-----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, AuzLbvETm/YTd0dcs4mGMUByuKyubHtq+aunt5X4FErEUt8RYNQLRmxG4c0Zt5S5 xwTGPG6fUzV7GE4izwXqFQ== 0000910394-97-000004.txt : 19970813 0000910394-97-000004.hdr.sgml : 19970813 ACCESSION NUMBER: 0000910394-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENTUCKY ELECTRIC STEEL INC /DE/ CENTRAL INDEX KEY: 0000910394 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 611244541 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22416 FILM NUMBER: 97656378 BUSINESS ADDRESS: STREET 1: P O BOX 3500 CITY: ASHLAND STATE: KY ZIP: 41105-3500 BUSINESS PHONE: 6069291222 MAIL ADDRESS: STREET 1: P O BOX 3500 CITY: ASHLAND STATE: KY ZIP: 41105-3500 10-Q 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 28, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________to ______________. Commission File No. 0-22416 KENTUCKY ELECTRIC STEEL, INC. (Exact name of Registrant as specified in its charter) Delaware 61-1244541 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) P. O. Box 3500, Ashland, Kentucky 41105-3500 (Address of principal executive office, Zip Code) (606) 929-1222 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 The number of shares outstanding of each of the issuer's classes of common stock, as of August 11, 1997, is as follows: 4,624,995 shares of voting common stock, par value $.01 per share. KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets ........... 3 Condensed Consolidated Statements of Operations.. 4 Condensed Consolidated Statements of Cash Flows.. 5 Notes to Condensed Consolidated Financial Statements ..................................... 6-7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations ........... 8-11 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K ................ 12 SIGNATURES ...................................... 13 KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited) June 28, Sept. 28, 1997 1996 ASSETS CURRENT ASSETS Cash and cash equivalents $ 121 $ 124 Accounts receivable, less allowance for doubtful accounts and claims of $560 at June 28, 1997 and $390 at September 28, 1996 9,942 12,113 Insurance claim receivable 2,900 - Inventories 14,628 17,367 Operating supplies and other current assets 5,138 5,067 Refundable income taxes 800 540 Deferred tax assets 343 680 ------- ------- Total current assets 33,872 35,891 ------- ------- PROPERTY, PLANT AND EQUIPMENT Land and buildings 4,448 4,353 Machinery and equipment 38,897 37,774 Construction in progress 2,679 1,412 Less - accumulated depreciation (10,337) (7,852) ------- ------- Net property, plant and equipment 35,687 35,687 ------- ------- DEFERRED TAX ASSETS 7,659 6,263 ------- ------- OTHER ASSETS 763 592 ------- ------- Total assets $ 77,981 $ 78,433 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Advances on line of credit $ 8,193 $ 7,546 Accounts payable 8,030 7,214 Capital expenditures payable 692 2,404 Accrued liabilities 3,047 3,639 Environmental liabilities 3,500 - Current portion of long-term debt 125 125 ------- ------- Total current liabilities 23,587 20,928 ------- ------- LONG-TERM DEBT 20,000 20,000 ------- ------- OTHER LIABILITIES 544 395 ------- ------- Total liabilities 44,131 41,323 ------- ------- SHAREHOLDERS' EQUITY Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued - - Common stock, $.01 par value, 15,000,000 shares authorized, 4,975,971 and 4,974,099 share issued, respectively 50 50 Additional paid-in capital 15,720 15,710 Less treasury stock - 350,976 and 273,000 shares at cost, respectively (2,638) (2,165) Deferred compensation (220) (421) Retained earnings 20,938 23,936 ------- ------- Total shareholders' equity 33,850 37,110 ------- ------- Total liabilities and shareholders' equity $ 77,981 $ 78,433 See notes to condensed consolidated financial statements
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except Per Share Data) (Unaudited) Three Months Ended Nine Months Ended June 28, June 29, June 28, June 29, 1997 1996 1997 1996 NET SALES $ 22,724 $ 26,483 $ 69,265 $ 74,796 COST OF GOODS SOLD 20,354 23,814 67,365 67,104 ------- ------- ------- ------- Gross Profit 2,370 2,669 1,900 7,692 SELLING AND ADMINISTRATIVE EXPENSES 1,761 1,819 5,144 5,806 ------- ------- ------- ------- Operating income (loss) 609 850 (3,244) 1,886 INTEREST INCOME AND OTHER 9 5 20 24 INTEREST EXPENSE (545) (343) (1,593) (1,116) GAIN ON INVOLUNTARY CONVERSION OF EQUIPMENT - - - 369 ------- ------- ------- ------- Income (loss) before income taxes 73 512 (4,817) 1,163 PROVISION (CREDIT) FOR INCOME TAXES 28 193 (1,819) 439 ------- ------- ------- ------- Net income (loss) $ 45 $ 319 $ (2,998) $ 724 NET INCOME (LOSS) PER COMMON SHARE $ .01 $ .07 $ (.65) $ .15 WEIGHTED AVERAGE SHARES OUTSTANDING 4,622,062 4,790,885 4,636,370 4,831,054 See notes to condensed consolidated financial statements
KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Nine Months Ended June 28, June 29, 1997 1996 Cash Flows From Operating Activities: Net income (loss) $ (2,998) $ 724 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 2,755 1,990 Gain on involuntary conversion of equipment - (369) Change in deferred taxes (1,397) 976 Change in other (91) (259) Change in current assets and current liabilities: Accounts receivable 2,171 (929) Insurance claim receivable (2,900) - Inventories 2,739 2,789 Operating supplies and other current assets (71) 62 Deferred tax assets 337 (3) Accounts payable 816 (278) Accrued liabilities (592) (857) Environmental liabilities 3,500 - Accrued income taxes refundable/payable (260) (447) ------- ------- Net cash flows from operating activities 4,009 3,399 ------- ------- Cash Flows From Investing Activities: Proceeds from involuntary conversion of equipment - 912 Capital expenditures (2,485) (8,412) Change in capital expenditures payable (1,712) 292 ------- ------- Net cash flows from investing activities (4,197) (7,208) ------- ------- Cash Flows From Financing Activities: Net advances (repayments) on line of credit 647 (6,749) Repayments on long-term debt - (9,001) Proceeds from long-term debt borrowings - 20,000 Purchases of treasury stock (473) (643) Net proceeds from issuance of common stock 10 - ------- ------- Net cash flows from financing activities 184 3,607 ------- ------- Net decrease in cash and cash equivalents (4) (202) Cash and Cash Equivalents at Beginning of Period 125 327 ------- ------- Cash and Cash Equivalents at End of Period $ 121 $ 125 Interest Paid, net of amount capitalized $ 1,213 $ 955 Income Taxes Paid $ - $ 297 See notes to condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements represent Kentucky Electric Steel, Inc. and its wholly-owned subsidiary, KESI Finance Company, (the Company). KESI Finance Company was formed in October 1996 to finance the Ladle Metallurgy Project. All significant intercompany accounts and transactions have been eliminated. These statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended June 28, 1997, are not necessarily indicative of the results that may be expected for the year ended September 27, 1997. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended September 28, 1996. Net income per common share is calculated based on 4,622,062 and 4,790,885 weighted average number of common shares outstanding during the quarters ended June 28, 1997, and June 29, 1996, respectively. Net income per common share is calculated based on 4,636,370 and 4,831,054 weighted average number of shares outstanding for the nine months ended June 28, 1997 and June 29, 1996, respectively. (2) Accounting Policies Fiscal Year End The Company's fiscal year ends on the last Saturday of September. Property, Plant, Equipment and Depreciation Property, plant and equipment is recorded at cost, less accumulated depreciation. For financial reporting purposes, depreciation is provided on the straight-line method over the estimated useful lives of the assets, generally 3 to 12 years for machinery and equipment and 15 to 30 years for buildings and improvements. Depreciation for income tax purposes is computed using accelerated methods. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for equipment renewals which extend the useful life of any asset are capitalized. The Company capitalizes interest costs as part of the historical cost of constructing major capital assets. Interest cost of $75,000 was capitalized for the quarter ended June 29, 1996. Interest costs of $11,000 and $159,000 were capitalized for the nine months ended June 28, 1997 and June 29, 1996, respectively. (3) Inventories Inventories at June 28, 1997 and September 28, 1996 consist of the following ($000's): June 28, September 28, 1997 1996 Raw materials $ 3,441 $ 4,069 Semi-finished and finished goods 11,187 13,298 Total inventories $ 14,628 $ 17,367 (4) Long-Term Debt The Company's unsecured senior notes and bank credit facility agreements were amended, effective December 28, 1996, to reduce the required fixed charge coverage ratio, increase the minimum net worth requirement and revise other miscellaneous provisions of the agreements. In connection with the amendment, the amount of the Company's unsecured bank credit facility has been reduced from $24.5 million to $17.5 million. With this amendment, the Company continues to be in compliance with the financial covenants and management believes it is probable that the Company will continue to be in compliance with the amended covenants. (5) Insurance Claim Receivable and Environmental Liabilities During the quarter ended June 28, 1997, the Company's melt shop operations were shut down for twelve days in order to decontaminate its baghouse facilities, after detection of a radioactive substance in the baghouse dust, a by-product of the melting process. The financial statements include a receivable of $2.9 million which represents the estimated balance due from the insurance carrier on the total projected reimbursement of $6.9 million, which covers the costs incurred in the radiation contamination clean-up, the disposal cost, and business interruption. To date the Company has received $4.0 million from the insurance carrier as an advance payment for costs incurred. The accompanying statements of operations for the quarter and nine months ended June 28, 1997 include $2.3 million of reimbursement for business interruption in the calculation of cost of goods sold. The $3.5 million in environmental liabilities recorded as a current liability on the balance sheet represents approximately $1.0 million in clean-up costs which have been incurred but unpaid as of June 28, 1997, and $2.5 million in estimated disposal costs. Through June 28, 1997, the Company has paid $1.2 million in clean-up costs. The estimated disposal costs are based upon a signed contract with an environmental services company for removal, transportation, treatment, and disposal of the contaminated baghouse dust. The contaminated baghouse dust will be shipped offsite by August 15 and payment for the disposal will occur within the next twelve months. These costs are covered by the radiation contamination insurance with the exception of a $100,000 deductible which has been reflected as a reduction of the insurance claim receivable and expensed during the current period. Although it is possible that the ultimate disposal costs may change from current estimates, the effect of the change would not be material to the financial statements due to the sufficiency of insurance coverage. (6) Commitments and Contingencies The Company has various commitments for the purchase of materials, supplies and energy arising in the ordinary course of business. The Company is subject to various claims, lawsuits and administrative proceedings arising in the ordinary course of business with respect to commercial, product liability and other matters, which seek remedies or damages. The Company believes that any liability that may ultimately be determined will not have a material effect on its financial position or results of operations. The Company generates both hazardous wastes and non-hazardous wastes which are subject to various governmental regulations. Estimated costs to be incurred in connection with environmental matters are accrued when the prospect of incurring costs for testing or remedial action is deemed probable. The Company is not aware of any material asserted or unasserted environmental claims against the Company and no accruals for such matters have been recorded in the accompanying balance sheets except as disclosed in Note 5. However, discovery of unknown conditions could result in the recording of accruals in the periods in which they become known. KENTUCKY ELECTRIC STEEL, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General. The Company manufactures special bar quality alloy and carbon steel bar flats to precise customer specifications for sale in a variety of niche markets. Its primary markets are manufacturers of leaf- spring suspensions, cold drawn bar converters, flat bed truck trailers, and steel service centers. Net Sales. Net sales decreased $3.8 million (14.2%) in the third quarter of fiscal 1997 to $22.7 million, as compared to $26.5 million for the third quarter of fiscal 1996. The decrease in net sales is attributed to a 17.1% decrease in shipments (discussed below) which is partially offset by a 3.5% increase in average selling price. The increase in average selling price reflects the price increases implemented on many products during the quarter, slightly offset by continued downward pricing pressures in the spring and commodity square edge markets. Net sales for the nine months ended June 28, 1997 decreased $5.5 million (7.4%) to $69.3 million, as compared to $74.8 million for the nine months ended June 29, 1996. The decrease in net sales is primarily attributed to a 6.0% decrease in shipments (discussed below) and to a lesser degree a decrease in average selling price. The decrease in average selling price is attributed to a change in product mix and downward pricing pressures in the spring and commodity square edge markets. Shipments for the quarter and nine months ended June 28, 1997 were negatively impacted by the effect on production of the melt shop operations being shut down for twelve days in order to decontaminate the baghouse facility, after the detection of a radioactive substance in the baghouse dust. The resulting shortage of billets idled the rolling mill for approximately seven days and negatively impacted rolling mill productivity for several weeks. The Company has recorded $3.5 million in environmental liabilities as a current liability on the balance sheet which represents approximately $1.0 million in clean-up costs which have been incurred but unpaid as of June 28, 1997, and $2.5 million in estimated disposal costs. Through June 28, 1997, the Company has paid $1.2 million in clean-up costs. The estimated disposal costs are based upon a contract with an environmental services company for removal, transportation, treatment, and disposal of the contaminated baghouse dust. The contaminated baghouse dust will be shipped offsite by August 15 and payment for the disposal will occur within the next twelve months. These costs are covered by the radiation contamination insurance with the exception of a $100,000 deductible which has been expensed during the current period. Although it is possible that the ultimate disposal costs may change from current estimates, the effect of the change would not be material to the financial statements due to the sufficiency of insurance coverage. Cost of Goods Sold. Cost of goods sold decreased $3.5 million (14.5%) in the third quarter of fiscal 1997 to $20.3 million, as compared to $23.8 million for the third quarter of fiscal 1996. As a percentage of net sales, cost of goods sold decreased from 89.9% for the three months ended June 29, 1996 to 89.6% for the three months ended June 28, 1997. This decrease in the cost of goods sold percentage reflects the increase in average selling price offset by an increase in per ton costs. The increase in per ton costs is attributed to higher conversion costs, additional depreciation related to the start-up of the ladle metallurgy and casting facilities and a slight increase in health benefit costs, which has been partially offset by a decrease in material costs. The increase in conversion costs was primarily attributed to lower production during the quarter resulting from the shut down of the melt shop operations for twelve days for decontamination of the baghouse facility. The resulting shortage of billets idled the rolling mill for approximately seven days and negatively impacted rolling mill productivity for several weeks. The increase in conversion costs associated with the decontamination of the baghouse has been offset by the inclusion of the $2.3 million reimbursement from business interruption in the calculation of cost of goods sold. Cost of goods sold for the nine months ended June 28, 1997 increased $.3 million (.4%) to $67.4 million as compared to $67.1 million for the nine months ended June 29, 1996. As a percentage of net sales, cost of goods sold increased from 89.7% for the nine months ended June 29, 1996 to 97.3% for the nine months ended June 28, 1997. The increase in cost of goods sold is due to higher conversion costs and additional depreciation related to the start-up of the ladle metallurgy and casting facilities, which has been partially offset by a decrease in material costs. Conversion costs for the first nine months of fiscal 1997 were adversely impacted by lower production during the third quarter as discussed in the preceeding paragraph and by the shutdown and restart of the caster during the second quarter. The caster was shut-down for 10 days in late December and early January to allow for repairs to be made. At the same time, the Company converted an additional caster strand to allow for increased production of thicker, wider products. Also adversely impacting conversion costs, although to a lesser degree, was an increase in repair and maintenance cost, supply cost, health benefit cost and the continued start- up phase of the new ladle metallurgy facility, which came on-line in the fourth quarter of fiscal 1996. The nine months ended June 29, 1996 includes a $1.7 million reimbursement from business interruption insurance, related to the caster fire, in the calculation of cost of goods sold. The nine months ended June 28, 1997 includes $2.3 million reimbursement from business interruption insurance, related to the decontamination of the baghouse, in the calculation of cost of goods sold. Gross Profit. As a result of the above, gross profit for the third quarter of fiscal 1997 decreased by $.3 million (11.2%) to $2.4 million from $2.7 million for the third fiscal quarter of 1996. As a percentage of net sales, gross profit increased from 10.1% for the three months ended June 29, 1996 to 10.4% for the three months ended June 28, 1997. As a result of the above, gross profit for the nine months ended June 28, 1997 decreased $5.8 million (75.3%) to $1.9 million as compared to $7.7 million for the nine months ended June 29, 1996. As a percentage of net sales, gross profit decreased from 10.3% for the nine months ended June 29, 1996 to 2.7% for the nine months ended June 28, 1997. Selling and Administrative Expenses. Selling and administrative expenses include salaries and benefits, corporate overhead, insurance, sales commissions and other expenses incurred in the executive, sales and marketing, shipping, personnel, and other administrative departments. Selling and administrative expenses decreased by approximately $58,000 for the three months ended June 28, 1997 as compared to the comparable period in fiscal 1996. As a percentage of net sales, such expenses increased from 6.9% for the three months ended June 29, 1996 to 7.7% for the three months ended June 28, 1997. The increase, as a percentage of sales, is primarily the result of a decrease in shipments (as discussed above) resulting in lower net sales for the quarter ended June 28, 1997 while selling and administrative expenses only declined slightly. The decrease in selling and administrative expenses is attributed to a reduction in the provision for uncollectible accounts (which was higher in the prior period due to problems with certain specific accounts) and a decrease in other miscellaneous expenses offset by an increase in health benefit costs. Selling and administrative expenses decreased by $.7 million for the nine months ended June 28, 1997 as compared to the comparable period for fiscal 1996. As a percentage of net sales, such expenses decreased from 7.8% for the nine months ended June 29, 1996 to 7.4% for the nine months ended June 28, 1997. The decrease is primarily the result of a reduction in the provision for uncollectible accounts (which was higher in the prior period due to problems with certain specific accounts) and a decrease in legal and professional fees. Operating Income. For the reasons described above, operating income decreased by $.3 million (28.4%) from $.9 million in the third quarter of fiscal 1996 to $.6 million in the third quarter of fiscal 1997. As a percentage of net sales, operating income decreased from 3.2% in the third quarter of 1996 to 2.7% in the third quarter of 1997. The nine months ended June 28, 1997 reflected an operating loss of $3.2 million as compared to operating income of $1.9 million for the nine months ended June 29, 1996. As a percentage of net sales operating income decreased from 2.5% for the nine months ended June 29, 1996 to (4.7%) for the nine months ended June 28, 1997. Interest Expense. Interest expense increased by $202,000 for the three months ended June 28, 1997 from $343,000 for the third quarter of fiscal 1996 to $545,000 for the third quarter of fiscal 1997, net of interest capitalized of $75,000 for the third quarter of fiscal 1996. Interest expense for the nine months ended June 28, 1997 increased $477,000 from $1.1 million for the nine months ended June 29, 1996 to $1.6 million for the nine months ended June 28, 1997, net of interest capitalized of $159,000 and $11,000, respectively. The increase in interest expense was attributed to the additional debt incurred in financing the capital expansion projects and the reduction of capitalized interest due to the completion and start-up of the ladle metallurgy facility. Gain on Involuntary Conversion of Equipment. As a result of the caster fire, during the second quarter of fiscal 1996, the Company received insurance proceeds of $912,000 for the replacement cost of the equipment destroyed which had a net book value of $543,000. The excess of the replacement cost over the net book value of the equipment destroyed resulted in a gain of approximately $369,000. Net Income. As a result of the above, net income decreased by $274,000 (85.9%) for the three months ended June 28, 1997 from $319,000 for the third quarter of fiscal 1996 to $45,000 for the third quarter of fiscal 1997. As a result of the above, the nine months ended June 28, 1997 reflected a net loss of $3.0 million as compared to net income of $.7 million for the nine months ended June 29, 1996. Liquidity and Capital Resources. The cash flows provided from operating activities were $4.0 million for the first nine months of fiscal 1997 as compared to $3.4 million for the first nine months of fiscal 1996. The first nine months of fiscal 1997 operating cash flows reflect a reduction in accounts receivable and inventories. The first nine months of fiscal 1996 operating cash flows reflect a reduction in inventories. The cash flows used by investing activities were $4.2 million for the first nine months of fiscal 1997 as compared to $7.2 million for the first nine months of fiscal 1996. The first nine months of fiscal 1997 investing cash flows reflect capital expenditures of $2.5 million and payments on capital expenditures payable of $1.7 million. The first nine months of fiscal 1996 investing cash flows reflect capital expenditures of $8.4 million which has been offset by an increase in capital expenditures payable of $.3 million and the proceeds from the involuntary conversion of equipment of $.9 million. The cash flows provided from financing activities were $.2 million for the first nine months of fiscal 1997 as compared to $3.6 million for the first nine months of fiscal 1996. The cash flows provided from financing activities for fiscal 1997 reflect net advances of $.7 million on the Company's line of credit offset by $.5 million for purchase of treasury stock. The cash flows provided from financing activities for fiscal 1996 reflect net repayments of $6.8 million on the Company's line of credit, $9.0 million repayment on long-term debt, and $.6 million for purchase of treasury stock; however, these amounts were offset with the proceeds of $20.0 million of new long-term debt. Working capital at June 28, 1997 was $10.3 million as compared to $15.0 million at September 28, 1996, and the current ratio was 1.4 to 1.0 as compared to 1.7 to 1.0. The decrease in working capital and current ratio is primarily attributed to a decrease in accounts receivable and inventories. The Company's primary ongoing cash requirements are for the payment of retainage on the capital expansion projects and current capital expenditures. The two sources for the Company's liquidity are internally generated funds and its bank credit facility. The Company has $8.2 million in borrowings outstanding on its line of credit as of June 28, 1997. The Company believes that the bank credit facility and internally generated funds will be sufficient to fund its ongoing cash needs through the next twelve-month period. Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement No. 128 (SFAS No. 128) related to the computation and presentation of earnings per share data. Under SFAS No. 128, basic and diluted earnings per share for the three months and nine months ended June 28, 1997 would have been the same as reported. Outlook Management believes the price increases implemented on many products in March and April have been accepted by the marketplace, however, spring pricing remains soft. The Company's position in the major markets it serves combined with productivity improvements and continued strength in the marketplace should enable the Company to continue to improve operating results in the coming quarters. Forward-Looking Statements The matters discussed or incorporated by reference in this Report on Form 10-Q that are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995) involve risks and uncertainities. These risks and uncertainities include, but are not limited to, the reliance on truck and utility vehicle industry; excess industry capacity; product demand and industry pricing; volatility of raw material costs, especially steel scrap; intense foreign and domestic competition; management's estimate of niche market data; the cyclical and capital intensive nature of the industry; and cost of compliance with environmental regulations. These risks and uncertainities could cause actual results of the Company to differ materially from those projected or implied by such forward-looking statements. PART II. - OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K A) Exhibits 3.1 - Certificate of Incorporation of Kentucky ElectricSteel, Inc., filed as Exhibit 3.1 to Registrant's Registration Statement on Form S-1 (No. 33-67140), and incorporated by reference herein. 3.2 - By-Laws of Kentucky Electric Steel, Inc., filed as Exhibit 3.2 to Registrant's Registration Statement on Form S-1 (No. 33-67140), and incorporated by reference herein. 10.15 - Remediation and Waste Disposal Agreement - Zhagrus Environmental, Inc. 27 - Financial Data Schedule B) Reports on Form 8-K - None 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. DATED: August 12, 1997 KENTUCKY ELECTRIC STEEL, INC. (Registrant) William J. Jessie William J. Jessie, Vice President, Secretary, Treasurer, and Principal Financial Officer EX-27 2 ART.5 FDS FOR 3RD QUARTER 10-Q
5 This schedule contains summary financial information extracted from Kentucky Electric Steel, Inc.'s condensed consolidated financial statements as of and for the nine month period ended June 28, 1997 included in this Company's quarterly report on Form 10-Q and is qualified in its entirety by reference to such condensed consolidated financial statements. 0000910394 KENTUCKY ELECTRIC STEEL, INC. 1,000 U.S. DOLLARS 9-MOS SEP-27-1997 SEP-29-1996 JUN-28-1997 1 121 0 10,502 560 14,628 33,872 46,024 10,337 77,981 23,587 20,000 50 0 0 33,800 77,981 69,265 69,265 67,365 67,365 0 0 1,593 (4,817) (1,819) (2,998) 0 0 0 (2,998) (.65) (.65)
EX-10.15 3 REMEDIATION AND WASTE DISPOSAL AGREEMENT - ZHAGRUS ENVIRONMENTAL, INC. ZHAGRUS ENVIRONMENTAL, INC. REMEDIATION AND WASTE DISPOSAL AGREEMENT THIS AGREEMENT made and entered into as of this 29th day of July, 1997, by and between ZHAGRUS ENVIRONMENTAL, INC., a Utah corporation, having its general offices at 46 West Broadway, Suite 240, Salt Lake City, Utah 84101 (hereinafter called "Zhagrus") and KENTUCKY ELECTRIC STEEL, INC., having its general offices at U.S. Route 60, Coalton, Kentucky, 41102 (hereinafter called "Customer"). RECITAL: A. Customer owns certain property and premises commonly known as and located near Ashland, Kentucky (hereinafter called "the Site") and certain waste materials (hereinafter called "Waste Material") located at the Site and as identified in Schedule "A,", attached hereto and made a part hereof. Customer desires that Zhagrus, an affiliate under common control of Envirocare of Utah, Inc. (hereafter called Envirocare ) perform, or cause to be performed by its subcontractors, certain work and services (hereinafter called "The Work"), as more particularly described in Schedule "B," attached hereto and made a part hereof, including the disposal of said Waste Material at that certain waste disposal facility at Clive, Utah (hereinafter called "The Facility) owned and operated by Envirocare. Envirocare is under contract with Zhagrus for the treatment, and disposal of the Waste Material. B. Attached hereto, reviewed by Customer, and made a part hereof is Envirocare's license #UT2300249, with amendments, issued by the State of Utah, and which permits Envirocare to handle and dispose of the Waste Material. With regard to Waste Material identified in Schedule "A" to be delivered for both treatment and disposal, there is additionally attached hereto that certain statement of issuance of Mixed Waste Permit UTD982598898, with amendments, issued by the State of Utah, and which permits Envirocare to handle and treat such Waste Material. Said license and statement of issuance of Mixed Waste Permit are hereinafter collectively called "Envirocare's License." C. Zhagrus is capable of performing and/or obtaining the performance of The Work and acknowledges the toxic nature and physical characteristics of the Waste Material, as described in Schedule "A," and is willing to provide or cause to be provided all of The Work, including disposal of the Waste Material and, where necessary, the treatment of the Waste Material for disposal, pursuant to all applicable governmental laws, rules and regulations (hereinafter collectively called the "Regulations") and this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, Customer hereby engages Zhagrus to perform and provide and Zhagrus does hereby agree to so perform and provide The Work as described in this Agreement and upon the terms and conditions as herein set forth. 1. SCOPE OF WORK. Zhagrus shall perform or cause to be performed The Work as described in Schedule "B" and, except with Customer's written consent, without modification or deviation. 2. COMPLETION OF WORK. Time is of the essence to all aspects of this Agreement. All Waste Material shall be removed from the Site on or before August 12, 1997. All tasks comprising The Work shall be completed on or before the dates set forth in Exhibit B. 3. WASTE MATERIAL. (a) The Waste Material with regard to which Zhagrus is to perform The Work is of the type and in the estimated quantities set forth in Schedule "A." The Components comprising the Waste Material and the parameters that are acceptable to Envirocare are also set forth in Schedule A. Zhagrus shall ship the Waste Material for disposal only at The Facility. Zhagrus shall have no obligation to ship or deliver to The Facility any waste material which does not in fact conform to and/or comply with Schedule "A" of this Agreement. If prior to shipment of the Waste Material from the Site Zhagrus discovers Nonconforming Material (as defined in paragraph 5), it will, as soon as reasonably possible after discovery, give to Customer a written notice of the characteristics, conditions and circumstances which Zhagrus believes constitutes such nonconformity. If Zhagrus is required to reasonably excavate, handle, move, load or store Non-conforming Material at the Site in order to have access to the Waste Material and properly perform The Work, Zhagrus shall then prepare and submit to Customer a proposed written change order identifying the additional work required to so handle the Nonconforming Material and the price to be paid by Customer in consideration for the performance of that additional work. Said additional work shall not be undertaken until a written change order has been agreed to and signed by Zhagrus and Customer. (b) Zhagrus shall not mix or otherwise combine the Waste Material with any other material or products from any other party or source, load the same for shipment, or ship the same to Envirocare. 4. TREATMENT. Zhagrus will secure all treatment of any Waste Material identified in Schedule "A" that must be treated to meet Land Disposal Restrictions. 5. NONCONFORMING WASTE MATERIAL. Zhagrus shall have no obligation to ship or deliver to The Facility any waste material which does not in fact conform to and/or comply with Envirocare's License, the Regulations, and Schedule "A" of this Agreement. The Waste Material evaluation report (the "Report") to be delivered to Customer pursuant to Schedule "D" shall include a list of the components comprising the Waste Material tested for the Report . Upon receiving notification from Envirocare that waste material received at the Facility contains a component beyond the acceptable parameters set forth in Schedule A or components not listed on the Schedule A and which may not be legally disposed of at The Facility ("Nonconforming Material"), Zhagrus shall give written notification thereof to Customer, including identification of the Nonconforming Material. Except as limited or precluded by action or demand of governmental regulatory authority, said notification to Customer shall be given not less than five (5) working days after receipt of notification from Envirocare. Zhagrus contract with Envirocare shall provide that, in the event that Envirocare discovers any such Nonconforming Material, then Envirocare, at its sole option: (1) may, at no additional cost to Customer, perform treatment or further treatment of the Nonconforming Material so to permit disposal, (2) may remove or cause any Nonconforming Material to be removed and returned to Customer, or (3) may demand that the Customer remove or cause the Nonconforming Material to be removed as soon as reasonably possible. Said Agreement shall provide that Envirocare shall not exercise any of said options unless it gives not less than ten (10) working days' prior notice to Zhagrus and to Customer, except where limited or precluded by action or demand of governmental regulatory authority. Any fines and penalties levied against Envirocare and generated by Nonconforming Material and all costs, expenses and/or fees for or resulting from the receipt of said Nonconforming Material and the preparation for removal and/or removal of the same, including analysis and handling of the same, shall be paid by Customer without regard to whether removal is made or caused to be made by Envirocare or by Zhagrus. Customer shall make payment of all reasonable costs, expenses and fees in transporting and preparing to transport the Nonconforming Material from The Facility to the Site. If the return of the Nonconforming Material to the Site is arranged for by Envirocare or Zhagrus, it shall be transported by such means of transportation as Zhagrus shall reasonably select after prior consultation with Customer. The Contract Price (as defined in paragraph 19) shall be reduced by *** ******* ******* ********* per cubic foot of Nonconforming Material which is not disposed of by Envirocare. 6. DEVELOPMENT AND COMPLETION OF WORK PLAN. (a) Zhagrus shall prepare all necessary work and safety plans for performance of the Work including, without limitation, those described in Schedule B and shall obtain the approval of the plans by Customer and by Kentucky regulatory authorities prior to the commencement of The Work. (b) As soon as reasonably possible after Zhagrus determines that The Work has been completed in full in accordance with this Agreement, it shall notify Customer in writing of the completion. 7. PACKAGING. Zhagrus shall be responsible for all rolloffs, packages and containers (hereinafter collectively referred to as Containers ) and rail cars for shipment of Waste Material to The Facility and warrants their compliance with the Regulations, including 49 CFR regulations for radioactive material, and all rules, laws and ordinances which may be applicable to the safety, packaging, storage, transportation, and decontamination of such rail cars and Containers. 8. TRANSPORTATION AND DELIVERY. Zhagrus shall transport and deliver the Waste Material or cause it to be transported and delivered to The Facility in accordance with the Regulations. Zhagrus shall be responsible for ********* after ***** **** days after shipment from the Site on all rail cars and shall return at no additional cost to Customer all rail cars after decontamination. In the event that the gross weight of any railcars loaded by Customer (#251586, #242134, #259564, #253912) exceeds the maximum gross weight limitation of the railroad, Customer shall reimburse Zhagrus its cost for offloading and repackaging sufficient Waste Material from any overweight railcar to meet the railroad s gross weight limitation. In no event, however, shall the total amount of this reimbursement exceed *** ******* ******** Dollars ($**********). 9. CUSTOMER INITIAL CLASSIFICATION OF WASTE MATERIAL. Customer shall supply Zhagrus with results of Customer's initial sampling, testing and classification, together with results of any testing, sampling and other classification of the Waste Material received by Customer from other persons and entities. The information provided by Customer is so provided only for information purposes and shall not be by way of substitution or in lieu of sampling and testing to be performed by Zhagrus. 10. ZHAGRUS PERSONNEL - TRAINING AND COMPLIANCE. Zhagrus shall insure that all of its personnel engaged in the performance of The Work are properly trained in the performance of their duties, the use of equipment entrusted to them in the performance of those duties, and applicable chain- of-custody procedures. Laboratories used by Zhagrus with regard to applicable testing and sampling shall have a documented Quality Assurance Program in compliance with United States Environmental Protection Agency Guidance Document QAMS-005/80 and shall perform their services regarding The Work in compliance therewith. 11. QUALITY CONTROL OF THE WORK. Zhagrus shall provide for a full- time on-site inspector during all work on the Site. On-site inspections shall be conducted on not less frequently than twice daily during The Work on the Site to verify compliance with this Agreement and with the Regulations, including all health and environmental requirements, and shall be documented in Zhagrus files. Upon written request by Customer, results of these inspections shall be provided to Customer and such other persons and entities as Customer may reasonably require. Zhagrus shall review all aspects of The Work and all daily reports to verify that the work is in compliance with this Agreement and shall promptly note and correct any variances and discrepancies. 12. PROTECTION OF THE SITE - LIENS. During the time of the performance of The Work, Zhagrus shall adopt and implement appropriate policies and procedures for the protection of the Site from unauthorized entry and vandalism and injury to persons or property resulting therefrom and shall require its subcontractors engaged in any of The Work at the Site to implement and follow similar policies and procedures. Zhagrus shall maintain the Site free and clear of all liens, claims or encumbrances of any type or description arising out of the failure of Zhagrus and any of its subcontractors to make timely and proper payment for labor and materials provided at the Site. 13. SAFETY. All Zhagrus personnel working at the Site shall meet and comply with all safety standards and requirements imposed by applicable federal, state and local laws and ordinances. Zhagrus shall require that its subcontractors engaged in the performance of The Work at the Site require compliance by their personnel at the Site. 14. REPORTS - RECORDKEEPING. All reports prepared by Zhagrus, Envirocare, or any subcontractor during the performance of The Work shall be maintained for a minimum of seven years after completion of The Work. The reports shall be made available upon reasonable notice and at reasonable times for inspection by Customer and any governmental entity, person or other entity to whom Customer is legally or contractually obligated with regard to The Work. All of those entitled to inspect the reports shall be provided a copy of the same by Zhagrus upon request. At intervals of not less than every 30 days, Zhagrus shall prepare and submit to Customer Work Completion Reports, which shall include a description of The Work completed, The Work planned for the next 30 days, a description of any problems encountered, any actual or anticipated delays, the results of all sampling, testing and other data received or produced by Zhagrus during the course of The Work, and any work performed which Zhagrus has determined as not having been in compliance with this Agreement. Within 30 days of completion of The Work, Zhagrus shall prepare and submit to Customer a final Work Completion Report, which shall include a narrative description of all The Work performed, the actual work performed, including actual commencement and completion dates, and a certification that The Work has been completed in accordance with the Regulations, all laws, this Agreement and any modifications agreed to by Customer in writing. 15. LICENSES AND PERMITS. Zhagrus shall obtain, or cause to be obtained, all local, state and Federal licenses and permits required from each governmental body having jurisdiction over the Site, the work at the Site, and the transportation of the Waste Material to The Facility and shall perform The Work in compliance therewith. 16. COMPLIANCE WITH LAW. Zhagrus shall comply with the Regulations and all applicable federal, state and local laws, ordinances and requirements, including but not limited to, the provisions of the Fair Labor Standards Act of 1938, as amended, and shall require compliance by its subcontractors with the Regulations and all federal, state and local laws, ordinances and requirements applicable to said subcontractors with regard to The Work and the Waste Material. 17. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. ZHAGRUS. Zhagrus acknowledges the toxic nature and physical characteristics of all of the Waste Material identified in Schedule "A." It represents, warrants and agrees that (1) it shall cause that scientifically and legally accepted standards and procedures be used for treatment of any Waste Material to be treated, (2) it shall perform its services in compliance with this Agreement and the Regulations and (3) The Facility has been duly licensed by the State of Utah and the United States Environmental Protection Agency for receipt and disposal of the Waste Material and for treatment of Waste Material, if any, identified in Schedule "A" as to be delivered for both treatment and disposal. CUSTOMER. Customer represents and warrants that (1) it has title to the Site and the Waste Material and has authority to make this Agreement, and that (2) Exhibit A is an accurate description of the Waste Material. 18. INDEMNIFICATION. Customer shall indemnify, defend and save harmless Zhagrus and Envirocare and their officers, directors, employees, and agents, against any and all liability whatsoever, including all costs, expenses, and/or attorney's fees, which may arise out of any negligent act or omission of Customer. In addition to and not in lieu of the insurance provisions contained in paragraph 21, Zhagrus shall protect, indemnify and hold harmless, Customer and any of its employees, workmen, servants or agents ( Covered Parties ) of and from any claim, loss, cost, damage or expense arising from: (a) Any and all claims which may be made against Customer or any Covered Parties by reason of injury or death to person, or damage to property, suffered, or claimed to have been suffered, by any person, firm, corporation, or other entity, caused by, or alleged to have been caused by, any negligent act or omission of Zhagrus or any subcontractor retained by or through Zhagrus or of any of their employees, workmen, servants or agents. (b) Any and all damage to the property of Customer, or any Covered Parties, including but not limited to property occupied or used by or in the care, custody or control of Zhagrus, caused by, or alleged to have been caused by, any negligent act or omission of Zhagrus, any subcontractor retained by or through Zhagrus or of any of their employees, workmen, servants or agents. (c) Any and all claims and demands which may be made against Customer, or any Covered Parties, by reason of any infringement or alleged infringement of any patent rights or claims caused by or alleged to have been caused by the use of any materials or equipment furnished or used by Zhagrus or any subcontractor retained by or through Zhagrus. (d) Any and all penalties imposed on account of the violation of any Regulation or law by Zhagrus or any subcontractor retained by or through Zhagrus or any of their employees, workmen, servants or agents. The indemnification required herein shall survive termination or expiration of this Agreement and shall continue in force and effect beyond the term of this Agreement. The indemnification contained herein is perpetual and shall not be terminated nor in any manner reduced without the written consent of Zhagrus and Customer. 19. PAYMENT. (a) In consideration of Zhagrus performing and providing all The Work as herein agreed to be performed and provided by Zhagrus, Customer shall make payment to Zhagrus the total contract price (********* ******) of *** ******* **** ******* ******** Dollars ($************) as set forth in Schedule "C," which is attached hereto and by reference made a part hereof as to volumes which were situated on Site as of June 11, 1997. The Contract Price shall *** ** ******** if the volumes estimated in Schedule A (or elsewhere in this Agreement) prove to be incorrect or inaccurate. (b) Zhagrus shall submit applications for payment to Customer in the amounts and upon completion of the tasks ( Tasks ) set forth in Schedule C and shall keep copies of said invoices for a period of at least three years as a partial record of the performance of The Work. All invoices shall be due and payable by Customer within 30 days of receipt by Customer. Any payment not received at Zhagrus place of business within 30 days of receipt of invoice shall accrue interest on the delinquent amount 30 days from the date the invoice was received at one and one-half percent (1.5%) per month (but not to exceed the lawful applicable rate). Said interest is payable at the time of the delinquent payment. Failure to pay invoices for completed tasks within 30 days of receipt shall constitute a material breach of this Agreement. 20. TITLE TO WASTE MATERIAL. Upon Zhagrus accepting and taking possession at the **** for ************** of the Waste Material, title, risk of loss, and all other incidents of ownership to the Waste Material shall thereupon be held by Zhagrus or Envirocare. Pursuant to paragraph 18, Zhagrus shall indemnify and defend Customer against any claims arising from the handling, treatment, storage and disposal of the Waste Material by Zhagrus and Envirocare. Customer shall have no right to recovery of any material contained in the Waste Material nor any credit for its potential value. Customer shall nevertheless remain obligated in accordance with paragraph 5 above with regard to Nonconforming Material. 21. LIABILITY COVERAGE. Zhagrus shall maintain, at its expense, at least the following liability insurance coverage during the time that it is performing or providing for the performance of The Work under this Agreement. COVERAGE LIMITS (a) Workman's Compensation Statutory (b) Employer's Liability $1,000,000 each occurrence (c) General Liability $5,000,000 each claim (Bodily Injury and $5,000,000 aggregate limit Property Damage) (d) Sudden and Non-Sudden $4,000,000 each loss Pollution Liability $8,000,000 total for all losses (e) Automotive Liability $1,000,000 combined single (Bodily Injury and limit Property Damage) Customer shall be named as an additional named insured on Zhagrus general liability policy, with provision for notice to Customer of any overdue or unpaid premium and notice to Customer of any proposed cancellation. Zhagrus agrees to furnish certificates of insurance prior to commencing The Work and, thereafter, upon request. 22. FORCE MAJEURE. The performance of this Agreement, except for the payment of money owing for work and services actually rendered hereunder, may be suspended by either party in the event of national defense requirements, any act of God, war, riot, fire, explosion, accident, flood, sabotage, an order directive or request of an authorized governmental agency (including the Northwest Interstate Compact Commission) that delivery, transportation, acceptance, treatment, or disposal of the Waste Material be suspended or terminated, the lack of adequate fuel, power, any material noncompliance by the other party with the Regulations, governmental requirements, law, regulations, orders or actions. Any refusal of CSX Transportation, Inc. to accept any of the four railcars loaded by Customer (#251586, #242134, #259564, #253912) for transportation from the Site shall be considered an item of force majeure, provided any such refusal is not caused by an act or omission of Zhagrus. 23. INDEPENDENT CONTRACTOR. Zhagrus and Customer are each separate entities. Neither of them, nor their employees or agents, shall be deemed to be employees or agents of the other. Notwithstanding the foregoing, Customer shall have the right to approve all subcontractors of Zhagrus. 24. WAIVER. Any waiver by either party of the breach of any provision or condition of this Agreement shall not be construed or deemed to be a waiver of a subsequent breach of the same provision or condition, unless such waiver be expressed in writing and signed by the party to be bound. 25. NOTICE. Any notice, communication or statement required or permitted to be given hereunder shall be in writing and deemed to have been sufficiently given when delivered in person or by mail, postage prepaid, or by telefax machine addressed as follows: CUSTOMER: Kentucky Electric Steel, Inc. P. O. Box 3500 Ashland, Kentucky, 41105-3500 ATTENTION: Mr. Travis Bailey Telephone #(606) 929-1330 Telefax #(606) 929-1324 with copy to: Mr. William H. Jones, Jr. Telephone #(606) 329-2929 P.O. Box 1111 Telefax #(606) 329-0490 Ashland, Kentucky 41105-1111 ZHAGRUS Zhagrus Environmental, Inc. 46 West Broadway, Suite 240 Salt Lake City, Utah 84101 ATTENTION: Mr. Charles A. Judd Telephone #(801) 532-1330 Telefax #(801) 537-7345 or at such other address as a party shall hereafter, in writing, direct. 26. TERMINATION/SUSPENSION. Notwithstanding any language to the contrary contained herein, if either party is in default under this Agreement, the other party may, at its sole election, (1) waive any such default on such terms as the parties shall agree; (2) suspend further performance under this Agreement; or (3) declare the defaulting party in default of this Agreement. Either party may terminate this Agreement by notice in writing in the event that the other party either is in default of this Agreement and continues in default for a period of ten (10) days after receipt of written notice to cure said default; makes an assignment for the benefit of creditors; admits in writing an inability to pay debts as they mature; a trustee or receiver of the other or of any substantial part of the other's assets is appointed by any court; or a proceeding is instituted under any provision of the Federal Bankruptcy Code by the other or against the other, and is acquiesced in or is not dismissed within 60 days, or results in an adjudication in bankruptcy. 27. CONFIDENTIALITY. Zhagrus shall treat as confidential property and not disclose to others during or subsequent to the term of this Agreement, except as is necessary to perform this Agreement hereunder and then only on a confidential basis satisfactory to Customer, any information, including technical information, experience or data, regarding the Customer s plans, programs, plants, processes, products, disposal costs, equipment, operations, customers and/or the specific contractual terms contained herein which may come within the knowledge of the parties, their officers or their employees in the performance of this Agreement without in each instance securing the prior written consent of the Customer. Zhagrus shall also treat as confidential and shall not disclose to others, except as required by law, governmental rules, regulations and/or orders, information relating to the composition of the Waste Material, any treatment performed and/or the quantity of Waste Material delivered to it by Customer. Zhagrus may disclose to its agents and contractors information relating to the composition, type, treatment and quantity of the Waste Material as required to perform this Agreement, without written authorization from Customer, including but not limited to its general contractor, its laboratories and contractors performing special treatment services. Nothing herein, however, shall prevent either Zhagrus or Customer from disclosing to others or using in any manner information which either party can show: (a) Has been published and become part of the public domain other than by acts, omissions, or fault of Zhagrus or Customer or their employees. (b) Has been furnished or made known to Zhagrus or Customer by third parties other than those acting directly or indirectly for, or on behalf of, Zhagrus or Customer as a matter of legal right without restriction against disclosure. (c) Was in the other party's possession prior to the disclosure thereof by Zhagrus or Customer to each other. (d) The information is supplied to a governmental agency pursuant to a legal requirement to do so. 28. SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive expiration and/or termination of this Agreement. 29. AMENDMENT/ASSIGNMENT. This Agreement may be amended or assigned only by the written agreement of the parties. Any assignment in violation hereof is void. 30. BINDING. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns. 31. DEFAULT. In the event any party to this Agreement defaults in any of the covenants or agreements contained herein, the defaulting party shall pay all damages, costs and expenses, including reasonable attorney's fees incurred by the other party in enforcing its rights arising hereunder. 32. APPLICABLE LAW. This Agreement is entered into in the County of Boyd, State of Kentucky and shall be governed and construed in accordance with the laws of the State of Kentucky. 33. HEADINGS AND PARAGRAPH NUMBERS. Headings and paragraph numbers have been inserted herein solely for convenience and reference and shall not be construed to affect the meanings, construction or effect of this Agreement. 34. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the parties hereto, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 35. SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, the Agreement shall continue in full force and effect without the said provision, provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party. 36. ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties hereto, and supersedes any language, term, condition, or other provision of any prior written materials, including any request for proposal, and any oral communications between the parties. IN WITNESS WHEREOF, Customer and Zhagrus have each caused this Agreement to be executed by its duly authorized representative(s) on the day and year set forth below. ZHAGRUS ENVIRONMENTAL, INC. KENTUCKY ELECTRIC STEEL, INC. By: S\Larry Shelton By: S\William H. Gerak William H. Gerak Title: Chief Operating Officer Title: Vice President of Administration Date signed 7/29/97 Date signed 7/29/97 (ZHAGRUS) (CUSTOMER) GUARANTY WHEREAS, Zhagrus is an affiliate of and under common control of Envirocare; and WHEREAS, Envirocare is willing to guarantee, as set forth below, the performance of Zhagrus under this Agreement; and WHEREAS, Customer would not enter into the Agreement unless Envirocare provides this Guaranty; NOW, THEREFORE, as an inducement to Customer to enter into the Agreement, Envirocare agrees as follows: 1. Envirocare hereby guarantees performance of all the obligations of Zhagrus under the Agreement in accordance with the terms and conditions therein. In the event of breach of any such obligations of Zhagrus or default in the performance, Envirocare shall undertake performance of the obligations of Zhagrus to Customer at such time and in such manner as specified in the Agreement. 2. Envirocare further agrees that Envirocare waives notice of Zhagrus providing services to Customer and of the amounts and terms thereof, and of all defaults or disputes between Customer and Zhagrus, and of the settlement or adjustment of such defaults or disputes. Envirocare, without affecting Envirocare s liability hereunder, in any respect, consents to and waives notice of all changes in terms, or modifications to the Agreement, extensions of time for performance, the release or change of the whole or any part of the Agreement, any settlement or comprise of differences between the Customer and Zhagrus, or the notice of non- performance under the Agreement. 3. Envirocare also consents and waives notice of any arrangements for settlements made in or out of court in the event of bankruptcy or any other action for the benefit of creditors of Zhagrus. 4. Envirocare further agrees that the obligations of Envirocare hereunder are primary and unconditional obligations and cover all existing and future performance or obligations of Zhagrus (and any permitted successors and assigns) under the Agreement, including, but not limited to, the payment of damages to Customer. This obligation shall be enforceable before or after proceeding against Zhagrus and shall be effective regardless of the solvency or insolvency of Zhagrus. 5. Envirocare further agrees that all liabilities of Zhagrus to Customer under the Agreement shall immediately become the liability of Envirocare should Zhagrus become insolvent or have a receiver, custodian or trustee appointed for same or in the event of filing by Zhagrus of a voluntary or involuntary petition for relief under the bankruptcy laws. 6. This Guaranty shall, for all purposes, be deemed to be made in and shall be governed by the laws of the Commonwealth of Kentucky and shall be deemed to have been made and entered into and to be performed in Boyd County, Kentucky. 7. In addition to Envirocare s obligations hereunder, Envirocare agrees to indemnify and hold harmless Customer and any of its employees, workmen, servants or agents of and from the loss, cost, damage or expense arising from the handling, treatment, storage and disposal of the Waste Material by Envirocare. All covenants of indemnity shall survive termination or expiration of the Agreement and this Guaranty. 8. All written communications provided for hereunder shall be sent by U.S. mail or by facsimile with confirmation by first class mail to: GUARANTOR: Envirocare of Utah, Inc. 46 West Broadway, Suite 240 Salt Lake City, Utah 84101 Telephone # (801) 532-1330 Telefax # (801) 537-7345 ATTENTION: Charles Judd CUSTOMER: Kentucky Electric Steel, Inc. P. O. Box 3500 Ashland, Kentucky, 41105-3500 ATTENTION: Mr. Travis Bailey Telephone # (606) 929-1330 Telefax # (606) 929-1324 with copy to: Mr. William H. Jones, Jr. P.O. Box 1111 Ashland, Kentucky 41105-1111 Telephone # (606) 329-2929 Telefax # (606) 329-0490 or to such other address as shall be designated by such party in written notice to the other party. 9. This Guaranty represents the complete agreement between the parties and incorporates any prior negotiations or agreements between Customer and Zhagrus and between Customer and Envirocare in regard to this Guaranty. 10. This Guaranty may not be assigned except with the written consent of Customer and Envirocare. This Guaranty shall be binding upon Envirocare s legal representatives and assigns, and shall inure to Customer s benefit and to the benefit of Customer s successors and agreed assigns. 11. This Guaranty shall not expire or otherwise terminate until January 1, 2010. IN WITNESS WHEREOF, Envirocare has executed this Guaranty this 29 day of July , 1997. ENVIROCARE OF UTAH, INC. By: S\Charles A. Judd Title: President Date signed 7/29/97 (ENVIROCARE) Schedule "A" CUSTOMER: KENTUCKY ELECTRIC STEEL, INC. _________________________ DESCRIPTION OF THE WASTE MATERIAL The Waste Material to be delivered for treatment and disposal is the Waste Material resulting from the smelting of a radioactive source by Customer in April of 1997 and is described in the Radiological Evaluation Form(s) (EC-0650), the Waste Profile Record Form(s) (EC-0175), and the Physical Properties Evaluation Form(s) (EC-0500) captioned Treatment and Disposal and attached hereto and by reference made a part hereof. Estimated Physical Characteristics and Volumes: ****** cubic feet of Emission Control Dust - K061 ***** cubic feet of Baghouse Filter Bags *** cubic feet of Miscellaneous including Bag Filter Caps, Bag Filter Hardware (bolts, pins, springs), Tyveks, Gloves, Duct Tape, Masslin Towels, Plastic Sheeting, Wood, Plastic Pipe, Respirator Filters, Paper Dust Masks Container Description Capacity Percent Full Estimated Volume Railcar #251586 4750 ft3 ** **** ft3 Railcar #242134 4750 ft3 ** **** ft3 Railcar #259564 4750 ft3 ** ****ft3 Railcar #253912 4750 ft3 ** **** ft3 Rolloff #4465 675 ft3 ** *** ft3 Rolloff #4340 675 ft3 ** *** ft3 Rolloff #1804 675 ft3 ** *** ft3 Trailer #88-590 2576 ft3 ** **** ft3 Trailer #9349 2576 ft3 ** **** ft3 Trailer #CHV 3105-49 2576 ft3 ** **** ft3 Schedule "A" WASTE PROFILE AND RANGE DESCRIPTION 1. Waste Stream Name: Dust, Debris, and DAW 2. Volume of Waste Material: ************* ft3 3. Type of Waste: Mixed Waste 4. Description: a. Color: Metallic Oxides/Various b. Odor: Earthy/Musty c. State: Solid, Powder/dust 5. Physical Data: a. Gradation of Material: 12" 50-68% 4" 30-50% 1" 20-50% 1/4" 20% 1/40" 20% 1/200" 20% 6. Density Range: 30-90 lbs./ft3 7. General Characteristics: 66% soil like 34% DAW and debris 8. Moisture Content: Optimum: N/A Average: 0-5% Range: 0-10% 9. Radiological Isotope: Cs-137 a. Range: ND-2000 pCi/gr b. Average 1999 pCi/gr 10. Analytical Ranges for Toxicity: a. Arsenic: ND-50 mg/l b. Barium: ND-500 mg/l c. Cadmium: ND-100 mg/l d. Chromium ND-50 mg/l e. Copper: ND-500 mg/l f. Lead ND-1000 mg/l g. Mercury ND-50 mg/l h. Selenium ND-300 mg/l i. Silver ND-500 mg/l j. Zinc ND-10000 mg/l 11. Analytical Ranges for Parameters: a. pH: 3-12 b. Paint Filter Liquids Test: Pass c. Cyanide/Sulfide: None Detected d. Ignitability: >200 F 12. Chemical Composition: a. EAF Dust: 50-100 %mg/kg b. EAF Filter 30-50 %mg/kg Schedule "B" CUSTOMER: KENTUCKY ELECTRIC STEEL, INC. SCOPE OF THE WORK FOR THE PACKAGING, TRANSPORTATION, TREATMENT, AND DISPOSAL OF MIXED RADIOACTIVE WASTE FROM THE KENTUCKY ELECTRIC STEEL COMPANY'S ASHLAND, KY FACILITY -------------- Zhagrus will provide all necessary labor, equipment, services, materials, and other support which is required to characterize, profile, package, load, document, manifest, and transport the Waste Material from the Site and to treat, store and dispose of Customer s Waste Material at the Envirocare of Utah disposal facility in Clive, Utah. TASK 1 - Preparation for Operations A. Repackaging operations will be conducted in a controlled area to prevent release of Waste Material to the environment. B. All on-site activities will be conducted under a radioactive material license issued to Zhagrus or its subcontractors. Zhagrus will coordinate with the State of Kentucky to ensure regulatory approval of this activity. C. Zhagrus will develop and submit to Customer for its review all required plans and procedures necessary to ensure that all operations are conducted in accordance with applicable regulations (any review by Customer shall not relieve Zhagrus of its obligations to fulfill all its obligations under this Agreement). At a minimum, these plans will include: Site-Specific Health and Safety Plan Project Management Plan Detailed Operating Procedures Waste Characterization and Sampling Plan D. Completion Date: August 1, 1997. TASK 2 - Waste Material Characterization A. Based on its sampling plan, Zhagrus will collect the necessary waste samples of the Waste Material. Composites of these samples will be analyzed by a Utah certified laboratory to support Envirocare's Waste Characterization requirements. In addition, 5 each 2-pound composite samples will be collected and sent to Envirocare of Utah for analysis. Zhagrus will complete and submit a Pre-Shipment Sample Profile Form (EC-2000) to Customer, as waste generator, for approval. B. Zhagrus will also collect and send a mixed waste treatment sample consisting of at least 20 liters (5 gallons) to Envirocare to conduct a waste treatment study. Zhagrus will complete and submit a Pre-Shipment Sample Profile Form (EC-2000) and Treatability Study Sample Certification (EC-1700) to Customer, as waste generator, for approval. C. Zhagrus will complete and submit to Customer for review and signature a waste profile package. This package will consist of Radioactive Waste Profile Record (EC-0230), copies of all laboratory analysis, and a copy of laboratory's Utah certification. D. Any approval by Customer as waste generator shall not relieve Zhagrus of its obligation and Zhagrus agrees that Customer may rely on Zhagrus characterization of the Waste Material. This reliance shall not be by way of substitution of Customer s knowledge of the Waste Material obtained independent of the Zhagrus characterization of the Waste Material. E. Completion Date: August 4, 1997. TASK 3 - Package Waste Material for Shipment A. Waste Material which has been previously packaged in metal trailers will be moved to Sea-land containers prior to transport to the Facility. B. Bulk Waste Material currently in rolloff containers will be moved onto rail flatbeds. C. All Waste Material will be transported by rail to the Facility and all packaging operations will be conducted in such a way as to protect the health and safety of both the workers and general public and to prevent the release of hazardous materials into the environment. D. Completion Date: August 7, 1997. TASK 4 - Transportation of Waste Material A. Zhagrus will arrange for transportation of this mixed Waste Material from the Site to the Facility. Details on the transport of this material will be provided in the Project Management Plan. B. All transport vehicle loading will comply with Department of Transportation regulations to include meeting the blocking and bracing requirements outlined in either the Federal Motor Carrier Safety Regulations or the Federal Railroad Regulations. C. Zhagrus will be responsible for preparing and submitting completed transportation documentation to Customer for its review and signature. These transportation documents will include all documents required by federal or state regulations and all documents required by Envirocare to dispose of this Waste Material at the Facility. (Any review and execution of the documentation shall not relieve Zhagrus of its obligations to fulfill all its obligations under this Agreement). D. Completion Date: August 12, 1997. TASK 5 - Evaluation, Cleanup, and Release of Storage and Work Areas A. After packaging and loading operations, Zhagrus will survey, evaluate, clean up, secure free release for, and certify that the areas and containers, including trailer vans, used for the storage, packaging, and loading of this Waste Material are free of detectable contamination as required by the Regulations. At no additional cost to Customer, waste generated as a result of these cleanup activities will be packaged and transported by Zhagrus to Envirocare's disposal facility. B. Completion Date: September 1, 1997. TASK 6 - Treatment and Disposal of Waste A. Zhagrus will provide for the treatment of this Waste Material by Envirocare to meet applicable land disposal restrictions and all Regulations. B. After treatment, the treated Waste Material will be stored until disposal by Envirocare at the Facility. C. All rail cars, rolloffs, and Containers will be decontaminated and certified for free release as being free of detectable contamination as required by the Regulations. D. Completion Date: September 1, 1998. Schedule "C" CUSTOMER: KENTUCKY ELECTRIC STEEL, INC. PRICE SCHEDULE __________ The following charges will apply for The Work described in Schedule "B" which meets each of the requirements of this Agreement: A ***** price of Two Million Four Hundred Thousand Dollars ($*********) which shall be paid pursuant to the provisions of paragraph 19 of this Agreement and in accordance with the schedule of Work in Schedule B and as follows: Upon Completion of: Task 1: $********** Task 2: $********** Task 3: $********** Task 4: $********** Task 5: $********** Task 6: $********** Schedule "D" CUSTOMER: KENTUCKY ELECTRIC STEEL, INC. ______________________ WASTE TREATMENT EVALUATION REVIEW SERVICES The following is a description of the waste treatment evaluation services to be performed by Zhagrus. Zhagrus shall evaluate, or cause Envirocare to evaluate, the Waste Material identified in Schedule "A" to determine whether it meets the criteria for acceptance and waste management at The Facility, as set forth in Envirocare's License and the Regulations, and the components and acceptable parameters set forth in Schedule A. The evaluation will include a review of the Radioactive Waste Profile Record Forms EC-0230 and Pre-Shipment Sample Profile Record Form EC-2000. Zhagrus will deliver or cause Envirocare to deliver to Customer a written report on or before January 1, 1998, of the results of the evaluation and which report shall state whether the evaluated samples of the Waste Material reveal any Nonconforming Material (as defined in paragraph 5). -----END PRIVACY-ENHANCED MESSAGE-----