INFORMATION ABOUT IZAR GROUP

The Decision taken by the European authorities on May 12th, 2004 and which declared as incompatible with the market some of the aids received by Izar and which required their return, forced the Government to organize the creation of a Work Team for analyzing the situation and offering potential ways for solving it. Izars' serious financial position, as a result of not meeting the goals set-up in the industrial plan, and the subsequent Decision by the European Commission lead inevitably the Company to bankruptcy.

After a long negotiation it was reached an Agreement, whose signing on December 16th, 2004 among the trade unions, the Company and SEPI, opened the way for maintaining the maximum possible activity and production levels within the restrictions which imposes the Community Law.

The signing parties agreed to keep the military and the civil activities. With this aim, first of all, it was agreed that all the military activity will be integrated into a new company (Navantia) which also will be able to carry out a complementary civil activity, according to market terms and conditions, allowing to maintain the technological and production capacity required for the military activity and covering periods with a low activity level in this market. This civil activity is limited to 20% of the total activity during a 10 year period, for fulfilling the requirements set by the European Commission.

The factories at Sestao, Gijón, Mainses and Seville, which are destined to civil shipbuilding, will continue to be integrated into Izar, and SEPI will guarantee the workers' rights and the completion of the contracts in progress. Once Izar entered into liquidation, and as states the Agreement reached with the trade unions, SEPI began the process for selling these facilities with the goal of making room for private capital, and so that the centers are able to maintain their civil shipbuilding activity.

Early retirement for 4,028 workers

In keeping with the Labor Plan prepared by the Company and by the representatives of the trade unions UGT, CCOO and USGT, as part of the Industrial Plan developed for recovering the Company's competitiveness and solving the serious financial position through which currently is going, a number of labor adjustment measures are envisaged and which will take place through a labor force adjustment plan (ERE), which includes the early retirement of a total of 4,028 employees, those who are at least 52 years old on December 31st, 2004 and with a seniority in the Company of at least 5 years on that date, and voluntary severances.

Framework Agreement on Izar

Main points of the agreement subscribed, on December 16th, 2004, by Sepi, Izar and the metallurgical federations of CC.OO., UGT and USTG:

Sale of Izar´s assets

The Board of Directors of the state-owned holding company SEPI resolved, in its meeting which took place on 18th july of 2006, to authorize to the Izar´s Liquidation Commission to award, that very morning, Sestao´s assets to Construcciones Navales del Norte, S.L.; those corresponding to Gijón to Factorías Vulcano, S.A.; and those of Seville to the Consortium headed by Astilleros de Huelva. In all the cases mentioned above, the assets have been awarded to the Buyers whose bids have received the best valuation on the part of the independent advisor in the sale process, of the 8 bidding offers valid which were submitted on February 10th, 2006.

The European Commission has kept watch at all times of the sale process, and it has requested further clarifications about the bid submitted for the Manises factory, in order to examine its compatibility, which has resulted in the postponement of the award of this facility. About all the above, and before taking these decisions, the Commission for the Follow-Up of Izar´s Framework Agreement was informed, which before the decission was adopted.

The above sale of Izar´s assets meets the goal of the Framework Agreement subscribed on December 16th, 2004 among SEPI, the Company and the trade unions, for maintaining the activity and guaranteeing the continuity, present and future, of those production facilities. The sale is the result of the impossibility for IZAR for returning the 1,200 million Euros which it received as state aid, granted by the previous Government and which were declared as incompatible with the Community law, and which provoked Izar´s entry into liquidation on April 2005.

Activity of the company year 2009:

Within the scope of its liquidation process and regarding the work in process which was pending when the sale of the assets took place, work continued on the lock gate for the Port of Seville, until its conclusion in March 2009, starting then the warranty period envisaged in the contract. Also the warranties for the projects delivered before for which IZAR is responsible were managed; the most important was the Sestao's gas carrier, whose warranty has been closed during this year, which has made possible the recovery of 4.2 million euros in provisions.

Although the sale of the machinery of the Manises Factory to the company STX Corporación took place in February 2008, the transfer to SEPI of the ownership of the land and the buildings took place in June 2009, and IZAR was responsible of managing and maintaining the facility until March 2009, in order to complete the withdrawal of the machinery and tools.

The losses recorded by IZAR during the year amounted to 64.2 Million Euros, which means a 29% increase on those for 2008, and mostly are due to the acknowledgement of the warranties of the divested facility in Gijón and to the financial update of the provisions for commitments with the pensioners, especially the special redundancy procedures which were not externalized.