver of Subrogation. The policies required by the immediately foregoing Sections 1 (employer's liability only), 2, 3, and 4 shall provide that SELLER is an additional insured thereunder and that said policies are primary without right of contribution from SELLER or any insurance otherwise maintained by SELLER. All BUYER's policies of insurance (except for the workers compensation insurance required by Section 1 of the Contract), shall be endorsed to include a complete waiver of subrogation in favor of SELLER. B-2 36 6. Cross-Severability Clause. The policies required by this Exhibit shall be endorsed to state that the inclusion of more than one insured under such insurance shall not operate to impair the rights of one insured against another insured and (except for the applicable aggregate policy limits) the coverage afforded by each insurance policy shall apply as though a separate policy had been issued to each insured. 7. Subcontractor Insurance. Unless otherwise agreed in writing by the parties hereto, BUYER shall require each of its Subcontractors to provide insurance at levels and coverage similar to that set forth above and to provide evidence of the same to SELLER prior to entering the Premises. 8. Cancellation of Insurance. Each insurance policy required by this Exhibit shall be endorsed to state that coverage shall not be suspended, amended, voided, cancelled, reduced in coverage or in limits except after thirty (30) calendar days prior written notice by certified mail, return receipt requested, has been given to SELLER. B-3 37 EXHIBIT C TO AGREEMENT FOR PURCHASE AND SALE Bill of Sale BILL OF SALE THIS BILL OF SALE is made and entered into effective as of the _____ day of _________, 1999 by GENEVA STEEL COMPANY, Debtor and Debtor in Possession, ("Seller"), in favor of MITSUBISHI INTERNATIONAL CORPORATION ("Buyer"). WITNESSETH: Concurrently with the execution and delivery of this Bill of Sale, Seller is conveying to Buyer certain specific assets owned by Seller, upon the terms and conditions set forth in that certain Agreement for Purchase and Sale of Large Diameter Pipe Mill (the "Agreement") dated as of June 21, 1999 between Buyer and Seller. NOW, THEREFORE, FOR TEN DOLLARS ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller hereby agrees as follows: 1. Definitions. Capitalized terms used in this Bill of Sale shall have the same meaning ascribed to them in the Agreement unless otherwise specifically indicated herein. 2. Conveyance. Seller hereby grants, bargains, sells, assigns, conveys and transfers to Buyer all of Seller's right, title, claim and interest in and to the EQUIPMENT described in Section 1.1 of the Agreement. 3. NO WARRANTIES. THE EQUIPMENT IS BEING SOLD "AS IS" AND "WHERE IS" IN ALL RESPECTS. EXCEPT AS SPECIFICALLY PROVIDED IN THE AGREEMENT, SELLER MAKES NO WARRANTIES OR REPRESENTATIONS WHATSOEVER REGARDING THE PREMISES OR THE EQUIPMENT, OR ANY OTHER MATTER IN ANY WAY RELATED TO THE PREMISES OR THE EQUIPMENT, INCLUDING, BUT NOT LIMITED TO, MERCHANTABILITY, FITNESS FOR A SPECIFIC USE, TITLE TO THE EQUIPMENT (EXCEPT AS SET FORTH IN SECTION 6.2 OF THE AGREEMENT), EXISTENCE (EXCEPT AS CONTEMPLATED IN SECTION 1.1 OF THE AGREEMENT), UTILITIES, ABILITY TO DISMANTLE OR TRANSPORT THE EQUIPMENT, OPERATIONAL CAPABILITY, USE, VALUE OR CONDITION (ENVIRONMENTAL AND OTHERWISE) OF THE EQUIPMENT. BUYER HAS INSPECTED THE EQUIPMENT AND IS OF SUFFICIENT SOPHISTICATION, TECHNICAL EXPERTISE AND FINANCIAL ABILITY TO EVALUATE THE MERITS OF THE PURCHASE OF THE EQUIPMENT. C-1 38 OTHER THAN AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, BUYER IS NOT RELYING ON, AND HEREBY SPECIFICALLY WAIVES ANY CLAIM OF LIABILITY BASED ON, ANY STATEMENT, REPRESENTATION, WARRANTY, PROMISE, COVENANT, OR UNDERTAKING BY SELLER OR ANY OTHER PERSON REPRESENTING OR PURPORTING TO REPRESENT SELLER IN CONNECTION WITH THE EQUIPMENT OR THE PREMISES. 4. Successors and Assigns. This Bill of Sale shall inure to the benefit of Buyer, its successors and assigns, and shall be binding upon Seller, and its successors and assigns. 5. Applicable Law. This Bill of Sale shall be construed, enforced and interpreted in accordance with the laws, excluding the choice of law rules, of the State of Utah. 6. Entire Agreement. This Bill of Sale, together with the Agreement, constitute the entire understanding between the parties hereto with respect to the subject matter hereof and supersede all negotiations, representations, prior discussions and preliminary agreements between the parties hereto relating to the subject matter hereof. 7. No Merger. Nothing contained in this Bill of Sale is intended to, or shall, in any way effect a merger, elimination, modification, or termination of any covenant, undertaking, representation or warranty or other matter set forth in the Agreement. IN WITNESS WHEREOF, Seller has executed this Bill of Sale as of the date first written above. "SELLER": GENEVA STEEL COMPANY, Debtor and Debtor in Possession By: \s\ Ken C. Johnsen --------------------------------------------- Ken C. Johnsen Executive Vice President C-2 EX-10.3 4 LETTER AGREEMENT DATED JULY 30, 1999 1 Exhibit 10.3 July 30, 1999 Mannesmann Pipe & Steel Corp. 1990 Post Oak Blvd., Suite 1800 Houston, Texas 77056 RE: Amended and Restated Sales Representation Agreement dated as of October 30, 1998 (the "Agreement") between Geneva Steel Company ("Geneva") and Mannesmann Pipe & Steel Corporation ("Mannesmann") Gentlemen: Pursuant to Section 12 of the foregoing Agreement, Mannesmann has agreed to provide full cooperation in accomplishing a transition of customers and sales force in the event of a termination of the Agreement. This letter confirms that such cooperation will include the following: 1. Assignment of Open Accounts. Within ninety (90) days after the date of termination, Mannesmann shall assign to Geneva any and all receivables for Products sold by Mannesmann and which remain uncollected on the date of termination and Geneva will fund such receivables to Mannesmann within ninety (90) days after having receiving notice of such assignment. 2. Administration of Open Accounts. Mannesmann, upon Geneva's request, shall continue to administer all orders that are open on the date of termination. To the extent not already paid, all moneys owed Geneva for shipments against such orders shall be remitted by wire by Mannesmann to Geneva within five (5) working days after receipt of payment from customers. The administration of any orders which remain open after ninety (90) days from the date of termination shall become the responsibility of Geneva, and any payments which Mannesmann may have made for material which remains undelivered at such time shall be refunded to Mannesmann within ninety (90) days thereafter. In addition to the foregoing, this letter confirms that Geneva has no objection to the insertion the following language in Mannesmann's Terms and Conditions of Sale: 1. On the face of the Terms and Conditions: THIS CONTRACT INCORPORATES FURTHER TERMS AND CONDITIONS ON THE REVERSE HEREOF. THIS CONTRACT IS FOR THE SALE OF GENEVA STEEL COMPANY ("GENEVA") PRODUCTS ONLY. BUYER AND SELLER RECOGNIZE THAT THE FAILURE OF GENEVA TO SUPPLY PRODUCTS TO 2 Mannesmann Pipe & Steel Corp. July 30, 1999 Page 2 SELLER IS AN EVENT OF FORCE MAJEURE PURSUANT TO SECTION 8 OF THE TERMS AND CONDITIONS SET FORTH ON THE REVERSE HEREOF. YOUR SPECIAL ATTENTION IS ALSO DIRECTED TO PARAGRAPH 10, WARRANTY DISCLAIMER, AND PARAGRAPH 11, LIMITATION OF REMEDIES. 2. The handwritten changes to Sections 1, 3, 5 and 8 of the General Terms and Conditions attached hereto are acceptable to Geneva. 3. The additional language outlined in Sections 12 and 15 of your fax of June 17, 1999 are acceptable. The balance of the suggested changes to the Terms and Conditions of Sale, including those proposed for Sections 1, 10, 11 and 17, will not be made. Finally, this letter confirms Mannesmann's agreement that in the event Geneva assumes the Agreement under applicable bankruptcy procedures, the notice of termination provided for in the last sentence of Section 10 of the Agreement will be considered timely if given by August 31, 1999. If the foregoing meets accurately reflects Mannesmann's understanding and agreement, please indicate by signing and returning a copy of this letter by facsimile. Nothing set forth in this letter is intended to or shall be deemed to be an assumption by Geneva of the Agreement, which assumption is hereby expressly disclaimed by Geneva. Sincerely, Ken C. Johnsen AGREED TO AND ACCEPTED: Mannesmann Pipe & Steel Corporation By /s/ Tim A. Taylor -------------------------------------------------------------- Tim A. Taylor, Vice President-Finance EX-27 5 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 NINE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO. 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 0 0 15,380 10,024 60,531 103,493 666,689 (281,438) 493,814 91,033 325,000 55,814 0 106,018 (176,290) 493,814 225,044 225,044 307,677 307,677 22,375 (4,911) (16,579) (121,587) 0 (121,587) 0 0 0 (121,587) (7.55) (7.55)
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