-----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, QGzx8CsAxD5gnhfDvDe0Nd7o5jlEaxBG6etU46+rm4HKquY2dkigMc9n1wLBOmcR UF0CuuOpwlMbduGDJJ5wmg== 0000950132-97-000749.txt : 19971030 0000950132-97-000749.hdr.sgml : 19971030 ACCESSION NUMBER: 0000950132-97-000749 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19971029 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARBIDE GRAPHITE GROUP INC /DE/ CENTRAL INDEX KEY: 0000888918 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 251575609 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-20490 FILM NUMBER: 97702949 BUSINESS ADDRESS: STREET 1: ONE GATEWAY CTR STREET 2: 19TH FL CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4125623700 MAIL ADDRESS: STREET 1: ONE GATEWAY CTR STREET 2: 19TH FL CITY: PITTSBURGH STATE: PA ZIP: 15222 10-K405 1 FORM 10-K =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-20490 THE CARBIDE/GRAPHITE GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 25-1575609 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Code) One Gateway Center, 19th Floor Pittsburgh, PA 15222 (Address of principal executive offices) Registrant's telephone number, including area code: (412) 562-3700 ------------------ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share ------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ] The aggregate market value of voting stock held by non-affiliates of the Registrant as of the close of business on September 26, 1997 was $164,178,724. As of the close of business on September 26, 1997 there were 8,632,272 shares of the Registrant's $0.01 par value Common Stock outstanding. Documents incorporated by reference: Information required under Part I (Item 1) and Part II (Items 5, 6, 7 and 8) is, in part, incorporated by reference from the Registrant's Annual Report to Stockholders for fiscal 1997, which is filed as an exhibit hereto. The information required under Part III is incorporated by reference to the Registrant's Proxy Statement and Notice of the Annual Meeting of Stockholders for 1997, which is to be filed within 120 days after July 31, 1997. =============================================================================== PART I Item 1 Business - ------------------ Overview The Carbide/Graphite Group, Inc. (the Company or Registrant) is a major U.S. manufacturer of graphite electrode products and calcium carbide products. Graphite electrodes are used as conductors of electricity, and are consumed, in the electric arc furnace steel-making process common to all mini-mill steel producers. Calcium carbide and derivative products, primarily acetylene, are used in the manufacture of specialty chemicals, as a fuel in metal cutting and welding and for metallurgical applications such as iron and steel desulfurization. The Company is the only manufacturer of graphite electrodes that produces its own requirements of needle coke, the principal raw material used in the manufacture of graphite electrodes, and the Company sells needle coke to other manufacturers of graphite products. Net sales for the Company's graphite electrode products segment and calcium carbide products segment represented 72.5% and 27.5%, respectively, of consolidated net sales for fiscal 1997. Refer to Note 12 of the Company's Annual Report to Stockholders for fiscal 1997 (incorporated by reference under Item 8 of this Form 10-K) for information regarding sales (including export sales), operating income and identifiable assets by business segment. On September 26, 1997, the Company completed a tender offer for essentially all ($79.9 million) of its 11.5% Senior Notes due 2003 (the Senior Notes) (the Tender). The tender price paid to holders of the Senior Notes was $1,086.20 for each $1,000 in Senior Note principal. Also, most holders received an additional $15.00 per $1,000 in Senior Note principal in exchange for their consent to eliminate substantially all of the restrictive covenants and certain default provisions in the Senior Note Indenture other than the covenants to pay interest on and principal of the Senior Notes and the default provisions related to such covenants. Consents were received by holders of more than a majority of the outstanding Senior Notes, resulting in the elimination of such restrictive covenants and default provisions. After the Tender, $0.1 million in Senior Notes were outstanding. In connection with the Tender, the Company entered into an agreement with PNC Bank for a five year, $125 million revolving credit facility, with a $15 million sub-limit for standby letters of credit (the 1997 Revolving Credit Facility). The 1997 Revolving Credit Facility replaces a $25 million revolving credit facility with PNC Bank entered into on December 1, 1995 (the 1995 Revolving Credit Facility). Interest under the 1997 Revolving Credit Facility is based on, at the option of the Company, either PNC Bank's prime rate or a floating LIBOR rate plus a spread (currently 0.625%) based on a leverage calculation. Repayment of funds borrowed under the new credit agreement are not required until the expiration of the facility on September 25, 2002. The new facility can be extended under certain conditions. The most restrictive covenants under the 1997 Revolving Credit Facility include an Interest Coverage Ratio of 3.5 to 1.0, a Consolidated Total Indebtedness to EBITDA Ratio of 3.0 to 1.0 and a Minimum Consolidated Tangible Net Worth, all as defined in the 1997 Revolving Credit Facility agreement. The 1997 Revolving Credit Facility is and the 1995 Revolving Credit Facility was secured with receivables and inventory. As a result of the Tender and revolving credit facility refinancing, the Company will record a pre-tax charge of approximately $10 million as an extraordinary loss on the early retirement of debt in the quarter ending October 31, 1997. This extraordinary charge represents the premium paid to Senior Note holders in connection with the Tender and the write off of unamortized deferred financing fees associated with the Senior Notes tendered and the 1995 Revolving Credit Facility. Graphite Electrode Products Business Products and Markets The Company's graphite electrode products business segment includes graphite electrodes, needle coke, -1- bulk graphite, granular graphite (primarily from machine turnings) and processing services. The following table presents the Company's net sales and percentage of segment sales within its graphite electrode products segment for fiscal 1997, by principal product category:
Fiscal 1997 --------------------------- Product Category Net Sales % of Net Sales - --------------------------------------------- --------------------------- (dollars in thousands) Graphite electrodes.......................... $147,206 70.1% Needle coke (third party sales).............. 28,615 13.6 Bulk graphite................................ 19,712 9.4 Granular graphite............................ 10,223 4.9 Other........................................ 4,289 2.0 -------------- ---------- Total graphite electrode products net sales $210,045 100.0% -------------- ----------
The Company's needle coke production capacity at its affiliate, Seadrift Coke, L.P. is currently approximately 130,000 tons per year, an increase of approximately 20% over fiscal 1996 as a result of capital improvements made in the first quarter of fiscal 1997. While the Company uses the majority of its needle coke production in its own electrode manufacturing operations, it sells additional quantities of needle coke to other graphite electrode producers. During fiscal 1997, the Company sold approximately 45% of its needle coke production to seven other graphite electrode producers. A $22 million needle coke production capacity expansion announced in fiscal 1997 and projected for completion during the third quarter of fiscal 1998 should substantially increase the amount of needle coke produced by the Company. Company estimates indicate that needle coke production capacity should increase from 130,000 tons currently to approximately 170,000 tons once the expansion project is completed, an increase of approximately 30%. In connection with the fiscal 1995 sale of the Company's graphite specialty products business (the Specialty Products Sale) to SGL Carbon Corporation (SGL Corp.), the Company agreed to continue to produce graphite rods and plates (also known as bulk graphite), the majority of which are sold to SGL Corp. at prices approximating the Company's manufacturing cost under a supply agreement which expires in January 1998 (the SGL Supply Agreement). Sales to SGL Corp. under this contract in fiscal 1997 were $16.7 million. The Company also sells these bulk graphite rods and plates, and certain other graphite products, to other graphite specialty customers. As the SGL Supply Agreement expires in January 1998, the Company is currently pursuing a strategy to increase its customer base for bulk graphite. While the Company believes that it will sell bulk graphite to both SGL Corp. and other bulk graphite customers once the SGL Supply Agreement expires, there can be no assurance that the Company will be able to sell quantities of bulk graphite equal to those sold while the SGL Supply Agreement was in effect. All bulk graphite sold once the SGL Supply Agreement expires will be sold at a mark-up over the Company's manufacturing cost. Granular graphite is primarily turnings from the machining of graphite electrodes and is used in a variety of industrial applications, including brake shoe materials and carbon additives for steel chemistry. In addition, the Company provides processing services, which include graphitizing baked rods. Domestic sales of graphite electrode products are made primarily by the Company's direct sales force, consisting of seven salesmen for graphite electrodes and one salesman for other graphite products. This sales force is supported by five technical service personnel. International sales of electrodes are made through long-standing relationships with over twenty independent agents. Exports of graphite electrodes account for approximately 50% of the Company's annual shipments of graphite electrodes and subject the Company to risks associated with fluctuations in foreign currency exchange rates. Most foreign currencies were weaker in relationship to the U.S. dollar during fiscal 1997 which negatively impacted foreign price realizations. The Company regularly enters into forward foreign currency contracts to help mitigate foreign currency exchange rate exposure. In addition, the Company is attempting to shift sales to markets in which transactions are completed in U.S. dollars and to markets with foreign currencies that are not as weak. There can be no assurance that the -2- Company's attempts to mitigate its exposure to foreign currency valuations will fully offset the negative effects of the strengthened U.S. dollar. The steel industry, which constitutes the principal market for the Company's graphite electrodes and a major market for its calcium carbide for metallurgical applications, is highly cyclical. As a result, the Company's steel industry-related products will face periods of reduced demand, which, because of the generally high fixed costs of the Company's business, could result in substantial downward pressure on profitability. Demand for and sales of graphite electrodes and needle coke fluctuate from quarter to quarter due to such factors as scheduled plant shutdowns by customers, vacations, changes in customer production schedules in response to seasonal changes in energy costs, weather conditions, strikes and work stoppages at customer plants and changes in customer order patterns in response to the announcement of price increases. Manufacturing and Modernization The Company's electrodes are manufactured at its facilities in Niagara Falls, New York and St. Marys, Pennsylvania. Both plants are equipped with facilities for milling, mixing, homogenizing and extruding; baking and rebaking; pitch impregnating; graphitizing; and machine finishing. The Company currently has the capacity to manufacture approximately 110 million pounds of electrodes annually. The Company manufactures all of its needle coke (the primary raw material for graphite electrodes) at its affiliate, Seadrift Coke, L.P., in Seadrift, Texas. The Company currently has the capacity to manufacture approximately 130,000 tons of needle coke annually, 55% of which is used internally for the production of graphite electrodes. Needle coke is shipped from Seadrift largely by rail (and to a lesser extent by barge) to the Company's St. Marys facilities. The Company has initiated a program to modernize certain components of its electrode manufacturing process (the Modernization Program). The primary objectives of the Modernization Program, expected to cost approximately $34 million, are the automation of labor intensive processes and the replacement of older equipment with new, state-of-the-art technology in order to reduce costs while improving electrode quality and consistency. A major aspect of the Modernization Program will focus on the electrode forming processes, including the addition of equipment to automate the Company's sizing and weighing systems, and to enhance production capabilities by adding new needle coke preheaters, needle coke and pitch mixers as well as mix cooling/homogenization equipment. These improvements, which management expects to cost approximately $26 million, are designed to reduce total labor requirements and minimize variations in the critical initial forming of the electrodes, resulting in better and more consistent electrode quality. In addition, the Company will be adding three new computer-controlled machine tools used for electrode finishing in its Niagara Falls facility. With a cost of approximately $8 million, the machine tool system is expected to meet the highest electrode machining standard. The majority of the cost for the machine tool system is being financed under a long- term operating lease. During fiscal 1997, a major portion of the construction and equipment installation associated with the Modernization Program projects took place. Both projects are expected to be commissioned in mid-fiscal 1998. While the Company does not believe that significant start-up costs will be incurred with respect to the Modernization Program projects, there can be no assurance that significant start-up costs will not be incurred in connection with such projects. In fiscal 1997, the Company also announced that it will spend approximately $28 million to build a longitudinal graphitizing facility. This new facility, which will replace older, less cost effective Acheson graphitizing facilities, should increase productivity, as well as allow for the production of larger, higher quality electrodes. This project is expected to be completed by late 1999 and will be financed with current cash reserves, internally generated cash flows and available credit facilities. -3- Calcium Carbide Products Business Products and Markets The Company's primary products in this segment are pipeline acetylene, calcium carbide for metallurgical applications such as iron and steel desulfurization and calcium carbide for fuel gas applications. The following table presents the Company's net sales and percentage of segment sales within its calcium carbide products business for fiscal 1997, by principal product category:
Fiscal 1997 --------------------------- Product Category Net Sales % of Net Sales - --------------------------------------------- --------------------------- (dollars in thousands) Pipeline acetylene........................... $27,577 34.7% Metallurgical applications................... 24,652 31.0 Calcium carbide for fuel gas applications.... 21,187 26.6 Other........................................ 6,125 7.7 --------- -------- Total calcium carbide product net sales.... $79,541 100.0% --------- --------
The Company produces acetylene at its Louisville and Calvert City, Kentucky plants for pipeline delivery to three customers, International Specialty Products (ISP), Air Products and Chemicals, Inc. (Air Products) and E.I. duPont de Nemours & Company (DuPont), for use in the manufacture of specialty chemicals. Each of these customers, which together represented 34.7% of the Company's total calcium carbide product net sales in fiscal 1997, has been supplied by the Company for over thirty years. Although relationships with these pipeline customers are longstanding, there can be no assurance that any of these customers will continue to operate its adjacent facility or require the Company's acetylene product. The Company sells calcium carbide for metallurgical applications, such as blast furnace hot metal desulfurization, foundry iron desulfurization and electric furnace slag conditioning and deoxidation. Most calcium carbide desulfurization products are finely ground to talcum powder size and, together with several additives, are injected into baths of molten iron to reduce the sulfur content of the material. Sales of calcium carbide for metallurgical applications represented 31.0% of total calcium carbide products net sales for fiscal 1997. The Company continues to face increased competition from other calcium carbide suppliers and substitute desulfurization agents in this product line. The Company sells calcium carbide to a major distributor, ESM Metallurgical Products, which in turn supplies carbide mixtures and a variety of ancillary services to steel mills for metallurgical applications. Calcium carbide is sold to industrial gas generators as a raw material for the production of cylinder acetylene, a fuel gas which is primarily used in the metal fabrication and construction industries. The acetylene distribution market is comprised of several large, national distributors of industrial gases with numerous generating locations, and a large number of small companies that generate acetylene for distribution within their regional markets. The Company sells to both types of customers. The Company markets calcium carbide products through a sales force of three and through distributors, with technical service support from a staff of two, to industrial gas distributors, pipeline acetylene customers and steel mill and foundry customers. Sales to customers other than pipeline customers are generally made through purchase orders. Manufacturing The Company manufactures its calcium carbide products at plants in Louisville and Calvert City, Kentucky with a combined production capacity of approximately 200,000 tons. Both plants operate submerged arc electric furnaces for the production of calcium carbide, as well as crushing, screening and packing equipment; -4- acetylene generators; and ball mill blending facilities. The Louisville plant supplies pipeline acetylene to DuPont; the Calvert City plant supplies pipeline acetylene to ISP and Air Products. Competition Graphite Electrode Products The Company's competition in graphite electrodes includes two major producers, UCAR International Inc. (UCAR) and SGL Carbon AG (SGL), as well as a group of smaller, foreign producers, including Showa Denko KK (of Japan), Tokai Carbon Co., Ltd. (of Japan), Nippon Carbon Co. Ltd. (of Japan) and VAW Aluminum AG (of Germany). Participants in the graphite electrode industry compete on the basis of service and product quality, reliability, efficiency and price. UCAR and SGL are market and price leaders, each have world-wide market shares ranging between 25% and 35%, and each have greater financial resources than the Company. Both maintain operations in various international markets. The Company is one of a small group of graphite electrode producers each having a world-wide market share of 5% to 7%. While the Company markets its graphite electrodes world-wide, it has no production facility outside of the United States and, accordingly, has significant transportation and duty cost disadvantages relative to its competitors located in foreign markets. From time to time, graphite electrode manufacturers, including the Company, experience temporary declines in the quality of their graphite electrodes, frequently resulting in customer credits and reimbursements. The Company continually evaluates and implements procedures to improve electrode quality and believes that its electrode performance meets the quality requirements of its customers. Moreover, the Modernization Program is intended to enhance further the Company's ability to consistently manufacture electrodes of acceptable quality. There can be no assurance, however, that temporary declines in electrode quality will not recur. Outside of Japan, there are currently only three needle coke producers: Conoco, Inc. (Conoco), UNO-VEN Company (Uno-Ven) and the Company's affiliate, Seadrift Coke, L.P. Conoco is the largest needle coke producer, with annual capacity currently estimated by the Company to be 400,000-450,000 tons. Uno-Ven has a production capacity of approximately 100,000 tons per year and the Company's production capacity is currently approximately 130,000 tons per year. In Japan, there are four small producers, one of which is a Conoco affiliate, and two of which make a different type of coke from coal tar pitch. The Company believes the three Japanese producers (other than the Conoco affiliate) produce an aggregate of approximately 200,000 tons per year. Participants in the needle coke industry compete primarily on price and quality. The Company has numerous competitors in the sale of granular graphite, including other electrode manufacturers and a variety of graphite scrap dealers. Fine grain graphite blocks and rods, bulk graphite, are produced by a number of companies throughout the world, including UCAR and SGL. These materials are marketed on a world-wide basis by the Company. Calcium Carbide Products The Company's primary competitors in the manufacture and marketing of calcium carbide in the United States and Canada are Elkem and Airgas, Inc., both of which market calcium carbide through a joint venture, Elkem-American Carbide Company. Participants in the calcium carbide market compete on the basis of service and product quality, reliability, efficiency and price. The Company sells all of its acetylene to the adjacent specialty chemical and products plants of its pipeline customers. These plants are not supplied with acetylene by any source other than the Company. See "--Calcium Carbide Products Business--Products and Markets." -5- For many years, other, less expensive materials have competed with cylinder acetylene for use in the metal fabrication and construction industries. Acetylene has maintained its market position, however, by virtue of its ease of transport and use and because it burns hotter and cuts cleaner. Calcium carbide- based desulfurization products compete with magnesium-based desulfurization products and, with respect to ductile iron foundries, lime spar. The commodity price of magnesium and the resultant price of magnesium-based desulfurizers affects the demand for calcium carbide-based desulfurization products. Raw Materials and Costs Graphite Electrode Products The significant raw material costs of production for all graphite electrode manufacturers are needle coke, coal tar pitch, natural gas for the heating of kilns and electricity for graphitizing. The Company's graphite electrode business purchases its needle coke requirements from Seadrift Coke, L.P., an affiliate of the Company. The Company uses low sulfur decant oil, a by-product of fluid catalytic cracking units in integrated oil refineries, in the manufacture of needle coke. Most of this feedstock is purchased from refineries along the U.S. Gulf Coast. A limited number of refineries on the U.S. Gulf Coast produce decant oil suitable for use by the Company. At times, due to restraints on local availability, the Company has purchased decant oil on the West Coast at a higher cost (due primarily to transportation costs) than if obtained from a local refinery. Conoco and Uno-Ven, the Company's two largest needle coke competitors, operate large, integrated refineries that have the ability to desulfurize decant oil. The cost of refinery decant oil is pegged to the U.S. Gulf Coast spot cargo barge prices for heavy fuel oil. Fuel oil prices generally move with world-wide crude oil prices and, to some extent, with winter weather conditions in the United States. The Company periodically hedges its oil costs by trading in futures contracts for crude oil and/or heating oil and oil swap agreements for low sulfur fuel oil. The Company believes that decant oil of an acceptable quality is generally available to supply its current needs as well as its projected needs upon the completion of the capacity expansion project at Seadrift Coke, L.P. However, there can be no assurance that the Company will be able to obtain an adequate quantity of suitable feedstocks at all times in the future or at acceptable prices. Electricity for graphitizing operations represents a major cost factor due to the immense quantities of electricity needed to graphitize electrodes. At the Company's plant in Niagara Falls, electricity is supplied by the Power Authority of the State of New York at favorable, pre-determined prices under a contract that expires in 2006. The St. Marys plant is supplied electricity under a conventional power contract. Through an electricity co-generation process, the Seadrift facility is a net power producer, resulting in virtually no electrical power costs for that facility. Heating fuel for kilns is natural gas purchased by the Company from either interstate natural gas carriers or from local gas well operators. Calcium Carbide Products Raw materials required for calcium carbide manufacture are lime, metallurgical coke and lesser quantities of petroleum coke and large amounts of electricity for submerged arc electric furnaces. The Company believes that its raw materials are widely available at satisfactory prices, although the cost of metallurgical coke was up slightly during fiscal 1997. Both the Louisville and Calvert City plants are supplied electricity under conventional power contracts. -6- Employees At July 31, 1997, the Company employed 885 people in its graphite electrode products segment; 32% were salaried and 68% were paid hourly. At July 31, 1997, there were 308 people in the calcium carbide segment; 21% were salaried and 79% were paid hourly. Seadrift Coke, L.P. is staffed entirely with salaried personnel. The Company has various labor agreements with unions representing its hourly work force. Within the graphite electrode products business, the St. Marys labor agreement will expire in June 1999, and the Niagara Falls labor agreement will expire in January 1999. Within the calcium carbide products business, the Louisville and Calvert City agreements will expire in July 2001 and February 2001, respectively. The Company believes that its relationships with the unions are stable. However, there can be no assurance that new agreements will be reached when the current agreements expire without union action or will be on terms satisfactory to the Company. Patents and Trademarks The Company does not believe that any of its patents, patent applications or trademarks are material to its business or operations. Environmental Compliance In connection with the agreement under which the Company acquired its operating assets from The BOC Group, plc (BOC) (the Asset Acquisition), BOC, agreed to indemnify the Company, its successors and assigns, against certain liabilities, to the extent not disclosed and expressly excluded from the indemnity, arising from (i) pre-closing operations of its former divisions (regardless of whether such liabilities arose during or before BOC's ownership thereof); (ii) assets transferred to the Company pursuant to the Asset Acquisition; and (iii) pre-closing activities conducted at the real property and leased premises transferred to the Company pursuant to the Asset Acquisition. Such indemnification includes certain liabilities arising out of the use, generation, transportation, storage, treatment, release or disposal of hazardous materials; the violation of any environmental regulations; or any claim or cause of action to the effect that the Company is responsible or liable for acts or omissions of BOC concerning hazardous materials. Under the indemnity, the Company is required to pay 20% of the first $2.5 million of costs relating to such environmental claims or liabilities. Thereafter, BOC is responsible for all of such liabilities. The BOC indemnity survives for all covered claims brought within 15 years after closing of the Asset Acquisition, which occurred in July 1988. A number of identifiable costs at the time of the Asset Acquisition, such as the need for certain pollution control equipment, receipt of certain discharge permits and the need for continued operation and maintenance of a landfill used exclusively by the Company at its St. Marys facility, were disclosed by BOC and were excluded from the indemnification. The Company has installed much of the pollution control equipment and received the discharge permits excluded from the BOC indemnity. If any of the pollution control equipment excluded from the BOC indemnity is required in the future for reactivation of production equipment or increases in capacity, the costs related thereto are not believed by the Company to be material. In connection with the Specialty Products Sale, the Company agreed to indemnify SGL Corp. for 80% of all environment costs in excess of an aggregate $100,000 threshold up to a maximum exposure of $6.0 million. In addition, with respect to the Company's former subsidiary, Speer Canada, Inc., sold pursuant to the Specialty Products Sale, the Company agreed to indemnify SGL Corp. for 80% of all environment costs, in excess of a $100,000 threshold, relating to such former subsidiary's operations prior to the consummation of the Specialty Products Sale, up to a maximum exposure of $1.5 million. As of July 31, 1997, no environmental claims have been submitted for indemnification by SGL Corp. Since 1970, a wide variety of federal, state and local environmental laws, regulations and ordinances have been, and continue to be, adopted and amended. Some of these laws, regulations and ordinances hold current -7- owners or operators of land liable for their own and previous owners' or operators' releases of hazardous substances. Because of its operations and the operations of its predecessors, and the use, production or discharge of certain substances by their plants, the Company is affected by these laws and regulations. Various Company facilities have experienced some level of regulatory scrutiny in the past and continue to be subject to regulatory inspections and requests for investigation or response action in connection with releases or threatened releases of hazardous substances. Lime hydrate generated as a by-product of acetylene production at the Louisville facility has been stored in ponds at the site. One twenty acre pond was also used in the past for disposal of various materials such as bag house dust and plant debris. In 1993, the Company notified the Kentucky Department of Environmental Protection of this pond's historic uses and indicated that based on its investigation of the historical facts associated with the pond, the Company does not believe that any further remedial actions are required. At this point, the Company believes that the matter is closed with no further action required. The Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Safe Drinking Water Act, each as amended, and similar state or local counterparts of these federal laws, regulate air emissions, water discharges and wastes. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, among others, provides for responses to and liability for releases or threatened releases of hazardous substances into the environment. The Company's current operations require compliance with the above laws as well as the Toxic Substances Control Act and related laws designed to assess the risk to health and the environment at early developmental stages of new products. In addition, the Company is subject to laws adopted or proposed in various states that impose various reporting or remediation requirements if operations cease or the property is transferred or sold. While the Company believes it is in substantial compliance with these regulations, from time to time it receives from various government agencies notification or complaints or gives notice to such agencies of potential violations of the requirements, which the Company then works with the agency to resolve. No such notice is outstanding or anticipated which would be expected to have a material adverse effect on the Company's financial condition, future operating results or cash flows. The Clean Air Act was amended in 1990 (including Title V). While the Company believes that its facilities generally meet current regulatory standards applicable to air emissions, some of its facilities will be required to comply with new standards for hazardous emissions to be promulgated by the United States Environmental Protection Agency (USEPA) over the next several years. In addition, the Clean Air Act has resulted and will continue to result in revisions to state implementation plans which may necessitate the installation of additional controls for certain of the Company's emission sources. The Company's Title V applications for its five production facilities are in various stages of completion. The Company does not believe that its compliance with Title V will have a material adverse effect on its financial condition, future operating results or cash flows. Periodic upsets at the Niagara Falls facility resulting in particulate air emissions from baking and graphitization furnaces and odor complaints have led the Niagara County Health Department to recommend an aggressive program of preventive maintenance and evaluation of upgrade alternatives to reduce these incidents and the odor. The Company has made certain improvements and is evaluating further corrective actions which may, in future years, require expenditures for new production and air pollution control equipment. The Company does not believe that such expenditures will have a material adverse effect on its financial condition, future operating results or cash flows. The Company has submitted to the NYDEC a plan for compliance with restrictions on emissions of volatile organic compounds from its graphitization plant at Niagara Falls. The Company has received preliminary approval of its plan and expects formal approval during fiscal 1998. Management does not believe that expenditures under the proposed plan for compliance will materially affect the Company's financial condition, future operating results or cash flows. -8- The St. Marys facility used a permitted landfill for the disposal of residual waste. Based on the adoption of new residual waste regulations in Pennsylvania and the fact that the landfill was approaching the end of its useful life, the Company closed the landfill in July 1997 and contracted outside of the Company for disposal services. The Company's closure plan was approved by the Pennsylvania Department of Environmental Resources during fiscal 1995. Costs related to the landfill closure and a 15-year monitoring commitment are expected to be $0.8 million which have been recorded as of July 31, 1997. The timing of payments related to these activities, including payments for disposal services, is not expected to materially impact the Company's cash flow in the future. Refer to Item 3, "Legal Proceedings" for a discussion of environmental-related claims against the Company. During fiscal 1997, the Company spent approximately $1.9 million on capital expenditures in order to comply with environmental laws and regulations (which expenditures are included in the consolidated financial statements, including the notes thereto, appearing elsewhere in this Form 10-K as additions to property, plant, and equipment). During fiscal 1998, the Company expects to spend approximately $2.0 million for such projects. -9- Item 2 Properties - -------------------- The Company maintains its corporate headquarters at One Gateway Center, Pittsburgh, Pennsylvania under a lease with an initial term expiring on December 31, 1999. The Company has the following additional properties, which are owned or leased, as indicated:
Area (approximate Owned Location Use square feet) or Leased - --------------------------------------- --------------------- ------------- ---------- Graphite Electrode Products Facilities: Niagara Falls, New York............. Electrodes 1,000,000 Owned St. Marys, Pennsylvania............. Electrodes 742,000 Owned Seadrift, Texas..................... Needle Coke 743,000 Owned Calcium Carbide Products Facilities: Calvert City, Kentucky.............. Carbide Products 150,000 Owned Louisville, Kentucky................ Carbide Products 200,000 Owned Louisville, Kentucky................ Carbide Sales, Technical 6,000 Leased and Finance Offices
Pursuant to the Specialty Products Sale, SGL Corp. acquired a discrete portion of the Company's St. Marys facility. The Company and SGL Corp. share common services such as steam and compressed air in St. Marys. In addition, the Company leases to SGL Corp. a portion of a building and certain parking lot space at its facility in Niagara Falls pursuant to a lease expiring in January 2000 (subject to optional renewals by SGL Corp. for a maximum of five additional years). The Company owns all of its major manufacturing facilities. The Company believes that its plants and facilities, which are of varying ages and types of construction, are in satisfactory condition. Many of the Company's operations are conducted at extremely high temperatures, exceeding 5,000 degrees Fahrenheit in the case of electrode graphitizing. In some facilities, a maintenance "turnaround" is conducted annually; in other facilities, major maintenance is conducted on an ongoing basis. Maintenance expenditures, which are expensed as incurred, amounted to approximately $37.5 million, $37.1 million and $36.1 million for the fiscal years ended July 31, 1997, 1996 and 1995, respectively. Item 3 Legal Proceedings - --------------------------- General In May 1997, the Company was served with a subpoena issued by a Grand Jury empanelled by the United States District Court for the Eastern District of Pennsylvania. The Company was advised by attorneys for the Antitrust Division of the United States Department of Justice (the DOJ) that the Grand Jury is investigating price fixing by producers of graphite products in the United States and abroad during the past five years. The Company is cooperating with the DOJ in the investigation. The DOJ has granted the Company and certain former and present senior executives the opportunity to participate in its Corporate Leniency Program and the Company has entered into an agreement with the DOJ under which the Company and such executives who cooperate will not be subject to criminal prosection with respect to the investigation if charges are issued by the Grand Jury. Under the agreement, the Company has agreed to use its best efforts to provide for restitution to its domestic customers for actual damages if any conduct of the Company which violated the Federal Antitrust Laws in the manufacture and sale of such graphite products caused damage to such customers. As far as the Company is aware, the DOJ has not made a finding that any person or company violated the law with respect to the subject -10- matter of the Grand Jury proceeding. The proceeding is in its preliminary stages. At this time, management cannot determine whether a material loss will be incurred as a result of the proceeding. No provision for any liability related to such matters has been made in the consolidated financial statements of the Company for the fiscal year ended July 31, 1997. Four civil cases have been filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia asserting claims on behalf of purchasers for violations of the Sherman Act. Those cases have been consolidated. The consolidated case names the Company, UCAR, SGL Corp. and SGL as defendants and seeks treble damages. The Company intends to vigorously defend against this consolidated action. The case is in its preliminary stages. At this time, management cannot determine whether a material loss will be incurred as a result of the case. No provision for any liability related to such matter has been made in the consolidated financial statements for the fiscal year ended July 31, 1997. The Company is also involved in various legal proceedings considered incidental to the conduct of its business, the ultimate disposition of which, in the opinion of the Company's management, will not have a material adverse effect on the financial position, fiscal year operating results or business of the Company. Claims (other than environmental and contract claims and claims for punitive damages) against the Company are generally covered by insurance which includes a $250,000 per occurrence self-insured retention. As of July 31, 1997, a $0.4 million reserve has been recorded to provide for estimated exposure on claims for which a loss is deemed probable. Environmental In April 1995, the Company was named as a third-party defendant in a Superfund action in Federal District Court in New Jersey relating to waste disposal at a landfill located in Sayreville, New Jersey (the Sayreville Litigation). Carbon Graphite Group, Inc. was named as successor to Airco-Speer Company (Airco-Speer). Since this landfill was closed prior to the organization of the Company in 1988, the Company's only possible connection with the Sayreville Litigation would be if it were a successor to Airco-Speer, a claim which it disputes. Furthermore, pursuant to the Asset Purchase Agreement by which the Company acquired assets from BOC, BOC agreed to provide an indemnification for certain environmental matters. BOC has assumed and commenced the defense of the Sayreville Litigation and agreed to indemnify the Company for losses associated therewith in accordance with the terms of the Asset Purchase Agreement. In addition, BOC asserts that the liability in this matter was settled by a 1992 agreement with the plaintiffs in the present case. As a result of a motion for summary judgement, the Court has substantially reduced the scope of claims which may be brought against the Company. Based on the above, management does not believe that the Company will incur a material loss with respect to the Sayreville Litigation. Item 4 Submission of Matters to Vote of Securities Holders - ------------------------------------------------------------- This item is not applicable to the Registrant for this Annual Report on Form 10-K. -11- PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters - ------------------------------------------------------------------------------- Information required by this item is furnished on page 20 of the Company's Fiscal 1997 Annual Report to Stockholders which has been filed as an exhibit to this Annual Report on Form 10-K and is incorporated herein by reference. Information regarding dividend restrictions is included in Note 8 on pages 29 and 30 of the Company's Fiscal 1997 Annual Report to Stockholders. Item 6 Selected Financial Data - --------------------------------- Information required by this item is, in part, furnished on page 19 of the Company's Fiscal 1997 Annual Report to Stockholders which has been filed as an exhibit to this Annual Report on Form 10-K and is incorporated herein by reference. During fiscal 1994, the Company paid a $5.00 per share Common Stock dividend. No other Common Stock dividends were declared or paid during the five year period ended July 31, 1997. Item 7 Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------- Results of Operations --------------------- Information required by this item is furnished on pages 11 through 18 of the Company's Fiscal 1997 Annual Report to Stockholders which has been filed as an exhibit to this Annual Report on Form 10-K and is incorporated herein by reference. Item 8 Financial Statements and Supplementary Data - ----------------------------------------------------- Information required by this item is furnished on pages 20 through 38 of the Company's Fiscal 1997 Annual Report to Stockholders which has been filed as an exhibit to this Annual Report on Form 10-K and is incorporated herein by reference. Supplementary data required by this item is furnished in Note 15 on page 37 of the Company's Fiscal 1997 Annual Report to Stockholders. Item 9 Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------- Financial Disclosure -------------------- This item is not applicable to the Registrant for this Annual Report on Form 10-K. -12- PART III Items 10 Directors and Executive Officers of the Registrant - ------------------------------------------------------------- Information required by this item is furnished on pages 3 through 6 of the Company's Proxy Statement to be dated October 31, 1997 and to be filed within 120 days of July 31, 1997 and is incorporated herein by reference. Item 11 Executive Compensation - -------------------------------- Information required by this item is furnished on pages 8 through 18 of the Company's Proxy Statement to be dated October 31, 1997 and to be filed within 120 days of July 31, 1997 and is incorporated herein by reference. Item 12 Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------ Information required by this item is furnished on pages 1, 2, 6 and 7 of the Company's Proxy Statement to be dated October 31, 1997 and to be filed within 120 days of July 31, 1997 and is incorporated herein by reference. Item 13 Certain Relationships and Related Transactions - -------------------------------------------------------- Information required by this item is furnished on page 18 of the Company's Proxy Statement dated to be dated October 31, 1997 and to be filed within 120 days of July 31, 1997 and is incorporated herein by reference. -13- PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K - ------------------------------------------------------------------------- (a)(1) List of Financial Statements The following consolidated financial statements, including the notes thereto, of the Company and the Report of Independent Accountants set forth on pages 21 through 38 and page 20, respectively, in the Company's Fiscal 1997 Annual Report to Stockholders, which has been filed as an exhibit to this Annual Report on Form 10-K, are incorporated by reference into this Item 14 of Form 10- K by Item 8 hereof: * Consolidated Balance Sheets as of July 31, 1997 and 1996. * Consolidated Statements of Operations for the Years Ended July 31, 1997, 1996 and 1995. * Consolidated Statements of Stockholders' Equity for the Years Ended July 31, 1997, 1996 and 1995. * Consolidated Statements of Cash Flows for the Years Ended July 31, 1997, 1996 and 1995. * Report of Independent Accountants dated September 10, 1997, except for Note 16 as to which the date is September 26, 1997. (a)(2) List of Financial Statement Schedules The following financial statement schedule of the Company and the Report of Independent Accountants are included on pages 22 and 21, respectively, of this Annual Report on Form 10-K and are incorporated by reference into this Item 14 on Form 10-K: * Report of Independent Accountants dated September 10, 1997, except for Note 16 as to which the date is September 26, 1997. * Schedule II -- Valuation and Qualifying Accounts for the Three Years Ended July 31, 1997, 1996 and 1995. All other financial statement schedules are not required, are not applicable or the information called for therein is included elsewhere in the consolidated financial statements or related notes thereto. (a)(3) List of Exhibits
Exhibit No. Description - -------------- ------------------------------------------------------------------------------------------------ 3.1* Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, Registration No. 33-31408) 3.2* Amended and Restated By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, Registration No. 33- 31408) 3.3* Restated Stockholders' Agreement dated as of September 19, 1995 among the Company and the Management Stockholders (incorporated herein by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1, Registration No. 33-31408) 4.1* Specimen Certificate for Common Stock of the Company (incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-91102)
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Exhibit No. Description - ------------ ------------------------------------------------------------------------------------------------ 4.2* Indenture dated August 26, 1993 between the Company and State Street Bank and Trust Company, as trustee, relating to 11 1/2% Senior Notes Due 2003, including the form of Senior Note included therein (incorporated herein by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 4.3 Supplemental Indenture No. 2 dated as of September 15, 1997 between the Company and State Street Bank and Trust, as trustee, related to the elimination of substantially all of the restrictive covenants and certain default provisions in the Senior Note Indenture 10.1* Securities Purchase Agreement dated as of September 25, 1991 between the Company and BOC (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1, Registration No. 33-65150) 10.2* Asset Transfer Agreement dated as of July 9, 1988 among the Company, BOC, and Centre Capital Investors, L.P. (incorporated herein by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1, Registration No. 33-65150) 10.3* Asset Purchase Agreement dated as of January 17, 1995 among the Company, The C/G Specialty Products Business Trust, Materials Technology Corporation, and SGL Carbon Corporation (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated January 17, 1995) 10.4* Share Purchase Agreement dated as of January 17, 1995 between the Company and 9012- 9677 Quebec Inc. (incorporated herein by reference to Exhibit 2.2 to the Company's Current report on Form 8-K dated January 17, 1995) 10.5 Revolving Credit Agreement and Letter of Credit Issuance dated September 25, 1997 by and Among the Company, PNC Bank, N.A. and the Financial Institutions party thereto 10.6* Revolving Credit Agreement and Letter of Credit Issuance dated December 1, 1995 by and among the Company, PNC Bank, National Association and the Financial Institutions party thereto (incorporated herein by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, Registration No. 33-31408) 10.7* Security Agreement and Collateral Assignment, dated December 1, 1995 between the Company and PNC Bank, National Association (incorporated herein by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1, Registration No. 33-31408) 10.8* Subsidiary Guaranty Agreement, dated December 1, 1995 by Seadrift Coke, L.P. in favor of PNC Bank, National Association (incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1, Registration No. 33-31408) 10.9* Subsidiary Security Agreement and Collateral Assignment, dated December 1, 1995 between Seadrift Coke, L.P. and PNC Bank, National Association (incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, Registration No. 33-31408) 10.10* Pledge Agreement, dated December 1, 1995 by the Company in favor of PNC Bank, National Association (incorporated herein by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1, Registration No. 33-31408) 10.11* Letter Agreement, dated December 1, 1995 between PNC Bank, National Association and the Company (incorporated herein by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1, Registration No. 33-31408)
-15-
Exhibit No. Description - ------------- ----------------------------------------------------------------------------------------------- 10.12* Office Lease dated August 30, 1991 between the Company and The Equitable Life Assurance Society of the United States (incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, Registration No. 33-65150) 10.13* Letter Agreement dated as of January 1, 1995 between the Company and James G. Baldwin (incorporated herein by reference to Exhibit 10. 15 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.14* Employment Agreement dated as of January 1, 1995 between the Company and Nicholas T. Kaiser (incorporated herein by reference to Exhibit 10.16 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.15* Employment Agreement dated as of March 1, 1995 between the Company and Walter B. Fowler (incorporated herein by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.16* Employment Agreement dated as of March 1, 1995 between the Company and Ronald N. Clawson (incorporated herein by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.17* Employment Agreement dated as of March 1, 1995 between the Company and Stephen D. Weaver (incorporated herein by reference to Exhibit 10.19 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.18 Revised Employment Agreement dated March 31, 1997 between the Company and Nicholas T. Kaiser 10.19 Employment Agreement dated as of April 1, 1997 between the Company and Walter B. Fowler 10.20 Severance Agreement dated April 16, 1997 between the Company and Ronald N. Clawson 10.21 Separation Agreement dated April 25, 1997 between the Company and Walter E. Damian 10.22 Separation Agreement dated April 25, 1997 between the Company and Jim J. Trigg 10.23* Restated 1988 Management Stock Option Plan of the Company (incorporated herein by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.24* Performance Option Agreement under the 1988 Management Stock Option Plan (incorporated herein by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.25* Restated 1991 Management Stock Option Plan of the Company (incorporated herein by reference to Exhibit 10.22 of the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.26* Stock Option Agreement dated as of August 1, 1993 between the Company and James G. Baldwin (incorporated herein by reference to Exhibit 10.23 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.27* Stock Option Agreement dated as of March 8, 1994 between the Company and James G. Baldwin (incorporated herein by reference to Exhibit 10.24 to the Company's Registration Statement on Form S-1, Registration No. 33-91102)
-16-
Exhibit No. Description - ------------- ----------------------------------------------------------------------------------------------- 10.28* 1995 Stock-Based Incentive Compensation Plan of the Company (incorporated herein by reference to Exhibit 10.24 to the Company's Registration Statement on Form S-1, Registration No. 33-31408) 10.29* Amendment to 1995 Stock-Based Incentive Compensation Plan of the Company dated August 26, 1996 (incorporated herein by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1996, Commission File No. 0-20490) 10.30* Agreement under the 1995 Stock-Based Incentive Plan (incorporated herein by reference to Exhibit 10.22 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.31* Non-Employee Director Stock-Based Incentive Compensation Plan of the Company dated August 26, 1996 (incorporated herein by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1996, Commission File No. 0-20490) 10.32 Intentionally Omitted. 10.33 Incentive Bonus Plan of the Company 10.34* Supplemental Executive Savings Plan of the Company (incorporated herein by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1996, Commission File No. 0-20490) 10.35* Replacement Power Agreement between the Power Authority of the State of New York and the Company dated October 17, 1994 (incorporated herein by reference to Exhibit 10.31 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.36* Acetylene Purchase Agreement dated as of January 1, 1985 between BOC (as predecessor to the Company) and GAF Corporation (incorporated herein by reference to Exhibit 10.32 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.37* Amendment to the Acetylene Supply Agreement between Air Products & Chemicals and the Company dated as of October 21, 1994 (incorporated herein by reference to Exhibit 10.33 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.38* Acetylene Agreement dated January 1, 1975, as amended June 12, 1978 and February 10, 1982, between Airco, Inc. and DuPont (incorporated herein by reference to Exhibit 10.34 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.39* Subcontract dated as of July, 1994 between the Company and Brown & Root, Inc. (incorporated herein by reference to Exhibit 10.35 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.40 Engineering, Procurement and Construction Agreement between Seadrift Coke, L.P. and Foster Wheeler USA Corporation for Coker Expansion Project dated June 2, 1997 10.41* Supply Agreement dated as of January 17, 1995 between SGL Corp. and the Company (incorporated herein by reference to Exhibit 10.36 to the Company's Registration Statement on Form S-1, Registration No. 33-91102)
-17-
Exhibit No. Description - ------------- -------------------------------------------------------------------------------------------- 10.42* Agreement between the Company (Carbide Unit), Calvert City, Kentucky, and the Oil, Chemical and Atomic Workers, International Union, AFL-CIO Local 3-556, dated February 1, 1996 (incorporated herein by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1996, Commission File No. 0-20490) 10.43* Agreement between the Company (Electrode Unit) and International Union of Electrical, Technical Salaried Machine and Furniture Workers, AFL-CIO Local Union 502, dated June 3, 1996 (incorporated herein by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1996, Commission File No. 0-20490) 10.44* Agreement by and between the Company (Carbide Division), Louisville, Kentucky Plant, and International Brotherhood of Firemen and Oilers Local No. 320, Affiliated with the AFL-CIO, dated July, 1 1996 (incorporated herein by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1996, Commission File No. 0-20490) 10.45* Agreement between the Company (Electrode Unit) and Oil, Chemical and Atomic Workers International Union and Local Union Number 8-23516, dated January 23, 1994 (incorporated herein by reference to Exhibit 10.40 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 10.46* Carbide Supply Agreement dated August 1, 1988 between the Company and BOC (incorporated herein by reference to Exhibit 10.30 to the Company's Registration Statement on Form S-1, Registration No. 33-65150) 10.47* Master Lease between the Company and PNC Leasing Corp. dated January 27, 1997 (incorporated herein by reference to Exhibit 10.43 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1997, Commission File No. 0-20490) 10.48 Contract to Provide Engineering, Procurement and Construction Management Services between the Company and Brown & Root, Inc. dated June 18, 1996 11.1* Calculation of Earnings Per Share for the Fiscal Years Ended July 31, 1991, 1992 and 1993 (incorporated herein by reference to Exhibit 11.1 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 11.2* Calculation of Earnings (Loss) Per Share for the Fiscal Year and each of the Quarters in the Fiscal Year Ended July 31, 1994 (incorporated herein by reference to Exhibit 11.3 to the Company's Registration Statement on Form S-1, Registration No. 33-91102) 11.3* Calculation of Earnings Per Share for the Fiscal Year and each of the Quarters for the Fiscal Year Ended July 31, 1995 (incorporated herein by reference to Exhibit 11.4 to the Company's Registration Statement on Form S-1, Registration No. 33-31408) 11.4* Calculation of Earnings Per Share for the Fiscal Year and each of the Quarters for the Fiscal Year Ended July 31, 1996 (incorporated herein by reference to Exhibit 11.4 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1996, Commission File No. 0-20490) 11.5 Calculation of Earnings Per Share for the Fiscal Year and each of the Quarters for the Fiscal Year Ended July 31, 1997 13.1 Fiscal 1997 Annual Report to Stockholders of the Company
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Exhibit No. Description - ------------- -------------------------------------------------------------- 21.1 Subsidiaries and Affiliates of the Company 23.1 Consent of Independent Accountants 27.1 Financial Data Schedule
- ---------------- * Exhibit has previously been filed with the Commission and is herein incorporated by reference. (b) Reports on Form 8-K On May 5, 1997, the Company filed on Form 8-K its press release announcing that Ronald N. Clawson had retired from his positions as President - Carbide Products and Director of the Company. On June 3, 1997, the Company filed on Form 8-K its press release announcing the Company's results for the quarter and nine months ended April 30, 1997. -19- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on October 27, 1997. The Carbide/Graphite Group, Inc. By: /s/ Walter B. Fowler ----------------------------------- (Walter B. Fowler) President and Chief Executive Officer Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on October 27, 1997. Signature Title - --------------------- --------------------------------------------------------- /s/ Walter B. Fowler* Chairman of the Board, President, Chief Executive Office - ---------------------- and Director (Principal Executive Officer) (Walter B. Fowler) /s/ Stephen D. Weaver Vice President -- Finance and Chief Financial Officer - ---------------------- (Principal Financial Officer) (Stephen D. Weaver) /s/ Jeffrey T. Jones Controller -- Corporate Finance (Principal Accounting - ---------------------- Officer) (Jeffrey T. Jones) Director - ---------------------- (James G. Baldwin) Director - ---------------------- (James R. Ball) /s/ Paul F. Balser* Director - ---------------------- (Paul F. Balser) /s/ Robert M. Howe* Director - ---------------------- (Robert M. Howe) /s/ Ronald B. Kalich* Director - ---------------------- (Ronald B. Kalich) /s/ Nicholas T. Kaiser* Director - ----------------------- (Nicholas T. Kaiser) /s/ Charles E. Slater* Director - ---------------------- (Charles E. Slater) * Signatures representing a majority of the Registrant's Board of Directors. -20- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors THE CARBIDE/GRAPHITE GROUP, INC. Our report on the consolidated financial statements of The Carbide/Graphite Group, Inc. and Subsidiaries (the Company) has been incorporated by reference in this Form 10-K from page 20 of the 1997 Annual Report to Stockholders of the Company. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed under Item 14 on page 14 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. Pittsburgh, Pennsylvania September 10, 1997, except for Note 16 as to which the date is September 26, 1997 -21- SCHEDULE II THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the Years Ended July 31, 1997, 1996 and 1995 (in thousands)
Col. A Col. B Col. C Col. D Col. E Col. F - ------------------------------------ ----------- ---------- -------------- ----------- ------------- Additions -------------------------- Balance at Beginning Charged Charged to Balance at of Period to Expense other accounts Deductions End of Period ---------- ---------- ------------- ---------- ------------- Allowance for Doubtful Accounts: Year Ended July 31, 1997 $1,896 $133 - $ - * $2,029 Year Ended July 31, 1996 5,152 120 - (3,376) * 1,896 Year Ended July 31, 1995 5,514 166 - (528) * 5,152
* Represents uncollectible accounts written off and recoveries of customer accounts previously reserved for. -22- EX-4.3 2 SUPPLEMENTAL INDENTURE NO. 2 EXHIBIT 4.3 SUPPLEMENTAL INDENTURE NO. 2 dated as of September 15, 1997 (this "Supplemental Indenture No. 2") between The Carbide/Graphite Group, Inc., a Delaware corporation (the "Company"), and State Street Bank and Trust Company, as trustee ("Trustee"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company and the Trustee entered into (i) the Indenture dated as of August 26, 1993 with respect to $115,000,000 aggregate principal amount of 11 1/2% Senior Notes due 2003 (the "Notes") and (ii) the Supplemental Indenture No. 1 dated as of November 15, 1994 with respect to the Notes (together, the "Indenture", with all capitalized terms used but not defined herein having the same meanings ascribed to such terms therein); WHEREAS, Section 9.02 of the Indenture provides that (i) the Company and the Trustee may amend or supplement certain provisions of the Indenture with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes) and (ii) the Company and the Trustee may amend Section 4.10 of the Indenture with the consent of the Holders of at least two-thirds in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes) (the "Two-Thirds Consent"); WHEREAS, the Company has offered to purchase each of the outstanding Notes for cash, upon the terms and subject to the conditions set forth in that certain "Offer to Purchase and Solicitation of Consents to Amendments of the Indenture" dated August 29, 1997 and accompanying "Consent and Letter of Transmittal" (collectively, with the ancillary documents associated therewith, the "Offer to Purchase"); WHEREAS, under the terms of the Offer to Purchase, holders that tender Notes in accordance with the terms of the Offer to Purchase and who deliver a duly executed "Consent and Letter of Transmittal" are deemed to consent to certain amendments to the Indenture which would permanently delete or amend certain of the covenants, events of default and other related provisions of the Indenture (the "Proposed Amendments"); WHEREAS, in accordance with the terms of the Indenture, holders of not less than two-thirds in principal amount of the outstanding Notes have tendered their Notes and consented to the Proposed Amendments to be effected by this Supplemental Indenture No. 2; and WHEREAS, the Company has authorized the execution and delivery of this Supplemental Indenture No. 2 and the Trustee has received an Officers' Certificate and an Opinion of Counsel pursuant to Section 9.06 of the Indenture, and therefore the Company and the Trustee are authorized to execute and deliver this Supplemental Indenture No. 2. NOW THEREFORE, in consideration of good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO INDENTURE. ----------------------- (a) The following Sections of the Indenture are hereby eliminated effective as of the Operative Date (as hereinafter defined): Section 4.05; Section 4.07; Section 4.08; Section 4.09; Section 4.10; Section 4.11; Section 4.12; Section 4.13; Section 4.14; Section 4.15; Section 4.17; Section 4.18; Section 5.01; Section 5.02; Section 6.01(v); and Section 6.01(vi). Section 3.09 of the Indenture (concerning Asset Sale Offers) is also hereby eliminated (such Section being made unnecessary due to the aforementioned deletion of Section 4.10), effective as of the Operative Date. The text of all such sections are replaced by the phrase "Intentionally deleted" and the surrounding Sections are not renumbered. (b) All definitions set forth in Section 1.01 that relate to defined terms used solely in Sections deleted hereby are deleted in their entirety, effective as of the Operative Date. SECTION 2. MISCELLANEOUS. ------------- (a) Operative Date. The amendments to the Indenture made hereby shall only become effective on the date, if any, that the Offer (as defined in the Offer to Purchase) is consummated (the "Operative Date"), which date will be set forth in an Officers' Certificate delivered to the Trustee. This Supplemental Indenture No. 2 is effective upon execution. (b) Duplicate Originals. The parties may sign any number of copies of this Supplemental Indenture No. 2. One signed copy is enough to prove this Supplemental Indenture No. 2. (c) Governing Law. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture No. 2. (d) Counterpart Originals. The parties may sign any number of copies of this Supplemental Indenture No. 2. Each signed copy shall be an original, but all of them together represent the same agreement. (e) Headings. The headings of the Sections and Subsections of this Supplemental Indenture No. 2 have been inserted for convenience of reference only, are not to be considered a part of this Supplemental Indenture No. 2 and shall in no way modify or restrict any of the terms or provisions hereof. 2 SIGNATURES Dated as of September 15, 1997 THE CARBIDE/GRAPHITE GROUP, INC. By: /s/ Stephen D. Weaver -------------------------------- Stephen D. Weaver Vice President - Finance and Chief Financial Officer Attest: By: /s/ Jeffrey T. Jones ----------------------------- Name: Jeffrey T. Jones Title: Controller-Corporate Finance Dated as of September 15, 1997 STATE STREET BANK AND TRUST COMPANY, as Trustee By: ------------------------------ Arthur J. MacDonald Assistant Vice President Attest: By: ------------------------------- Name: Title: SIGNATURES Dated as of September 15, 1997 THE CARBIDE/GRAPHITE GROUP, INC. By: /s/ -------------------------------- Stephen D. Weaver Vice President - Finance and Chief Financial Officer Attest: By: ----------------------------- Name: Title: Dated as of September 15, 1997 STATE STREET BANK AND TRUST COMPANY, as Trustee By: /s/ Arthur J. MacDonald -------------------------------- Arthur J. MacDonald Assistant Vice President Attest: By: /s/ Donald E. Smith ------------------------------- Name: DONALD E. SMITH Title: VICE PRESIDENT EX-10.5 3 REVOLVING CREDIT AGREEMENT EXHIBIT 10.5 REVOLVING CREDIT AND LETTER OF CREDIT ISSUANCE AGREEMENT By and Among THE CARBIDE/GRAPHITE GROUP, INC., as Borrower and THE FINANCIAL INSTITUTIONS PARTY hereto and PNC BANK, NATIONAL ASSOCIATION, as Agent and PNC BANK, NATIONAL ASSOCIATION, as L/C Issuer Dated as of September 25, 1997 TABLE OF CONTENTS ----------------- SCHEDULES................................................................... v EXHIBITS.................................................................... vi ARTICLE I CERTAIN DEFINITIONS.............................................. 1 1.01. Certain Definitions................................................ 1 1.02. Construction....................................................... 21 1.03. Accounting Principles.............................................. 21 ARTICLE II REVOLVING CREDIT FACILITY....................................... 22 2.01. Revolving Credit Commitments....................................... 22 2.02. Nature of Lenders' Obligations with Respect to Revolving Credit Loans...................................................... 23 2.03. Commitment Fee..................................................... 23 2.04 Reductions of Revolving Credit Commitment.......................... 24 2.05. Revolving Credit Loan Requests..................................... 25 2.06. Making Revolving Credit Loans...................................... 25 2.07. Notes and Interest Rates Provisions................................ 26 2.08. Interest Payments, Interest Rates and Certain Related Payments Pertaining to the Revolving Credit Loans................. 26 2.09. Prepayments; Allocation of Repayments.............................. 30 2.10. Yield Protection................................................... 31 2.11. Special Provisions Relating to the Euro-Rate Option................ 33 2.12. Capital Adequacy................................................... 35 2.13. Swingline Loans.................................................... 35 2.14 Loan Account....................................................... 36 2.15. All Advances to Constitute One Loan................................ 36 2.16. Use of Proceeds.................................................... 37 2.17. Letter of Credit Subfacility....................................... 37 2.18. Taxes.............................................................. 42 2.19. Payments........................................................... 43 ARTICLE III SET-OFF, ACCOUNT, SECURITY INTERESTS........................... 44 3.01. Set-Off............................................................ 44 3.02. Loan Disbursement Account.......................................... 44 3.03. Assigned Collateral................................................ 44 3.04. Designation of Class A Subsidiary Guarantors; Subsidiary Assigned Collateral............................................... 44 3.05. Further Cooperation................................................ 45 ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................. 46 4.01. Organization and Qualification..................................... 46 4.02. Capitalization and Ownership....................................... 47 4.03. Subsidiaries....................................................... 47 4.04. Power and Authority................................................ 47 4.05. Validity and Binding Effect........................................ 47 4.06. No Conflict........................................................ 47 4.07. Litigation......................................................... 48 4.08. Financial Statements............................................... 48 4.09. Margin Stock....................................................... 48 4.10. Full Disclosure.................................................... 49 4.11. Tax Returns and Payments........................................... 49 4.12. Consents and Approvals............................................. 49 4.13. No Event of Default; Compliance with Instruments................... 50 4.14. Compliance with Laws............................................... 50 4.15. Investment Company; Public Utility Holding Company................. 50 4.16. Plans and Benefit Arrangements..................................... 50 4.17. Title to Properties................................................ 52 4.18. Insurance.......................................................... 52 4.19. Employment Matters................................................. 52 4.20. Environmental Matters.............................................. 52 4.21. Senior Debt Status................................................. 54 4.22. Solvency of Borrower............................................... 54 4.23. Burdensome Restrictions............................................ 54 4.24. Brokers............................................................ 54 4.25. Liens.............................................................. 54 4.26. No Material Adverse Change......................................... 55 ARTICLE V CONDITIONS OF LENDING OR ISSUANCE OF LETTER OF CREDIT............ 55 5.01. Conditions to Initial Borrowings................................... 55 5.02. Each Additional Revolving Credit Loan or Issuance of a Letter of Credit......................................................... 59 5.03. Location of Closing................................................ 59 ARTICLE VI AFFIRMATIVE COVENANTS........................................... 60 6.01. Preservation of Existence, etc..................................... 60 6.02. Reporting Requirements............................................. 60 6.03. Notices Regarding Plans and Benefit Arrangements................... 63 -ii- 6.04. Payment of Liabilities, Including Taxes, etc....................... 65 6.05. Maintenance of Insurance........................................... 65 6.06. Maintenance of Properties and Leases............................... 65 6.07. Maintenance of Permits and Franchises.............................. 65 6.08. Visitation Rights.................................................. 66 6.09. Keeping of Records and Books of Account............................ 66 6.10. Plans and Benefit Arrangements..................................... 66 6.11. Compliance with Laws............................................... 66 6.12. Use of Proceeds.................................................... 66 6.13. Environmental Laws................................................. 67 6.14. Senior Debt Status................................................. 67 ARTICLE VII NEGATIVE COVENANTS............................................. 67 7.01. Indebtedness....................................................... 68 7.02. Liens.............................................................. 69 7.03. Loans, Acquisitions and Investments................................ 69 7.04. Liquidations, Mergers and Consolidations........................... 70 7.05. Dispositions of Assets or Subsidiaries............................. 70 7.06. Affiliate Transactions............................................. 71 7.07. Subsidiaries, Partnerships and Joint Ventures...................... 71 7.08. Continuation of or Change in Business.............................. 72 7.09. Plans and Benefit Arrangements..................................... 72 7.10. Fiscal Year........................................................ 73 7.11. Changes in Organizational Documents................................ 73 7.12. Minimum Consolidated Tangible Net Worth............................ 73 7.13. Interest Coverage.................................................. 73 7.14. Leverage Ratio..................................................... 73 7.15 Operating Leases................................................... 73 7.16. Limitation on Negative Pledge Clauses.............................. 73 7.17. No Changes......................................................... 74 ARTICLE VIII DEFAULT....................................................... 74 8.01. Events of Default.................................................. 74 8.02. Consequences of Event of Default................................... 78 ARTICLE IX THE AGENT....................................................... 80 9.01. Appointment and Grant of Authority................................. 80 9.02. Delegation of Duties............................................... 80 9.03. Reliance by Agent on Lenders for Funding........................... 80 -iii- 9.04. Non-Reliance on Agent.............................................. 81 9.05. Responsibility of Agent and Other Matters.......................... 81 9.06. Actions in Discretion of Agent; Instructions from the Lenders...... 82 9.07. Indemnification.................................................... 83 9.08. Agent's Rights as a Lender......................................... 83 9.09. Notice of Default.................................................. 83 9.10. Payment to Lenders................................................. 83 9.11. Holders of Notes................................................... 84 9.12. Equalization of Lenders............................................ 84 9.13. Successor Agent.................................................... 85 9.14. Calculations....................................................... 85 9.15. Beneficiaries...................................................... 85 ARTICLE X GENERAL PROVISIONS............................................... 86 10.01. Amendments and Waivers............................................. 86 10.02. Taxes.............................................................. 87 10.03. Costs and Expenses, etc............................................ 87 10.04. Notices............................................................ 88 10.05. Participation and Assignment....................................... 89 10.06. Successors and Assigns............................................. 92 10.07. No Implied Waivers; Cumulative Remedies; Writing Required.......... 92 10.08. Severability....................................................... 92 10.09. Indemnity.......................................................... 93 10.10. Confidentiality.................................................... 93 10.11. Survival........................................................... 94 10.12. GOVERNING LAW...................................................... 94 10.13. FORUM.............................................................. 94 10.14. Non-Business Days.................................................. 95 10.15. Integration........................................................ 95 10.16. Headings........................................................... 95 10.17. Counterparts....................................................... 95 10.18. Funding by Branch, Subsidiary or Affiliate......................... 96 10.19. WAIVER OF JURY TRIAL............................................... 96 -iv- SCHEDULES --------- Schedule 1.01(a) Lenders Schedule 2.17(j) Assumed Letters of Credit Schedule 4.01 Jurisdictions of Incorporation and Qualification of Borrower Schedule 4.02 Capital Stock Options Schedule 4.03 Interests in Subsidiaries and Other Entities Schedule 4.07 Litigation Schedule 4.11 Agreements Concerning Tax Returns Schedule 4.12 Consents and Approvals Schedule 4.16 Plans and Benefit Arrangements Schedule 4.20 Environmental Matters Schedule 5.01(b) Jurisdictions of Organization and Qualification of Subsidiary Guarantor Schedule 7.01 Permitted Indebtedness Schedule 7.03 Other Investments Schedule 7.06 Affiliate Transaction -v- EXHIBITS -------- Exhibit "A-1" Form of Revolving Credit Note Exhibit "A-2" Form of Swingline Note Exhibit "B" Form of Borrower Security Agreement Exhibit "C-1" Form of Application and Agreement for Letter of Credit Exhibit "C-2" Form of Reimbursement Agreement Exhibit "D" Form of Loan Request Exhibit "E" Form of Assignment and Assumption Agreement Exhibit "F" Form of Compliance Certificate Exhibit "G" Form of Opinion of Counsel Exhibit "H" Form of UCC-1 for Borrower Exhibit "I" Form of Subsidiary Guaranty Exhibit "J" Form of Subsidiary Security Agreement Exhibit "K" Form of UCC-1 for Subsidiary Guarantor Exhibit "L" Form of Subordination Agreement -vi- REVOLVING CREDIT AND LETTER OF CREDIT ISSUANCE AGREEMENT THIS REVOLVING CREDIT AND LETTER OF CREDIT ISSUANCE AGREEMENT, dated as of September 25, 1997, made by and among THE CARBIDE/GRAPHITE GROUP, INC., a Delaware corporation (as more fully defined below, the "Borrower"), and the Lenders (as hereinafter defined) and PNC BANK, NATIONAL ASSOCIATION, in its capacity as L/C Issuer (as hereinafter defined) and as agent for the L/C Issuer and the Lenders under this Agreement (in such capacity, as more fully defined below, the "Agent"). WITNESSETH: WHEREAS, the Borrower has requested the Lenders to make available to the Borrower Revolving Credit Loans in an aggregate principal amount not exceeding One Hundred and Twenty-Five Million Dollars ($125,000,000) at any one time outstanding; and the Borrower has requested the Lenders to provide for the issuance for the account of the Borrower Letters of Credit with an aggregate Stated Amount not exceeding Fifteen Million Dollars ($15,000,000) at any one time outstanding; provided that at no time will Total Utilization exceed One Hundred and Twenty-Five Million ($125,000,000); and WHEREAS, the Lenders are willing to make the Revolving Credit Loans available to the Borrower upon the terms and conditions hereinafter set forth; and the L/C Issuer is willing to issue Letters of Credit for the account of the Borrower upon the terms and conditions hereinafter set forth; and the Lenders are willing to purchase risk participations with respect to each Letter of Credit issued by the L/C Issuer hereunder upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises (each of which is incorporated herein by reference) and the mutual covenants and agreements hereinafter set forth, and other valuable consideration, and intending to be legally bound hereby, the parties hereto hereby covenant and agree as follows: ARTICLE I CERTAIN DEFINITIONS ------------------- 1.01. Certain Definitions. In addition to words and terms defined ------------------- elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise: Affiliate of any Person shall mean any other Person (i) which owns --------- beneficially, directly or indirectly, 10% or more of the outstanding voting securities of such Person, or which is otherwise in control of such Person, or (ii) which is otherwise controlled by any entity described in clause (i) above; provided that for purposes of this definition the terms "control" and "controlled by" shall have the meanings assigned to them in Rule 405 under the Securities Act of 1933, as amended. Agent shall mean PNC Bank, National Association, a national banking ----- association organized under the laws of the United States of America, in its capacity as agent for the L/C Issuer and the Lenders pursuant to this Agreement, and its successors in such capacity. Agent's Fee shall mean the fee due the Agent in its capacity as Agent as ----------- more fully set forth in that certain letter agreement by and between the Agent and the Borrower dated August 15, 1997. Agreement shall mean this Revolving Credit and Letter of Credit Issuance --------- Agreement as the same may be supplemented or amended from time to time including all schedules and exhibits hereto. Applicable Commitment Fee shall have the meaning ascribed to it in Section ------------------------- 2.03 of this Agreement. Applicable Euro-Rate Margin shall have the meaning ascribed to it in --------------------------- Section 2.08(b)(ii) of this Agreement. Applicable Letter of Credit Fee shall have the meaning ascribed to it in ------------------------------- Section 2.17(b) of this Agreement. Application and Agreement for Letter of Credit shall mean an application ---------------------------------------------- and agreement for either a standby letter of credit or for an amendment thereto substantially in the form of Exhibit "C-1" hereto. ------------- Assigned Collateral shall mean "Assigned Collateral" as described in the ------------------- Security Agreement. Assignment and Assumption Agreement shall mean an Assignment and Assumption ----------------------------------- Agreement by and among a Purchasing Lender, a Transferor Lender and the Agent, as the Agent and on behalf of the remaining Lenders, as consented and agreed to by the Borrower, substantially in the form of Exhibit "E" hereto. ----------- -2- Assignment Fee shall mean the fee described in Section 10.05(b). -------------- Authorized Officer shall mean those persons designated initially in the ------------------ several incumbency certificates delivered pursuant to Section 5.01 hereof by the Borrower or a Subsidiary Guarantor, as the case may be. The Borrower, or a Subsidiary Guarantor, as the case may be, may amend such list of persons from time to time by giving written notice of such amendment to the Agent. Availability shall mean, as of any time of determination either (i) the ------------ positive difference between the aggregate Revolving Credit Commitments and Total Utilization, if the aggregate Revolving Credit Commitments is greater than Total Utilization at such time, or (ii) zero, if the aggregate Revolving Credit Commitments is less than or equal to Total Utilization at such time. Base Rate shall mean, the greater of (i) the Prime Rate, or (ii) the --------- Federal Funds Effective Rate plus fifty basis points (1/2 of 1%) per annum. Base Rate Option shall mean the interest rate option described in Section ---------------- 2.08(b)(i) hereof. Base Rate Portion shall mean the portion of the Revolving Credit Loans or ----------------- the Swingline Loan which bears, or is to bear, interest under the Base Rate Option. Benefit Arrangement shall mean at any time an "employee benefit plan", ------------------- within the meaning of Section 3(3) of ERISA, which is neither a Plan or a Multiemployer Plan and which is maintained, sponsored or otherwise contributed to, by any member of the ERISA Group. Borrower shall mean The Carbide/Graphite Group, Inc., a corporation -------- organized and existing under the laws of the State of Delaware and its successors and permitted assigns. Borrowing Date shall mean, with respect to any Revolving Credit Loan or the -------------- Swingline Loan, the date for the making thereof, which shall be a Business Day. Business Day shall mean (i) any day other than a Saturday or Sunday or a ------------ legal holiday on which commercial banks in Pittsburgh, Pennsylvania are authorized or required to be closed under the laws of the Commonwealth of Pennsylvania, federal law or other applicable Law of an Official Body, and (ii) if the applicable Business Day relates to any day for the determination of any Euro-Rate, any day that satisfies the conditions of clause (i) above provided that such day is a day on which dealings in Dollar deposits are carried on in the London interbank market. -3- Capital Adequacy Event shall have the meaning ascribed to it in Section ---------------------- 2.12 hereof. Capital Compensation Amount shall have the meaning ascribed to it in --------------------------- Section 2.12 hereof. Capital Stock shall mean any and all shares, of any class (however ------------- designated) of capital stock of a corporation. Cash Collateral Account shall have the meaning ascribed to it in Section ----------------------- 8.02(e) hereof. Cash Interest Expense means for the Borrower and its Subsidiaries for any --------------------- period, gross interest expense for such period net of any interest income for such period plus any interest capitalized during such period and excluding from the calculation of gross interest expense any amortization of capitalized fees (all of the foregoing determined on a consolidated basis and in accordance with GAAP). Cash Equivalents shall mean (i) securities issued or directly and fully ---------------- guaranteed or insured by the United States Government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (ii) time deposits, certificates of deposit and eurodollar time deposits with maturities of not more than six months from the date of acquisition, bankers' acceptances with maturities not exceeding six months from the date of acquisition and overnight bank deposits, in each case with any Lender or with any domestic commercial bank having capital and surplus in excess of $500,000,000, (iii) repurchase obligations with a term of not more than thirty days for underlying securities of any of the types described in clause (i) or (ii) and entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper maturing in 180 days or less rated not lower than A-1 by S&P or P-1 by Moody's on the date of acquisition, and (v) interests in pooled investment funds the assets of which are invested in investments referred to in clauses (i) through (iv) above. Class A Subsidiary Guarantor shall mean Seadrift Coke, L.P., a Texas ---------------------------- limited partnership and each other directly or indirectly owned Subsidiary of the Borrower designated by the Lenders as a "Class A Subsidiary Guarantor" pursuant to Section 3.04 hereof. Closing shall mean the execution and delivery of this Agreement and the ------- other Loan Documents by the parties hereto and thereto on the Closing Date. Closing Date shall mean September 25, 1997. ------------ -4- Commitment Fee shall have the meaning ascribed to it in Section 2.03 -------------- hereof. Compliance Certificate shall mean a certificate executed by the chief ---------------------- financial officer or the controller of the Borrower, substantially in the form of Exhibit "F" hereto. ----------- Consolidated Intangible Assets shall mean, with respect to the Borrower and ------------------------------ its Subsidiaries, all assets properly classified as intangible assets under GAAP, including without limitation goodwill, patents, copyrights, trademarks, trade names, franchises, licenses, organization costs and deferred charges. Consolidated Net Worth shall mean stockholders' equity of the Borrower and ---------------------- its Subsidiaries determined on a consolidated basis, as determined in accordance with GAAP consistently applied. Consolidated Tangible Net Worth shall mean the remainder determined by ------------------------------- subtracting from Consolidated Net Worth the aggregate amount of Consolidated Intangible Assets. Consolidated Total Indebtedness shall mean the Indebtedness of the Borrower ------------------------------- and its subsidiaries determined on a consolidated basis in accordance with GAAP, consistently applied; provided however, that for the purpose of this definition Indebtedness described in items (iv), (v) and (vi) of Section 7.01 shall be excluded. Consolidated Total Indebtedness to EBITDA Ratio shall mean, as of any date ----------------------------------------------- of determination, the ratio of the Borrower's Consolidated Total Indebtedness as of the end of the Borrower's most recently completed Fiscal Quarter to the Borrower's EBITDA for the Borrower's four most recently completed Fiscal Quarters treated as a single accounting period. Default shall mean any event or condition which with notice or passage of ------- time or both of the foregoing, would constitute an Event of Default. Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of ----------------------------- - the United States of America. EBITDA shall mean, for any period, the consolidated net income (or net ------ loss) of the Borrower for such period as determined in accordance with GAAP, plus (a) the sum of (i) depreciation expense, (ii) amortization expense, (iii) - ---- Interest Expense, (iv) total income tax expense, (v) extraordinary or unusual losses (including after tax losses on sales of assets outside of the ordinary course of business and not otherwise included in GAAP extraordinary or unusual losses), (vi) other non-cash charges, and (vii) the net loss of any Person that is accounted for by the equity method of accounting, except to the extent of the amount of dividends or distributions paid to the Borrower, less (b) the sum ---- of (i) extraordinary or unusual gains (including after tax -5- gains on sales of assets outside of the ordinary course of business and not otherwise included in GAAP extraordinary or unusual gains), (ii) other non-cash credits, and (iii) the net income of any Person that is accounted for by the equity method of accounting, except to the extent of the amount of dividends or distributions paid to the Borrower. Environmental Complaint shall mean any written complaint setting forth a ----------------------- cause of action for personal or property damage or equitable relief, or any order, notice of violation or citation issued pursuant to any Environmental Laws by an Official Body or arising out of, or issued pursuant to, any Environmental Laws or any Environmental Conditions. Environmental Conditions shall mean any conditions of the environment, ------------------------ including, without limitation, the work place, the ocean, natural resources (including flora or fauna), soil, surface water, ground water, any actual or potential drinking water supply sources, substrata or the ambient air, relating to or arising out of, or caused by the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaking, pumping, emptying, discharging, injecting, escaping, leaching, disposal, dumping, threatened release or other management or mismanagement of Regulated Substances resulting from the use of, or operations on, the Property. Environmental Laws shall mean all federal, state and local laws and ------------------ regulations, including permits, orders, judgments, consent decrees issued, or entered into by Borrower or a Subsidiary of the Borrower, pursuant thereto, relating to pollution or protection of human health or the environment or employee safety in the work place. ERISA shall mean the Employee Retirement Income Security Act of 1974, as ----- the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, in each case as from time to time in effect. ERISA Group shall mean, at any time, the Borrower and all members of a ----------- controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code. Euro-Rate shall mean for any day, as used herein, for each segment of the --------- Euro-Rate Portion corresponding to a proposed or existing Euro-Rate Interest Period, the interest rate per annum determined by the Agent by dividing (the resulting quotient rounded upward to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the average of the London interbank offered rates of interest per annum set forth on Telerate display page 3750 or such other display page on the Telerate System as may replace such page to evidence the average of rates quoted by banks designated by the British Bankers' Association (or -6- an appropriate successor, or, if the British Bankers' Association or its successor ceases to provide such quotes a comparable replacement determined by the Agent) two (2) Business Days prior to the first day of such Euro-Rate Interest Period in an amount comparable to such Euro-Rate Portion for such Euro- Rate Interest Period and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the following formula: Telerate page 3750 quoted by British Euro-Rate = Banker's Association or appropriate successor --------------------------------------------- 1.00 - Euro-Rate Reserve Percentage The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding on the effective date of any change in the Euro-Rate Reserve Percentage as of such effective date. The Agent shall give prompt notice to the Borrower of the Euro-Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error. Euro-Rate Interest Period shall mean any individual period equal to be one ------------------------- (1), two (2), three (3) or six (6) months selected by the Borrower commencing on the Borrowing Date, a conversion date or a renewal date of a Euro-Rate Portion to which such period shall apply. Euro-Rate Option shall mean the interest rate option described in Section ---------------- 2.08b(ii) hereof. Euro-Rate Portion shall mean each portion of the Revolving Credit Loans ----------------- which bears, or is to bear, interest under the Euro-Rate Option; and the term Euro-Rate Portions shall mean collectively all such portions of the Revolving - ------------------ Credit Loans which bear, or are to bear, interest under the Euro-Rate Option. Euro-Rate Reserve Percentage shall mean for any day the percentage ---------------------------- (expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error) which is in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including, without limitation, supplemental, marginal and emergency reserve requirements) for the Agent with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D promulgated by the Federal Reserve Board). Event of Default shall have the meaning ascribed to it in Section 8.01 ---------------- hereof. -7- Expiration Date shall mean September 30, 2002, or such later date as --------------- determined by the Lenders in accordance with Section 2.01(b). Federal Bankruptcy Code shall mean the bankruptcy code of the United States ----------------------- of America codified in Title 11 of the United States Code, as from time to time amended or supplemented. Federal Funds Effective Rate shall mean for any day the rate per annum ---------------------------- (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day (or if such day is not a Business Day, the previous Business Day) as being the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the "Federal Funds Effective Rate" as of the date of this Agreement. Federal Reserve Board shall mean the Board of Governors of the United --------------------- States Federal Reserve System as constituted from time to time. Fee shall mean any of the Commitment Fee, the Letter of Credit Fee, the L/C --- Fronting Fee, the Underwriting Fee and the Agent's Fee. Fiscal Quarter shall mean each three month fiscal period of the Borrower -------------- beginning respectively on each August 1, November 1, February 1 and May 1 during the term hereof and ending on the immediately succeeding October 31, January 31, April 30 and July 31. Fiscal Year shall mean each 12-month fiscal period of the Borrower ----------- beginning August 1 and ending on the immediately succeeding July 31. GAAP shall mean, subject to the provisions of Section 1.03 hereof, ---- generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be recognized by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. Guaranty or Guarantee shall mean any obligation, direct or indirect, by --------------------- which a Person undertakes to guaranty, assume or remain liable for the payment of another Person's obligations, including but not limited to (i) endorsements of negotiable instruments, (ii) discounts with recourse, (iii) agreements to pay upon a second Person's failure to pay, (iv) agreements to -8- maintain the capital, working capital solvency or general financial condition of a second Person and (v) agreements for the purchase or other acquisition of products, materials, supplies or services, if in any case payment therefor is to be made regardless of the non-delivery of such products, materials or supplies or the non-furnishing of such services. Indebtedness shall mean as to any person at any time, any and all ------------ indebtedness, obligations or liabilities of such person for or in respect of: (i) borrowed money, (ii) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility, (iii) reimbursement obligations under any letter of credit, currency swap agreement, hedging contracts, interest rate swap, cap, collar or floor agreement or other interest rate management device, raw materials management device or commodities management device (except raw materials or commodity management devices entered into in the ordinary course of business), (iv) any forward sale or purchase agreements, capitalized leases or conditional sales agreements having the commercial effect of a borrowing of money entered into by such person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business), or (v) any Guaranty of any of the foregoing. Indenture shall mean that certain Indenture dated as of August 26, 1993, --------- as amended, by and between the Borrower and State Street and Trust Company concerning the issuance of the 11.5% senior notes due September 1, 2003, together with all extensions, renewals, amendments, substitutions and replacements thereto and thereof. Interest Expense shall mean interest expense, as determined in accordance ---------------- with GAAP, as appearing on the Borrower's financial statements. Interest Hedge Agreement shall mean any interest rate swap agreement, ------------------------ interest rate cap agreement, interest rate collar agreement, interest rate insurance or any other agreement or arrangement designed to provide protection against fluctuations in interest rates. Interest Payment Date shall have the meaning ascribed to it in Section 2.08 --------------------- hereof. Interest Rate Option shall mean the Euro-Rate Option or Base Rate Option. -------------------- Internal Revenue Code shall mean the Internal Revenue Code of 1986, as the --------------------- same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect. Inventory shall mean, with respect to the Borrower or any Subsidiary --------- Guarantor, any and all now owned or hereafter acquired goods, merchandise, raw material, work-in-process and finished goods inventory and other tangible personal property intended for sale or lease and all materials and supplies which are used or consumed in selling or furnishing such goods, -9- merchandise or other personal property, in the custody or possession, actual or constructive, of the Borrower or any Subsidiary Guarantor, as the case maybe, including such inventory as is on consignment to third parties, leased to customers of the Borrower or any Subsidiary Guarantor, as the case maybe, or otherwise temporarily out of the custody or possession of the Borrower or any Subsidiary Guarantor, as the case maybe. L/C Fronting Fee shall have the meaning ascribed to it in Section 2.17(b) ---------------- of this Agreement. L/C Issuer shall mean PNC Bank, National Association, as the issuer of ---------- Letters of Credit pursuant to Section 2.17, and any successor to PNC Bank, National Association as the issuer of Letters of Credit hereunder. Labor Contracts shall have the meaning ascribed to it in Section 4.19 --------------- hereof. Law shall mean any law (including common law), constitution, statute, --- treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree or award of any Official Body. Lender Obligations shall mean collectively, (i) all unpaid principal and ------------------ accrued and unpaid interest under the Revolving Credit Loans and the Swingline Loan, (ii) all accrued and unpaid Fees hereunder or under any of the other Loan Documents, (iii) the face amount of all Letters of Credit then outstanding, together with all Unreimbursed L/C Draws and all accrued and unpaid interest on such Unreimbursed L/C Draws, (iv) the actual (as opposed to nominal) credit exposure determined in accordance with standard industry practices to any Lender or Affiliate of a Lender under an Interest Hedge Agreement between such Person and the Borrower, (v) any other amounts payable hereunder or under any of the other Loan Documents, including all reimbursements, indemnities, fees, costs, expenses, prepayment premiums and other obligations of the Borrower to a Lender (in any capacity hereunder) or any indemnified party hereunder, (vi) all out-of- pocket costs and expenses incurred by the Agent in connection with this Agreement or any other Loan Documents, including but not limited to the reasonable fees and expenses of the Agent's counsel, (vii) all out-of-pocket costs and expenses incurred by a Lender after an Event of Default in connection with any administration or enforcement of the Loan Documents , including but not limited to the reasonable fees and expenses of such Lender's counsel, and (vii) all other liabilities, obligations, covenants, duties and Indebtedness of the Borrower to the Agent, the L/C Issuer and the Lenders of any and every kind and nature, arising under this Agreement or the other Loan Documents, whether heretofore, now or hereafter owing, arising, due or payable from the Borrower to the Agent, the L/C Issuer or the Lenders. -10- Lenders shall mean the financial institutions named on Schedule 1.01(a) ------- ---------------- hereto and their respective successors and assigns as permitted hereunder, each of which is referred to herein as a Lender. ------ Letter of Credit shall mean any standby letter of credit issued by the L/C ---------------- Issuer for the account of the Borrower upon the application of the Borrower pursuant to this Agreement, and all extensions, renewals, amendments, substitutions and replacements thereto and thereof. Letter of Credit Fee shall have the meaning ascribed to it in Section 2.17. -------------------- Lien shall mean any mortgage, deed of trust, pledge, lien, security ---- interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including but not limited to any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing). Loans shall mean Revolving Credit Loans and Swingline Loans and Loan shall ----- mean separately, any Revolving Credit Loan or Swingline Loan. Loan Account shall mean the loan account maintained by a Lender as more ------------ fully described in Section 2.14 hereof. Loan Disbursement Account shall have the meaning ascribed to it in Section ------------------------- 3.02 hereof. Loan Documents shall mean this Agreement, the Notes, any Application and -------------- Agreement for Letter of Credit, the Reimbursement Agreement, the Security Documents, any Interest Rate Hedge Agreement executed by a Lender or an affiliate of a Lender, any Subordination Agreement and any other agreements, instruments, certificates or documents contemplated thereby, as any of the same may be supplemented or amended from time to time in accordance herewith or therewith; and Loan Document shall mean any of the Loan Documents. ------------- Loan Request shall mean a request for Revolving Credit Loans made in ------------ accordance with Section 2.05 hereof which request shall be substantially in the form of Exhibit "D" hereto. ----------- Margin Regulations shall mean Regulation G, T, U or X as promulgated by the ------------------ Board of Governors of the Federal Reserve System, as amended from time to time. -11- Material Adverse Change shall mean any set of circumstances or events which ----------------------- (a) has or would reasonably be expected to have any material adverse effect upon the validity or enforceability of this Agreement, any Notes, any Application and Agreement for Letter of Credit or any Security Document, taken as a whole (b) is or would reasonably be expected to be material and adverse to the business, properties, assets, financial condition or results of operations of the Borrower and its Subsidiaries, taken as a whole or (c) impairs materially or would reasonably be expected to impair materially the ability of the Borrower, or a Subsidiary Guarantor, to duly and punctually pay or perform each such party's respective obligations under the Loan Documents. Maximum Purchase Commitment shall mean the maximum amount the purchaser in --------------------------- a Securitization Contract is committed to purchase at any one time during the term of such Securitization Contract. Moody's shall mean Moody's Investors Service, Inc., a corporation organized ------- and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Agent, with the approval of the Borrower, by notice to the Lenders. Multiemployer Plan shall mean any employee benefit plan which is a ------------------ "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to which the Borrower or any member of the ERISA Group is then making or accruing an obligation to make contributions or, within the preceding five Plan years, has made or had an obligation to make such contributions. Multiple Employer Plan shall mean a Plan which has two or more contributing ---------------------- sponsors (including the Borrower or any member of the ERISA Group) at least two of whom are not under common control, as such a plan is described in Sections 4063 and 4064 of ERISA. Notes shall mean collectively all of the Revolving Credit Notes and the ----- Swingline Note and Note separately shall mean any Revolving Credit Note and the ---- Swingline Note. October 1997 Delivery Date shall mean the date on which the Borrower's -------------------------- financial statements and Compliance Certificate for the Fiscal Quarter Ending October 31, 1997 are required to be delivered to the Lenders pursuant to items (i) and (iii) of Section 6.02. Official Body shall mean any national, federal, state, local or other ------------- government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. -12- Participant shall mean any bank or financial institution which acquires ----------- from any Lender an undivided interest in the Lender's Ratable Share of the Revolving Credit Commitments, Revolving Credit Loans, Letters of Credit and Unreimbursed L/C Draws, pursuant to Section 10.05. Participation shall mean the sale, made in accordance with the provisions ------------- of Section 10.05, by any Lender to any Participant of an undivided interest in such Lender's Ratable Share of the Revolving Credit Commitments, Revolving Credit Loans, Letters of Credit and Unreimbursed L/C Draws. PBGC shall mean the Pension Benefit Guaranty Corporation established ---- pursuant to Subtitle A of Title IV of ERISA or any other governmental agency, department or instrumentality succeeding to the functions of said corporation. Permitted Liens shall mean: --------------- (i) Liens for taxes, assessments, governmental levies or similar charges incurred in the ordinary course of business and which are not yet due and payable, or if due and payable, (aa) are being contested in good faith and by appropriate and lawful proceedings diligently conducted, but only so long as such proceedings could not subject the Agent, the Lenders or the L/C Issuer to any (1) civil or criminal penalties or liabilities or (2) involve any risk of loss, sale or forfeiture of any Assigned Collateral or the Subsidiary Assigned Collateral not otherwise protected against and (bb) for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made and (cc) which shall be paid in accordance with the terms of any final judgments or orders relating thereto within thirty (30) days after the entry of such judgments or orders and (dd) which do not impair the first priority lien of the Agent for the benefit of the Agent, the Lenders and the L/C Issuer in the Receivables, the Inventory or the proceeds thereof; (ii) Pledges or deposits made in the ordinary course of business to secure payment of workmen's compensation, or to participate in any fund in connection with workmen's compensation, unemployment insurance, old-age pensions, other social security programs or similar program or to secure liability to insurance -13- carriers under insurance or self-insurance agreements or arrangement; (iii) Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default, or if such Liens are due and payable, (aa) are being contested in good faith and by appropriate and lawful proceedings diligently conducted and (bb) for which such reserves or other appropriate provisions, if any, as required by GAAP shall have been made and (cc) which shall be paid in accordance with the terms of any final judgments or orders relating thereto within thirty (30) days after the entry of such judgments or orders; (iv) Pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amounts due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (v) (aa) Encumbrances consisting of zoning restrictions, easements, rights-of-way, or other restrictions on the use of real property, (bb) defects in title to real property, and (cc) Liens, encumbrances and title defects affecting real property not known by the Borrower or a Subsidiary, as applicable, and not discoverable by a search of the public records, none of which materially impairs the use of such property; (vi) Liens, security interests and mortgages in favor of the Agent for the benefit of the Agent, the Lenders and the L/C Issuer; (vii) (aa) Liens on assets of a Person which is merged into or acquired by the Borrower or a Subsidiary of the Borrower after the date of this Agreement, and (bb) Liens on assets acquired after the date of this Agreement, provided that (A) -------- such Liens existed at the time of such merger or acquisition and were not created in anticipation thereof, (B) no such Lien is spread to cover any property or assets of the Borrower or any Subsidiary of the Borrower and (C) the principal amount of Indebtedness secured thereby is not increased -14- from the amount outstanding immediately prior to such merger or acquisition; (viii) Liens created by or resulting from any litigation or legal proceedings which are currently being contested in good faith by appropriate and lawful proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made and Liens arising out of judgments or orders for the payment of money which do not constitute an Event of Default hereunder; (ix) Liens placed upon fixed assets or equipment hereafter acquired to secure all or a portion of the purchase price thereof, provided that any such lien shall not encumber any other property of the Borrower; (x) other Liens incidental to the conduct of the Borrower's business or the ownership of its property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit, and which do not in the aggregate materially detract from the value of the Borrower's property or assets or which do not materially impair the use thereof in the operation of the Borrower's business; and (xi) Leases or subleases including existing operating leases in favor of PNC Leasing Corp. not otherwise prohibited by this Agreement or other Loan Documents; provided, however, -------- ------- nothing set forth in items (ii) through (xi) of this definition shall permit or authorize Liens on any of the Assigned Collateral or Subsidiary Assigned Collateral except in favor of the Agent for the benefit of the Agent, the Lenders and the L/C Issuer. Person or person shall mean any individual, corporation, partnership, ---------------- association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity. Plan shall mean at any time an employee pension benefit plan (including a ---- Multiple Employer Plan but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained by any entity which -15- was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group. PNC Bank shall mean PNC Bank, National Association, and its successors and -------- assigns. Portions shall mean collectively the Base Rate Portions and the Euro-Rate -------- Portions; and the term Portion shall mean individually any of the Portions. ------- Prime Rate shall mean for any day, a fluctuating interest rate per annum ---------- equal to the rate of interest which the Agent announces from time to time as its prime lending rate, which rate may not be the lowest rate then being charged by the Agent to commercial borrowers. Principal Office shall mean the principal commercial banking office of the ---------------- Agent in Pittsburgh, Pennsylvania. Prohibited Transaction shall mean any prohibited transaction as defined in ---------------------- Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which neither a statutory, an individual nor a class exemption has been issued by the United States Department of Labor. Property shall mean, and refer to, each parcel of real property, whether -------- owned in fee or leased, of the Borrower or a Subsidiary. Purchasing Lender shall mean a Lender which becomes a party to this ----------------- Agreement by executing an Assignment and Assumption Agreement. Ratable Share shall mean the proportion that a Lender's Revolving Credit ------------- Commitment bears to the Revolving Credit Commitments of all of the Lenders, respectively. Receivable shall mean, with respect to the Borrower or any Subsidiary ---------- Guarantor, all accounts, accounts receivable, contract rights related to such accounts, instruments, chattel paper, general intangibles related to such accounts and all other rights to payments of moneys for any reason (whether or not evidenced by a contract, instrument, chattel paper or document), and all other rights, powers and privileges of the Borrower, or any Subsidiary Guarantor, as the case may be, arising thereunder or related thereto (including but not limited to all guarantees, collateral security, surety bonds, rights under letters of credit, insurance or other direct or indirect security), assertible against any Person whatever and all rebates, refunds, adjustments and returned, rejected, or repossessed goods relating thereto and all proceeds of any of the foregoing. Register shall have the meaning ascribed to it in Section 10.05(c). -------- -16- Regulated Substances shall mean any substance, including without limitation -------------------- Solid Waste, the generation, manufacture, processing, distribution, treatment, storage, disposal, transport, recycling, reclamation, use, reuse or other management or mismanagement of which is regulated by the Environmental Laws. Reimbursement Agreement shall mean the Reimbursement Agreement ----------------------- substantially in the form of Exhibit "C-2" as the same may be supplemented and ------------- amended from time to time. Reportable Event shall mean any of the events or occurrences set forth in ---------------- Section 4043(b) of ERISA. Required Lenders shall mean Lenders whose Revolving Credit Commitments ---------------- aggregate at least 51% of the Revolving Credit Commitments of all of the Lenders. Revolving Credit Commitment shall mean as to any Lender at any time, the --------------------------- amount initially set forth opposite its signature hereto, and thereafter on Schedule I to the most recent Assignment and Assumption Agreement, as the same may be reduced pursuant to Sections 2.04 or 2.10(a) hereof, and Revolving Credit ---------------- Commitments shall mean the aggregate Revolving Credit Commitments of all of the - ----------- Lenders. Revolving Credit Loans shall mean collectively, all Revolving Credit or any ---------------------- Revolving Credit Loan and Revolving Credit Loan shall mean any Revolving Credit --------------------- Loan made by the Lenders or one of the Lenders to the Borrower pursuant to Section 2.01 hereof. Revolving Credit Notes shall mean collectively all the promissory notes of ---------------------- the Borrower in the form of Exhibit "A-1" hereto and Revolving Credit Note shall ------------- mean separately each promissory note of the Borrower substantially in the form of Exhibit A-1 hereto in each case evidencing the Revolving Credit Loans together with all amendments, extensions, renewals, replacements, refinancings or refundings thereof or thereto in whole or in part. S&P shall mean Standard & Poor's Ratings Group, a division of McGraw Hill --- Corporation, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Agent, with the approval of the Borrower, by notice to the Lenders. Securitization shall mean the monetizing of Receivables of the Borrower and -------------- the consolidated Subsidiaries. -17- Securitization Contract shall mean a contract between the Borrower or a ----------------------- consolidated Subsidiary on the one hand and the purchaser of receivables on the other hand relating to a Securitization. Security Agreement shall mean a security agreement, substantially the form ------------------ of Exhibit "B" attached hereto and incorporated herein by reference, together in ----------- each case with all extensions, renewals, amendments, substitutions and replacements thereto and thereof. Security Documents shall mean the Security Agreement, any Subsidiary ------------------ Guaranty, any Subsidiary Security Agreement, the Uniform Commercial Code filings and any and all security agreements, pledge agreements, mortgages, deeds of trust, other agreements and other documents (including without limitation financing statements) related to the creation, perfection or maintenance of Liens in favor of the Agent in any assets of the Borrower or a Subsidiary Guarantor as security for the Lender Obligations. Senior Notes shall mean those certain 11-1/2% per annum senior notes of the ------------ Borrower due September 1, 2003 issued pursuant to the Indenture; and the term Senior Note shall mean any of the Senior Notes. ----------- Solid Waste shall mean any garbage, refuse or sludge from any waste ----------- treatment plant, water supply treatment plant or air pollution control facility generated by activities on the Property, and any unpermitted release into the environment or the work place of any material as a result of activities on the Property, including without limitation, baghouse dust, dross, scrap and used Regulated Substances. Solvent shall mean, with respect to any person on a particular date, that ------- on such date (i) the fair value of the property of such person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such person, (ii) the present fair salable value of the assets of such person is not less than the amount that will be required to pay the probable liability of such person on its debts as they become absolute and matured, (iii) such person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such person does not intend to, and does not believe that it will, incur debts or liabilities beyond such person's ability to pay as such debts and liabilities mature, and (v) such person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. -18- Stated Amount shall mean as to any Letter of Credit, the lesser of (i) the ------------- face amount thereof or (ii) the remaining available undrawn amount thereof (regardless of whether any conditions for drawing could then be met). Subordination Agreement shall mean a subordination agreement executed by a ----------------------- Subsidiary of the Borrower as the subordinated creditor, the Borrower or a Subsidiary of the Borrower as the debtor and the Agent on behalf of the Lenders as senior creditors each substantially in the form of Exhibit "L" hereto together with all extensions, renewals, amendments, substitutions and replacements thereto and thereof. Subordinated Note shall mean either or both and Subordinated Notes shall ----------------- ------------------ mean both (i) the demand note dated January 17, 1995 by the Borrower as maker to CG Specialty Products Management Corporation in the principal amount of Forty- Nine Million Nine Hundred Forty Thousand Five Hundred Fifty Dollars ($49,940,550) and (ii) the demand note dated March 25, 1995 by the Borrower as maker to CG Specialty Products Management Corporation in the principal amount of Three Million Two Hundred Forty Three Thousand Nine Hundred Eighty Dollars and Seventy Five Cents ($3,243,980.75) and all extensions, renewals, amendments, substitutions and replacements thereto and thereof. Subsidiary of any person at any time shall mean any corporation or trust of ---------- which more than 50% (by number of shares or number of votes) of the outstanding Capital Stock or shares of beneficial interest normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such person or one or more of such person's Subsidiaries, or any partnership of which such person is a general partner or of which more than 50% of the partnership interests is at the time directly or indirectly owned by such person or one or more of such person's Subsidiaries. Subsidiary Assigned Collateral shall mean "Assigned Collateral", as ------------------------------ described in the Subsidiary Security Agreement executed by each Class A Subsidiary Guarantor. Subsidiary Guarantor shall mean each Class A Subsidiary Guarantor and each -------------------- other Subsidiary of the Borrower incorporated or organized in the United States of America. Subsidiary Guaranty shall mean a guaranty agreement executed by a ------------------- Subsidiary Guarantor substantially in the form of Exhibit "I" attached hereto, ----------- together in each case with all extensions, renewals, amendments, substitutions and replacements thereto and thereof. Subsidiary Security Agreement shall mean a security agreement executed by a ----------------------------- Class A Subsidiary Guarantor, substantially in the form of Exhibit "J" attached ----------- hereto and -19- incorporated herein by reference, together in each case with all extensions, renewals, amendments, substitutions and replacements thereto and thereof. Supplemental Documentation shall mean agreements, instruments, documents, -------------------------- financing statements, warehouse receipts, bills of lading, notices of assignment of accounts, schedules of accounts assigned, and other written matter necessary or reasonably requested by Agent to perfect and maintain perfected Agent's lien and security interest for the benefit of the Agent, the Lenders and the L/C Issuer in the Assigned Collateral or the Subsidiary Assigned Collateral. Swingline Loan shall mean a disbursement made by PNC to Borrower pursuant -------------- to Section 2.13. Swingline Note shall mean the promissory note of the Borrower evidencing -------------- Indebtedness of the Borrower under the Swingline Option which note is substantially in the form of Exhibit "A-2" to the Agreement, together with all ------------- extensions, renewals, amendments, modifications, substitutions and replacements thereto and thereof. Swingline Option shall mean the loan option between the Borrower and PNC ---------------- Bank pursuant to Section 2.13 hereof. Tender Offer shall mean the tender for the Senior Notes made pursuant to ------------ the tender offer announced August 29, 1997 which offer has an expiration date of September 26, 1997, unless otherwise extended. Total Utilization shall mean as of the time of determination the sum of ----------------- Revolving Credit Loans outstanding, Swingline Loans outstanding, the Unreimbursed L/C Draws outstanding and the aggregate Stated Amount of the Letters of Credit outstanding. Transfer Effective Date shall have the meaning ascribed to it in the ----------------------- applicable Assignment and Assumption Agreement. Transferor Lender shall mean the selling Lender pursuant to an Assignment ----------------- and Assumption Agreement. Uniform Commercial Code or UCC shall mean the Pennsylvania Uniform ------------------------------ Commercial Code and, if applicable, the Uniform Commercial Code in effect in the state in which the place of business of the Borrower is located, or, if the Borrower has more than one place of business, the state in which the Borrower has its Chief Executive Office. -20- Underwriting Fee. The fee due the Agent pursuant to the letter agreement ----------------- dated August 15, 1997 between the Borrower and the Agent. Unreimbursed L/C Draw shall have the meaning ascribed to it in Section --------------------- 2.17(f). 1.02. Construction. ------------ (a) Unless the context of this Agreement otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole, "or" has the inclusive meaning represented by the phrase "and/or," and "including" has the meaning represented by the phrase "including without limitation." References in this Agreement to "determination" of or by the Agent, L/C Issuer or the Lenders shall be deemed to include reasonable good faith estimates by the Agent, L/C Issuer or the Lenders (in the case of quantitative determinations) and reasonable and good faith beliefs by the Agent, L/C Issuer or the Lenders (in the case of qualitative determinations). Whenever the Agent, L/C Issuer or the Lenders are granted the right herein to act in its or their sole discretion or to grant or withhold consent such right shall be exercised reasonably and in good faith. The words "hereof," "herein," "hereunder" and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. The article, section and other headings contained in this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation thereof in any respect. Article, Section, schedule and exhibit references are to this Agreement unless otherwise specified. Except as otherwise specified in this Agreement, all references in this Agreement (i) to any Person, other than the Borrower, shall be deemed to include such Person's successors and assigns, and (ii) to any Law, agreement or contract specifically defined or referred to in Agreement shall be deemed references to such Law, agreement or contract as the same may be amended, supplemented, modified, extended, waived, consolidated, replaced or renewed from time to time, but only to the extent permitted by, and effected in accordance with, the terms thereof. (b) For purposes of this Agreement, all terms used in Article 9 of the UCC and not specifically defined in this Agreement shall herein have the meanings assigned to such terms in the UCC as from time to time in effect in the Commonwealth of Pennsylvania. (c) References to "writing" include printing, typing, lithography and other means of reproducing words in a tangible visible form. References to "written" include "printed", "typed", "lithographed" and other adjectives relating to words reproduced in a tangible visible form consistent with the preceding sentence and also include electronic images and images stored on computer disks, magnetic tape and like media. 1.03. Accounting Principles. Except as otherwise provided in this --------------------- Agreement, all computations and determinations as to accounting or financial matters and all financial state- -21- ments to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. ARTICLE II REVOLVING CREDIT FACILITY ------------------------- 2.01. Revolving Credit Commitments. (a) Subject to the terms and ---------------------------- conditions hereof and relying upon the representations and warranties herein set forth, each Lender severally agrees to make revolving credit loans (the "Revolving Credit Loans") to the Borrower at any time or from time to time on or - ----------------------- after the date hereof to, but not including, the Expiration Date, provided that -------- the aggregate principal amount of each Lender's Revolving Credit Loans outstanding hereunder to the Borrower shall not exceed at any one time such Lender's Ratable Share of the aggregate Revolving Credit Commitments minus such Lender's Ratable Share of the sum of (i) the aggregate Stated Amount of outstanding Letters of Credit issued pursuant to Section 2.17 and (ii) the aggregate amount of Unreimbursed L/C Draws. Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section 2.01. The aggregate amount of the Revolving Credit Commitments on the Closing Date is $125,000,000. All Revolving Credit Commitments shall expire on the Expiration Date; and all Revolving Credit Loans outstanding on the Expiration Date shall become due and payable in full on such date. (b) Extension of Expiration Date. Commencing in 1998, upon the ---------------------------- written request of the Borrower directed to the Agent given not earlier than the delivery of the audited financial statements of the Borrower and its Subsidiaries for the Fiscal Year just ended nor later than November 15 immediately following the last day of the Fiscal Year covered by the most recently delivered audited financial statements of the Borrower and its Subsidiaries, at the sole and absolute discretion of the Lenders, the Lenders may extend the Expiration Date then in effect in one year increments measured from the Expiration Date in effect on the date that each such request is received; provided however the initial extension of the Expiration Date shall alter the Expiration Date from September 30, 2002 to December 31, 2003 and thereafter each subsequent extension of the Expiration Date shall be to the next successive December 31st; and provided further, that the initial extension of ---------------- the Expiration Date, if granted, shall not become effective until January 1, 1999. It is understood that the first such request for an extension of the Expiration Date may not be made until the delivery to the Bank of the audited financial statements of the Borrower and its Subsidiaries for the Fiscal Year ending July 31, 1998, and in any event the first such request must be made on or before November 15, 1998. No such extension of an Expiration Date shall be effective unless the Borrower shall have received a written notice of all Lenders which consents to such extension. -22- 2.02. Nature of Lenders' Obligations with Respect to Revolving Credit --------------------------------------------------------------- Loans. Each Lender shall be obligated to participate in each request for - ----- Revolving Credit Loans pursuant to Section 2.05 hereof in accordance with its Ratable Share. The aggregate principal amount of each Lender's Revolving Credit Loans outstanding hereunder to the Borrower at any time shall never exceed such Lender's Ratable Share of the aggregate Revolving Credit Commitments minus such Lender's Ratable Share of the sum of (i) Swingline Loans outstanding, (ii) the aggregate Stated Amount of the outstanding Letters of Credit and (iii) the aggregate amount of Unreimbursed L/C Draws. The obligations of each Lender hereunder are several. The failure of any Lender to perform its obligations hereunder shall not affect the obligations of the Borrower, or any other Lender, to any other party nor shall the Borrower, or any other Lender, be liable for the failure of such Lender to perform its obligations hereunder. The Lenders shall have no obligation to make Revolving Credit Loans hereunder on or after the Expiration Date. 2.03. Commitment Fee. Accruing from Closing Date until the Expiration -------------- Date, the Borrower agrees to pay to the Agent for the account of each Lender, as consideration for such Lender's Revolving Credit Commitment hereunder, a commitment fee (the "Commitment Fee") equal to the Applicable Commitment Fee per -------------- annum, as determined below, (all computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) on the average daily amount equal to such Lender's Revolving Credit Commitment minus such Lender's Ratable Share of Total Utilization. All Commitment Fees shall be payable (i) quarterly in arrears beginning October 31, 1997 and continuing on the last Business Day of each Fiscal Quarter occurring during the term of the Revolving Credit Commitment thereafter, (ii) on the Expiration Date and (iii) upon acceleration of the Notes. For purposes of this Agreement, the term "Applicable Commitment Fee" shall mean ------------------------- the rate per annum set forth in the chart below which corresponds to the range of ratios in which the Borrower's Consolidated Total Indebtedness to EBITDA Ratio, as at the end of the preceding fiscal quarter, falls: -23-
- -------------------------------------------------------------------------------- Consolidated Total Indebtedness Applicable to EBITDA Ratio Commitment Fee - -------------------------------------------------------------------------------- Less than or equal to 1.5 to 1.0 .15% - -------------------------------------------------------------------------------- Greater than 1.5 to 1.0 but less than or equal to 2.0 to 1.0 .175% - -------------------------------------------------------------------------------- Greater than 2.0 to 1.0 but less than or equal to 2.5 to 1.0 .20% - -------------------------------------------------------------------------------- Greater than 2.5 to 1.0 .225% - --------------------------------------------------------------------------------
All such adjustments shall be determined as of the date the Borrower's quarterly financial statements and Compliance Certificate are required to be delivered to the Lenders pursuant to items (i) and (iii) of Section 6.02. The foregoing notwithstanding the Applicable Commitment Fee from the Closing Date to and including the October 1997 Delivery Date shall be .175%. 2.04 Reductions of Revolving Credit Commitment. ----------------------------------------- (a) Voluntary Reduction of Revolving Credit Commitments. Subject to --------------------------------------------------- the provisions of Section 2.09 hereof, at any time and from time to time upon at least five (5) Business Days' prior written notice to the Agent, the Borrower may terminate, in whole or in part, without penalty, the then unused portion of the Revolving Credit Commitments, thereby causing a corresponding abatement of the Commitment Fee. Each such reduction shall be in a minimum principal amount of $5,000,000 or, if in excess of $5,000,000, in integral multiples of $1,000,000. The Commitment Fee shall cease to accrue with respect to any unused portion of the Revolving Credit Commitments so terminated five (5) Business Days after receipt of such notice. Notice of termination once given shall be irrevocable and the portion of the Revolving Credit Commitments so terminated shall not be available for borrowing once such notice has been given under the terms hereof. The Agent shall promptly notify each Lender of its Ratable Share of such terminated unused portion and the date of each such termination. (b) Mandatory Reduction of Revolving Credit Commitment. The Borrower, subject to the provisions of Section 2.09, shall be required to reduce the Revolving Credit Commitment and immediately repay outstanding Revolving Credit Loans which cause the Total Utilization to be in excess of the Revolving Credit Commitment, as so reduced, in each of the following amounts in each of the following circumstances: -24- (x) on the date of sale, by the amount of the Maximum Purchase Commitment; and (y) on the date of funding by the amount of any Indebtedness issued by the Borrower or any of its Subsidiaries pursuant to item (vii) of Section 7.01. 2.05. Revolving Credit Loan Requests. Except as otherwise provided herein, ------------------------------ the Borrower may from time to time prior to the Expiration Date request the Lenders to make Revolving Credit Loans to the Borrower by the delivery to the Agent, not later than Noon (Pittsburgh, Pennsylvania time) (i) three (3) Business Days prior to the proposed Borrowing Date with respect to the making of Revolving Credit Loans to which the Euro-Rate Option applies for any Revolving Credit Loans; and (ii) on the Business Day of the proposed Borrowing Date with respect to the making of a Revolving Credit Loan to which the Base Rate Option applies of a duly completed request therefor substantially in the form of Exhibit "D" hereto or a request by telephone immediately confirmed in writing by - ----------- letter or facsimile in such form (each, a "Loan Request"), it being understood ------------ that the Agent may rely on the authority of any person making such a telephonic request without the necessity of receipt of such written confirmation. Each Loan Request shall be irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the aggregate amount of the proposed Revolving Credit Loans to be made on such Borrowing Date, which amount shall be in integral multiples of $100,000 and not less than $1,000,000; (iii) subject to Section 2.08(d), whether the Euro-Rate Option or the Base Rate Option shall apply to the proposed Revolving Credit Loans to be made on such Borrowing Date; and (iv) in the case of Revolving Credit Loans to which the Euro-Rate Option applies and subject to Sections 2.08(d) and 2.08(e), an appropriate Euro-Rate Interest Period for each Euro-Rate Portion of the Revolving Credit Loans to be made on such Borrowing Date. 2.06. Making Revolving Credit Loans. Subject to Section 9.03, the Agent ----------------------------- shall, promptly after receipt by it of a Loan Request pursuant to Section 2.05 (but not later than noon (Pittsburgh, Pennsylvania time) on the Borrowing Date for same day funding and 2:00 p.m. (Pittsburgh, Pennsylvania time) on the second Business Day preceding any Borrowing Date for which any Portion of the Revolving Credit Loans to be made on such Borrowing Date bears interest at the Euro-Rate Option), notify the Lenders of its receipt of such Loan Request specifying: (i) the proposed Borrowing Date and the time and method of disbursement of such Revolving Credit Loan; (ii) the amount and type of such Revolving Credit Loan and the applicable Euro-Rate Portions and Euro-Rate Interest Periods (if any); and (iii) the apportionment among the Lenders of the Revolving Credit Loans as determined by the Agent in accordance with Section 2.02 hereof. Subject to Section 9.03, each Lender shall remit the principal amount of each Revolving Credit Loan to the Agent such that the Agent is able to, and the Agent shall, to the extent the Lenders have made funds available to it for such purpose, fund such Revolving Credit Loan to the Borrower in Dollars and immediately available funds at the Principal Office -25- prior to 2:00 P.M. (Pittsburgh, Pennsylvania time) on the Borrowing Date, provided that if any Lender fails to remit such funds to the Agent in a timely manner, or any Lender fails to advise the Agent of its intention not to fund, then the Agent may elect in its sole discretion to fund with its own funds the Revolving Credit Loan of such Lender on the Borrowing Date. 2.07. Notes and Interest Rates Provisions. The obligation of the Borrower ----------------------------------- to repay the aggregate unpaid principal amount of the Revolving Credit Loans made to the Borrower by each Lender, together with interest thereon, shall be evidenced by a promissory note of the Borrower dated the Closing Date in substantially the form attached hereto as Exhibit "A-1" payable to the order of ------------- each Lender in a face amount equal to the Revolving Credit Commitment of such Lender. 2.08. Interest Payments, Interest Rates and Certain Related Payments -------------------------------------------------------------- Pertaining to the Revolving Credit Loans. - ---------------------------------------- (a) Interest. The Revolving Credit Notes shall bear interest on the -------- actual unpaid principal amount thereof from time to time outstanding from the date thereof until payment in full at the rates of interest set forth in Section 2.08(b). The Borrower shall pay accrued interest on the unpaid principal balance of the Revolving Credit Notes in arrears: (i) with respect to the Base Rate Portion, at the rate specified in the Base Rate Option, (A) on the last Business Day of each Fiscal Quarter during the term of the Revolving Credit Commitment, (B) at maturity, whether by acceleration or otherwise, of the Revolving Credit Notes and (C) thereafter on demand until all amounts evidenced by the Revolving Credit Notes are paid in full; and (ii) with respect to each Euro-Rate Portion, at the rate specified in the Euro-Rate Option, (A) on the last day of the Euro-Rate Interest Period applicable thereto; provided, however, if the Euro-Rate -------- Interest Period chosen for any Euro-Rate Portion exceeds three (3) months, interest on that Euro-Rate Portion shall be due and payable at the end of every three (3) months during such Euro-Rate Interest Period and on the last day of such Euro-Rate Interest Period, (B) at the maturity, whether by acceleration or otherwise, of the Revolving Credit Notes and (C) thereafter on demand until all amounts evidenced by the Revolving Credit Notes are paid in full. (b) Interest Rate Options. During the term hereof, the Borrower --------------------- shall have the option of electing, from time to time, one or more of the Interest Rate Options set forth below to be applied to the Revolving Credit Loans. (i) Base Rate Option. Interest under this Interest Rate Option ---------------- shall accrue, for the Base Rate Portion of the Revolving Credit Loans outstanding, at a rate per -26- annum equal to the Base Rate. The Base Rate shall be adjusted automatically from time to time upon each change in the Prime Rate or the Federal Funds Effective Rate, as the case may be, and in accordance with the provisions of Section 2.08(c). (ii) Euro-Rate Option. Interest under this Interest Rate Option ---------------- shall accrue, for each Euro-Rate Portion of the Revolving Credit Loans outstanding, for any Euro-Rate Interest Period selected, at a rate per annum equal to the sum of (A) the Euro-Rate plus (B) the Applicable Euro- ---- Rate Margin as determined below. The rate of interest established pursuant to the preceding sentence of this Section 2.08(b)(ii) for each Euro-Rate Portion shall be adjusted from time to time in accordance with the provisions of Section 2.08(c). For purposes of this Agreement, the term "Applicable Euro-Rate Margin" shall --------------------------- mean the rate per annum set forth in the chart below which corresponds to the range of ratios in which the Borrower's Consolidated Total Indebtedness to EBITDA Ratio as at the end of the preceding fiscal quarter falls:
- --------------------------------------------------------------------------------- Consolidated Total Indebtedness Applicable Euro-Rate to EBITDA Ratio Margin - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Less than or equal to 1.5 to 1.0 1/2% - --------------------------------------------------------------------------------- Greater than 1.5 to 1.0 but less than or equal to 2.0 to 1.0 5/8% - --------------------------------------------------------------------------------- Greater than 2.0 to 1.0 but less than or equal to 2.5 to 1.0 3/4% - --------------------------------------------------------------------------------- Greater than 2.5 to 1.0 7/8% - ---------------------------------------------------------------------------------
All adjustments shall be determined as of the date the Borrower's quarterly financial statements and Compliance Certificate are required to be delivered pursuant to items (i) and (iii) of Section 6.02. The foregoing notwithstanding the Applicable Euro-Rate Margin from the Closing Date to and including the October 1997 Delivery Date shall be 5/8%. (c) Interest After Maturity. After the occurrence of an Event of ----------------------- Default and during the continuation thereof, the Base Rate Portion shall bear interest at a rate per annum which shall be two hundred (200) basis points (2%) above the Base Rate otherwise in effect during such period. After the occurrence of an Event of Default and during the continuation thereof, all Euro-Rate Portions shall bear interest (i) until the end of the then current Euro-Rate Interest Period for each such Euro-Rate Portion, at a rate per annum which shall be two hundred (200) basis points (2%) above the sum of (A) the Euro-Rate plus ---- (B) the Applicable -27- Euro-Rate Margin otherwise in effect during such period and (ii) at the end of the then current Euro-Rate Interest Period for each such Euro-Rate Portion, such Euro-Rate Portions shall automatically be converted to the Base Rate Portion, and thereafter the interest rate shall be calculated in accordance with the initial sentence of this Section 2.08(c). (d) Interest Periods; Limitations on Elections. At any time when ------------------------------------------ the Borrower shall select, convert to or renew the Euro-Rate Option to apply to all or any portion of the outstanding Revolving Credit Loans, it shall elect one or more Euro-Rate Interest Periods as the case may be. All the foregoing, however, is subject to the following: (i) any Euro-Rate Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next Business Day unless such Business Day falls in the succeeding calendar month in which case such Euro-Rate Interest Period shall end on the next preceding Business Day; and (ii) any Euro-Rate Interest Period which begins on the last day of a calendar month or on a day for which there is no numerically corresponding day in the subsequent calendar month during which such Euro- Rate Interest Period is to end shall end on the last Business Day of such subsequent month. Elections by the Borrower of the Euro-Rate Option shall be subject to the following limitations: (i) The Euro-Rate Portion for each Euro-Rate Interest Period shall be in an aggregate principal amount of $5,000,000 or more; provided, -------- however, that each increment in excess of $5,000,000 shall be $1,000,000 or an integral multiple thereof; (ii) No Euro-Rate Interest Period may be elected at any time that a Default or an Event of Default shall have occurred and be continuing; (iii) No Euro-Rate Interest Period may be elected which would end later than the Expiration Date; (iv) No Euro-Rate Interest Period may be elected with regard to amounts outstanding which would be in excess of the Revolving Credit Commitment; (v) At no time may there be more than eight (8) separate Euro-Rate Interest Periods in effect; and -28- (vi) Until the earlier to occur of (A) completion of syndication as determined by the Agent or (B) ninety days from the Closing Date the Borrower may only elect the one (1) month Euro-Rate Interest Period. (e) Election, Renewal or Conversion of Interest Rate Options. -------------------------------------------------------- Elections or renewals of, or conversions to, the Base Rate Option shall continue in effect until converted or renewed as hereinafter provided. Elections or renewals of, or conversions to, the Euro-Rate Option shall expire as to each Euro-Rate Portion at the expiration of the applicable Euro-Rate Interest Period. At any time with respect to the Base Rate Portion or at the expiration of the applicable Euro-Rate Interest Period with respect to any Euro-Rate Portion, the Borrower may cause (subject to Subsection 2.08(d)) all or any part of the principal amount of such portion to be converted to, or to be renewed under, the Euro-Rate Option by notice to the Agent as hereinafter provided. Such notice (i) shall be irrevocable, (ii) shall be given not later than Noon (Pittsburgh, Pennsylvania time) in the case of a conversion to or renewal of, either in whole or in part, the Euro-Rate Option, not less than three (3) Business Days prior to the proposed effective date for such conversion or renewal, and (iii) shall set forth: (A) the effective date of such conversion or renewal, which shall be a Business Day; (B) the new Euro-Rate Interest Period(s) selected; and (C) with respect to each such Euro-Rate Interest Period, the aggregate principal amount of the corresponding Euro-Rate Portion. At the expiration of each Euro-Rate Interest Period, any part (including the whole) of the principal amount of the corresponding Euro-Rate Portion as to which no notice of conversion or renewal has been received shall automatically be converted to the Base Rate Option. The Agent shall promptly notify the Borrower and the Lenders of any such automatic conversion. (f) Notification of Election of an Interest Rate Option. The --------------------------------------------------- Borrower, by an Authorized Officer, shall notify the Agent of each election of an Interest Rate Option, each conversion from one Interest Rate Option to another, the amount of the Revolving Credit Loans then outstanding to be allocated to each Interest Rate Option and, where relevant, the Euro-Rate Interest Periods as provided for in this Agreement. Any such communication may be oral or written and if oral it shall be followed promptly by written confirmation of such Interest Rate Option election executed by an Authorized Officer of the Borrower. (g) Calculation of Interest. Interest on the Base Rate Portion ----------------------- shall be calculated on the basis of a 365 or 366 day year, as the case may be, and the actual days elapsed. Interest on each Euro-Rate Portion shall be calculated on the basis of a 360-day year and the -29- actual days elapsed. The calculation of the amount of interest due and owing to the Lenders shall be evidenced by posting the amount of interest due under the Revolving Credit Notes to the Loan Account established by the Agent pursuant to Section 2.14. (h) Lawful Interest Rates Intended. In no event whatsoever ------------------------------ shall the interest rates charged hereunder exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that any Lender has received interest hereunder in excess of the highest applicable rate, such Lender shall promptly refund such excess to the Borrower, or at such Lender's option, apply such excess in reduction of the principal balance of the Lender Obligations owing to the affected Lender. 2.09. Prepayments; Allocation of Repayments. ------------------------------------- (a) Prepayments of Base Rate Portion. The Borrower, upon oral or -------------------------------- written notice to the Agent by an Authorized Officer of Borrower given not later than 12:00 noon (Pittsburgh, Pennsylvania time) on the proposed date for prepayment, may prepay without penalty or premium any or all of the Base Rate Portion. Any oral notice of election hereunder shall be followed immediately by written confirmation of such prepayment election executed by an Authorized Officer of Borrower (b) Prepayments of Euro-Rate Portions. Except as otherwise provided --------------------------------- in Section 2.10(c), the Borrower, upon oral or written notice to the Agent by an Authorized Officer of Borrower given at least three (3) Business Days prior to the proposed date for repayment, may prepay, all or any part of such Euro-Rate Portion. If such Euro-Rate Portion is prepaid on the last day of the Euro-Rate Interest Period applicable thereto, such prepayment shall be without premium or penalty. If the Borrower prepays a Euro-Rate Portion other than on the last day of the Euro-Rate Interest Period applicable thereto, the Borrower agrees to pay, in addition to the other amounts set forth in this Section 2.09(b), such additional amounts as may be necessary to compensate each Lender for any loss (including loss of profit on a pre-tax basis) and any direct or indirect costs, including the costs of reemployment of funds prepaid at rates lower than the cost to such Lender of such funds. Such losses and costs shall be specified in writing to the Borrower by the affected Lenders (and such specifications shall set forth in reasonable detail the calculation of such losses and costs) and such specifications shall, absent manifest error, be binding and conclusive on the Borrower. Such prepayment shall include the then outstanding principal amount of the Euro-Rate Portion being prepaid together with accrued interest, fees and other amounts then due and payable on the amount prepaid, to the day of such prepayment. Except as provided in this Section 2.09(b), there shall be no voluntary prepayment of any Euro-Rate Portion. -30- (c) Allocation of Repayments of Principal. Any voluntary ------------------------------------- prepayment pursuant to this Section 2.09 hereof shall be applied first to the repayment of any Euro-Rate Portion of the Revolving Credit Loans for which its associated Euro-Rate Interest Period expires on the date of such payment, second, to the reduction of the Base Rate Portion of the Revolving Credit Loans, and third, to the reduction of such Euro-Rate Portions of the Revolving Credit Loans as directed by the Borrower, and if the Borrower fails to give such directions, or if a Default or Event of Default has occurred and is continuing, to the reduction of such Euro-Rate Portions of the Revolving Credit Loans as the Agent may select in its sole and absolute discretion. Any reduction in any Euro- Rate Portion on a date other than the date on which its associated Euro-Rate Interest Period expires may result in a funding loss for which the Borrower will owe the Lenders an indemnity payment pursuant to Section 2.10 hereof. 2.10. Yield Protection. ---------------- (a) If any change subsequent to the Closing Date in any Law or in the interpretation or application thereof by any Official Body or in the compliance with any guideline or request from any Official Body, shall make it unlawful for any Lender to maintain or give effect to its obligations as contemplated under the Revolving Credit Commitment, such Lender shall notify the Borrower and the Agent in writing of its determination of such unlawfulness and an explanation thereof. Thereafter, such Lender's obligation to make available any further Revolving Credit Loans hereunder shall forthwith be cancelled and the Borrower, within thirty (30) days, or within such longer period as may be allowed by Law, if any, shall repay to such Lender so affected its pro rata share of the outstanding principal amount of all Revolving Credit Loans together with interest thereon to the date of repayment and fees, if any, due as of the date of termination; provided, however, that the affected Lender's obligations -------- which are lawful, if severable from those which are unlawful, shall continue, and with respect to those obligations, this Agreement shall not terminate. (b) If any Law issued after the Closing Date (including, without limitation, Regulation D of the Federal Reserve Board), or if any change on or after the Closing Date in any Law (including, without limitation, Regulation D) or in the interpretation thereof by any Official Body charged with the administration thereof, shall (i) subject any Lender to any tax, levy, impost, charge, fee, duty, deduction or withholding or any kind hereunder (other than any tax imposed or based upon the income of such Lender and payable to any governmental or taxing authority in the United States of America, any state or any municipality thereof); or (ii) change the basis of taxation of any Lender with respect to payments of principal or interest or other amounts due hereunder (other than any change -31- which affects, and only to the extent that it affects, the taxation by the United States, any state or any municipality thereof based upon the income of such Lender); or (iii) impose, modify or deem applicable any reserve, special deposit or similar requirements against assets held by any Lender (other than such requirements which result solely from a change in the credit quality of the Borrower or which are included in the determination of the applicable rate of interest hereunder); or (iv) impose upon any Lender any other obligation or condition with respect to this Agreement, and the result of any of the foregoing is to increase the cost to any Lender, to decrease the yield to any Lender with respect to the Revolving Credit Loans or any Letters of Credit, to reduce the income receivable by any Lender or to impose any expenses upon any Lender with respect to the Revolving Credit Loans or any Letters of Credit by an amount which any Lender reasonably deems material, then and in any such case: (A) the Lender so affected shall promptly notify the Borrower and the Agent of the happening of such event; (B) the Borrower shall pay to the affected Lender, within five (5) Business Days of written demand such amount as will compensate such Lender for such additional cost or reduced amount, calculated from the date of the notification by such Lender; and (C) the Borrower may pay to such affected Lender the affected Revolving Credit Loan in full without the payment of any additional amount other than on account of such Lender's out-of-pocket losses (including funding losses, if any, as provided in paragraph (c) below) not otherwise provided for in subparagraph (B) immediately above. The Lender so affected shall present to the Borrower and the Agent a certificate setting forth such increased cost or reduced amount. Such certificate shall set forth in reasonable detail the calculation of the amount due and such Lender's reasons for invoking the provisions of this Section 2.10(b). Such certificate shall be conclusive evidence of the amount due thereunder except in the case of manifest error in computation. The Borrower shall pay such amount to such Lender, as additional consideration hereunder, within ten (10) days of the Borrower's receipt of such certificate. (c) The Borrower agrees to indemnify each Lender, on demand, against any loss or expense (including loss of profit) which such Lender may sustain or incur in -32- liquidating or employing deposits from third parties acquired to effect, fund or maintain such Euro-Rate Portions or any part thereof as a consequence of (i) the failure of the Borrower to make a payment on the due date thereof, (ii) the failure of the Borrower to borrow under, convert to or renew under the Euro-Rate Option on the proposed effective date of such borrowing, conversion or renewal, or (iii) the payment, prepayment or conversion by the Borrower of any Euro-Rate Portions for any reason on a day other than the last day of the applicable Euro- Rate Interest Period. Any Lender's determination of an amount payable under this paragraph (c) shall be conclusive absent manifest error. (d) The foregoing notwithstanding, if the affected Lender can mitigate or eliminate such increased cost or reduced yield by transferring the Loans to another existing lending office of such Lender, such Lender agrees to so transfer the Loans. 2.11. Special Provisions Relating to the Euro-Rate Option. --------------------------------------------------- (a) Euro-Rate Unascertainable. In the event that on any date on ------------------------- which a Euro-Rate Option would otherwise be set, the Agent shall have determined (which determination shall be final and conclusive) that, by reason of circumstances affecting the London interbank market, adequate, reasonable means do not exist for ascertaining the Euro-Rate, the Agent shall give prompt notice of such determination to the Borrower and the Lenders. Until the Agent notifies the Borrower and the Lenders that the circumstances giving rise to such determination no longer exist (which notice shall be given promptly following receipt of knowledge thereof by the Agent), the right of the Borrower to borrow under, convert to or renew the Euro-Rate Option shall be suspended. Any notice of borrowing under, conversion to or renewal of the Euro-Rate Option which was to become effective during the period of such suspension shall be treated as a request to borrow under, convert to or renew the Base Rate Option with respect to the principal amount therein specified. (b) Inability to Offer Euro-Rate. In the event that any Lender ---------------------------- shall determine, in its sole discretion, that it is unable to obtain deposits in the London interbank market in sufficient amounts and with maturities related to such Euro-Rate Portions which would enable such Lender to fund such Euro-Rate Portions, then such Lender shall notify the Borrower and the Agent that the right of the Borrower to borrow under, convert to or renew the Euro-Rate Option, shall be suspended with respect to such Lender. Such notice shall set forth in reasonable detail such Lender's reasons for invoking the provisions of this Section 2.11(b). Following notification of the suspension of the Euro-Rate Option with respect to such Lender, the Borrower agrees to negotiate with such Lender for a modified or alternative fixed rate of interest, which will allow such Lender to realize its anticipated and bargained-for yield. In the event that the Borrower and such Lender cannot agree on a modified or alternative fixed rate of interest, any notice of borrowing under, conversion to or renewal of the Euro-Rate Option which was to become effective during the period of suspension shall be treated as a request to borrow under, -33- convert to or renew the Base Rate Option with respect to the principal amount specified therein attributable to such Lender. (c) Illegality. If any Lender shall determine in good faith (which ---------- determination shall be final and conclusive) that compliance with any Law (whether or not having the force of law) or the interpretation or application thereof by any Official Body, has made it unlawful or impractical for such Lender to make or maintain the Revolving Credit Loans under the Euro-Rate Option, such Lender shall give notice of such determination to the Borrower and the Agent, which notice shall set forth in reasonable detail such Lender's reasons for invoking the provisions of this Section 2.11(c). Notwithstanding any provision of this Agreement to the contrary, unless and until such Lender shall have given notice to the Borrower and the Agent that the circumstances giving rise to such determination no longer apply (which notice shall be given promptly following receipt of knowledge thereof by such Lender): (i) with respect to any Euro-Rate Interest Periods thereafter commencing, interest in an amount equal to such Lender's Ratable Share of the corresponding Euro-Rate Portion shall be computed and payable under the Base Rate Option; and (ii) on such date, if any, as shall be required by law, an amount equal to such Lender's Ratable Share of any Euro-Rate Portion, as the case may be, then outstanding shall be automatically converted to the Base Rate Option and the Borrower shall pay to such Lender the accrued and unpaid interest on such amounts to (but not including) such conversion date. The Borrower shall pay any such Lender any additional amounts reasonably necessary to compensate such Lender for any costs incurred by such Lender as a result of any conversion pursuant to clause (ii) above which occurs on a day other than the last day of the relevant Euro-Rate Interest Period, including, but not limited to, any interest or fees payable by such Lender to lenders of funds obtained by them to loan or maintain the lending of the Revolving Credit Loans so converted. Such Lender shall furnish to the Borrower and the Agent a certificate as to the amount necessary to compensate it for such costs, which certificate shall set forth in reasonable detail the calculation of the amount due. Such certificate shall constitute conclusive evidence of the amount due thereunder absent any manifest error in computation. The Borrower shall pay such amount to such Lender, as additional consideration hereunder, within ten (10) days of the Borrower's receipt of such certificate. (d) The foregoing notwithstanding, if the affected Lender can continue to offer the Euro-Rate Option to the Borrower by transferring the Revolving Credit Loans to another existing lending office of such Lender, such Lender agrees to so transfer the Revolving Credit Loans. -34- 2.12. Capital Adequacy. If after the Closing Date (i) any adoption of or ---------------- any change in or in the interpretation by an Official Body of any Law or (ii) compliance with any Law, guideline or request of any Official Body exercising control over banks or financial institutions generally or any court (whether or not having the force of law), affects or would affect the amount of capital required or expected to be maintained by any Lender or any corporation controlling such Lender other than those resulting solely from a change in the credit quality of the Borrower (a "Capital Adequacy Event"), and the result of such Capital Adequacy Event is to reduce the rate of return on capital of such Lender or any corporation controlling such Lender as a consequence thereof to a level below that which such Lender could have achieved but for such Capital Adequacy Event, taking into consideration such Lender's policies with respect to capital adequacy, by an amount which such Lender deems to be material, such Lender shall promptly deliver to the Borrower and the Agent a statement of the amount necessary to compensate such Lender for the reduction in the rate of return on its capital attributable to the commitments under this Agreement or any of the Loan Documents (the "Capital Compensation Amount"). Each Lender shall determine the Capital Compensation Amount in good faith, using reasonable attribution and averaging methods. Each Lender shall, from time to time, furnish to the Borrower and the Agent a certificate setting forth the amount so determined and the calculations of such amount. Such certificate shall constitute conclusive evidence of the amount due thereunder absent any manifest error in computation. Such amount shall be due and payable by the Borrower to such Lender ten (10) days after such notice is given. As soon as practicable after any Capital Adequacy Event, such Lender shall submit to the Borrower and the Agent estimates of the Capital Compensation Amounts that would be payable as a function of such Lender's Revolving Credit Commitment hereunder. 2.13. Swingline Loans. --------------- (a) Swingline Option. Subject to the provisions of this Section 2.13, PNC Bank agrees that the Borrower may request that Swingline Loans, in an aggregate amount at any one time outstanding not to exceed the lesser of (i) $5,000,000 or (ii) an amount which, when added to the aggregate principal amount of (A) all other Loans then outstanding, (B) the aggregate Stated Amount of outstanding Letters of Credit issued pursuant to Section 2.17 and (C) the aggregate amount of unreimbursed draws does not exceed $125,000,000. (b) Limitations on and Evidence of Swingline Loans. Each Swingline ---------------------------------------------- Loan or repayment of a Swingline Loan must be in the minimum principal amount of $10,000 or, if in excess of $10,000 in integral multiples of $10,000. The obligation of the Borrower to repay, prior to the Expiration Date, the aggregate unpaid principal amount of such Swingline Loans advanced by PNC Bank shall be evidenced by the Swingline Note substantially in the form of Exhibit "A-2" ------------- hereto. The principal amount actually due and owing PNC Bank shall be the -35- aggregate unpaid principal amount of all disbursements of Swingline Loans made by PNC Bank, all as shown on such PNC Bank Loan Account established pursuant to Section 2.14. (c) Swingline Procedure. The Borrower may from time to time from ------------------- the Closing Date to the Business Day prior to the Expiration Date request a Swingline Loan. Such request shall be made not later than Noon (Pittsburgh Time) on the date of the proposed Swingline Loan. Such request may be made to the Agent orally or in writing and if orally confirmed in writing. PNC Bank shall make the Swingline Loan available to the Borrower not later than 3:00 P.M. Pittsburgh Time on the same Business Day such Swingline Loan is requested. (d) Swingline Loan Interest. Interest on the Swingline Loans ----------------------- shall accrue at the Base Rate, except as provided in Subsection 2.08(c). (e) Risk Participation. Upon the disbursement of each Swingline ------------------ Loan and without any further action by or on behalf of such Lender, each Lender hereby agrees to purchase, upon the occurrence of an Event of Default, an undivided full risk non-recourse participation in such Swingline Loan, in an amount equal to (i) such Lender's Commitment Percentage (ii) multiplied by the outstanding principal amount of such Swingline Loan on the date of the Event of Default; provided however, no Lender shall participate in any Swingline Loan -------- ------- which Swingline Loan is made after a notice of an Event of Default has been given. If and to the extent any Swingline Lender receives payment of principal or interest on a participated Swingline Loan, such Swingline Lender shall deliver to each Lender such Lender's pro rata share of such payment. 2.14 Loan Account. The Agent shall open and maintain on its books a Loan ------------ Account in the name of the Borrower, with respect to (i) Revolving Credit Loans and Swingline Loans made, repayments and prepayments of the principal thereof, and the computation and payment of interest thereon, (ii) Letters of Credit issued, or participated in, as the case may be, and draws and reimbursements thereon or thereof, and (iii) the computation and payment of interest and the Fees due hereunder to the Lenders, the L/C Issuer and the Agent, and the computation of other amounts due and sums paid to the Agent hereunder. Upon the request of the Borrower to Agent, the Agent shall promptly furnish to the Borrower a statement of the Loan Account. The failure to record any such amount shall not limit or otherwise affect the obligations of the Borrower hereunder or under the Notes to repay all amounts owed hereunder and thereunder together with all interest accrued thereon and all other fees and charges provided herein. The Loan Account shall be conclusive evidence as to the amount at any time due to the Lenders, the L/C Issuer and the Agent from the Borrower except in the case of manifest error. 2.15. All Advances to Constitute One Loan. Notwithstanding the limitations ----------------------------------- set forth herein, all Revolving Credit Loans by the Lenders to the Borrower under this Agreement -36- and the other Loan Documents, including without limitation, the Revolving Credit Loans, the Swingline Loans and all other Lender Obligations, shall constitute one loan and all Indebtedness and obligations of the Borrower to the Lenders under this Agreement and all other Loan Documents shall constitute a general obligation of the Borrower, secured by a first priority lien on the Assigned Collateral and the Subsidiary Assigned Collateral. The Lenders and the Borrower agree that all of the rights of the Lenders and the Borrower set forth in this Agreement and the other Loan Documents shall apply to any amendment or modification of or supplement to this Agreement and the other Loan Documents. 2.16. Use of Proceeds. The proceeds of the Revolving Credit Loans shall be --------------- used exclusively (i) to pay interest, Fees and other costs, and expenses hereunder and under the other Loan Documents, (ii) to repay any Unreimbursed L/C Draw, (iii) to fund the Tender Offer and (iv) to fund capital expenditures, working capital and general corporate purposes of the Borrower. 2.17. Letter of Credit Subfacility. ---------------------------- (a) At the request of the Borrower, the L/C Issuer will issue for the account of the Borrower, on the terms and conditions hereinafter set forth (including without limitation Article V hereof), one or more Letters of Credit; provided, however, no Letter of Credit shall have an expiry date later than the earlier of one (1) year from the date of issuance or fifteen (15) days prior to the Expiration Date; and provided, further, however, that in no event shall (i) the Stated Amount of the Letters of Credit issued pursuant to this Section 2.17 exceed, at any one time, $15,000,000, or (ii) the sum of aggregate outstanding principal balance of the Revolving Credit Loans, the aggregate unpaid balance of outstanding Swingline Loans, the aggregate unpaid balance of any Unreimbursed L/C Draws and the aggregate Stated Amount of the Letters of Credit issued by the L/C Issuer under this Section 2.17 exceed, at any one time, the aggregate Revolving Credit Commitments. Each Letter of Credit issued hereunder shall be issued only to support performance obligations, bonding requirements and self- insurance obligations of the Borrower arising in the ordinary course of its business and other purposes approved by the Agent, the Required Lenders and L/C Issuer. (b) The Borrower shall pay (i) to the L/C Issuer for its own account a fronting fee equal to 1/8 of 1% per annum (the "L/C Fronting Fee") on the aggregate daily (computed at the opening of business and on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) Stated Amount of the outstanding Letters of Credit for the period in question, and (ii) to the Agent for the ratable account of the Lenders a fee (the "Letter of Credit Fee") equal to the Applicable Letter of Credit Fee per annum, as determined below, on the aggregate daily (computed at the opening of business and on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) Stated Amount of the outstanding Letters of Credit for the period in question. The Letter of Credit Fee and the L/C Fronting Fee shall be -37- payable (i) quarterly in arrears on the last Business Day of each Fiscal Quarter occurring during the term of this Agreement thereafter, (ii) on the Expiration Date or (iii) upon acceleration of the Notes. Any issuance of an amendment to extend the stated expiration date of a Letter of Credit or an amendment to increase the Stated Amount of a Letter of Credit shall be treated as an issuance of a new Letter of Credit for purposes of calculation of Letter of Credit Fee and the L/C Fronting Fee due and payable hereunder. The Borrower shall also pay to the L/C Issuer the L/C Issuer's customary documentation fees payable with respect to the Letters of Credit as the L/C Issuer may generally charge from time to time. After the occurrence of an Event of Default (which continues after the expiration of any cure period applicable thereto) and during the continuation thereof, the rate at which the Letter of Credit Fee is calculated shall be increased by two hundred (200) basis points (2%) above the pre-default rate; the increase to be payable monthly during the continuation of the Event of Default. For purposes of this Agreement, the term "Applicable Letter of Credit Fee" shall ------------------------------- mean the rate per annum set forth in the chart below which corresponds to the range of ratios in which the Borrower's Consolidated Total Indebtedness to EBITDA Ratio as at the end of the preceding fiscal quarter falls:
- ------------------------------------------------------------------------------------ Consolidated Total Indebtedness to EBITDA Ratio Applicable Letter of Credit Fee - ------------------------------------------------------------------------------------ Less than or equal to 1.5 to 1.0 1/2% - ------------------------------------------------------------------------------------ Greater than 1.5 to 1.0 but less than or equal to 2.0 to 1.0 5/8% - ------------------------------------------------------------------------------------ Greater than 2.0 to 1.0 but less than or equal to 2.5 to 1.0 3/4% - ------------------------------------------------------------------------------------ Greater than 2.5 to 1.0 7/8% - -----------------------------------------------------------------------------------
All adjustments shall be determined as of the date the Borrower's quarterly financial statements and Compliance Certificate are required to be delivered pursuant to items (i) and (iii) of Section 6.02. The foregoing notwithstanding, the Applicable Letter of Credit Fee from the Closing Date to and including the October 1997 Delivery Date shall be 5/8%. (c) Immediately upon the issuance of each Letter of Credit and each increase or decrease in the Stated Amount thereof, each Lender hereby agrees to irrevocably purchase and shall be deemed to have irrevocably purchased from the L/C Issuer an undivided, full risk, non-recourse participation in such Letter of Credit and drawings thereunder in an -38- amount equal to such Lender's Ratable Share of the maximum amount which is or at any time may become available to be drawn thereunder. In the event that the L/C Issuer is required for any reason to refund or repay to the Borrower, any guarantor or any other Person all or any portion of any amount remitted to the L/C Issuer pursuant to this Agreement, the Lenders shall promptly remit to the L/C Issuer, upon three (3) Business Days' demand therefor, their respective Ratable Share of the amount which is so refunded or repaid. (d) In the event any restrictions are imposed upon the L/C Issuer or any of the Lenders by any Law of any Official Body having jurisdiction over the banking activities of the L/C Issuer or any Lender which would prevent the L/C Issuer from issuing the Letters of Credit or amending the Letters of Credit or would prevent any Lender from honoring its obligations under this Section 2.17, the commitment of the L/C Issuer to issue the Letters of Credit or enter into any amendment with respect thereto shall be immediately suspended. If any Lender believes any such restriction would prevent such Lender from honoring its obligations under this Section 2.17, it shall promptly notify the Agent. The Agent shall promptly notify the Borrower, the L/C Issuer and the other Lenders of the existence and nature of (i) any restriction which would cause the suspension of the commitment of the L/C Issuer to issue the Letters of Credit or to enter into amendments with respect thereto and (ii) any restriction which would prevent any Lender from honoring its obligations under this Section 2.17. The Borrower will thereupon undertake reasonable efforts to obtain the cancellation of all outstanding Letters of Credit; provided, however, that the refusal of any beneficiary of a Letter of Credit to surrender such Letter of Credit will not be an Event of Default hereunder, provided that the Borrower shall undertake good faith efforts to obtain substitute letters of credit for the then existing and outstanding Letters of Credit. Nothing contained in this Section 2.17 shall be deemed a termination of the Revolving Credit Commitments and, in the event of a suspension of the commitment of the L/C Issuer to issue Letters of Credit as set forth above, the Borrower may continue to borrow under the Revolving Credit Commitments provided the requirements of Section 5.02 are complied with. (e) On the Closing Date the Borrower shall execute and deliver to the Agent the Reimbursement Agreement. When the Borrower desires the issuance of a Letter of Credit, the Borrower shall deliver a duly completed Application and Agreement for Letter of Credit to the L/C Issuer, with a copy to the Agent, no later than 11:00 A.M. (Pittsburgh, Pennsylvania time) at least three (3) Business Days, or such shorter period as may be agreed to by the L/C Issuer, in advance of the proposed date of issuance. Upon satisfaction of the conditions set forth in Section 5.01 and, if applicable, Section 5.02, the L/C Issuer shall be obligated to issue the Letter of Credit and shall notify the Agent and each Lender of such issuance. In determining whether to pay under a Letter of Credit, the L/C Issuer shall be responsible only to determine that the documents and certificates required to be delivered under the Letter of Credit have been delivered and that they comply on their face with the requirements of the Letter of Credit. -39- (f) In the event of any request for drawing under a Letter of Credit by the beneficiary thereof, the L/C Issuer shall immediately notify the Borrower and the Agent, and the Borrower shall reimburse, or cause the reimbursement of, the L/C Issuer on demand as set forth in the applicable Application and Agreement for Letter of Credit in an amount in same day funds equal to the amount of such drawing; provided, however, that anything contained in this Agreement to the contrary notwithstanding, unless the Borrower shall have notified the Agent and the L/C Issuer prior to such time that the Borrower intends to reimburse the L/C Issuer for all or a portion of the amount of such drawing with funds other than the proceeds of Revolving Credit Loans, the Borrower shall be deemed to have given a Loan Request to the Agent requesting the Lenders to make Revolving Credit Loans on the first Business Day immediately following the date on which such drawing is honored in an aggregate amount equal to the excess of the amount of such drawing over the amount received by the L/C Issuer from such other funds in reimbursement thereof (the "Unreimbursed L/C ---------------- Draw"), plus accrued interest on such amount at the rate set forth in Subsection - ---- 2.08. Any such Revolving Credit Loan shall be deemed advanced to the Borrower. If the Borrower shall be deemed to have given a Loan Request, then, subject to satisfaction or waiver of the conditions specified in Section 5.02, the Lenders shall, all as set forth in Section 2.17(g) hereof, on the first Business Day immediately following the date of such drawing, make Revolving Credit Loans in the aggregate amount of the Unreimbursed L/C Draw plus accrued interest on such amount at the applicable rate set forth in Section 2.08. The proceeds of any such Revolving Credit Loans shall be applied directly by the Agent upon receipt from the Lenders to reimburse the L/C Issuer for the Unreimbursed L/C Draw plus accrued interest on such amount. The foregoing shall not limit or impair the Credit by the beneficiary thereof, the L/C Issuer shall immediately notify the Borrower and the Agent, and the Borrower shall reimburse, or cause the reimbursement of, the L/C Issuer on demand as set forth in the applicable Application and Agreement for Letter of Credit in an amount in same day funds equal to the amount of such drawing; provided, however, that anything contained in this Agreement to the contrary notwithstanding, unless the Borrower shall have notified the Agent and the L/C Issuer prior to such time that the Borrower intends to reimburse the L/C Issuer for all or a portion of the amount of such drawing with funds other than the proceeds of Revolving Credit Loans, the Borrower shall be deemed to have given a Loan Request to the Agent requesting the Lenders to make Revolving Credit Loans on the first Business Day immediately following the date on which such drawing is honored in an aggregate amount equal to the excess of the amount of such drawing over the amount received by the L/C Issuer from such other funds in reimbursement thereof (the "Unreimbursed L/C Draw"), plus accrued interest on such amount at the rate set forth in Subsection 2.08. Any such Revolving Credit Loan shall be deemed advanced to the Borrower. If the Borrower shall be deemed to have given a Loan Request, then, subject to satisfaction or waiver of the conditions specified in Section 5.02, the Lenders shall, all as set forth in Section 2.17(g) hereof, on the first Business Day immediately following the date of such drawing, make Revolving Credit Loans in the aggregate amount of the Unreimbursed L/C Draw plus accrued interest on such amount at the applicable rate set forth in Section 2.08. The proceeds of any such Revolving Credit Loans shall be applied directly by the Agent upon receipt from the Lenders to reimburse the L/C Issuer for the Unreimbursed L/C Draw plus accrued interest on such amount. The foregoing shall not limit or impair the obligation of the Borrower to reimburse the L/C Issuer on demand. (g) In the event that the Borrower shall fail to reimburse the L/C Issuer on demand as provided in the applicable Application and Agreement for Letter of Credit and Section 2.17(f) above in an amount equal to the amount of any drawing honored by the L/C Issuer under a Letter of Credit plus accrued interest, the L/C Issuer shall promptly notify the Agent and each Lender of the Unreimbursed L/C Draw plus accrued interest on such amount of such drawing and of such Lender's respective participation therein. Each Lender shall make available to the L/C Issuer an amount equal to its respective participation in same day funds, at the office of the L/C Issuer specified in such notice, not later than 12:00 Noon (Pittsburgh, Pennsylvania time) on the Business Day after the date specified in such notice by the L/C Issuer. In the event that any Lender fails to make available to the L/C Issuer the amount of such Lender's participation in such Letter of Credit as provided in this Section 2.17(g), the L/C Issuer shall be entitled to recover such amount on demand from such Lender together with interest at the Federal Funds Effective Rate for three (3) Business Days and thereafter at the Base Rate. Nothing in this Section 2.17(g) shall be deemed to prejudice the right of any Lender to recover its Ratable Share of the Unreimbursed L/C Draw from the L/C Issuer pursuant to this Section 2.17(g) in the event that it is determined by a court of competent jurisdiction that payment with respect to a Letter of -40- Credit by the L/C Issuer constituted gross negligence or willful misconduct on the part of the L/C Issuer. The L/C Issuer shall distribute to each Lender which has paid all amounts payable by it under this Section 2.17(g) with respect to a Letter of Credit such other Lender's Ratable Share of all payments received by the L/C Issuer from the Borrower in reimbursement of drawing honored by the L/C Issuer under the Letter of Credit when such payments are received. (h) The obligations of the Borrower under this Agreement to reimburse the L/C Issuer for all drawings upon the Letters of Credit shall be absolute, unconditional and irrevocable, and shall not be subject to any right of set-off or counterclaim and shall be paid or performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including the following circumstances: (i) any lack of validity or enforceability of this Agreement, any Letter of Credit or any of the Loan Documents; (ii) any amendment or waiver of any provision of all or any of the Loan Documents; (iii) the existence of any claim, set-off, defense or other rights which the Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the L/C Issuer, the Agent or any Lender (other than the defense of payment to the L/C Issuer in accordance with the terms of this Agreement) or any other Person, whether in connection with this Agreement, the Loan Documents or any transaction contemplated hereby or thereby or any unrelated transaction; (iv) any statement or document presented under any Letter of Credit, appearing on its face to be valid and sufficient, but proving to be forged or fraudulent in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (v) payment by the L/C Issuer under any Letter of Credit against presentation of any document which does not comply with the terms of the Letter of Credit, provided that such payment shall not have constituted gross negligence or willful misconduct of the L/C Issuer; and (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, not resulting from gross negligence or willful misconduct of the L/C Issuer. -41- (i) This Agreement is intended to supplement each Application and Agreement for Letter of Credit executed by the Borrower and delivered to the L/C Issuer. Whenever possible this Agreement is to be construed as consistent with each Application and Agreement for Letter of Credit but, to the extent that the provisions of this Agreement and each Application and Agreement for Letter of Credit conflict, the terms of this Agreement shall control. (j) Outstanding Letters of Credit. As of the Closing Date, each of ----------------------------- the letters of credit issued by the L/C Issuer and outstanding on such date for the account of the Borrower and identified on Schedule 2.17(j) shall be deemed ---------------- to be Letters of Credit issued hereunder and shall be subject to all of the terms and provisions of this Agreement. The Borrower is hereby deemed to be account party with respect to each letter of credit listed on Schedule 2.17(j) hereunder for all purposes thereunder and hereunder. Each Lender agrees that its obligations with respect to Letters of Credit pursuant to this Agreement shall include such outstanding letters of credit. With respect to each such outstanding letter of credit, for the period commencing on the Closing Date the Borrower shall pay all fees and commissions set forth in this Agreement at the times and in the manner herein set forth. The obligations of the Borrower under each application for letter of credit and reimbursement agreement (together with any related amendments) executed by the Borrower with respect to the letters of credit shown on Schedule 2.17(j) are hereby expressly assumed by the Borrower ---------------- and each such application for letter of credit and reimbursement agreement, as amended, is hereby deemed an Application and Agreement for Letter of Credit. The existing reimbursement agreements shall be superseded in their entirety by the Reimbursement Agreement which shall apply to existing letters of credit set forth on Schedule 2.17(j) as well as all Letters of Credit issued hereunder on and after the date hereof. (k) Obligations Absolute. Notwithstanding any other provision of -------------------- this Agreement, each Lender hereby agrees that its obligation to participate in each Letter of Credit issued in accordance herewith and its obligation to make the payments to be made by it under this Section 2.17 is absolute, irrevocable and unconditional and shall not be affected by any event, condition or circumstance whatever. The failure of any Lender to make any such payment shall not relieve any other Lender of its funding obligation hereunder on the date due, but no Lender shall be responsible for the failure of any other Lender to meet its funding obligations hereunder. 2.18. Taxes. Each Lender that is not incorporated under the laws of the ----- United States of America or a state thereof agrees that it will deliver to the Borrower and the Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be (assuming that it is entitled to do so), and (ii) two duly completed copies of Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each such Lender also agrees to deliver to the Borrower and the Agent two further copies -42- of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding tax or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower and the Agent, and such extensions or renewals thereof as may reasonably be requested by the Borrower or the Agent, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Borrower and the Agent. Such Lender shall certify (i) in the case of Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes (assuming that it is entitled to do so) and (ii) in the case of Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. 2.19. Payments. All payments and prepayments to be made in respect of -------- principal, interest, Unreimbursed L/C Draws, Fees, or other amounts due from the Borrower hereunder shall be payable prior to 11:00 A.M. (Pittsburgh, Pennsylvania time) on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by each of the Borrower, and without setoff, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue. Such payments shall be made to the Agent at the Principal Office for the ratable accounts of the Lenders or L/C Issuer, as the case may be, in Dollars and in immediately available funds, and the Agent shall promptly distribute such amounts to the Lenders or L/C Issuer, as the case may be, in immediately available funds in accordance with the terms and provisions of Section 9.10 of this Agreement. The Agent's, the L/C Issuer's and each Lender's statement of account, ledger or other relevant record shall, in the absence of manifest error, be conclusive as the statement of the amount of principal of and interest on the Revolving Credit Loans and the Unreimbursed L/C Draws, Fees and other amounts owing under this Agreement and shall be deemed an "account stated." Notwithstanding anything herein to the contrary, (i) any Agent's Fees and the Underwriting Fee paid by the Borrower shall be solely for the account of the Agent, (ii) any L/C Fronting Fees paid by the Borrower shall be solely for the account of the L/C Issuer and (iii) any interest paid on any Unreimbursed L/C Draw to the extent a Lender has not been required to honor or has not honored its funding obligations pursuant to Section 2.17(g) hereof shall be solely for the account of the L/C Issuer. -43- ARTICLE III SET-OFF, ACCOUNT, SECURITY INTERESTS ------------------------------------ 3.01. Set-Off. To secure the repayment of the Lender Obligations, the ------- Borrower hereby gives to each Lender (in any capacity hereunder) a lien and security interest upon and in any and all of the Borrower's property, credits, securities or money which may at any time be delivered to, or be in the possession of, or owed by such Lender in any capacity whatever, including the balance of any deposit account maintained by the Borrower with such Lender (including without limitation the Loan Disbursement Account). The Borrower hereby authorizes each Lender, at any time and from time to time upon the occurrence and during the continuance of an Event of Default, at such Lender's option, to apply, at the discretion of such Lender, to the payment of the Lender Obligations, any and all such property, credits, securities or money now or hereafter in the hands of such Lender or belonging or owed to the Borrower. 3.02. Loan Disbursement Account. The Borrower shall maintain at all times ------------------------- during this Agreement with the Agent, at the Agent's office in Pittsburgh, Pennsylvania, a demand deposit account (the "Loan Disbursement Account"), into ------------------------- which proceeds of Revolving Credit Loans and other monies transferred to the Borrower shall be deposited from time to time. The Loan Disbursement Account shall be in the name of the Borrower and, subject to the other provisions of this Agreement and the other Loan Documents, monies therein shall be disbursed as directed by the Borrower, from time to time. To secure the payment and performance of Lender Obligations, the Borrower hereby pledges and assigns, and grants to the Agent for the benefit of the Agent, the L/C Issuer and the Lenders, a lien on and security interest in the Loan Disbursement Account, all funds from time to time deposited or held therein, all interest and other income derived therefrom, and all proceeds of all the foregoing. 3.03. Assigned Collateral. The Borrower hereby agrees to grant and convey ------------------- to Agent for the benefit of the Lenders and the L/C Issuer a Lien on any and all Assigned Collateral now owned or hereafter acquired by the Borrower. To secure the full and timely payment and performance of each of the Lender Obligations, and to grant to the Agent for the benefit of the Agent, the Lenders and the L/C Issuer a Lien on the right, title and interest of the Borrower in and to any Assigned Collateral, the Borrower hereby agrees to execute and deliver to the Agent, on or prior to the Closing Date, the Security Agreement, together with all financing statements, supplements, amendments, certificates, documents and notices as reasonably requested by the Agent to perfect such Liens, all duly completed and executed to the reasonable satisfaction of the Agent. 3.04. Designation of Class A Subsidiary Guarantors; Subsidiary Assigned ----------------------------------------------------------------- Collateral. (a) Each Subsidiary of the Borrower incorporated or organized in - ---------- the United States of -44- America, whether now in existence or hereafter acquired, that owns Receivables and Inventory (priced at the lower of cost or market) with a value at the time of designation in excess of $5,000,000 shall be designated as a Class A Subsidiary Guarantor by the Lenders. Any Subsidiary designated as a Class A Subsidiary Guarantor shall continue as a Class A Subsidiary Guarantor until released in writing by all Lenders. For the purposes of this Section 3.04, the Subordinated Notes shall not be deemed Receivables. (b) The Borrower hereby agrees to cause each Class A Subsidiary Guarantor to grant and convey to Agent for the benefit of the Lenders and the L/C Issuer a Lien on any and all Subsidiary Assigned Collateral now owned or hereafter acquired by each such Class A Subsidiary Guarantor. To secure the full and timely payment and performance of each of the Lender Obligations, and to grant to the Agent for the benefit of the Agent, the Lenders and the L/C Issuer a Lien on the right, title and interest of a Class A Subsidiary Guarantor in and to any Subsidiary Assigned Collateral of such Class A Subsidiary Guarantor, the Borrower hereby agrees to cause each Class A Subsidiary Guarantor to execute and deliver to the Agent a Subsidiary Guaranty and a Security Agreement, together with all financing statements, supplements, amendments, certificates, documents and notices as reasonably requested by the Agent to perfect such Liens, all duly completed and executed to the reasonable satisfaction of the Agent. Each other Guarantor Subsidiary shall execute and deliver to the Agent for the benefit of the Lenders and the Agent a Subsidiary Guaranty to guaranty the full and timely payment and performance of each of the Lender Obligations. 3.05. Further Cooperation. (a) The Borrower shall perform, or cause a ------------------- Subsidiary Guarantor to perform , on the reasonable request of the Agent and at the Borrower's expense, such acts as may be necessary or advisable to carry out the intent of this Agreement and the other Loan Documents. Without limiting the generality of the preceding sentence, the Borrower shall take all steps reasonably necessary or, in the reasonable opinion of Agent, advisable to grant and convey, or cause the grant and conveyance by a Subsidiary Guarantor, to Agent for the benefit of the Lenders, the L/C Issuer and the Agent a Lien on any and all Assigned Collateral of the Borrower, whether now owned or hereafter acquired, and any and all Subsidiary Assigned Collateral of a Class A Subsidiary Guarantor, whether now owned or hereafter acquired, and to validate or protect any Lien granted to the Agent for the benefit of the Lenders, the L/C Issuer and the Agent in any Assigned Collateral or any Subsidiary Assigned Collateral, or to defeat the assertion by any third parties of any adverse claim with respect to any Assigned Collateral or any Subsidiary Assigned Collateral. Without limiting the generality of the foregoing, from time to time, or at the request of Agent, the Borrower will execute and file, and cause the execution and filing of, as the case may be, such agreements, amendments, supplements, bailee's waivers, landlord's waivers, financing statements, continuation statements, amendments thereto and assignments thereof, and such other instruments and notices, to grant Liens on any Assigned Collateral or any Subsidiary Assigned Collateral, and to perfect, protect or -45- more fully evidence the rights of the Agent, the Lenders and the L/C Issuer under any Security Documents. (b) The Borrower hereby authorizes the Agent or any of its designees, and does hereby constitute the Agent the attorney-in-fact of the Borrower, to execute in the name of the Borrower, and to file, one or more financing statements, continuation statements, amendments thereto and/or assignments thereof, relative to all or any of the liens and security interests in favor of the Agent in any of the Assigned Collateral, whether now existing or hereafter created. If the Borrower fails to perform any of its respective agreements or obligations under this Agreement, the Agent or its designee may (but shall not be required to) itself perform, or cause the performance of, such agreement or obligation, and the reasonable expenses of the Agent or its designee or assignee incurred in connection therewith shall be payable by the Borrower as provided in Section 10.03 hereof. ARTICLE IV REPRESENTATIONS AND WARRANTIES ------------------------------ Representations and Warranties. The Borrower represents and warrants to the ------------------------------ Agent, each of the Lenders and the L/C Issuer as follows in Sections 4.01 through and including Section 4.26. 4.01. Organization and Qualification. (a) The Borrower is a corporation ------------------------------ duly organized, validly existing and in good standing under the laws of the State of Delaware; the Borrower has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct; and the Borrower is duly licensed or qualified and in good standing in each jurisdiction listed on Schedule 4.01 hereto and in all other jurisdictions ------------- where the property owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary, except for those jurisdictions where the Borrower's non-qualification would not cause there to be a Material Adverse Change. (b) Each Subsidiary of the Borrower is a corporation, business trust or limited partnership, as the case may be, duly organized, validly existing and in good standing under the laws of the state of its incorporation or organization, as the case may be, shown on Schedule 4.01; each Subsidiary of ------------- the Borrower has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct; and each Subsidiary of the Borrower is duly licensed or qualified and in good standing in each jurisdiction listed on Schedule 4.01 hereto and in all other jurisdictions ------------- where the property owned or leased by it or the nature of the business transacted by it makes such licensing or qualification -46- necessary, except for those jurisdictions where such Subsidiary's non- qualification would not cause there to be a Material Adverse Change. 4.02. Capitalization and Ownership. As of August 31, 1997, the authorized ---------------------------- Capital Stock of the Borrower consists of 18,000,000 shares of common stock of which 8,632,272 shares were issued and outstanding and 2,000,000 shares of preferred stock none of which was issued or outstanding. All of the Capital Stock of the Borrower has been validly issued and is fully paid and nonassessable. Except as set forth in Schedule 4.02, there are no options, ------------- warrants or other rights outstanding to purchase any such Capital Stock. 4.03. Subsidiaries. Except for the Subsidiaries and investments in other ------------ Persons set forth in Schedule 4.03, the Borrower does not own directly or ------------- indirectly any capital stock of any other Person, is not a partner (general or limited) of any partnership, is not a party to any joint venture and does not own (beneficially or of record) any equity interest or similar interest in any other Person. 4.04. Power and Authority. The Borrower has full power to enter into, ------------------- execute, deliver, carry out and perform this Agreement and the Loan Documents to which it is a party, to incur the Indebtedness contemplated by the Loan Documents and to perform its obligations under the Loan Documents to which it is a party and all such actions have been duly authorized by all necessary corporate proceedings on its part. 4.05. Validity and Binding Effect. This Agreement has been, and each Loan --------------------------- Document, when executed and delivered by the Borrower, will have been, duly and validly executed and delivered by the Borrower. This Agreement, each of the other Loan Documents executed and delivered by the Borrower pursuant to the provisions hereof and each of the other Loan Documents executed and delivered by the Borrower will constitute legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except to the extent that enforceability of any of the Loan Documents may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or limiting the right of specific performance. 4.06. No Conflict. (a) Neither the execution and delivery by the Borrower ----------- of this Agreement or the Loan Documents to which the Borrower is a party nor the consummation of the transactions herein or therein contemplated nor compliance with the terms and provisions hereof or thereof by the Borrower will (a) conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the certificate of incorporation, by-laws or other organizational documents of the Borrower or (ii) any Law or any agreement or instrument or order, writ, judgment, injunction or decree to which the Borrower is a party or by which it is bound or to which it is subject, which conflict, default or breach would cause a Material Adverse -47- Change, or (b) result in the creation or enforcement of any Lien upon any property (now or hereafter acquired) of the Borrower (other than the Permitted Liens). (b) Neither the execution and delivery by a Subsidiary Guarantor of a Subsidiary Guaranty, a Subsidiary Security Agreement or the other Security Documents to which such Subsidiary Guarantor is a party nor the consummation of the transactions contemplated by this Agreement or the other Loan Documents nor compliance with the terms and provisions hereof or thereof by such Subsidiary Guarantor will (a) conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the articles of incorporation, by-laws or other organizational documents of such Subsidiary or (ii) any Law or any agreement or instrument or order, writ, judgment, injunction or decree to which such Subsidiary is a party or by which it is bound or to which it is subject, which conflict, default or breach would cause a Material Adverse Change, or (b) result in the creation or enforcement of any Lien upon any property (now or hereafter acquired) of such Subsidiary (other than the Permitted Liens). 4.07. Litigation. Except for the litigation set forth on Schedule 4.07, ---------- ------------- there are no actions, suits, proceedings or investigations pending or, to the knowledge of the Borrower, threatened against the Borrower, or any Subsidiary of the Borrower, at law or equity before any Official Body which individually or in the aggregate, if adversely determined would be likely to result in any Material Adverse Change. Neither Borrower nor any Subsidiary of the Borrower is in violation of any order, writ, injunction or decree of any Official Body which could be expected to result in any Material Adverse Change. 4.08. Financial Statements. -------------------- (i) Financial Statements. The Borrower has delivered to the Agent -------------------- the consolidated financial statements of the Borrower and its Subsidiaries for the period ended July 31, 1997. All such financial statements are complete and correct in all material respects and fairly present the consolidated financial condition of the Borrower and its Subsidiaries in all material respects and the results of their operations as of the dates and for the periods referred to, and have been prepared in accordance with GAAP throughout the period included. (ii) Accuracy of Financial Statements. The Borrower and its -------------------------------- Subsidiaries have no liabilities, contingent or otherwise, that are not disclosed in the financial statements referred to in clause (i) above and that would be required to be disclosed in accordance with GAAP, except for those incurred since the date of such financial statements in the ordinary course of business. 4.09. Margin Stock. Neither the Borrower, nor any of its Subsidiaries, ------------ engage or intend to engage principally, or as one of its important activities, in the business of incurring indebtedness or extending credit to others (including, without limitation, any of the Subsidiaries -48- of the Borrower) for the purpose, immediately, incidentally or ultimately, of purchasing or carrying margin stock (within the meaning of any Margin Regulation). No part of the proceeds of any Revolving Credit Loan has been or will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others (including, without limitation, any of its Subsidiaries) for the purpose of purchasing or carrying any margin stock or to refund or retire Indebtedness originally incurred for such purpose, or for any purpose which entails a violation of or which is inconsistent with the provisions of the Margin Regulations of the Board of Governors of the Federal Reserve System. The Borrower does not intend to hold, and shall not permit its Subsidiaries to hold, margin stock. 4.10. Full Disclosure. Neither this Agreement nor any Loan Document, nor --------------- any certificate, statement, agreement or other document furnished to the Agent, the L/C Issuer or any Lender in connection herewith or therewith, contains any misstatement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. There is no fact known to the Borrower which materially adversely affects the business, property, assets, financial condition, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, which has not been set forth in this Agreement or the Loan Documents or in the certificates, statements, agreements or other documents furnished in writing to the Agent, the Lenders or the L/C Issuer prior to or at the date hereof in connection with the transactions contemplated hereby and thereby. 4.11. Tax Returns and Payments. The Borrower is a member of an affiliated ------------------------ group of companies which file consolidated federal tax returns. All such federal tax returns that are required by law to be filed, have been filed or properly extended. All taxes, assessments and other governmental charges levied upon members of such affiliated group or any of their respective properties, assets, income or franchises which are due and payable have been paid in full other than (i) those presently payable without penalty or interest, (ii) those which are being contested in good faith by appropriate proceedings and (iii) those which, if not paid, would not, in the aggregate, constitute a Material Adverse Change; and as to each of items (i), (ii) and (iii) the affiliated group has established reserves for such claim as have been determined to be adequate by application of GAAP consistently applied. There are no agreements or waivers extending the statutory period of limitations applicable to any consolidated federal income tax return of the Borrower and its consolidated Subsidiaries for any period, except as set forth on Schedule 4.11. 4.12. Consents and Approvals. No consent, approval, exemption, order or ---------------------- authorization of, or a registration or filing with any Official Body or any other Person is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Agreement and the Loan Documents to which the Borrower or any Subsidiary Guarantor is a party, except for the financing statements requested to be filed by the Agent and the continuation -49- statements with respect to such UCC financing statements which are not yet required to be filed and except as listed on Schedule 4.12 attached hereto, all ------------- of which items set forth on Schedule 4.12 shall have been obtained or made on or ------------- prior to the Closing Date. 4.13. No Event of Default; Compliance with Instruments. No event has ------------------------------------------------ occurred and is continuing and no condition exists or will exist after giving effect to the borrowings to be made on the Closing Date under the Loan Documents which constitutes an Event of Default or a Default. Neither the Borrower nor any of its Subsidiaries is in violation of (i) any term of its certificate of incorporation, by-laws or other organizational documents or (ii) any material agreement or instrument to which it is a party or by which it or any of its properties may be subject or bound where such violation would constitute a Material Adverse Change. 4.14. Compliance with Laws. The Borrower and its Subsidiaries are in -------------------- compliance in all material respects with all applicable Laws (other than Environmental Laws) in all jurisdictions in which the Borrower, and its Subsidiaries, are presently or will be doing business except where the failure to do so would not, individually or in the aggregate, constitute a Material Adverse Change. 4.15. Investment Company; Public Utility Holding Company. Neither the -------------------------------------------------- Borrower nor any Subsidiary Guarantor is an "investment company" registered or required to be registered under the Investment Company Act of 1940 or under the "control" of an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended from time to time, and shall not become such an "investment company" or under such "control." Neither the Borrower nor any Subsidiary Guarantor is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" within the meaning the Public Utility Holding Company Act of 1935, as amended from time to time. The Borrower is not subject to any Law of any Official Body (in each case whether United States federal, state or local, or other) having jurisdiction over the Borrower, which purports to restrict or regulate its ability to borrow money, or to extend or obtain credit, or to pledge any of the Assigned Collateral or its interests in the Loan Disbursement Account. No Subsidiary Guarantor is subject to any Law of any Official Body (in each case whether United States federal, state or local, or other) having jurisdiction over such Subsidiary Guarantor which purports to restrict or regulate its ability to borrow money, or to extend or obtain credit, or to pledge its Subsidiary Assigned Collateral. 4.16. Plans and Benefit Arrangements. Except as set forth on Schedule 4.16 ------------------------------ ------------- hereto: (i) The Borrower and each member of the ERISA Group are in compliance in all material respects with any applicable provisions of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer Plans. There has been no Prohibited -50- Transaction with respect to any Benefit Arrangement or any Plan (other than a Multiemployer Plan) or, to the knowledge of the Borrower, with respect to any Multiemployer Plan or Multiple Employer Plan, which could result in any material liability of the Borrower or any other member of the ERISA Group. The Borrower and all members of the ERISA Group have made when due any and all payments required to be made under any agreement relating to a Multiemployer Plan or a Multiple Employer Plan or any Law pertaining thereto. With respect to each Plan and, to the knowledge of Borrower, each Multiemployer Plan, the Borrower and each member of the ERISA Group (i) have fulfilled in all material respects their obligations under the minimum funding standards of ERISA, (ii) have not incurred any liability to the PBGC (other than for premiums not yet due) and (iii) have not had asserted against them any penalty for failure to fulfill the minimum funding requirements of ERISA. (ii) To the best of the Borrower's knowledge, each Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder when due. (iii) Neither the Borrower nor any other member of the ERISA Group has instituted or intends to institute proceedings to terminate any Plan. (iv) No event requiring notice to the PBGC under Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with respect to any Plan, and no amendment with respect to which security is required under Section 307 of ERISA has been made or is reasonably expected to be made to any Plan. (v) Neither the Borrower nor any other member of the ERISA Group has incurred or reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the Borrower nor any other member of the ERISA Group has been notified by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan or Multiple Employer Plan has been terminated within the meaning of Title IV of ERISA and, to the knowledge of the Borrower, no Multiemployer Plan or Multiple Employer Plan is reasonably expected to be reorganized or terminated, within the meaning of Title IV of ERISA. (vi) To the extent that any Benefit Arrangement is insured, the Borrower and all members of the ERISA Group have paid when due all premiums required to be paid for all periods ending through and including the Closing Date. To the extent that any Benefit Arrangement is funded other than with insurance, the Borrower and all members of the ERISA Group have made when due all contributions, to the extent required by applicable Law or the terms of such Benefit Arrangement to be paid for all periods ending through and including the Closing Date. -51- 4.17. Title to Properties. The Borrower and each of its Subsidiaries have ------------------- good title to, or a valid leasehold interest in, all their respective real and personal property, except to the extent the failure to have such title or leasehold interests is not reasonably likely, individually or in the aggregate, to result in a Material Adverse Change, and none of such property is subject to any Lien except Permitted Liens. 4.18. Insurance. There are in full force and effect for the benefit of the --------- Borrower and its Subsidiaries insurance policies and bonds providing adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of the Borrower and its Subsidiaries in accordance with prudent business practice in the industry of the Borrower and its Subsidiaries. No notice has been given or claim made and to the knowledge of the Borrower, no grounds exist, to cancel or void any of such policies or bonds or to reduce the coverage provided thereby. 4.19. Employment Matters. The Borrower and each Subsidiary of the Borrower ------------------ are in compliance with all employee benefit plans, employment agreements, collective bargaining agreements and labor contracts (the "Labor Contracts") and all applicable federal, state and local labor and employment Laws including, but not limited to, those related to equal employment opportunity and affirmative action, labor relations, minimum wage, overtime, child labor, medical insurance continuation, worker adjustment and relocation notices, immigration controls and worker and unemployment compensation, except where the failure to comply would not constitute a Material Adverse Change. There are no outstanding grievances, arbitration awards or appeals therefrom arising out of the Labor Contracts or current or, to the knowledge of the Borrower, threatened strikes, picketing, handbilling or other work stoppages or slowdowns at facilities of the Borrower or any Subsidiary of the Borrower which in any case would constitute a Material Adverse Change. All payments due from Borrower or any of its Subsidiaries on account of employee health and welfare insurance which could reasonably be expected to have a Material Adverse Change if not paid have been paid or accrued as a liability on the books of Borrower or such Subsidiary. 4.20. Environmental Matters. Except as disclosed on Schedule 4.20 hereto: --------------------- ------------- (i) The Borrower has not received any Environmental Complaint from any Official Body or private person alleging that the Borrower, any Subsidiary of the Borrower or any prior or subsequent owner of the Property is a potentially responsible party under the Comprehensive Environmental Response, Cleanup and Liability Act, 42 U.S.C. (S)9601, et seq., in connection with the -- --- Property which Environmental Complaint is reasonably expected to result in any Material Adverse Change, and the Borrower has no reason to believe that such an Environmental Complaint is reasonably likely to be received. There are no pending or, to the knowledge of the Borrower, threatened Environmental Complaints relating to the Borrower, any -52- Subsidiary of the Borrower or, to the Borrower's knowledge, without any inquiry, any prior or subsequent owner of the Property pertaining to, or arising out of, any Environmental Conditions in connection with the Property, which Environmental Complaints are reasonably expected to result in any Material Adverse Change. (ii) Except for conditions, violations or failures which individually and in the aggregate are not reasonably likely to result in a Material Adverse Change, there are no circumstances at, on or under the Property that constitute a breach of or non-compliance with any of the Environmental Laws, and there are no past or present Environmental Conditions at, on or under the Property or, to the knowledge of the Borrower, without any inquiry at, on or under adjacent property, that prevent compliance with the Environmental Laws at the Property. (iii) Neither the Property nor any structures, improvements, equipment, fixtures, activities or facilities thereon or thereunder contain or use Regulated Substances except in compliance with Environmental Laws, other than such containment or use which individually and in the aggregate is not reasonably likely to result in any Material Adverse Change. There are no processes, facilities, operations, equipment or any other activities at, on or under the Property, or, to the Borrower's knowledge, without any inquiry, at, on or under adjacent property, that currently result in the release or threatened release of Regulated Substances on to the Property in violation of the Environmental Laws, except to the extent that such releases or threatened releases are not likely to result in a Material Adverse Change. (iv) There are no underground storage tanks, or underground piping associated with such tanks, used for the management of Regulated Substances at, on or under the Property that are not in compliance with all Environmental Laws, other than those with respect to which the failure to comply with Environmental Laws is not reasonably likely, either individually or in the aggregate, to result in a Material Adverse Change, and there are no abandoned underground storage tanks or underground piping associated with such tanks, previously used for the management of Regulated Substances at, on or under the Property that have not been either abandoned in place, or removed, in accordance with the Environmental Laws, other than those with respect to which the failure to comply with Environmental Laws is not reasonably likely, either individually or in the aggregate, to result in a Material Adverse Change. (v) The Borrower and each Subsidiary of the Borrower have all material permits, licenses, authorizations and approvals necessary under the Environmental Laws for the conduct of the respective businesses of the Borrower and each Subsidiary of the Borrower as presently conducted, other than those with respect to which the failure to comply with Environmental Laws is not reasonably likely, either individually or in the aggregate, to result in a Material Adverse Change. The Borrower and each Subsidiary of the Borrower have submitted all notices, reports and other filings required by the Environmental Laws to be submitted to an -53- Official Body which pertain to past and current operations on the Property, except for any failure to submit which would not be reasonably likely to result in a Material Adverse Change. (vi) Except for violations which individually and in the aggregate are not likely to result in a Material Adverse Change, all past and present on- site generation, storage, processing, treatment, recycling, reclamation or disposal of Solid Waste at, on, or under the Property and all off-site transportation, storage, processing, treatment, recycling, reclamation or disposal of Solid Waste has been done in accordance with the Environmental Laws. 4.21. Senior Debt Status. The obligations of the Borrower under this ------------------ Agreement and the Notes rank at least pari passu in priority of payment with all ---- ----- other Indebtedness of the Borrower except Indebtedness of the Borrower to the extent secured by Permitted Liens. The obligations of a Subsidiary Guarantor under a Subsidiary Guaranty executed by such Subsidiary Guarantor rank at least pari passu in priority of payment with all other Indebtedness of such Subsidiary - ---- ----- Guarantor except Indebtedness of such Subsidiary Guarantor to the extent secured by Permitted Liens. There is no Lien upon or with respect to any of the properties or income of the Borrower or any of its Subsidiaries which secures Indebtedness or other obligations of any Person except for Permitted Liens. 4.22. Solvency of Borrower. On the date hereof, and as of the date of each -------------------- advance of the Revolving Credit Loan and issuance or renewal of any Letter of Credit, as the case may be, and after giving effect to such advance or the issuance or renewal of a Letter of Credit, each of the Borrower and each Subsidiary Guaranty is, and will be, Solvent. 4.23. Burdensome Restrictions. No contract, lease, agreement or other ----------------------- instrument to which Borrower or any of its Subsidiaries is a party or is bound and no provision of applicable law or governmental regulation would reasonably be expected to have a Material Adverse Change. 4.24. Brokers. No broker or finder acting on behalf of Borrower brought ------- about the obtaining, making or closing of the loans made pursuant to this Agreement, and Borrower has no obligation to any other Person in respect of any finder's or brokerage fees in connection with the loans contemplated by this Agreement. 4.25. Liens. Assuming the filing of all requisite financing statements, ----- the Liens granted to the Agent for the benefit of the Agent, the Lenders and the L/C Issuer pursuant to the Security Documents will at the Closing Date be fully perfected first priority Liens in and to the collateral described therein. -54- 4.26. No Material Adverse Change. No event has occurred since July 31, -------------------------- 1997 and is continuing which has had or would reasonably be expected to have a Material Adverse Change. ARTICLE V CONDITIONS OF LENDING OR ISSUANCE OF LETTER OF CREDIT ----------------------------------------------------- The obligation of each Lender to make the Revolving Credit Loans hereunder, or of the L/C Issuer to issue Letters of Credit hereunder, is subject to the performance by the Borrower of its obligations to be performed hereunder at or prior the making of any such Revolving Credit Loans, or the issuance of any such Letter of Credit, as the case may be, and to the satisfaction of the following further conditions. 5.01. Conditions to Initial Borrowings. On the Closing Date the following -------------------------------- actions shall be completed or satisfied to the sole satisfaction of the Agent: (a) The representations and warranties of the Borrower contained in Article IV and in the other Loan Documents executed and delivered by the Borrower or any of its Subsidiaries in connection with the Closing shall be true and accurate in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific date or times referred to therein), and the Borrower, and each Subsidiary of the Borrower which has executed any Loan Documents, shall have performed, observed and complied with all covenants and conditions hereof and contained in the other Loan Documents; no Event of Default or Default under this Agreement shall have occurred and be continuing or shall exist; and there shall be delivered to the Agent, for the benefit of each Lender, the L/C Issuer and the Agent, a certificate of the Borrower, dated the Closing Date and signed by the chief executive officer and president or chief financial officer of the Borrower, to each such effect. (b) There shall be delivered to the Agent for the benefit of each Lender and the L/C Issuer a certificate dated the Closing Date and signed by the secretary or an assistant secretary of the Borrower, certifying as appropriate as to: (i) all corporate action taken by the Borrower in connection with this Agreement and the other Loan Documents; -55- (ii) the names, offices and titles of the Borrower's officer or officers authorized to sign this Agreement and the other Loan Documents and the true signatures of such officer or officers and the identities of the Authorized Officers permitted to act on behalf of the Borrower for purposes of this Agreement and the other Loan Documents and the true signatures of such officers, on which the Agent, each Lender and the L/C Issuer may conclusively rely; (iii) (A) copies of the Borrower's organizational documents, including its articles of incorporation as in effect on the Closing Date certified by the Secretary of State of its incorporation as well as a copy of the Borrower's by-laws, and (B) a certificate as to the continued existence and good standing of the Borrower issued by the Secretary of State of its incorporation, and (C) a certificate concerning the due qualification of the Borrower as a foreign corporation authorized to due business, and the good standing of the Borrower, issued by the Secretary of State of each jurisdiction shown on Schedule 4.01; ------------- (iv) all corporate or partnership action taken by each Subsidiary Guarantor in connection with each Subsidiary Guaranty, each Subsidiary Security Agreement and the other Loan Documents; (v) the names, offices and titles of each Subsidiary Guarantor's officer or officers authorized to sign each Subsidiary Guaranty, each Subsidiary Security Agreement, if appropriate, and the other Loan Documents and the true signatures of such officer or officers and the identities of the Authorized Officers permitted to act on behalf of each Subsidiary Guarantor for purposes of each Subsidiary Guaranty, each Subsidiary Security Agreement, if appropriate, and the other Loan Documents and the true signatures of such officers, on which the Agent, each Lender and the L/C Issuer may conclusively rely; and (vi) (A) copies of each Subsidiary Guarantor's organizational documents, as in effect on the Closing Date certified, by the secretary of state of the state of its organization and (B) a certificate as to the continued existence and good standing of each Subsidiary Guarantor issued by the secretary of state of the state of its organization, (C) a certificate concerning the due qualification of each Subsidiary Guarantor as a foreign Person authorized to due business, and the good standing of such Subsidiary Guarantor, issued by the Secretary of State of each jurisdiction shown on Schedule 5.01(b) to this Agreement and (D) if ---------------- appropriate, a certified copy of the filed fictitious name registration (if required by applicable law). -56- (c) This Agreement and the other Loan Documents required by the Agent to be executed and delivered by the Borrower or a Subsidiary of the Borrower at the Closing shall have been duly executed and delivered by the Borrower to the Agent for the benefit of the Lenders, the L/C Issuer and the Agent. (d) There shall be delivered to the Agent for the benefit of each Lender a written opinion of Morgan, Lewis and Bockius, LLP, special counsel for the Borrower and the Subsidiary Guarantors dated the Closing Date and in form and substance reasonably satisfactory to the Agent and its counsel as to the matters set forth on Exhibit "G": ----------- (e) All legal details and proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documents (including without limitation the filing of all financing statements required to perfect the Liens of the Agent in the Assigned Collateral and the Subsidiary Assigned Collateral) shall be in form and substance satisfactory to the Agent and its counsel, and the Agent shall have received all such other counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance reasonably satisfactory to the Agent and said counsel, as the Agent or said counsel may reasonably request. (f) No Material Adverse Change shall have occurred since July 31, 1997; and there shall be delivered to the Agent for the benefit of each Lender, the L/C Issuer and the Agent a certificate of the Borrower dated the Closing Date and signed by the Chief Executive Officer, President or Chief Financial Officer of the Borrower to each such effect. (g) The Borrower shall deliver evidence acceptable to the Agent that adequate insurance in compliance with Section 6.05 hereof is in full force and effect. (h) All material consents required to effectuate the transactions contemplated hereby as set forth on Schedule 4.12 shall have been obtained. ------------- (i) The making and/or continuance of any Loan, or the issuance of a Letter of Credit, or the pledge of any Lien in the Assigned Collateral or the Subsidiary Assigned Collateral shall not contravene any Law applicable to the Borrower, any Subsidiary Guarantor, any of the Agent, the Lenders or the L/C Issuer. (j) Except as set forth on Schedule 4.07, no action, suit, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court or other Official Body (i) with respect to the Borrower or its Subsidiaries or this Agreement, the other Loan Documents or the consummation of the transactions contemplated hereby or thereby to enjoin, restrain or prohibit, or to obtain damages in respect of, their performance under this Agreement or any other Loan Documents or the consummation of the -57- transactions contemplated hereby or thereby or (ii) which in the reasonable opinion of Agent would have a Material Adverse Change. (k) The Agent and its counsel shall have received UCC lien search reports of filings against the Borrower and each Subsidiary Guarantor and tax lien and judgment searches relating to the Borrower and each Subsidiary Guarantor which are satisfactory in form and substance to the Lender. (l) The Agent and its counsel shall have received executed financing statements (Form UCC-1), on or prior to the Closing Date, substantially in the form of Exhibit "H" or in such other form as the Agent may ----------- reasonably request, naming Borrower as the debtor and Agent, for the benefit of Agent, the Lenders and the L/C Issuer as the secured party, or other similar instruments or documents, as may be necessary or, in the opinion of the Agent, desirable under the UCC or any comparable law of all appropriate jurisdictions to perfect Agent's interests in the Receivables originated and Inventory owned by the Borrower and proceeds thereof; and the Agent and its counsel shall have received executed financing statements (Form UCC-1), filed on or prior to the Closing Date, substantially in the form of Exhibit "K" or in such other form as ----------- the Agent may reasonably request, naming the Subsidiary Guarantor as the debtor and Agent, for the benefit of Agent, the Lenders and the L/C Issuer as the secured party, or other similar instruments or documents, as may be necessary or, in the opinion of the Agent, desirable under the UCC or any comparable law of all appropriate jurisdictions to perfect Agent's interests in the Receivables originated and Inventory owned by the Subsidiary Guarantor and proceeds thereof. (m) The Agent and its counsel shall have received duly executed landlord waivers and bailee waivers, in form and substance satisfactory to Agent, concerning locations at which Inventory of the Borrower or a Subsidiary Guarantor is located; provided however; if such landlord waivers and bailee ---------------- waivers are not available on the Closing Date, the Borrower shall cause such landlord waivers and bailee waivers to be delivered to the Agent not later than ninety (90) days after the Closing Date. (n) The Agent shall have received evidence that the Credit Agreement dated as of December 1, 1995 among the Borrower, the financial institution party thereto and PNC Bank, as agent has been terminated and all amounts due thereunder have been paid in full. (o) The Agent on its own behalf and on behalf of the Lenders and the L/C Issuer shall be in receipt of all Fees due and payable on or prior to the Closing Date and all reimbursable expenses incurred on or prior to the Closing Date. (p) All matters and circumstances set forth as qualifications, limitations, exceptions, additional matters or other materials set forth in the Schedules hereto -58- provided by or on behalf of the Borrower or its Subsidiaries shall be acceptable to the Agent, the L/C Issuer and the Lenders in their reasonable discretion. 5.02. Each Additional Revolving Credit Loan or Issuance of a Letter of ---------------------------------------------------------------- Credit. At the time of making any Revolving Credit Loans or the issuance of, or - ------ renewal of, a Letter of Credit and after giving effect to the proposed borrowings or issuance: (a) the representations and warranties of the Borrower contained in Article IV hereof and in the other Loan Documents shall be true and correct in all material respects on and as of the earlier of: (x) the date of such additional Revolving Credit Loan or issuance of a Letter of Credit or (y) the specific dates or times referred to therein, with the same effect as though such representations and warranties have been made on and as of such date; (b) the Borrower shall have performed and complied in all material respects with all covenants and conditions hereof; (c) no Default or Event of Default shall have occurred and be continuing or shall exist; (d) the making of any Loan or the issuance of any Letter of Credit shall not contravene any Law applicable to the Borrower, any of the Lenders or the L/C Issuer; (e) the Borrower shall have delivered to the Agent a duly executed and completed Loan Request and with respect to the issuance of a Letter of Credit, the Borrower shall have complied with the reasonable requirements of the L/C Issuer not inconsistent with the terms hereof. (f) Total Utilization shall not exceed the aggregate Revolving Credit Commitments; provided, however, that prior to the advance of any Loan on -------- ------- a Borrowing Date the proceeds of which will repay any Unreimbursed L/C Draw, for the purpose of calculating Total Utilization and compliance with this Subsection 5.02(f) on such date, the existing Total Utilization immediately prior to such advance shall be reduced pro tanto by the dollar amount of the Loans to be --- ----- advanced on such Borrowing Date which will be used to repay any outstanding Unreimbursed L/C Draws. 5.03. Location of Closing. The Closing shall take place at 11:00 A.M., ------------------- Pittsburgh time, on the Closing Date at the offices of Tucker Arensberg, P.C., 1500 One PPG Place, Pittsburgh, Pennsylvania 15222, or at such other time and place as the parties agree. -59- ARTICLE VI AFFIRMATIVE COVENANTS --------------------- The Borrower covenants and agrees that, until payment in full of the Loans and interest thereon, payment in full of all Letter of Credit reimbursement obligations and interest thereon, satisfaction of all of the Borrower's other obligations hereunder and termination of the Revolving Credit Commitments, and the expiration and cancellation of all Letters of Credit issued hereunder, the Borrower shall comply, or cause compliance, at all times with the affirmative covenants set forth in Sections 6.01 through and including Section 6.14. 6.01. Preservation of Existence, etc. (a) The Borrower shall maintain its ------------------------------- corporate existence and its license or qualification and its good standing in the state of its incorporation and in each other jurisdiction in which its ownership or lease of property or the nature of its businesses makes such license or qualification necessary (except for such other jurisdictions in which such failure to be so licensed or qualified individually and in the aggregate would not result in a Material Adverse Change). (b) Each Subsidiary of the Borrower shall maintain its corporate existence and its license or qualification and its good standing in the state of its incorporation and in each other jurisdiction in which its ownership or lease of property or the nature of its businesses makes such license or qualification necessary (except for such other jurisdictions in which such failure to be so licensed or qualified individually and in the aggregate would not result in a Material Adverse Change). 6.02. Reporting Requirements. The Borrower will maintain, and will cause ---------------------- its Subsidiaries to maintain, a system of accounting established and administered in accordance with GAAP, and will set aside on its books all such proper reserves as shall be required by GAAP. Further, the Borrower will: (i) deliver to the Agent within forty-five (45) days after the end of each Fiscal Quarter in each Fiscal Year of the Borrower, (A) consolidated balance sheet as at the end of such period for the Borrower and its Subsidiaries, (B) consolidated statements of income for such period for the Borrower and its Subsidiaries and, in the case of the second, third and fourth quarterly periods, for the period from the beginning of the current Fiscal Year to the end of such quarterly period, (C) consolidated statements of cash flow for such period for the Borrower and its Subsidiaries and, in the case of the second, third and fourth quarterly periods, for the period from -60- the beginning of the current Fiscal Year to the end of such quarterly period, and (D) consolidated statements of shareholders equity for such period for the Borrower and its Subsidiaries and, in the case of the second, third and fourth quarterly periods, for the period from the beginning of the current Fiscal Year to the end of such quarterly period; and with each financial statement described in clauses (A) through (D) of this Section 6.02(i), each such statement shall set forth, in comparative form, corresponding figures for the corresponding period in the immediately preceding Fiscal Year; and all such statements shall be prepared in reasonable detail and certified, subject to changes resulting from year-end adjustments, by the chief financial officer of the Borrower; (ii) deliver to the Agent within 90 days after the end of each Fiscal Year of the Borrower, (A) consolidated balance sheets as at the end of such year for the Borrower, (B) consolidated statements of income for such year for the Borrower, (C) consolidated statements of cash flow for such year for the Borrower, and (D) consolidated statements of shareholders equity for such year for the Borrower; and with each financial statement described in clauses (A) through (D) of this Section 6.02(ii), each such statement shall set forth, in comparative form, corresponding figures for the immediately preceding Fiscal Year for the Borrower; and all such financial statements shall present fairly in all material respects the financial position of the Borrower and its consolidated subsidiaries, as at the dates indicated and the results of its operations and its cash flow for the periods indicated, in conformity with GAAP; and the Borrower shall cause each of the consolidated financial statements described in clauses (A) through (D) of the Section 6.02(ii) to be certified without limitation as to scope by Coopers & Lybrand L.L.P. or other independent certified public accountants acceptable to the Required Lenders; (iii) deliver to the Agent, together with each delivery of financial statements pursuant to items (i) and (ii) above, a Compliance Certificate of the Borrower substantially in the form of Exhibit "F" hereto, properly completed, ----------- (A) stating (1) that the Borrower has reviewed the terms of the Loan Documents and has made, or caused to be made under his supervision, a review of the transactions and condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during such accounting period, and (2) that the Borrower does not have knowledge of the existence, as at the date of such Compliance Certificate, of any condition or event which constitutes an Event of Default or a Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower has taken or is taking or proposes to take with respect thereto, and (B) demonstrating in reasonable detail compliance as at the end of such accounting period with the restrictions contained in Sections 7.12, 7.13, 7.14 and 7.15 hereof; (iv) upon request of the Agent, deliver to the Agent as soon as it becomes available, but in no event later than October 15 of each Fiscal Year of the Borrower, a capital budget and financial forecast of the Borrower and its Subsidiaries for such Fiscal Year of the Borrower; and promptly give written notice to the Agent of the occurrence of any event or condition that has resulted in a material variance from the capital budget or operating budget in -61- effect for such Fiscal Year, but in no event shall any such notice be given later than five (5) days after such determination is made; (v) promptly give written notice to the Agent of the happening of any event (which is known to the Borrower or should reasonably be known to the Borrower) which constitutes an Event of Default or a Default hereunder, but in no event shall any such notice be given later than five (5) days after the Borrower knows or should have known of such event; (vi) promptly give written notice to the Agent of any pending or, to the knowledge of the Borrower, overtly threatened claim in writing, litigation or threat of litigation which arises between the Borrower, or any of its Subsidiaries, and any other party or parties (including, without limitation, any Official Body) which claim, litigation or threat of litigation, individually or in the aggregate, is reasonably likely to cause a Material Adverse Change, any such notice to be given not later than five (5) days after any of the Borrower becomes aware of the occurrence of any such claim, litigation or threat of litigation; (vii) promptly deliver to the Agent, but in no event later than ten (10) days after the Borrower, or any of its Subsidiaries, receives, copies of (A) all management letters and other reports submitted to the Borrower, or a Subsidiary of the Borrower, by independent certified public accountants in connection with an annual or interim audit of the books of the Borrower, or a Subsidiary of the Borrower made by such accountants which sets forth issues concerning material deviations by the Borrower and/or one or more of its Subsidiaries from GAAP and/or generally accepted auditing standards, (B) all reports, notices and proxy statements sent by the Borrower to its shareholders and (C) all regular and periodic reports and definitive proxy materials (including but not limited to Forms 10-K, 10-Q and 8-K) filed by the Borrower with any securities exchange or the Federal Securities and Exchange Commission; (viii) deliver to the Agent within forty-five (45) days after the end of each fiscal quarter in each fiscal year of a Class A Subsidiary Guarantor, (A) a balance sheet as at the end of such period for such Class A Subsidiary Guarantor, (B) a statement of income for such period for such Class A Subsidiary Guarantor and, in the case of the second, third and fourth quarterly periods, for the period from the beginning of the current fiscal year to the end of such quarterly period, (C) a statement of cash flow for such period for such Class A Subsidiary Guarantor and, in the case of the second, third and fourth quarterly periods, for the period from the beginning of the current fiscal year to the end of such quarterly period, and (D) a statement of shareholders equity (or similar statement for a partnership) for such period of such Class A Subsidiary Guarantor and, in the case of the second, third and fourth quarterly periods, for the period from the beginning of the current fiscal year to the end of such quarterly period; and with each financial statement described in clauses (A) through (D) of this Section 6.02(ix), each such statement shall set forth, in comparative form, corresponding figures for the corresponding period in the immediately preceding fiscal year of such Class A Subsidiary Guarantor; and all -62- such statements shall be prepared in reasonable detail and certified, subject to changes resulting from year-end adjustments, by the chief financial officer or general partner, as the case may be, of such Class A Subsidiary Guarantor; (ix) deliver to the Agent within 90 days after the end of each fiscal year of each Subsidiary Guarantor, (A) a balance sheet as at the end of such year for such Subsidiary Guarantor and for each Subsidiary Guarantor which is a Class A Subsidiary Guarantor (B) a statement of income for such year for such Class A Subsidiary Guarantor, (C) a statement of cash flow for such year for such Class A Subsidiary Guarantor, and (D) a statement of shareholders equity (or similar statement for a partnership) for such year of such Class A Subsidiary Guarantor; and with each financial statement described in clauses (A) through (D) of this Section 6.02(x), each such statement shall set forth, in comparative form, corresponding figures for the immediately preceding fiscal year for such Subsidiary Guarantor; and shall prepare, or cause to be prepared, each of the financial statements described in clauses (A) through (D) of this Section 6.02(x) in reasonable detail; and all such financial statements shall present fairly in all material respects the financial position of such Subsidiary Guarantor, as at the dates indicated and, where applicable, the results of its operations and its cash flow for the periods indicated, in conformity with GAAP; and (x) such other reports and information as the Agent or the Required Lenders may from time to time reasonably request. 6.03. Notices Regarding Plans and Benefit Arrangements. ------------------------------------------------ (a) Promptly upon becoming aware of the occurrence thereof, notice (including the nature of the event and, when known, any action taken or threatened by the Internal Revenue Service or the PBGC with respect thereto) shall be given to the Agent by the Borrower of: (i) any Reportable Event with respect to the Borrower or any member of the ERISA Group, (ii) any Prohibited Transaction which could subject the Borrower or any member of the ERISA Group to a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code in connection with any Plan, Benefit Arrangement or any trust created thereunder, if such tax and/or penalty is reasonably likely to result in a Material Adverse Change, (iii) any assertion of material withdrawal liability with respect to any Multiemployer Plan, -63- (iv) any partial or complete withdrawal from a Multiemployer Plan by the Borrower or any member of the ERISA Group under Title IV of ERISA (or assertion thereof), where such withdrawal is likely to result in material withdrawal liability, (v) any cessation of operations (by the Borrower of any member or the ERISA Group) at a facility in the circumstances described in Section 4062(e) of ERISA, (vi) withdrawal by the Borrower or any member of the ERISA Group from a Multiple Employer Plan, (vii) a failure by the Borrower or any member of the ERISA Group to make a payment to a Plan required to avoid imposition of a lien under Section 302(f) of ERISA, (viii) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA, or (ix) any change in the actuarial assumptions or funding methods used for any Plan, where the effect of such change is to materially increase or materially reduce the unfunded benefit liability or obligation to make periodic contributions. (b) Promptly after receipt thereof, copies of (i) all notices received by the Borrower or any member of the ERISA Group of the PBGC's intent to terminate any Plan administered or maintained by the Borrower or any member of the ERISA Group, or to have a trustee appointed to administer any such Plan; and (ii) at the request of the Agent or any Lender each annual report (IRS Form 5500 series) and all accompanying schedules, the most recent actuarial reports, the most recent financial information concerning the financial status of each Plan administered or maintained by the Borrower or any member of the ERISA Group, and schedules showing the amounts contributed to each such Plan by or on behalf of the Borrower or any member of the ERISA Group in which any of their respective personnel participate or from which such personnel may derive a benefit, and each Schedule B (Actuarial Information) to the annual report filed by the Borrower or any member of the ERISA Group with the Internal Revenue Service with respect to each such Plan shall be given to the Agent by the Borrower. (c) Promptly upon the filing thereof, copies of any PBGC Form 200, 500, 600 or 601, or any successor form, filed with the PBGC in connection with the termination of any Plan. -64- 6.04. Payment of Liabilities, Including Taxes, etc. The Borrower shall --------------------------------------------- duly pay and discharge, and shall cause its Subsidiaries to pay and discharge timely (subject, where applicable, to specified grace periods and, in the case of trade payables, to normal payment practices), all liabilities which singularly are in excess of $100,000 or which in the aggregate exceed $500,000 to which they are subject or which are asserted against them, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental charges upon them or any of their properties, assets, income or profits, prior to the date on which penalties attach thereto; provided however, -------- ------- the Borrower may chose not to pay any such liabilities, including taxes, assessments or charges, if the same are being contested in good faith and for which such reserves (including reserves for any additional amounts which would be payable as a result of the failure to discharge timely any such liabilities) or other appropriate provisions, if any, as shall be required by GAAP shall have been made. 6.05. Maintenance of Insurance. The Borrower shall insure, and shall cause ------------------------ its Subsidiaries to insure, their respective properties and assets against loss or damage in such amounts as similar properties and assets are insured by prudent companies in similar circumstances carrying on similar businesses, and with reputable and financially sound insurers, including self-insurance to the extent customary. The Borrower shall comply with all of the terms and provisions of any Security Document executed by the Borrower concerning the maintenance of insurance with respect to any collateral granted to or for the benefit of the Lenders and the L/C Issuer thereunder. The Borrower will furnish to the Agent on the Closing Date and thereafter simultaneously with the delivery of the annual financial information delivered pursuant to Section 6.02(ii) a certificate of the Borrower executed by an Authorized Officer of the Borrower certifying that such insurance is in force, is adequate in nature and amount and complies with the Borrower's obligations under this Section 6.05. 6.06. Maintenance of Properties and Leases. The Borrower, and its ------------------------------------ Subsidiaries, shall maintain in good repair, working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, all of those properties useful or necessary to their respective businesses, and from time to time, the Borrower will make or cause to be made all appropriate repairs, renewals or replacements thereof. 6.07. Maintenance of Permits and Franchises. The Borrower, and its ------------------------------------- Subsidiaries, shall maintain in full force and effect all franchises, permits and other authorizations necessary for the ownership and operation of their respective properties and business if the failure so to maintain the same, individually or in the aggregate, would constitute a Material Adverse Change. -65- 6.08. Visitation Rights. The Borrower shall permit, and shall cause its ----------------- Subsidiaries to permit, any of the officers or authorized employees or representatives of the Agent or any of the Lenders to visit and inspect any of the properties of the Borrower, or a Subsidiary of the Borrower, and to examine and make excerpts from its books and records and discuss its respective business affairs, finances and accounts with its officers, all in such detail and at such times and as often as any of the Lenders may reasonably request, provided that each Lender shall provide the Borrower, or the Subsidiary of the Borrower, as the case may be, and the Agent with reasonable notice prior to any visit or inspection and only the Agent and its authorized employees or representatives are permitted to conduct audits. 6.09. Keeping of Records and Books of Account. The Borrower, and its --------------------------------------- Subsidiaries, shall maintain and keep proper books of record and account which enable the Borrower to issue financial statements in accordance with GAAP and as otherwise required by applicable Laws of any Official Body having jurisdiction over the Borrower and its Subsidiaries, and in which full, true and correct entries shall be made in all material respects of all their respective dealings and business and financial affairs. 6.10. Plans and Benefit Arrangements. The Borrower shall, and shall cause ------------------------------ each member of the ERISA Group to, comply with ERISA, the Internal Revenue Code and other applicable Laws applicable to Plans and Benefit Arrangements except where such failure, alone or in conjunction with any other failure, would not result in a Material Adverse Change. Without limiting the generality of the foregoing, the Borrower shall cause all of its Plans and all Plans maintained by any member of the ERISA Group to be funded in accordance with the minimum funding requirements of ERISA and shall make, and cause each member of the ERISA Group to make, in a timely manner, all contributions due to Plans, Benefit Arrangements and Multiemployer Plans. 6.11. Compliance with Laws. The Borrower, and its Subsidiaries, shall -------------------- comply with all applicable Laws (other than Environmental Laws) in all respects, provided that they shall not be deemed to be a violation of this Section 6.11 if any failure to comply with any Law would not result in fines, penalties, other similar liabilities or injunctive relief which in the aggregate would constitute a Material Adverse Change. 6.12. Use of Proceeds. The Borrower will use the proceeds of the Loans --------------- only for lawful purposes in accordance with Section 2.16 hereof as applicable and such uses shall not contravene any applicable Law or any other provision hereof. The Borrower will permit the use of the Letters of Credit only for lawful purposes in accordance with Section 2.17 hereof as applicable, and such uses shall not contravene any applicable Law or any other provision hereof. -66- 6.13. Environmental Laws. (i) The Borrower and its Subsidiaries, shall ------------------ comply in all material respects, subject to the disclosure set forth in Schedule 4.20, with all Environmental Laws and shall obtain and comply in all material respects with and maintain any and all licenses, approvals, registrations or permits required by Environmental Laws; (ii) The Borrower, and its Subsidiaries, shall conduct and complete in all material respects all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Official Bodies respecting Environmental Laws, except to the extent that the same are being contested in good faith by appropriate and lawful proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, required by GAAP shall have been made; and (iii) The Borrower shall defend, indemnify and hold harmless the Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of or noncompliance with any Environmental Laws applicable to the real property owned or operated by the Borrower or any of its Subsidiaries, or any orders, requirements or demands of any Official Bodies related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. 6.14. Senior Debt Status. The obligations of the Borrower under this ------------------ Agreement and the Notes will rank at least pari passu in priority of payment ---- ----- with all other Indebtedness of the Borrower except Indebtedness of the Borrower to the extent secured by Permitted Liens. The obligations of a Subsidiary Guarantor under the Subsidiary Guaranty, the Subsidiary Security Agreement and other Security Documents executed by it will rank at least pari passu in ---- ----- priority of payment with all other Indebtedness of such Subsidiary Guarantor except Indebtedness of such Subsidiary Guarantor to the extent secured by Permitted Liens. ARTICLE VII NEGATIVE COVENANTS ------------------ The Borrower covenants and agrees that, until payment in full of the Loans and interest -67- thereon, payment in full of all Letter of Credit reimbursement obligations and interest thereon, satisfaction of all of the Borrower's other obligations hereunder and termination of the Revolving Credit Commitments, and the expiration and cancellation of all Letters of Credit issued hereunder, the Borrower shall comply, or cause the compliance, with the negative covenants set forth in Sections 7.01 through and including Section 7.17. 7.01. Indebtedness. The Borrower, and its Subsidiaries, shall not at any ------------ time, create, incur, assume or suffer to exist any Indebtedness (including Indebtedness secured by Permitted Liens), except: (i) Indebtedness under the Loan Documents; (ii) Existing Indebtedness as set forth on Schedule 7.01 hereto ------------- (including any extensions or renewals thereof provided there is no increase in the amount thereof or other significant change in the terms thereof); (iii) Indebtedness of a Subsidiary of the Borrower to the Borrower or to another Subsidiary of the Borrower or the Indebtedness of the Borrower to a Subsidiary of the Borrower including, without limitation, the Indebtedness evidenced by the Subordinated Notes; (iv) Indebtedness with respect to foreign exchange hedging transactions entered into in the ordinary course of business to manage foreign currency risk for the Borrower and/or one or more of its Subsidiaries; (v) Indebtedness with respect to oil hedging contracts entered into in the ordinary course of business to manage oil price risk for the Borrower and/or one or more of its Subsidiaries; (vi) Indebtedness incurred pursuant to Interest Hedge Agreements; (vii) Other Indebtedness not covered by clauses (i) through (v) above of this Section 7.01 provided that (A) the principal amount of such indebtedness is not due and payable until after the Expiration Date in effect when such Indebtedness is incurred, (B) the terms of such Indebtedness are no more restrictive, taken as a whole, than the terms hereof and (C) on the date such Indebtedness is incurred there is a permanent reduction of the Revolving Credit Commitments in an amount equal to the amount of such Indebtedness; (viii) Other Indebtedness not covered by items (i) through (vii) above, provided that the aggregate amount of such Indebtedness permitted by this item (viii) shall not exceed $10,000,000 at any one time outstanding; and -68- (ix) Indebtedness evidenced by the Senior Notes; provided that on and after October 1, 1997, the principal amount of such Indebtedness shall not exceed $3,000,000. 7.02. Liens. The Borrower, and its Subsidiaries, shall not at any time ----- create, incur, assume or suffer to exist any Lien on any of their respective property or assets, tangible or intangible, now owned or hereafter acquired, or agree or become liable to do so, except Permitted Liens. 7.03. Loans, Acquisitions and Investments. The Borrower, and its ----------------------------------- Subsidiaries, shall not at any time make any loan or advance to, or purchase or otherwise acquire any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) in, or assets of, or any other investment or interest in, or make any capital contribution to, any other person, or agree to or become liable to do any of the foregoing, except: (i) trade credit extended on usual and customary terms in the ordinary course of business; (ii) fixed assets, equipment or Inventory acquired in the ordinary course of business; (iii) loans and advances to employees to meet expenses incurred by such employees in the ordinary course of business, including without limitation relocation expenses; (iv) Cash Equivalents; (v) investments, capital contributions and advances by the Borrower in existence as of the date hereof, which investments, capital contributions and advances are set forth on Schedule 7.03 hereof; ------------- (vi) investments and capital contributions by the Borrower in, and loans and advances by Borrower to, a third Person so long as after giving effect to each such investment or capital contribution the Borrower shall not have caused a violation of Sections 7.01, 7.02, 7.08, 7.09, 7.12, 7.13, 7.14, 7.15 or 7.16; (vii) loans, advances and capital contributions by a Subsidiary of the Borrower to the Borrower or any of the Borrower's other Subsidiaries or loan, advances and capital contributions by the Borrower to any of its Subsidiaries; and -69- (viii) Borrower or any Subsidiary may acquire the assets or voting securities of any other Person provided that (A) at the time of such acquisition no Default or Event of Default shall have occurred and be continuing or be caused by such acquisition, (B) the acquired Person, if any, shall become a Guarantor Subsidiary and , if required pursuant to the terms of Section 3.04 shall become a Class A Guarantor Subsidiary, and shall execute all Loan Documents required of a Guarantor Subsidiary, (C) the acquisition shall not be contested by such Person or the holders of its equity securities and (D) the Borrower shall have provided the Agent with pro forma historical financial information which demonstrate to the reasonable satisfaction of the Lenders that such acquisition will not violate any covenants of this Agreement. 7.04. Liquidations, Mergers and Consolidations. The Borrower shall not, ---------------------------------------- and shall not permit any Subsidiary of Borrower to, dissolve, liquidate or wind- up its affairs, or become a party to any merger or consolidation, or sell, lease, transfer, or otherwise dispose of, all or substantially all of its assets, provided that: -------- (i) any Subsidiary of Borrower may consolidate or merge into the Borrower or another Subsidiary of the Borrower; (ii) any Subsidiary of the Borrower may sell, lease, transfer or otherwise dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or another Subsidiary of the Borrower; and (iii) the Borrower or any Subsidiary may consolidate or merge with any Person, provided that (A) if the Borrower is a party to such merger or consolidation, the Borrower be the surviving Person, (B) at the time of the consolidation or merger no Default or Event of Default shall have occurred and be continuing or be caused by such consolidation or merger, (C) the surviving Person, if not the Borrower, shall become a Guarantor Subsidiary and , if required pursuant to the terms of Section 3.04 shall become a Class A Guarantor Subsidiary, (D) the consolidation or merger shall not be contested by such Person or the holders of its equity securities and (E) the Borrower shall have provided the Agent with pro forma historical financial information which demonstrate to the reasonable satisfaction of the Lenders that such merger or consolidation will not violate any covenants of this Agreement. 7.05. Dispositions of Assets or Subsidiaries. Excluding the payment of -------------------------------------- cash as consideration for assets purchased by, or services rendered to, the Borrower or any Subsidiary, neither the Borrower nor any of its Subsidiaries shall sell, convey, assign, lease, or otherwise transfer or dispose of, voluntarily or involuntarily, any of its properties or assets, tangible or intangible (including but not limited to sale, assignment, discount or other disposition of accounts, contract rights, chattel paper, equipment or -70- general intangibles with or without recourse or of Capital Stock, shares or beneficial interests or partnership interests in Subsidiaries), except: (i) any sale, transfer or disposition of surplus, obsolete or worn out assets of the Borrower or a Subsidiary; (ii) any sale, transfer or lease of Inventory by the Borrower or any Subsidiary of the Borrower in the ordinary course of business; (iii) any sale, transfer or lease of assets by any Subsidiary of the Borrower to the Borrower or any other Subsidiary of the Borrower or by the Borrower to any Subsidiary of the Borrower; (iv) any sale, transfer or lease of assets, other than those specifically excepted pursuant to clauses (i) through (iii) above, which in any one sale, transfer or lease of assets, or in any number of sales, transfers or leases of assets occurring in any consecutive twelve month period, involves the sale, transfer or lease of not more than 10% of the Consolidated Net Worth of the Borrower (measured with respect to a series of sales, transfers or leases of assets on the day of the first sale); or (v) any absolute sale or assignment of accounts in connection with a Securitization, provided that (A) such transaction, except for the customary exceptions, is nonrecourse to the Borrower or its Subsidiaries, (B) on the date of each such transaction the Revolving Credit Commitments are permanently reduced by a Dollar amount equal to the Maximum Purchase Commitment of such transaction and (C) such Securitization be "off balance sheet" for financial reporting purposes in accordance with GAAP. 7.06. Affiliate Transactions. Except as set forth on Schedule 4.02 and as ---------------------- ------------- set forth on Schedule 7.06, neither the Borrower nor any Subsidiary of the ------------- Borrower shall enter into or carry out any material transaction (including, without limitation, purchasing property or services or selling property or services) with an Affiliate unless such transaction is not otherwise prohibited by this Agreement or the other Loan Documents, is entered into in the ordinary course of business upon fair and reasonable arm's-length terms and conditions which are fully disclosed to the Agent and is in accordance with all applicable Law. 7.07. Subsidiaries, Partnerships and Joint Ventures. (i) Except as --------------------------------------------- permitted by Section 7.03, neither the Borrower nor any Subsidiary of the Borrower shall own or create any Subsidiaries other than those listed in Schedule 4.03 or 7.03; and (ii) neither the Borrower nor any Subsidiary of the - --------------------- Borrower shall become or agree to become a general partner in any general or limited partnership or a joint -71- venturer in any joint venture, without the consent of the Required Lenders, such consent not to be unreasonably withheld. 7.08. Continuation of or Change in Business. Neither the Borrower nor any ------------------------------------- Subsidiary of the Borrower shall engage in any business other than the business activities of such Persons substantially as conducted and operated by the Borrower and its Subsidiaries during the Fiscal Year ended July 31, 1997, and the Borrower shall not permit any material change in such business. 7.09. Plans and Benefit Arrangements. The Borrower shall not, and shall not permit any member of the ERISA Group to: (i) fail to satisfy the minimum funding requirements of ERISA and the Internal Revenue Code with respect to any Plan; (ii) request a minimum funding waiver from the Internal Revenue Service with respect to any Plan; (iii) engage in a Prohibited Transaction with any Plan, Benefit Arrangement or Multiemployer Plan which, alone or in conjunction with any other circumstances or set of circumstances resulting in liability under ERISA, would constitute a Material Adverse Change; (iv) fail to make when due any contribution to any Multiemployer Plan that the Borrower or any member of the ERISA Group may be required to make under any agreement relating to such Multiemployer Plan, or any Law pertaining thereto; (v) withdraw (completely or partially) from any Multiemployer Plan or be deemed under Section 4062(e) of ERISA to withdraw from any Multiple --------------- Employer Plan, where any such withdrawal is likely to result in a material liability of the Borrower or any member of the ERISA Group; (vi) terminate, or institute proceedings to terminate, any Plan, where such termination is likely to result in a material liability to the Borrower or any member of the ERISA Group; (vii) make any amendment to any Plan with respect to which security is required under Section 307 of ERISA; or -72- (viii) fail to give any and all notices and make all disclosures and governmental filings required under ERISA or the Internal Revenue Code, where such failure is likely to result in a Material Adverse Change. 7.10. Fiscal Year. Neither the Borrower nor any Subsidiary of the Borrower ----------- shall change its Fiscal Year from a period beginning August 1 and ending on the immediately succeeding July 31. 7.11. Changes in Organizational Documents. The Borrower shall not, and ----------------------------------- shall not permit any Guarantor Subsidiary of Borrower to, amend in any respect its certificate or articles of incorporation without providing at least thirty (30) calendar days' prior written notice to the Agent and the Lenders and, in the event such change would be materially adverse to the Lenders as determined by the Agent in its sole but reasonable discretion, obtaining the prior written consent of the Required Lenders. 7.12. Minimum Consolidated Tangible Net Worth. The Borrower will not at --------------------------------------- -- any time on and after November 1, 1997 permit its Consolidated Tangible Net - -------- Worth to be less than an amount equal to the sum of (i) 85% of the Consolidated Tangible Net Worth as of October 31, 1997, plus (ii) 50% of the positive net income for each Fiscal Quarter ending after October 31, 1997 of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP consistently applied, plus (iii) all increases to equity from the issuance by the Borrower after July 31, 1997 of further equity securities or other equity capital investments. 7.13. Interest Coverage. The Borrower shall not permit its ratio, measured ----------------- on a rolling four Fiscal Quarter basis, of EBITDA to Cash Interest Expense as of the end of each Fiscal Quarter to be less than 3.5 to 1.0. 7.14. Leverage Ratio. The Borrower shall not permit its Consolidated Total -------------- Indebtedness to EBITDA Ratio to exceed 3.0 to 1.0. 7.15. Operating Leases. The Borrower and its Subsidiaries may not incur ---------------- operating leases which in the aggregate require rental payments in a Fiscal Year to exceed $5,000,000. 7.16. Limitation on Negative Pledge Clauses. Neither the Borrower nor any ------------------------------------- of its Subsidiaries shall enter into any agreement with any Person (other than the Lenders pursuant hereto) which prohibits or limits the ability of the Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired. -73- 7.17. No Changes. The Borrower shall not, and shall not permit any ---------- Subsidiary Guarantor to change the name, identity or corporate or other organizational structure of the Borrower or any Subsidiary Guarantor in any manner which would make any financing statement or continuation statement filed in connection with this Agreement or the Subsidiary Guaranty or the transactions contemplated hereby or thereby seriously misleading within the meaning of Section 9-402(7) of the UCC of any applicable jurisdiction or other applicable Laws unless it shall have given the Agent prior thirty (30) day written notice thereof, and unless prior thereto it shall have caused such financing statement or continuation statement to be amended or a new financing statement to be filed such that such financing statement or continuation statement would not be seriously misleading as required by the Security Agreement or the Subsidiary Security Agreement, as the case may be. ARTICLE VIII DEFAULT ------- 8.01. Events of Default. An "Event of Default" shall mean the occurrence ----------------- ---------------- or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law): (a) (i) The Borrower shall fail to pay any principal of any Loan (including scheduled installments, mandatory prepayments or the payment due at maturity whether by acceleration or otherwise) when due, or (ii) the Borrower shall fail to pay any Unreimbursed L/C Amount when due, or (iii) the Borrower shall fail to pay any interest on any Loan, any Unreimbursed L/C Draw or any other amount owing hereunder or under any other Loan Documents after such interest, or other amount becomes due in accordance with the terms hereof or thereof and such failure shall continue for a period of five (5) days; (b) Any representation or warranty made at any time by the Borrower herein or in any other Loan Document or by a Subsidiary Guarantor in any Loan Document executed by such Subsidiary Guarantor, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time it was made or furnished; (c) The Borrower shall default in the observance or performance of any covenant contained in Sections 6.13 or 6.14 or Article VII hereof; (d) The Borrower shall default in the observance or performance of any other covenant, condition or provision hereof, or of any other Loan Document and, if -74- remediable, such default shall continue unremedied for a period of thirty (30) days after any officer of the Borrower becomes aware of the occurrence thereof; or a Subsidiary Guarantor shall default in the observance or performance of any other covenant, condition or provision contained in a Subsidiary Guaranty, Subsidiary Security Agreement or any other Loan Document executed by such Subsidiary Guarantor, and such default shall continue unremedied for a period of thirty (30) days after any officer of such Subsidiary Guarantor becomes aware of the occurrence thereof; (e) A default or event of default shall occur at any time under the terms of any agreements involving Indebtedness under which the Borrower or any Subsidiary of the Borrower may be obligated as borrower, guarantor or otherwise in excess of Five Million Dollars ($5,000,000) in the aggregate, and such breach, default or event of default consists of the failure to pay (beyond any period of grace permitted with respect thereto, whether waived or not) any Indebtedness when due (whether at stated maturity, by acceleration or otherwise) or if such breach or default causes the acceleration of any such Indebtedness or such breach or default permits the acceleration of any Indebtedness; (f) Any judgments or orders for the payment of money in excess of Two Million Dollars ($2,000,000) in the aggregate shall be entered against the Borrower or any of its Subsidiaries, by a court having jurisdiction in the premises which judgments are not satisfied, discharged, vacated, bonded or stayed pending appeal within a period of thirty (30) days from the respective date of entry; (g) Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party's successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof (except to the extent that enforceability of any of the Loan Documents may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or limiting the right of specific performance) or shall in any way be terminated (except in accordance with terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective rights, titles, interests, remedies, powers or privileges intended to be created thereby in all material respects; (h) A notice of lien, levy or assessment in excess of Two Million Dollars ($2,000,000) in the aggregate is filed of record with respect to all or any part of the assets of the Borrower or a Subsidiary Guarantor by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, including, without limitation, the PBGC, or if any taxes or debts in excess of Two Million Dollars ($2,000,000) owing at any time or times hereafter to any one of these becomes payable and the same is not paid within thirty (30) days after the same becomes payable, or if such notice -75- is filed or such payment is not so made, unless the Borrower or such Subsidiary Guarantor (i) contests such lien, assessment, tax or debt in good faith by appropriate and lawful proceedings diligently conducted but only so long as such proceedings could not subject the Agent, the Lenders or the L/C Issuer to any criminal penalties, or could not result in or involve any risk of loss, sale or forfeiture of any Assigned Collateral or the Subsidiary Assigned Collateral, as the case may be, or any risk of loss of the first priority interest of the Agent in the Assigned Collateral or the Subsidiary Assigned Collateral, as the case may be, (ii) establishes such reserves or other appropriate provisions, if any, as shall be required by GAAP and (iii) pays such lien, assessment, tax or debt in accordance with the terms of any final judgments or orders relating thereto within thirty (30) days after the entry of such judgments or orders; (i) The Borrower, or a Subsidiary Guarantor, ceases to be Solvent or admits in writing its inability to pay debts as they mature; (j) Any of the following occurs: (i) any Reportable Event, which constitutes grounds for the termination of any Plan by the PBGC or the appointment of a trustee to administer or liquidate any Plan, shall have occurred and be continuing; (ii) proceedings shall have been instituted or other action taken to terminate any Plan, or a termination notice shall have been filed with respect to any Plan; (iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the PBGC shall give notice of its intent to institute proceedings to terminate any Plan or Plans or to appoint a trustee to administer or liquidate any Plan and, in the case of the occurrence of (i), (ii), (iii) or (iv) of this Section 8.01(j), the amount of Borrower's liability or the liability of the other members of the ERISA Group is likely to exceed five percent (5%) of the Consolidated Tangible Net Worth; (v) the Borrower or any member of the ERISA Group shall fail to make any contributions when due to a Plan or a Multiemployer Plan; (vi) the Borrower or any member of the ERISA Group shall make any amendment to a Plan with respect to which security is required under Section 307 of ERISA; (vii) the Borrower or any member of the ERISA Group shall withdraw completely or partially from a Multiemployer Plan; (viii) the Borrower or any member of the ERISA Group shall withdraw (or shall be treated under Section 4062(e) of ERISA as having withdrawn) from a Multiple Employer Plan; or (ix) any applicable Law is adopted, changed or interpreted by any Official Body with respect to or otherwise affecting one or more Plans, Multiemployer Plans or Benefit Arrangements and, with respect to any of the events specified in (v), (vi), (vii), (viii) or (ix), any such occurrence would be reasonably likely to materially and adversely affect the total enterprise represented by the Borrower and the other members of the ERISA Group; (k) The Borrower, or a Subsidiary Guarantor, is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business and such injunction, restraint or other preventive order is not stayed or dismissed within thirty (30) days after the entry thereof; -76- (l) (i) any person or group of persons (within the meaning of Sections 13(g) or 14(d)(2) of the Securities Exchange Act of 1934, as amended), shall have acquired beneficial ownership of (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) 35% or more of the voting Capital Stock of the Borrower; (ii) within a period of twelve (12) consecutive months, individuals who were directors of the Borrower on the first day of such period and/or individuals who become directors of the Borrower pursuant to a nomination or election that was recommended or approved by the individuals who were directors on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; or (iii) the Borrower or a Subsidiary shall own less than 100% of the voting Capital Stock or voting partnership or other equity interest of any Subsidiary Guarantor; (m) A proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of the Borrower, or a Subsidiary Guarantor, in an involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of the Borrower, or a Subsidiary Guarantor, for any substantial part of such Person's property, or for the winding-up or liquidation of such Person's affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of thirty (30) consecutive days or such court shall enter a decree or order granting any of the relief sought in such proceeding; (n) The Borrower, or a Subsidiary Guarantor, shall commence a voluntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or other similar official) of itself or for any substantial part of property or shall make a general assignment for the benefit of creditors, or shall fail generally to pay debts as they become due, or shall take any action in furtherance of any of the foregoing; (o) any of the Security Documents shall cease to be in full force and effect or shall be declared to be null and void by a court of competent jurisdiction; or any Lien granted to the Agent for the benefit of the Lenders, the L/C Issuer and the Agent pursuant to any such Security Document ceases to be a Lien with the priority as represented and warranted in such Security Document; or -77- (p) any garnishment proceeding concerning a sum in excess of Two Million Dollars ($2,000,000) shall be instituted by attachment, levy or otherwise, against any deposit account maintained by the Borrower or a Subsidiary Guarantor with any Lender. 8.02. Consequences of Event of Default. -------------------------------- (a) If an Event of Default specified in any of items (a) through (l) or item (o) or (p) of Section 8.01 hereof shall occur and be continuing, the Lenders shall be under no further obligation to make Loans hereunder, the L/C Issuer shall be under no further obligation to issue or amend Letters of Credit hereunder and the Agent may, and upon the request of the Required Lenders shall, by written notice to the Borrower, declare the unpaid principal amount of the Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to the Lenders, the Agent and the L/C Issuer hereunder and under the other Loan Documents to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable to the Agent for the benefit of each Lender, the Agent and the L/C Issuer without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived; and (b) If any Event of Default specified in item (m) or (n) of Section 8.01 hereof shall occur, the Lenders shall be under no further obligations to make Loans hereunder, the L/C Issuer shall be under no further obligation to issue or amend Letters of Credit hereunder and the unpaid principal amount of the Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to the Lenders, the Agent and the L/C Issuer hereunder and under the other Loan Documents shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; further, during the thirty (30) day period referred to in item (m) the Lenders shall be under no further obligation to make Loans and the L/C Issuer shall be under no further obligation to issue or amend Letters of Credit hereunder; and (c) If an Event of Default shall occur and be continuing, any Lender to whom any obligation is owed by the Borrower hereunder or under any other Loan Document, of such Lender and any branch, subsidiary or affiliate of such Lender anywhere in the world shall each have the right, in addition to all other rights and remedies available to it, without notice to the Borrower, to set-off against and apply to the then unpaid balance of all the Revolving Credit Loans and all other obligations of the Borrower hereunder or under any other Loan Document, any debt owing to, and any other funds held in any manner for the account of, the Borrower by such Lender or by such branch, subsidiary -78- or affiliate, including, without limitation, all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise) now or hereafter maintained by the Borrower for its own account (but not including funds held in custodian or trust accounts) with such Lender or such branch, subsidiary or affiliate. Such right shall exist in each case whether or not any Lender or the Agent shall have made any demand under this Agreement or any other Loan Document, whether or not such debt owing to or funds held for the account of the Borrower is or are matured or unmatured and regardless of the existence or adequacy of any other security, right or remedy available to any Lender or the Agent; and (d) In addition to all of the rights and remedies contained in this Agreement or in any of the other Loan Documents, the Agent and the Lenders shall have all of the rights and remedies of a creditor under applicable Law, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by Law. The Agent may, and upon the request of the Required Lenders shall, exercise all post-default rights granted to the Agent and the Lenders under the Loan Documents or applicable Law. (e) Upon the occurrence of any Event of Default described in the foregoing Sections 8.01(m) or (n) or upon the declaration by the Required Lenders of any other Event of Default and the termination of the Revolving Credit Commitments, the obligation of the L/C Issuer to issue or amend Letters of Credit shall terminate, the L/C Issuer or the Agent may provide written demand to any beneficiary of a Letter of Credit to present a draft against such Letter of Credit, and an amount equal to the maximum amount which may at any time be drawn under the Letters of Credit then outstanding (whether or not any beneficiary of such Letters of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under the Letters of Credit) shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Borrower; provided that the foregoing shall not affect in any way the obligations of the Lenders to purchase from the L/C Issuer participation in the unreimbursed amount of any drawings under the Letters of Credit as provided in Section 2.17(c). So long as the Letters of Credit shall remain outstanding, any amounts declared due pursuant to this Section 8.02(e) with respect to the outstanding Letters of Credit when received by the Agent shall be deposited and held by the Agent in an interest bearing account denominated in the name of the Agent for the benefit of the Agent, the Lenders and the L/C Issuer over which the Agent shall have sole dominion and control of withdrawals (the "Cash Collateral Account") as cash collateral for the obligation of the Borrower to reimburse the L/C Issuer in the event of any drawing under the Letters of Credit and upon any drawing under such Letters of Credit in respect of which the Agent has deposited in the Cash Collateral Account any amounts declared due pursuant to this Section 8.02(e), the Agent shall apply such amounts held by the Agent to reimburse the L/C Issuer for the amount of such drawing. In the event that any Letter of Credit in respect of which the Agent has deposited in the Cash Collateral Account any amounts described above is cancelled or expires or in the event of any reduction in the maximum amount available at any time for drawing under the -79- Letters of Credit outstanding, the Agent shall apply the amount then in the Cash Collateral Account designated to reimburse the L/C Issuer for any drawings under the Letters of Credit less the maximum amount available at any time for drawing under the Letters of Credit outstanding immediately after such cancellation, expiration or reduction, if any, to the payment in full of the outstanding Lender Obligations, and second, to the payment of any excess, to the Borrower. ARTICLE IX THE AGENT --------- 9.01. Appointment and Grant of Authority. (a) Each of the Lenders and the ---------------------------------- L/C Issuer hereby appoints PNC Bank, National Association, and PNC Bank, National Association, hereby agrees to act, as the Agent under this Agreement and the other Loan Documents. The Agent shall have and may exercise such powers under this Agreement and the other Loan Documents as are specifically delegated to it by the terms hereof or thereof, together with such other powers as are incidental thereto. Without limiting the foregoing, the Agent, on behalf of the Lenders and the L/C Issuer, is authorized to execute all of the Loan Documents (other than this Agreement) and to accept all of the Loan Documents and all other agreements, documents or instruments reasonably required to carry out the intent of the parties to this Agreement. (b) The Lenders and the L/C Issuer appoint and authorize the Agent, and the Agent hereby accepts the appointment and authorization to act as agent of, and bailee, for the Lenders and the L/C Issuer to hold for their collective benefit the Assigned Collateral and the Subsidiary Assigned Collateral. The Agent, in its capacity of agent and bailee as set forth in the immediately preceding sentence, shall not commingle the proceeds realized from any enforcement action against any of the Assigned Collateral or the Subsidiary Assigned Collateral with any asset or account of the Agent, and such proceeds shall be held in trust for the benefit of the Lenders and the L/C Issuer and shall be applied pursuant to the terms hereof. 9.02. Delegation of Duties. The Agent may perform any of its duties -------------------- hereunder by or through agents or employees (provided such delegation does not constitute a relinquishment of duties as the Agent hereunder) and, subject to Sections 9.07 and 10.03 hereof, shall be entitled to engage and pay for the advice or services of any attorneys, accountants or other experts concerning all matters pertaining to duties hereunder and to rely upon any advice so obtained. 9.03. Reliance by Agent on Lenders for Funding. Unless the Agent shall ---------------------------------------- have received notice from a Lender prior to any Borrowing Date that such Lender will not make available to the Agent such Lender's portion of net disbursements of Revolving Credit Loans, the Agent may assume that such Lender has made such portion available to the Agent and the Agent may, in reliance upon such assumption, make -80- Revolving Credit Loans to the Borrower. If and to the extent that such Lender has not made such portion available to the Agent on or prior to any Borrowing Date, such Lender and the Borrower severally agree to repay to the Agent immediately upon demand, in immediately available funds, such unpaid amount, together with interest thereon for each day from the applicable Borrowing Date until such amount is repaid to the Agent, at (i) in the case of the Borrower, at the rate of interest then in effect for such loan and (ii) in the case of such Lender, at the Federal Funds Effective Rate. If such Lender shall repay to the Agent such corresponding amount, such amount shall constitute a Revolving Credit Loan made by such Lender for purposes of this Agreement. The failure by any Lender to pay its portion of a Revolving Credit Loan made by the Agent shall not relieve any other Lender of the obligation to pay its portion of net disbursements of Revolving Credit Loans on any Borrowing Date, but no Lender shall be responsible for the failure of any other Lender to make its net share of Revolving Credit Loans to be made by such other Lender on such Borrowing Date. 9.04. Non-Reliance on Agent. Each Lender and the L/C Issuer agree that --------------------- (i) it has, independently and without reliance on the Agent, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its Subsidiaries and decision to enter into this Agreement and (ii) that it will, independently and without reliance upon the Agent, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. Except as otherwise provided herein or under any other Loan Document, the Agent shall have no duty to keep the Lenders or the L/C Issuer informed as to the performance or observance by the Borrower of this Agreement or any other document referred to or provided for herein or to inspect the properties or books of the Borrower or any of its Subsidiaries. The Agent, in the absence of gross negligence or willful misconduct, shall not be liable to any Lender or the L/C Issuer for its failure to relay or furnish to the Lender any information. 9.05. Responsibility of Agent and Other Matters. ----------------------------------------- (a) Ministerial Nature of Duties. As between the Lenders, the L/C ---------------------------- Issuer and itself, the Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents, and those duties and responsibilities shall be subject to the limitations and qualifications set forth in this Article IX. The duties of the Agent shall be ministerial and administrative in nature. (b) Limitation of Liability. As between the Lenders, the L/C Issuer ----------------------- and itself, neither the Agent nor any of its respective directors, officers, employees or agents shall be liable, in the absence of gross negligence or willful misconduct, for any action taken or omitted (whether or not such action taken or omitted is within or without the Agent's -81- responsibilities and duties expressly set forth in this Agreement) under or in connection with this Agreement or any other instrument or document in connection herewith. Without limiting the foregoing, neither the Agent, nor any of its directors, officers, employees or its agents, shall be responsible for, or have any duty to examine (i) the genuineness, execution, validity, effectiveness, enforceability, value or sufficiency of (A) this Agreement or any of the other Loan Documents or (B) any other document or instrument furnished pursuant to or in connection with this Agreement, (ii) the collectability of any amounts owed by the Borrower to the Agent, the Lenders or the L/C Issuer, (iii) the truthfulness of any recitals or statements or representations or warranties made to the Agent or the Lenders in connection with this Agreement, (iv) any failure of any party to this Agreement to receive any communication sent, including any telegram, telex, teletype, telecopy, bank wire, cable, or telephone message or any writing, application, notice, report, statement, certificate, resolution, request, order, consent letter or other instrument or paper or communication entrusted to the mails or to a delivery service, or (v) the assets or liabilities or financial condition or results of operations or business or creditworthiness of the Borrower or any of its Subsidiaries. (c) Reliance. The Agent shall be entitled to act, and shall be -------- fully protected in acting upon, any telegram, telex, teletype, telecopy, bank wire or cable or any writing, application, notice, report, statement, certificate, resolution, request, order, consent, letter or other instrument or paper or communication believed by the Agent in good faith to be genuine and correct and to have been signed or sent or made by a proper Person. The Agent may consult counsel and shall be entitled to act, and shall be fully protected in any action taken in good faith, in accordance with advice given by counsel. The Agent may employee agents and attorneys-in-fact and shall not be liable for the default or misconduct of any such agents or attorneys-in-fact selected by the Agent with reasonable care. The Agent shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the other Loan Documents on the part of the Borrower. 9.06. Actions in Discretion of Agent; Instructions from the Lenders. The ------------------------------------------------------------- Agent agrees, upon the written request of the Required Lenders, to take or refrain from taking any action of the type specified as being within the Agent's rights, powers or discretion herein or under any Loan Documents, provided that -------- the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or any other Loan Document or applicable Law. In the absence of a request by the Required Lenders, the Agent shall have authority, in its sole discretion, to take or not to take any such action, unless this Agreement specifically requires the consent of the Required Lenders or all of the Lenders. Any action taken or failure to act pursuant to such instructions or discretion shall be binding on the Lenders and the L/C Issuer, subject to Section 9.05(b) hereof. Subject to the provisions of Section 9.05(b), no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders. -82- 9.07. Indemnification. To the extent the Borrower does not reimburse and --------------- save harmless the Agent according to the terms hereof for and from all costs, expenses and disbursements in connection herewith, such costs, expenses and disbursements, shall be borne by the Lenders ratably in accordance with respective Lender's Ratable Share. Each Lender hereby agrees on such basis (i) to reimburse the Agent for such Lender's Ratable Share of all such reasonable costs, expenses and disbursements on request and (ii) to the extent of each such Lender's Ratable Share, to indemnify and save harmless the Agent against and from any and all losses, obligations, penalties, actions, judgments and suits and other costs, expenses and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent, other than as a consequence of gross negligence or willful misconduct on the part of the Agent, arising out of or in connection with this Agreement, the other Loan Documents or any other agreement, instrument or document in connection herewith or therewith, or any request of the Required Lenders, including without limitation the reasonable costs, expenses and disbursements in connection with defending itself against any claim or liability related to the exercise or performance of any of its powers or duties under this Agreement, the other Loan Documents, or any of the other agreements, instruments or documents delivered in connection herewith or the taking of any action under or in connection with any of the foregoing. 9.08. Agent's Rights as a Lender. With respect to the Revolving Credit -------------------------- Commitment of the Agent as a Lender hereunder, any Revolving Credit Loans or Swingline Loans of the Agent under this Agreement, the Agent's Ratable Share of any Unreimbursed L/C Draws, the participation of PNC Bank as a Lender and as the L/C Issuer under this Agreement the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto, and the issuance of any Letter of Credit under the terms hereof, the Agent shall have the same rights and powers, duties and obligations under this Agreement, the other Loan Documents or any other agreement, instrument or document as any Lender and may exercise such rights and powers and shall perform such duties and fulfill such obligations as though it were not the Agent, as the case may be. The Agent may accept deposits from, lend money to, and generally engage, and continue to engage, in any kind of business with the Borrower or any of its Subsidiaries, as if PNC Bank were not the Agent. 9.09. Notice of Default. The Agent shall not be deemed to have knowledge ----------------- or notice of the occurrence of an Event of Default unless the Agent has received written notice from a Lender or the Borrower referring to this Agreement, describing such Event of Default and stating that such notice is a "notice of default". 9.10. Payment to Lenders. Except as otherwise set forth in Section 9.03 ------------------ hereof, promptly after receipt from the Borrower of any principal repayment of the Revolving Credit Loans or any Unreimbursed L/C Draw, interest due on the Revolving Credit Loans or any Unreimbursed L/C Draws, and any Fees (other than the -83- Underwriting Fee, the Agent's Fee and the L/C Fronting Fee) or other amounts due under any of the Loan Documents, the Agent shall distribute to each Lender that Lender's Ratable Share of the funds so received except that funds received from the Borrower or a Subsidiary Guarantor to reimburse the L/C Issuer for drawings on Letters of Credit (other than a Lender's Ratable Share of such reimbursement payment to the extent such Lender has complied fully with any funding obligations under Section 2.17(g) hereof) or to fund any risk participant in the Letters of Credit or to pay the L/C Fronting Fee shall be paid solely for the account of L/C Issuer. If the Agent fails to distribute collected funds received by 2:00 P.M. on any Business Day by the end of such Business Day or collected funds received after 2:00 P.M. on any Business Day on the next Business Day the funds shall bear interest until distributed at the Federal Funds Effective Rate. The Agent agrees to make its best efforts to provide telephonic notice to each Lender that it is in receipt of funds from the Borrower and the day on which it will commence a wire transfer of such Lender's share of such funds. 9.11. Holders of Notes. The Agent may deem and treat any payee of any Note ---------------- as the owner thereof for all purposes hereof unless and until written notice of the assignment or transfer thereof shall have been filed with the Agent. Any request, authority or consent of any person who at the time of making such request or giving such authority or consent is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 9.12. Equalization of Lenders. Each borrowing and each payment or ----------------------- prepayment by, or for the account of, the Borrower with respect to principal, interest, Fees, or other amounts due from the Borrower hereunder to the Lenders with respect to the Revolving Credit Loans, shall (except as provided in Section 2.10, 2.12, 2.17(b) or 9.03 hereof) be made in proportion to the Revolving Credit Loans outstanding from each Lender or, if no such Revolving Credit Loans are then outstanding, in proportion to the Ratable Share of each Lender. Each payment of Unreimbursed L/C Draws shall be made for the account of the L/C Issuer. The Lenders agree among themselves that, with respect to all amounts received by any Lender (in its capacity solely as a Lender) or any such holder for application on any obligation hereunder or under any Note or under any such participation, whether received by voluntary payment, by realization upon security, by the exercise of the right of set-off or banker's lien, by counterclaim or by any other non-pro rata source, equitable adjustment will be made in the manner stated in the following sentence so that, in effect, all such excess amounts will be shared ratably among the Lenders and such holders in proportion to their interest in payments under the Notes, except as otherwise expressly provided herein. The Lenders or any such holder receiving any such amount shall purchase for cash, from each of the other Lenders, an interest in such Lender's Revolving Credit Loans in such amount as shall result in a ratable participation by the Lenders and each such holder in the aggregate unpaid amount under the Notes, provided that if all or any portion of such excess amount is thereafter recovered from the Lender or the holder making such purchase, such purchase shall be rescinded and the purchase price restored to the -84- extent of such recovery, together with interest or other amounts, if any, required by Law (including court order) to be paid by the Lender or the holder making such purchase. 9.13. Successor Agent. The Agent may resign as the Agent upon 60 days' --------------- written notice to the Lenders and the Borrower. If such notice shall be given, the Lenders shall appoint from among the Lenders a successor agent for the Lenders, during such 60-day period, which successor agent shall be reasonably satisfactory to the Borrower, to serve as agent hereunder and under the several documents, the forms of which are attached hereto as exhibits, or which are referred to herein. If at the end of such 60-day period the Lenders have not appointed such a successor, the Agent shall procure a successor reasonably satisfactory to the Lenders and the Borrower, to serve as agent for the Lenders hereunder and under the several documents, the forms of which are attached hereto as exhibits, or which are referred to herein. Any such successor agent shall succeed to the rights, powers and duties of the Agent. Upon the appointment of such successor agent or upon the expiration of such 60-day period (or any longer period to which the Agent has agreed), the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. After any retiring Agent's resignation hereunder as the Agent, the provisions of this Article IX shall inure to the benefit of such retiring Agent as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement. 9.14. Calculations. In the absence of gross negligence or willful ------------ misconduct, the Agent shall not be liable for any error in computing the amount payable to any Lender whether in respect of the Revolving Credit Loans, fees or any other amounts due to the Lenders or the L/C Issuer under this Agreement. In the event an error in computing any amount payable to any Lender or the L/C Issuer is made, the Agent, the Borrower and each affected Person shall, forthwith upon discovery of such error, make such adjustments as shall be required to correct such error, and any compensation therefor will be calculated at the Federal Funds Effective Rate. 9.15. Beneficiaries. Except as expressly provided herein, the provisions ------------- of this Article IX are solely for the benefit of the Agent, the Lenders and the L/C Issuer, and the Borrower shall not have any rights to rely on or enforce any of the provisions hereof. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for the Borrower. -85- ARTICLE X GENERAL PROVISIONS ------------------ 10.01. Amendments and Waivers. The Required Lenders, or the Agent with the ---------------------- consent in writing of the Required Lenders, and the Borrower may, subject to the provisions of this Section 10.01, from time to time enter into written supplemental agreements to this Agreement and the other Loan Documents for the purpose of adding or deleting any provisions or otherwise changing, varying or waiving in any manner the rights of the Lenders, the Agent or the obligor thereunder or the conditions, provisions or terms thereof or waiving any Event of Default thereunder or consenting to an action of any of the Borrower or any of its Subsidiaries, but only to the extent specified in such written agreements; provided, however, that no such supplemental agreement shall, -------- ------- without the consent of all the Lenders: (i) waive an Event of Default by the Borrower in any payment of principal and/or interest due hereunder and under any of the Notes; (ii) reduce the interest rate relating to the Revolving Credit Loans or change the definition of the terms Base Rate, Prime Rate, Applicable Euro-Rate Margin, Euro-Rate, Euro-Rate Interest Period, Euro-Rate Reserve Percentage or Federal Funds Effective Rate so as to decrease the interest rate relating to the Revolving Credit Loans; (iii) change the Expiration Date; (iv) release, other than as provided for herein and in the Security Agreement, any Assigned Collateral securing the Indebtedness incurred hereunder, or release, other than as provided for herein and in the applicable Subsidiary Security Agreement, any Subsidiary Assigned Collateral securing the Indebtedness incurred hereunder, or release and discharge any Subsidiary Guaranty; (v) reduce the Commitment Fee, or any Letter of Credit Fee; (vi) increase the maximum principal amount of the Revolving Credit Commitment of any Lender, or increase the maximum Stated Amount of Letters of Credit which may be issued and outstanding under the terms hereof; (vii) change the definition of the term Required Lenders; or (viii) amend or waive the provisions of this Section 10.01. -86- Any such supplemental agreement shall apply equally to each of the Lenders and the L/C Issuer and shall be binding upon the Borrower, the Lenders and the Agent, all future holders of the Notes and all Participants. In the case of any waiver, the Borrower, the Lenders, the L/C Issuer and the Agent shall be restored to former positions and rights, and any Event of Default waived shall be deemed to be cured and not continuing, but no such waiver shall extend to any subsequent or other Event of Default, or impair any right consequent thereon. 10.02. Taxes. The Borrower shall pay any and all stamp, document, transfer ----- and recording taxes, filing fees and similar impositions payable or hereafter determined by the Agent, the Lenders or the L/C Issuer to be payable in connection with this Agreement, the other Loan Documents and any other documents, instruments and transactions pursuant to or in connection with any of the Loan Documents. The Borrower agrees to save the Agent, the Lenders and the L/C Issuer harmless from and against any and all present and future claims or liabilities with respect to, or resulting from, any delay in paying or failure to pay any such taxes or similar impositions. 10.03. Costs and Expenses, etc. (a) The Borrower shall: ----------------------- (i) pay or reimburse the Agent for all reasonable out-of-pocket costs and expenses incurred by the Agent in connection with (A) the preparation, negotiation and execution of this Agreement, any other Loan Documents or any instrument or document prepared in connection herewith or therewith; (B) the completion of the Agent's "due diligence" permitted as a condition of the closing set forth in Section 5.01(k); (C) the syndication efforts of the Agent with respect to this Agreement and the commitments hereunder; and (D) the consummation of the transactions contemplated hereby and thereby (including, without limitation, in each case the reasonable fees and out-of-pocket expenses of the counsel to the Agent) and (ii) reimburse the Agent, the L/C Issuer and each Lender on demand, for all reasonable out-of-pocket costs and expenses incurred by the Agent, the L/C Issuer or such Lender in connection with the enforcement of or preservation of any of its Liens, rights, powers, interests or remedies under this Agreement or any other Loan Document (including, without limitation, in each case the reasonable fees and out-of-pocket expenses of the respective counsel to the Agent, the L/C Issuer and each Lender). (b) All of such costs, expenses and indemnities shall be payable by the Borrower to the Agent, the Lenders or the L/C Issuer as appropriate upon demand or as otherwise agreed upon by the Agent, the Lenders or the L/C Issuer as appropriate and the Borrower, and shall constitute Lender Obligations under this Agreement. -87- 10.04. Notices. ------- (a) Notice to the Borrower. All notices required to be delivered to the Borrower pursuant to this Agreement shall be in writing and shall be sent to the following address, by hand delivery, recognized national overnight courier service with all charges prepaid, telex, telegram, telecopier or other means of electronic data communication or by the United States mail, first class, postage prepaid: The Carbide/Graphite Group, Inc., One Gateway Center 19th Floor Pittsburgh, Pennsylvania 15222 Attention: Stephen D. Weaver Vice President-Finance and Chief Financial Officer Telephone: (412) 562-3700 Telecopier: (412) 562-3701 (b) Notice to the Agent. All notices required to be delivered to ------------------- the Agent pursuant to this Agreement shall be in writing and shall be sent to the following address, by hand delivery, recognized national overnight courier service with all charges prepaid, telex, telegram, telecopier or other means of electronic data communication or by the United States mail, first class, postage prepaid: PNC Bank, National Association Multibank Loan Administration One PNC Plaza, 4/th/ Floor Annex 249 Fifth Avenue Pittsburgh, Pennsylvania 15222 Attention: Arlene M. Ohler, Vice President Telephone: (412) 762-3672 Telecopier: (412) 762-8672 (c) Notice to L/C Issuer. All notices required to be sent to the -------------------- L/C Issuer pursuant to this Agreement shall be in writing and shall be sent to the following address by hand delivery, recognized national overnight courier service with all charges prepaid, telex, -88- telegram, telecopier or other means of electronic data communication or by United States mail, first class postage prepaid: PNC Bank, National Association Multibank Loan Administration One PNC Plaza, 4/th/ Floor Annex 249 Fifth Avenue Pittsburgh, Pennsylvania 15265 Attention: Arlene M. Ohler Vice President Telephone: (412) 762-3672 Telecopier: (412) 762-8672 (d) Notice to Lenders. All notices required to be sent to the ----------------- Lenders pursuant to this Agreement shall be in writing and shall be sent to the notice address of each Lender as set forth on such Lender's signature page hereto or such Lender's signature page to the Assignment and Assumption Agreement executed by it as a Purchasing Lender, as the case may be, by hand delivery, overnight courier service with all charges prepaid, telex, telegram, telecopier or other means of electronic data communication or by the United States mail, first class postage prepaid. All such notices shall be effective three days after mailing, the date of telecopy transmission or when received, whichever is earlier. The Borrower, the Lenders, the L/C Issuer and the Agent may each change the address for service of notice upon it by a notice in writing to the other parties hereto. 10.05. Participation and Assignment. ---------------------------- (a) Sale of Participation. (i) Any Lender may, in the ordinary --------------------- course of its commercial lending business and in accordance with applicable law, and without the consent of the Borrower, at any time sell to one or more Participants (which Participants may be Affiliates of such Lender) Participation in the Revolving Credit Commitment of such Lender or any Revolving Credit Loan, the Note, or other interest of such Lender hereunder. In the event of any such sale of a Participation, such Lender's obligations under this Agreement to the Borrower shall remain unchanged, such Lender shall remain solely responsible for its performance under this Agreement, such Lender shall remain the holder of the Note made payable to it for all purposes under this Agreement (including all voting rights hereunder) and the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. -89- (ii) As between a Participant and that Participant's selling Lender only, the sole issues on which the Participant shall have a contractual right to vote are: (A) an increase in such Lender's Revolving Credit Commitment, (B) any change of the term Base Rate, Euro-Rate, Euro-Rate Reserve Percentage, or Applicable Euro-Rate Margin so as to decrease the interest rate relating to the Revolving Credit Loans, (C) extension of the term of the Revolving Credit Commitment, or (D) postponement of the scheduled payment of interest or Fees due hereunder. (b) Assignments. Subject to the remaining provisions of this ----------- Section 10.05(b), any Lender may at any time, in the ordinary course of its commercial lending business, in accordance with applicable law, sell to one or more Purchasing Lenders (which Purchasing Lender may be affiliates of the Transferor Lender), a portion of its rights and obligations under this Agreement and the Note then held by it, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit "E" and satisfactory to the Agent, executed ----------- by the Transferor Lender, such Purchase Lender, the Agent and the Borrower; subject, however to the following requirements: (i) The Agent and the Borrower must each give its prior consent to any such assignment which consent shall not be unreasonably withheld; it being agreed that it shall not be deemed unreasonable for the Borrower to decline to consent to such assignment if (A) such assignment would result in incurrence of additional costs to the Borrower under Section 2.10, 2.11 or 2.12, or (ii) the proposed assignee has not provided to the Borrower any tax forms received under Section 10.05(d); (ii) Each such assignment must be in a minimum amount of $10,000,000, or, if in excess of $10,000,000, in integral multiples of $1,000,000; and (iii) each such assignment shall be of a constant, and not a varying, percentage of the Transferor Lender's Revolving Credit Commitment, outstanding Revolving Credit Loans and all other rights and obligations under this Agreement and the other Loan Documents, and (iv) The Transferor Lender shall pay to the Agent, for its own account, a fee of $3,500 for each such assignment (the "Assignment Fee"). Upon the execution, delivery, acceptance and recording of any such Assignment and Assumption Agreement, from and after the Transfer Effective Date determined pursuant to such Assignment and Assumption Agreement, (i) the Purchasing Lender thereunder shall be a party hereto as a Lender and, to the extent provided in such Assignment and Assumption Agreement, shall have the rights and obligations of a Lender hereunder with a Revolving Credit Commitment as set forth therein, and (ii) the Transferor Lender thereunder shall, to the extent -90- provided in such Assignment and Assumption Agreement, be released from its obligations under this Agreement as a Lender. Such Assignment and Assumption Agreement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender as a Lender and the resulting adjustment of Ratable Share arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such Transferor Lender under this Agreement and the Notes. On or prior to the Transfer Effective Date, the Borrower shall execute and deliver to the Agent, in exchange for the surrendered Note held by the Transferor Lender, a new Note to the order of such Purchasing Lender in an amount equal to the Revolving Credit Commitment or the Revolving Credit Loans assumed by it and purchased by it pursuant to such Assignment and Assumption Agreement, and a new Note to the order of the Transferor Lender in an amount equal to the Revolving Credit Commitment or the Revolving Credit Loans retained by it hereunder. (c) Assignment Register. The Agent shall maintain at its address ------------------- referred to in Section 10.04(b) a copy of each Assignment and Assumption Agreement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the amount of the Revolving Credit Loans owing to each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent, the Lender and the L/C Issuer may treat each Person whose name is recorded in the Register as the owner of the Revolving Credit Loans recorded therein for all purposes of this Agreement. The Register shall be available at the office of the Agent for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Withholding of Income Taxes. At least five Business Days prior --------------------------- to the first date on which interest or fees are payable hereunder for the account of any Purchasing Lender or Participant, each Purchasing Lender or Participant that is not incorporated under the laws of the United States or a state thereof shall deliver to the Borrower and the Transferor Lender two duly completed copies of United States Internal Revenue Service Form W-9, 4224 or 1001 or other applicable form prescribed by the Internal Revenue Service. Such form shall certify that such Purchasing Lender or Participant is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States Federal income taxes, or is subject to such tax at a reduced rate under an applicable tax treaty or under United States Internal Revenue Service Form W-8, or another applicable form or a certificate of such Purchasing Lender or Participant indicating that no such exemption or reduced rate is allowable with respect to such payments. Each Purchasing Lender or Participant which delivers a Form W-8, W-9, 4224 or 1001 further undertakes to deliver to the Borrower and its Transferor Lender two additional copies of such form (or a successor form) on or before the date that such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding tax or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals -91- thereof as may be reasonably required by the Borrower or its Transferor Lender, either certifying that such Purchasing Lender or Participant is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States Federal income taxes or is subject to such tax at a reduced rate under an applicable tax treaty or stating that no such exemption or reduced rate is allowable. The Borrower, in the case of a Purchasing Lender or Transferor Lender in the case of a Participant shall be entitled to withhold United States Federal income taxes at the full withholding rate, unless the Purchasing Lender or Participant as the case may be establishes an exemption, or at the applicable reduced rate, as established pursuant to this provisions of this Section 10.05(d). (e) Assignments to Federal Reserve Bank. In addition to the ----------------------------------- assignments permitted above, any Lender may assign and pledge all or any portion of its Loans and Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations and duties hereunder or under the other Loan Documents. 10.06. Successors and Assigns. This Agreement shall be binding upon the ---------------------- Borrower and the Agent, the Lenders, the L/C Issuer and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Agent, the Lenders, the L/C Issuer and respective successors and assigns; provided, however, that the Borrower shall not assign its rights or duties - ----------------- hereunder or under any of the other Loan Documents without the prior written consent of the Lenders. 10.07. No Implied Waivers; Cumulative Remedies; Writing Required. No --------------------------------------------------------- course of dealing and no delay or failure of the Agent or any Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege preclude any further exercise thereof or of any other right, power, remedy or privilege. The rights and remedies of the Agent and the Lenders under this Agreement and any other Loan Documents are cumulative and not exclusive of any rights or remedies which they would otherwise have. Any waiver, permit, consent or approval of any kind or character on the part of any Lender of any breach or default under this Agreement or any such waiver of any provision or condition of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. 10.08. Severability. Any provision of this Agreement which is prohibited ------------ or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or enforceability without invalidating the remaining -92- portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 10.09. Indemnity. The Borrower hereby agrees to indemnify the Agent, the --------- Lenders, the Issuing Bank, and the directors, officers, employees, attorneys, agents and Affiliates or all of the foregoing (each of the foregoing an "Indemnified Person") against, and hold each of them harmless from, any loss, liabilities, damages, claims, costs and expenses (including reasonable attorneys' fees and disbursements) suffered or incurred by any Indemnified Person (except those caused by such Indemnified Person's gross negligence or willful misconduct, ) arising out of, resulting from or in any manner connected with, the execution, delivery and performance of each of the Loan Documents, the Lender Obligations and any and all transactions related to or consummated in connection with the Lender Obligations, including, without limitation, losses, liabilities, damages, claims, costs and expenses suffered or incurred by any Indemnified Person arising out of or related to investigating, preparing for, defending against, or providing evidence, producing documents or taking any other action in respect of any commenced or threatened litigation, administrative proceeding or investigation under any Federal securities law or by any Official Body of any jurisdiction, or at common law or otherwise, that is alleged to arise out of or is based on (i) any untrue statement or alleged untrue statement of any material fact of the Borrower or any Affiliate of the Borrower in any document or schedule filed with the Securities and Exchange Commission or any other Official Body, (ii) any omission or alleged omission to state any material fact required to be stated in such document or schedule, or necessary to make the statements made therein, in light of the circumstances under which made, not misleading; (iii) any actual or alleged acts, practices or omissions of the Borrower, any Subsidiary Guarantor, or any of their respective directors, officers, partners, employees, attorneys, agents or Affiliates, related to the making of any acquisition, purchase of shares or assets pursuant thereto, financing of such purchases or the consummation of any other transactions contemplated by any such acquisitions that are alleged to be in violation of any Federal securities law or of any other statute, regulation or other law of any jurisdiction applicable to the making of any such acquisition, the purchase of shares or assets pursuant thereto, the financing of such purchases or the consummation of the other transactions contemplated by any such acquisition; or (iv) any withdrawals, termination or cancellation of any such proposed acquisition for any reason whatsoever. The indemnity set forth in this Section 10.9 shall be in addition to any other obligations or liabilities of the Borrower to the Agent, the Lenders or the Issuing Bank, or at common law or otherwise. The provisions of this Section 10.9 shall survive the payment of the Lender Obligations and the termination of this Agreement and the other Loan Documents. 10.10. Confidentiality. The Agent, the Lenders and the Issuing Bank shall --------------- keep confidential and not disclose to any Person, other than to their respective directors, officers, employees, Affiliates and agents, and to actual and potential Purchasing Lenders and Participants, all non-public information concerning the Borrower and the Borrower's Affiliates -93- which comes into the possession of the Agent, the Lenders or the Issuing Bank during the term hereof. Notwithstanding the foregoing, the Agent, the Lenders and the Issuing Bank may disclose information concerning the Borrower (i) in accordance with normal banking practices and the Agent's, such Lender's or the Issuing Bank's policies concerning disclosure of such information in connection with syndication or sales of Participations, subject to informing the recipient of such information of the duties of confidentiality hereunder, (ii) pursuant to what the Agent, such Lender or the Issuing Bank believes to be the lawful requirements or request of any Official Body regulating banks or banking, (iii) as required by governmental regulation or rule, judicial process or subpoena; provided however, if permitted by law, the Agent or such Lender shall notify the Borrower and permit the Borrower, at the Borrower's cost, to contest such subpoena; and (iv) to their respective attorneys, accountants and auditors who have been informed of the confidentiality hereunder. 10.11. Survival. All representations, warranties, covenants and agreements -------- of the Borrower contained herein or in the other Loan Documents or made in writing in connection herewith shall survive the issuance of the Notes and the Letters of Credit and shall continue in full force and effect so long as the Borrower may borrow hereunder and so long thereafter until payment in full of all the Notes and the Lender Obligations is made. The obligations of the Borrower under Sections 6.13, 10.02 and 10.03 shall survive the termination of this Agreement and the discharge of the other obligations of the Borrower hereunder, and any other Loan Documents, and shall also survive the payment in full of all Lender Obligations, the termination of the Revolving Credit Commitment in accordance with the provisions of this Agreement and the termination or expiration of all Letters of Credit in accordance with their respective terms. 10.12. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE ------------- GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, EXCEPTING APPLICABLE FEDERAL LAW AND EXCEPT ONLY TO THE EXTENT PRECLUDED BY THE MANDATORY APPLICATION OF THE LAW OF ANOTHER JURISDICTION. 10.13. FORUM. THE PARTIES HERETO AGREE THAT ANY ACTION OR PROCEEDING ----- ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS TO WHICH THE BORROWER IS A PARTY MAY BE COMMENCED IN THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA OR IN THE DISTRICT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND THE PARTIES HERETO AGREE THAT A SUMMONS AND COMPLAINT COMMENCING -94- AN ACTION OR PROCEEDING IN EITHER OF SUCH COURTS SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED PERSONALLY OR BY CERTIFIED MAIL TO THE PARTIES AT THEIR ADDRESSES SET FORTH IN SECTION 10.04, OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. FURTHER, THE BORROWER HEREBY SPECIFICALLY CONSENTS TO THE PERSONAL JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA AND THE DISTRICT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF PENNSYLVANIA AND WAIVES AND HEREBY ACKNOWLEDGES THAT IT IS ESTOPPED FROM RAISING ANY OBJECTION BASED ON FORUM NON --------- CONVENIENS, ANY CLAIM THAT EITHER SUCH COURT LACKS PROPER VENUE OR ANY OBJECTION - ---------- THAT EITHER SUCH COURT LACKS PERSONAL JURISDICTION OVER THE BORROWER SO AS TO PROHIBIT EITHER SUCH COURT FROM ADJUDICATING ANY ISSUES RAISED IN A COMPLAINT FILED WITH EITHER SUCH COURT AGAINST THE BORROWER BY THE AGENT, THE LENDERS OR THE L/C ISSUER CONCERNING THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR PAYMENT TO THE LENDERS. THE BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT THE CHOICE OF FORUM CONTAINED IN THIS SECTION 10.13 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN ANY FORUM OR THE TAKING OF ANY ACTION UNDER THE LOAN DOCUMENTS TO ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION. 10.14. Non-Business Days. Whenever any payment hereunder or under the ----------------- Notes is due and payable on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in each such case be included in computing interest in connection with such payment. 10.15. Integration. This Agreement and the other Loan Documents constitute ----------- the entire agreement between the parties relating to this financing transaction and they supersede all prior understandings and agreements, whether written or oral, between the parties hereto relating to the transactions provided for herein. 10.16. Headings. Article, Section and other headings used in this -------- Agreement are intended for convenience only and shall not affect the meaning or construction of this Agreement. 10.17. Counterparts. This Agreement and any amendment hereto may be ------------ executed in several counterparts and by each party on a separate counterpart, each of which, when so executed and delivered, shall be an original, but all of which together shall constitute but one and the same instrument. In proving this Agreement, it shall not be necessary -95- to produce or account for more than one such counterpart signed by the other party against whom enforcement is sought. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement. 10.18. Funding by Branch, Subsidiary or Affiliate. ------------------------------------------ (a) Notional Funding. Each Lender shall have the right from time ---------------- to time, without notice to the Borrower, to deem any branch, subsidiary or affiliate (which for the purposes of this Section 10.18 shall mean any corporation or association which is directly or indirectly controlled by or is under direct or indirect common control with any corporation or association which directly or indirectly controls such Lender) of such Lender to have made, maintained or funded any Revolving Credit Loan to which the Euro-Rate Option applies at any time, provided that immediately following (on the assumption that a payment were then due from the Borrower to such other office) and as a result of such change the Borrower would not be under any greater financial obligation to such Lender hereunder, pursuant to Section 2.08, 2.10, 2.11 or 2.12 hereof than it would have been in the absence of such change. Notional funding offices may be selected by each Lender without regard to a Lender's actual methods of making, maintaining or funding the Revolving Credit Loans or any sources of funding actually used by or available to such Lender. (b) Actual Funding. Each Lender shall have the right from time to -------------- time to make or maintain any Revolving Credit Loan by arranging for a branch, subsidiary or affiliate of such Lender to make or maintain such Revolving Credit Loan subject to the last sentence of this Section 10.18(b). If any Lender causes a branch, subsidiary or affiliate to make or maintain any part of the Revolving Credit Loans hereunder, all terms and conditions of this Agreement shall, except where the context clearly requires otherwise, be applicable to such part of the Revolving Credit Loans to the same extent as if such Revolving Credit Loans were made or maintained by such Lender but in no event shall any Lender's use of such a branch, subsidiary or affiliate to make or maintain any part of the Revolving Credit Loans hereunder cause such Lender or such branch, subsidiary or affiliate to incur any cost or expenses payable by the Borrower hereunder or require the Borrower to pay any other compensation to any such Lender (including, without limitation, any expenses incurred or payable pursuant to Section 2.08, 2.10, 2.11 or 2.12 hereof) which would otherwise not be incurred. 10.19. WAIVER OF JURY TRIAL. THE BORROWER, EACH LENDER, THE AGENT AND THE -------------------- ISSUING BANK EACH HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY COURT AND IN ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE BORROWER, THE LENDERS, THE AGENT, THE ISSUING BANK OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS IS A PARTY, -96- AS TO ALL MATTERS AND THINGS ARISING OUT OF THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS. -97- IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Revolving Credit and Letter of Credit Issuance Agreement to be executed by their respective duly authorized officers as of the date first written above. Borrower: THE CARBIDE/GRAPHITE GROUP, INC., a Delaware corporation By: /s/ Stephen D. Weaver -------------------------------------- Name: Stephen D. Weaver Title: Vice President Finance and Chief Financial Officer Agent and L/C Issuer: PNC BANK, NATIONAL ASSOCIATION, in its capacity as the Agent and L/C Issuer By: /s/ Mark W. Rutherford -------------------------------------- Name: Mark W. Rutherford Title: Vice President -98- IN WITNESS WHEREOF, intending to be legally bound hereby, the undersigned Lender has caused this Revolving Credit and Letter of Credit Issuance Agreement by and among The Carbide/Graphite Group, Inc., the Lenders parties hereto, PNC Bank, National Association, in its capacity as L/C Issuer, and PNC Bank, National Association, in its capacity as Agent, to be executed by its duly authorized officer as of the date first written above. Lender: Revolving Credit PNC BANK, NATIONAL ASSOCIATION Commitment: $125,000,000 Ratable Share: 100% By: /s/ Mark W. Rutherford -------------------------------------- Name: Mark W. Rutherford Title: Vice President Address for notice purposes: If by other means: PNC Bank, National Association Metals Group One PNC Plaza, 2/nd/ Floor 249 Fifth Avenue Pittsburgh, Pennsylvania 15222 Attention: Mark W. Rutherford Vice President Telephone: (412) 762-6278 Telecopier: (412) 762-6484 -99- EX-10.18 4 REVISED EMPLOYMENT AGREEMENT--NICHOLAS KAISER EXHIBIT 10.18 C/G The Carbide/Graphite Group, Inc. - -------------------------------------------------------------------------------- One Gateway Center, 19th Floor Pittsburgh, PA 15222-1416 (412) 562-3700 March 31, 1997 Mr. Nicholas T. Kaiser The Carbide/Graphite Group, Inc. One Gateway Center Pittsburgh, Pennsylvania 15222 Dear Nick: We refer to your restated employment contract with The Carbide/Graphite Group, Inc. (the "Corporation") dated as of January 1, 1995 (the "Restated Employment Agreement"). In connection with the designation of a successor as Chairman, President and Chief Executive Officer of the Corporation, you and the Corporation desire to revise your contractual relationship with the Corporation, as follows: 1. Salary and Severance. Your current base salary at an annual rate of -------------------- $347,000 will be continued through December 31, 1997 (the "Remaining Employment Period"). During the Remaining Employment Period you will have such duties of a senior executive, nature as may be assigned to you from time to time by the Board of Directors. Commencing January 1, 1998 and for 12 months thereafter you will be paid as severance an amount equal to your current base salary in 24 equal semi-monthly installments. The consulting arrangement contemplated by Sections 1 and 4 of the Restated Employment Agreement is hereby terminated and, effective as of April 1, 1997, you will resign as Chairman, President and Chief Executive Officer of the Corporation. It is anticipated that you will continue as a director of the Corporation for at least the remainder of your current term as a director, subject to the provisions of the Corporation's charter and by- laws. 2. Insurance Benefits. You will be entitled to the continuation of medical ------------------ benefits at the Corporation's cost equivalent to those benefits which you are receiving on the date hereof for the Remaining Employment Period and for the three-year period commencing on March 31, 1997 Page 2 - ------------------------------------------------------------------------------- January 1, 1998 (or on any earlier date of termination of employment under Section 4 hereof) and terminating three years thereafter. The term life insurance in the amount of $1,000,000 on your life pursuant to Section 5 of the Restated Employment Agreement shall terminate upon expiration of the current policy in October 1997 and the Corporation will have no further obligation thereafter with respect to such life insurance. 3. Bonus and Savings Investment Plans; Stock Options. In light of the ------------------------------------------------- severance benefits provided in Section 1 hereof, you will not be entitled to participate in the Corporation's Annual Incentive Bonus Compensation Plan for the fiscal year ending July 31, 1997 ("Fiscal 1997") or thereafter but you will be entitled to your profit sharing participation for Fiscal 1997 (but not thereafter) under, and in accordance with the terms of, the Corporation's Savings Investment Plan. You will also be entitled to retain the stock options granted to you on July 31, 1996 to acquire 7,000 shares of the Corporation's common stock subject to vesting on July 31, 1997 and the other terms and provisions of the 1995 Stock Option Plan. The remaining stock options granted to you under the 1995 Stock Option Plan which vest in July 1998 and 1999 will terminate hereby. For the Remaining Employment Period, the Corporation will provide you with an office and the use of a secretary. Until approximately September 30, 1997 you will also be entitled to the use of your present company car. All other ancillary benefits, such as club memberships and the like will terminate as of April 1, 1997 in the light of the severance arrangements provided for in Section 1 hereof. 4. Death or Disability. In the event of your Disability or death during the ------------------- Remaining Employment Period, the salary provided for in Section 1 shall terminate and the severance payments for a period of one year pursuant to Section 1 (less the amount of any disability payments made by the Corporation or any Corporation plan), shall commence at that time. The term "Disability" shall have the meaning set forth in Section 6 of the Restated Employment Agreement. 5. Confidential Information; Non-Competition. The provisions of Section 8 ----------------------------------------- of the Restated Employment Agreement (relating to confidential information and non-competition) shall be deemed incorporated in this letter agreement as though set forth herein in their entirety. 6. Successors. (a) This letter agreement is personal to you and without the ---------- prior written consent of the Corporation shall not be assignable by you other than by will or the laws of descent and distribution. (b) This letter agreement shall inure to the benefit of and be binding upon the Corporation and its successors. March 31, 1997 Page 3 - -------------------------------------------------------------------------------- 7. Miscellaneous. (a) This letter agreement shall be governed by and ------------- construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to you: Nicholas T. Kaiser 20 Myrtle Hill Sewickley, Pennsylvania 15143 If to the Corporation: The Carbide/Graphite Group, Inc. One Gateway Center, 19th Floor Pittsburgh, Pennsylvania 15222 Attention: Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (c) The Corporation may withhold from any amounts payable under this letter agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (d) The Corporation's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision hereof. Your failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision hereof. (e) This letter agreement embodies the entire agreement between the parties with respect to the subject matter hereof and may not be changed or terminated orally. 8. Termination of Restated Employment Agreement. The Restated Employment -------------------------------------------- Agreement is hereby terminated as of March 31, 1997 in its entirety and is superseded by this letter agreement. March 31, 1997 Page 4 - -------------------------------------------------------------------------------- If the foregoing correctly sets forth our understanding, please execute one copy of this letter agreement and return it to the Corporation, at which time it shall be a binding agreement between you and the Corporation. Very truly yours, THE CARBIDE/GRAPHITE GROUP, INC. By: /s/ Walter B. Fowler --------------------------------------- Accepted and Agreed: /s/ Nicholas T. Kaiser - -------------------------------- Nicholas T. Kaiser General Release --------------- Notice: This is a very important legal document and you should carefully review - ------ and understand the terms and effect of this document before signing it. By signing this General Release you are agreeing to completely release the Company, from all liability to you. Therefore, you should consult with an attorney before signing the General Release. You have 21 days from the date of the distribution of this document to consider this document. If you have not returned a signed copy of the General Release by that time, we will assume that you have elected not to sign the General Release. If you choose to sign the General Release, you will have an additional 7 days following the date of your signature to revoke the agreement and the agreement shall not become effective or enforceable until the revocation period has expired. In consideration of benefits to which I would not otherwise be entitled offered to me by The Carbide/Graphite Group, Inc., I hereby release and discharge The Carbide/Graphite Group, Inc., and their affiliates, parents, subsidiaries, successors, and predecessors, and all of their employees, agents officers and directors (hereinafter collectively referred to as "the Company") from any and all claims and/or causes of action, known or unknown, which I may have or could claim to have against the Company up to and including the date of may signing of this General Release. This General Release includes, but is not limited to, all claims arising from or during my employment or as a result of the termination of my employment and all claims arising under federal, state or local laws prohibiting employment discrimination based upon age, race, sex, religion, handicap, national origin or any other protected characteristic, including, but not limited, to, any and all claims arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, and/or claims growing out of any legal restrictions, expressed or implied, on the Company's right to control or terminate the employment of its employees. By signing below, I acknowledge that I have carefully read and fully understand the provisions of this General Release. I further acknowledge that I am signing this General Release knowingly and voluntarily and without duress, coercion or undue influence. I further agree that should I file a lawsuit in court which is found to be barred in whole or part by this General Release, I will pay the legal fees incurred by the Company in defending matter covered by this General Release, and all other prior or contemporaneous written or oral agreements or representations, if any, relating to the subject matter of this General Release are null and void. It is also expressly understood and agreed that the terms of this General Release may not be altered except in a writing signed by both me and the Company. INTENDING TO BE LEGALLY BOUND, I hereby set my hand below: WITNESSED BY: /s/ Nancy L. Feldbauer /s/ Nicholas T. Kaiser - ------------------------------- ------------------------------------- Employee's signature Dated: 4/15/97 Dated: 4/15/97 ------------------------- ------------------------------- EX-10.19 5 EMPLOYMENT AGREEMENT--WALTER FOWLER EXHIBIT 10.19 EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT between The Carbide/Graphite Group, Inc., a Delaware corporation (the "Corporation") and Walter B. Fowler (the "Executive") dated as of April 1, 1997 (the "Agreement"). WHEREAS, the Corporation and the Executive have entered into an employment agreement dated March 1, 1995 which is superseded by this Agreement; and WHEREAS, the Corporation wishes to employ the Executive as Chairman, President and Chief Executive Officer of the Corporation on the terms set forth herein and the Executive wishes to be employed by the Corporation on such terms; IT IS, THEREFORE, AGREED: 1. Employment. The Corporation hereby agrees to employ the Executive, ---------- and the Executive hereby agrees to be employed by the Corporation, for the period commencing as of the date hereof and ending on March 31, 1999 as its Chairman, President and Chief Executive Officer (the "Employment Period"). 2. Duties. During the Employment Period, the Executive agrees to ------ devote his attention full time and during normal business hours to the business and affairs of the Corporation and to use his best efforts to perform faithfully and efficiently such responsibilities. The Executive shall, subject to the supervision and control of the Board of Directors of the Corporation, perform such duties and exercise such supervision and powers over and with regard to the business of the Corporation as are contemplated to be performed by the Chairman, President and Chief Executive officer pursuant to the By-laws of the Corporation, and such additional duties as may from time to time be prescribed by the Board of Directors. Subject to the provisions of the Corporation's Charter and By-laws and applicable law, it is the expectation of the Corporation that the Executive will continue to serve as a member of the Board of Directors of the Corporation during the Employment Period. 3. Base Compensation. During the Employment Period, the Executive ----------------- shall receive a base salary at an annual rate of at least $300,000 with any increase thereto to be determined by the Compensation Committee of the Board of Directors from time to time. The Executive's next salary review is scheduled for June 30, 1998. 4. Stock Options. As of April 1, 1997, the Corporation shall grant to ------------- you a stock option to purchase 30,000 shares of the Corporation's Common Stock, par value $.01 per share, pursuant to the Corporation's 1995 Stock Based Incentive Option Plan (the "Stock Option Plan") at an exercise price equal to the fair market value of the Corporation's Common Stock on April 1, 1997 as determined by the Stock Option Plan Committee. In accordance with the provisions of the Stock Option Plan, such option shall have a term of 10 years from the date of grant and shall vest annually to the extent of 10,000 shares on each July 31, 1997, July 31, 1998 and July 31, 1999 to the extent the Executive is then employed by the Corporation on such date. The corporation and the Executive shall enter into a stock option agreement in the form approved by the Stock Option Plan Committee. 5. Annual Incentive Awards. Subject to the terms of the Corporation's ----------------------- Annual incentive Bonus Plan, the Executive's participation in the Plan for the fiscal year ending July 31, 1997 shall be at award levels equal to 30% of base pay for the period from August 1, 1996 through March 31, 1997; at the rate of 50% of base pay for the period April 1, 1997 through July 31, 1997; and at the -2- rate of 50% of base pay for the fiscal year ending July 31, 1998 and the eight months ending March 31, 1999. 6. Termination. (a) Death or Disability. This Agreement shall ----------- ------------------- terminate automatically upon the Executive's death. The Corporation may terminate this Agreement during the Employment Period after having established the Executive's "Disability" (as defined below), by giving the Executive written notice of its intention to terminate the Executive's employment. For purposes of this Agreement, "Disability" means the Executive's inability to substantially perform his duties and responsibilities to the Corporation by reason of a physical or mental disability or infirmity (i) for a continuous period of six months or (ii) at such earlier time as the Executive submits medical evidence satisfactory to the Corporation that the Executive has a physical or mental disability or infirmity that will likely prevent the Executive from substantially performing his duties and responsibilities for six months or longer, The date of Disability shall be the day on which the Executive receives notice from the corporation pursuant to this Section 6(a). (b) Cause. The Corporation shall have the right to terminate the ----- Executive's employment for "Cause" during the Employment Period. For purposes of this Agreement, "Cause" shall mean M the willful and continued failure by the Executive to perform substantially his duties to the Corporation or its subsidiaries (other than any such failure resulting from his Disability) within a reasonable period of time after a written demand for substantial performance is delivered to the Executive by the Board of Directors, which demand specifically identifies the manner in which the Board of Directors believes that the Executive has not substantially performed his duties, (ii) embezzlement or theft from the Corporation or any subsidiary or affiliate by the Executive or the commission or perpetration by the Executive of any act involving moral -3- turpitude, or (iii) any material and willful violation by the Executive of his obligations under Section 8 hereof. (c) Change of Control. The Executive shall have the right to terminate ----------------- this Agreement during the Employment Period upon thirty (30) days prior written notice to the Corporation or a successor of the Corporation, as the case may be, for "Good Reason" on or subsequent to the consummation of a "Change of Control". For purposes of this Agreement, (A) "Good Reason" shall mean (1) a change in the Executive's duties and responsibilities without his consent such that his duties and responsibilities are materially reduced or altered in a manner unfavorable to him or a decrease in the Executive's salary or a material decrease in his benefits or (2) a change in the location at which the Executive's duties are principally carried out or more than 20 miles from the Corporation's principal executive offices in Pittsburgh, Pennsylvania; and (B) "Change of Control" shall mean (i) a change in control of the Board of Directors of the Corporation pursuant to which any single Person or two or more Persons acting in concert acquires control of such Board of Directors or (ii) the Transfer of at least 51% or more of the voting equity interests in the Corporation (or any parent of the Corporation), whether by sale, merger, consolidation or otherwise, to any single Person or two or more Persons acting in concert; provided that two or more Persons shall be considered to be acting in concert for purposes of clauses (i) and (ii) hereof only if such Persons would have been considered to be acting in concert as a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, for such purposes treating voting equity interests of the Corporation held or acquired by such Persons as if such voting equity interests were equity securities in respect of which a Schedule 13D would be required to be filed with the Securities and Exchange commission and as if the requisite percentage and other threshold -4- conditions to such filing were satisfied. "Person" means any individual, ------ corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or governmental body. "Transfer" means, -------- sell, transfer, convey, lease and/or deliver (other tenses of the term have similar meaning) or sale, transfer, assignment, conveyance, lease and/or delivery, as indicated by the context. 7. Effect of Termination. (a) Upon termination of the Executive's --------------------- employment during the Employment Period, because of death or Disability as provided in subsection 6(a), following termination of the Executive's employment the Corporation shall continue to pay the Executive or his estate or other personal representative as severance (x) the amount of the Executive's salary as provided in Section 3 at the rate in effect immediately prior to termination of his employment for a period of twenty-four months less the amount of any disability payments made by the Corporation or any Corporation plan and (y) in the case of a Disability termination will afford to the Executive at the Corporation's expense, health insurance benefits (including medical and dental) and life insurance equivalent to the benefits enjoyed by the Executive at the date of termination (the "Insurance Benefits") for a period of twenty-four months from the date of such termination. (b) If the Executive's employment is terminated by the Corporation during the Employment Period (other than for death, Disability or Cause or other than by virtue of a Change of Control pursuant to subsection 6(c)), or in the event the Corporation is unwilling to extend the Executive's employment at the expiration of this Agreement upon terms at least as favorable to the Executive as the terms set forth herein, the Corporation shall continue the Executive's salary for the remainder of the Employment Period or twenty-four (24) months, whichever is longer and shall continue to maintain the Insurance Benefits for such period. -5- (c) If the Executive's employment is terminated by the Executive during the Employment Period pursuant to subsection 6(c), the Corporation shall pay to the Executive a cash amount as severance in a lump sum equal to 2.99 times the Executive's base salary then in effect pursuant to Section 3; provided that such payment under this subsection 7 (c) shall be limited to an amount which would not constitute an "excess parachute payment" under section 280G of the federal Internal Revenue Code. Such lump sum payment shall be paid within 45 days after the date of termination provided for in subsection 6 (c). (d) Nothing herein shall be deemed to restrict or reduce the Executive's vested benefits under the 1988 Stock Option Plan, the compensation deferral plan, the Savings Incentive Plan or the Annual Incentive Bonus Plan as determined in accordance with the provisions of such plans. (e) No continued salary or severance shall be paid if the Executive's employment terminates for any reason during the Employment Period other than as set forth above in this Section 7. Upon the termination of employment with the Corporation for any reason, the Executive shall offer to resign his position as a director of the Corporation, effective as of the date of such termination. 8. Confidential Information; Non-Competition. (a) For a three year ----------------------------------------- period commencing on the date on which the Executive's employment with the Corporation, or any of its affiliates, terminates for whatever reason (the "Date of Termination"), (i) the Executive shall hold in a fiduciary capacity for the benefit of the Corporation all secret or confidential information, knowledge or data relating to the Corporation or its affiliates, and their respective businesses which shall not be public knowledge (other than information which becomes public as a result of acts of the Executive or his -6- representatives in violation of this Agreement), including without limitation, customer lists, bid, proposals, contracts, matters subject to litigation, technology or financial information of the Corporation or its subsidiaries and other know-how, and (ii) the Executive shall not, without the prior written consent of the Corporation, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it in writing. (b) For a three year period commencing on the Date of Termination, the Executive will not, directly or indirectly, (i) own, manage, operate, control or participate in the ownership, management or control of, or be connected as an officer, employee, partner, director, or consultant or otherwise, with, or have any financial interest in (except for (A) ownership as of the date hereof, (B) any ownership in the common stock of the Corporation, or (C) any ownership of less than 5% of the outstanding equity interest in any entity) (I) the manufacture of graphite electrodes, (II) the manufacture of specialty carbon and graphite products, or (III) the refining of products required for production of, or the production of, needle coke, or the manufacture or marketing of calcium carbide and its direct derivatives, in each case, in any market in which the Corporation or its affiliates conducts or solicits business or (ii) solicit or contact any employee of the Corporation or its affiliates with a view to inducing or encouraging such employee to leave the employ of the Corporation or its affiliates for the purpose of being employed by the Executive, an employer affiliated with the Executive, or any competitor of the Corporation or any affiliate thereof; provided that the provisions of subsection (b) (i) shall be limited to a period of two years in the event the Corporation is unwilling to extend the Executive's employment at the expiration of this Agreement upon terms at least as favorable to the Executive -7- as set forth in this Agreement or the termination by the corporation of the Executive's employment during the Employment Period other than for Cause or Disability. (c) The Executive acknowledges that the provisions of this Section 8 are reasonable and necessary for the protection of the Corporation and that the Corporation will be irrevocably damaged if such provisions are not specifically enforced. Accordingly, the Executive agrees that, in addition to any other relief to which the Corporation may be entitled in the form of actual or punitive damages, the Corporation shall be entitled to seek and obtain injunctive relief from a court of competent jurisdiction (without the posting of a bond therefor) for the purposes of restraining the Executive from any actual or threatened breach of such provisions. 9. Successors. (a) This Agreement is personal to the Executive and ---------- without the prior written consent of the corporation shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Corporation and its successors. (c) This Agreement supersedes the employment agreement dated March 1, 1995 between the Executive and the Corporation which prior agreement is no longer in force. 10. Miscellaneous. (a) This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. (b) All notices and other communications here-under shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: -8- If to the Executive: Walter B. Fowler 9953 Parkland Drive Wexford, Pennsylvania 15090 If to the Corporation: The Carbide/Graphite Group, Inc. One Gateway Center, 19th Floor Pittsburgh, PA 15222 Attention: Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (c) The Corporation may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (d) The Corporation's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision hereof. The Executive's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision hereof. (e) This Agreement embodies the entire agreement between the parties with respect to the Executive's employment, and may not be changed or terminated orally. IN WITNESS WHEREOF, the Executive has hereunto set his hand and pursuant to the authorization from its Board of Directors the Corporation has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. THE CARBIDE/GRAPHITE GROUP, INC. -9- By: /s/ Nicholas T. Kaiser ------------------------------------------ Name: Title: /s/ Walter B. Fowler ------------------------------------------ Walter B. Fowler 4/10/97 -10- EX-10.20 6 SEVERANCE AGREEMENT--RONALD CLAWSON EXHIBIT 10.20 April 16, 1997 Mr. Ronald N. Clawson The Carbide/Graphite Group, Inc. One Gateway Center Pittsburgh, Pennsylvania 15222 Dear Ron: We refer to your employment agreement with The Carbide/Graphite Group, Inc. (the "Corporation") dated March 31, 1995 (the "Employment Agreement"). This letter will serve to confirm our understanding regarding the termination of your employment with the Corporation, as follows: 1. Termination of Employment Agreement. The Employment Agreement is hereby ----------------------------------- terminated in its entirety and shall no longer have any force or effect. You hereby resign as an officer of the Corporation, its affiliates, subsidiaries and business units, and as a director of the Corporation, effective as of April 30, 1997. 2. Severance; Consulting. For a period of 24 consecutive months commencing --------------------- May 1, 1997, the Corporation shall pay to you on the first day of each such month the sum $19,917, less any required withholding under applicable law. The Corporation may make such payments on a bimonthly basis if it so elects. If requested by the Corporation during such 24-month period and in consideration of the payments provided for in this Section 2, you will be available for consultation regarding the Corporation's operations and activities (including the Carbide October 27, 1997 Page 2 Products business unit, from time to time at a mutually acceptable time and place. You will be reimbursed for any out-of-pocket costs incurred by you and necessitated by any travel. 3. Bonus; Profit Sharing. You shall not be entitled to a bonus pursuant to --------------------- the Corporation's Annual Incentive Bonus Compensation Plan for the current fiscal year ending July 31, 1997 (the "1997 Fiscal Year"), but you shall be entitled to receive your pro rata profit sharing benefit for the current 1997 Fiscal Year under the Corporation's Savings Investment Plan for the period through April 30, 1997. Of course, you shall be entitled to your vested benefits under the Corporation's Compensation Deferral Plan in accordance with the terms of such Plan. 4. Insurance Benefits. For a period of 24 months commencing May 1, 1997, ------------------ the Corporation shall afford to you at its expense health insurance benefits (including medical and dental) and life insurance equivalent to the benefits enjoyed by you on the date hereof. 5. Stock Options. You currently hold options to purchase 20,000 shares of ------------- the Corporation's common stock at an exercise price of $2.00 per share pursuant to the Corporation's 1991 Stock Option Plan, which options expire in September 1998 and are fully vested and exercisable. Pursuant to the provisions of the Stock Option Plan such options shall terminate on the seventh anniversary of the date of grant (September 23, 1998) and you shall be entitled to exercise such options until such date. The stock options granted to you in 1996 pursuant to the 1995 Stock Option Plan are hereby terminated. 6. Release. You acknowledge that, other than as set forth herein, you have ------- no other claims against the Corporation, and you are concurrently herewith executing the Release attached hereto as Attachment I. October 27, 1997 Page 3 7. Confidentiality; Non-Compete. You hereby agree to be bound by the ---------------------------- confidentiality provisions set forth in Attachment II (paragraphs (a), (c) and (d)) for a period of three years from the date hereof and the non-competition provisions set forth in Attachment II (paragraphs (b), (c) and (d)) for a period of two years from the date hereof. 8. Successors. (a) This letter agreement is personal to you and without the ---------- prior written consent of the Corporation shall not be assignable by you other than by will or the laws of descent and distribution. b) This letter agreement shall inure to the benefit of and be binding upon the Corporation and its successors. 9. Miscellaneous. (a) This letter agreement shall be governed by and ------------- construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to you: Ronald N. Clawson 1703 Sturbridge Drive Sewickley, Pennsylvania 15143 October 27, 1997 Page 4 If to the Corporation: The Carbide/Graphite Group, Inc. One Gateway Center, 19th Floor Pittsburgh, Pennsylvania 15222 Attention: Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (c) The Corporation may withhold from any amounts payable under this letter agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (d) The Corporation's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision hereof. Your failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision hereof. (e) This letter agreement embodies the entire agreement between the parties with respect to the subject matter hereof and may not be changed or terminated orally. (f) At your request, the Corporation will pay, or reimburse you for, the reasonable charges of an outplacement service. 10. Counsel. You acknowledge that you have consulted with independent legal ------- counsel (other than counsel acting for the Corporation) or have had the opportunity to consult such counsel but declined to do so, in connection with the negotiation and execution of this agreement. October 27, 1997 Page 5 11. No Disparagement. The Corporation and you each agree not to disparage ---------------- the other; provided that the Corporation and its directors and you may take such actions as may be required by applicable law or to enforce this Agreement or to defend against a claim related thereto or, in the case of the directors of the Corporation, to satisfy their fiduciary responsibilities. 12. Confidentiality. The parties hereto shall not divulge the terms of this --------------- agreement to third parties generally, for any purpose detrimental to the Corporation, except as required by applicable law or to enforce this Agreement or to defend against a claim related thereto and except that the Corporation may reveal such terms to its stockholders, financing sources, accountants, legal counsel, directors and management employees and such other parties as the Corporation's Board of Directors in good faith shall deem necessary or desirable. If the foregoing correctly sets forth our understanding, please execute one copy of this letter agreement and return it to the Corporation, at which time it shall be a binding agreement between you and the Corporation. Very truly yours, THE CARBIDE/GRAPHITE GROUP, INC. By: /s/ Walter B. Fowler -------------------------------------- Accepted and Agreed: /s/ Ronald N. Clawson - ---------------------------------- Ronald N. Clawson ATTACHMENT II ------------- Confidential Information; Non-Competition ----------------------------------------- (a) You agree that (i) you shall hold in a fiduciary capacity for the benefit of the Corporation all secret or confidential information, knowledge or data relating to the Corporation or its affiliates, and their respective or former businesses which shall not be public knowledge (which term shall not include information which becomes public as a result of your act or acts of your representatives in violation of this Agreement), including, without limitation, customer lists, bid proposals, contracts, matters subject to litigation, technology or financial information of the Corporation or its subsidiaries, confidential information received from third parties with whom the Corporation has business relationships, and other know-how, and (ii) you shall not, without the prior written consent of the Corporation, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it in writing. (b) Without the prior written approval of the Corporation, you agree that you will not, directly or indirectly, (i) own, manage, operate, control or participate in the ownership, management or control of, or be connected as an officer, employee, partner, director, or consultant or otherwise with, or have any financial interest in (except for (A) ownership as of the date hereof, (B) any ownership in the common stock of the Corporation, or (C) any ownership of less than 5% of the outstanding equity interest) any entity engaged in (I) the manufacture of graphite electrodes, (II) the manufacture of calcium carbide and specialty graphite products, or (III) the refining of products required for the production of, or the production of, needle coke, or the manufacture or marketing of calcium carbide, calcium carbide desulfurizing products, calcium carbide used in metallurgical applications and calcium hydrate or (IV) the manufacture or marketing of any products which compete with any of the Corporation's principle product lines currently offered for sale in the markets in which the Corporation presently solicits business or (ii) solicit or contact any employee of the Corporation or its affiliates with a view to inducing or encouraging such employee to leave the employ of the Corporation or its affiliates for the purpose of being employed by you, an employer affiliated with you, or any competitor of the Corporation or any affiliate thereof. (c) You acknowledge that the provisions of this Attachment II are reasonable and necessary for the protection of the Corporation and that the Corporation will be irrevocably damaged if such provisions are not specifically enforced. Accordingly, you agree that, in addition to any other relief to which the Corporation may be entitled in the form of actual or punitive damages, the Corporation shall be entitled to seek and obtain injunctive relief from a court of competent jurisdiction (without the posting of a bond therefor) for the purposes of restraining you from any actual or threatened breach of such provisions. (d) Although the restrictions contained in this Attachment II are considered by the parties hereto be fair and reasonable in the circumstances, it is recognized that restrictions of II-1 the nature contained in this Attachment II may fail for technical reasons, and accordingly if any of such restrictions shall be adjudged to be void or unenforceable for whatever reason, but would be valid if part of the wording thereof were deleted, or the period thereof reduced or the area dealt with thereby reduced in scope, the restrictions contained in this Attachment shall apply, at the election of the Corporation, with such modifications as may be necessary to make them valid, effective and enforceable in the particular jurisdiction in which such restrictions are adjudged to be void and unenforceable. II-2 General Release --------------- Notice: This is a very important legal document and you should ------ carefully review and understand the terms and effect of this document before signing it. By signing this General Release you are agreeing to completely release the Company from all liability to you. Therefore, you should consult with an attorney before signing the General Release. You have 21 days from the date of the distribution of this document to consider this document. if you have not returned a signed copy of the General Release by that time, we will assume that you have elected not to sign the General Release. If you choose to sign the General Release, you will have an additional 7 days following the date of your signature to revoke the agreement and the agreement shall not become effective or enforceable until the revocation period has expired. In consideration of benefits to which I would not otherwise be entitled offered to me by The Carbide/Graphite Group, Inc., I hereby release and discharge The Carbide/Graphite Group, Inc., and their affiliates, parents, subsidiaries, successors, and predecessors, and all of their employees, agents, officers and directors (hereinafter collectively referred to as "the Company") from any and all claims and/or causes of action, known or unknown, which I may have or could claim to have against the Company up to and including the date of my signing of this General Release. This General Release includes, but is not limited to, all claims arising from or during my employment or as a result of the termination of my employment and all claims arising under federal, state or local laws prohibiting employment discrimination based upon age, race, sex, religion, handicap, national origin or any other protected characteristic, including, but not limited to, any and all claims arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, and/or claims growing out of any legal restrictions, expressed or implied, on the Company's right to control or terminate the employment of its employees. By signing below, I acknowledge that I have carefully read and fully understand the provisions of this General Release. I further acknowledge that I am signing this General Release knowingly and voluntarily and without duress, coercion or undue influence. I further agree that should I file a lawsuit in court which is found to be barred in whole or part by this General Release, I will pay the legal fees incurred by the Company in defending those claims found to be barred. This Agreement constitutes the total and complete understanding between me and the Company relating to the subject matter covered by this General Release, and all other prior or contemporaneous written or oral agreements or representations, if any, relating to the subject matter of this General Release are null and void. It is also expressly understood and agreed that the terms of this General Release may not be altered except in a writing signed by both me and the Company. -1- INTENDING TO BE LEGALLY BOUND, I hereby set my hand below: WITNESSED BY: /s/ Walter E. Damian /s/ Ronald N. Clawson - ---------------------------------- ------------------------------------- Dated: 4/25/97 Dated: 4/25/97 ---------------------------- ------------------------------- -2- EX-10.21 7 SEPARATION AGREEMENT--WALTER DAMIAN Exhibit 10.21 [LOGO OF CARBIDE/GRAPHITE GROUP, INC.] ================================================================================ To: From: W. E. Damian W. B. Fowler ================================================================================ Date April 25, 1997 ---------------- SUBJECT: TERMINATION, CONFIDENTIALITY & NON-COMPETITION AGREEMENT PERSONAL & CONFIDENTIAL ======================= This letter confirms that in the event you are terminated from the Company for a reason other than cause (as defined in the attached Schedule A) that you will be granted one year of severance pay and one year of medical coverage provided by the Company and in effect at the time of termination. This letter supersedes the letter termination agreement signed by N. T. Kaiser dated 2/1/95 (copy attached). In addition, we request that you sign the attached Confidentiality and Non-Competition Agreement included as Schedule B. This agreement is an important protection for the Company and is referred to in the definition of "Cause" relating to the termination agreement. If you are in agreement with the termination provisions, please sign below. Also, please sign the Confidentiality and Non-Competition Agreement separately at the bottom of Schedule B. /s/ Walter B. Fowler WBF:nlf Walter B. Fowler Attachments /s/ WALTER E. DAMIAN - ------------------------------ Walter E. Damian Date: April 25, 1997 ------------------------- SCHEDULE A CAUSE For purpose of this Agreement, "Cause" shall mean (i) the willful and continued failure by the Executive to perform substantially his duties to the Corporation or its subsidiaries (other than any such failure resulting from his disability) within a reasonable period of time after a written demand for substantial performance is delivered to the Executive by the Chairman, which demand specifically identifies the manner in which the Chairman believes that the Executive has not substantially performed his duties, (ii) embezzlement or theft from the Corporation or any subsidiary or affiliate by the Executive or the commission or perpetration by the Executive of any act involving moral turpitude, or (iii) any material and willful violation by the Executive of his obligations under the Confidentiality and Non-Competition Agreement (Schedule B attached). - 1 - SCHEDULE B CONFIDENTIALITY AND NON-COMPETITION AGREEMENT (a) For a three-year period commencing on the date on which the Executive's employment with the Corporation, or any of its affiliates, terminates for whatever reason (the "Date of Termination"), (i) the Executive shall hold in a fiduciary capacity for the benefit of the Corporation all secret or confidential information, knowledge or data relating to the Corporation or its affiliates, and their respective businesses which shall not be public knowledge (other than information which becomes public as a result of acts of the Executive or his representatives in violation of this Agreement), including without limitation, customer lists, bids, proposals, contracts, matters subject to litigation, technology or financial information of the Corporation or its subsidiaries and other know-how, and (ii) the Executive shall not, without the prior written consent of the Corporation, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it in writing. (b) For a three-year period commencing on the Date of Termination, the Executive will not, directly or indirectly, (i) own, manage, operate, control or participate in the ownership, management or control of, or be connected as an officer, employee, partner, director, or consultant or otherwise, with, or have any financial interest in (except for (A) ownership as of the date hereof, (B) any ownership in the common stock of the Corporation, or (C) any ownership of less than 5% of the outstanding equity interest in any entity) - 1 - SCHEDULE B (Cont'd) CONFIDENTIALITY AND NON-COMPETITION AGREEMENT (I) the manufacture or marketing of graphite electrodes, (II) the manufacture or marketing of specialty carbon and graphite products, (III) the manufacture or marketing of needle coke, or (IV) the manufacture or marketing of calcium carbide and its direct derivatives, in each case, in any market in which the Corporation or its affiliates conducts or solicits business or (ii) solicit or contact any employee of the Corporation or its affiliates with a view to inducing or encouraging such employee to leave the employ of the Corporation or its affiliates with a view to inducing or encouraging such employee to leave the employ of the Corporation or its affiliates for the purpose of being employed by the Executive, an employer affiliated with the Executive, or any competitor of the Corporation or any affiliate thereof. (c) The Executive acknowledges that the provisions of this Schedule B are reasonable and necessary for the protection of the Corporation and that the Corporation will be irrevocably damaged if such provisions are not specifically enforced. Accordingly, the Executive agrees that, in addition to any other relief to which the Corporation may be entitled in the form of actual or punitive damages, the Corporation shall be entitled to seek and obtain injunctive relief from a court of competent jurisdiction (without the posting of a bond therefor) for the purposes of restraining the Executive from any actual or threatened breach of such provisions. /s/ Walter E. Damian - ------------------------------ Walter E. Damian Date: April 25, 1997 ------------------------- [LOGO OF CARBIDE/GRAPHITE GROUP, INC.] ================================================================================ To: From: W. E. Damian N. T. Kaiser ================================================================================ Date February 1, 1995 ------------------ SUBJECT: TERMINATION It was agreed in a meeting with Mr. Paul Balser on January 23, 1995, that in the event you are terminated from the Company for a reason other than cause (as defined in the attached Schedule A) that you will be granted one year of severance pay plus medical coverage provided by the Company and in effect at the time of termination. If you are in agreement, please sign below and return one copy to me. /s/ N. T. Kaiser N. T. Kaiser NTK:nlf Attachment /s/ Walter E. Damian - ------------------------------ Walter E. Damian Date: 2/1/95 ------------------------- Schedule A ---------- Cause. The Corporation shall have the right to terminate the Executive's employment for "Cause." For purposes of this Agreement, "Cause" shall mean (i) the willful and continued failure by the Executive to perform substantially his duties to the Corporation or its subsidiaries (other than any such failure resulting from his Disability) within a reasonable period of time after a written demand for substantial performance is delivered to the Executive by the Board of Directors, which demand specifically identifies the manner in which the Board of Directors believes that the Executive has not substantially performed his duties, (ii) the willful misconduct by the Executive in the performance of his duties to the Corporation or its subsidiaries (including, without limitation, the conviction by a court of competent jurisdiction of the Executive of any offense, regardless of classification, related to the Executive's duties and responsibilities to the Corporation or its subsidiaries), (iii) the grossly negligent performance by the Executive of his duties to the Corporation or its subsidiaries if such grossly negligent performance is determined by the Board of Directors to have had or to be reasonably likely to have a material adverse effect on the business, assets, prospects or financial condition of the Corporation or the subsidiary employing the Executive, (iv) the conviction of the Executive by a court of competent jurisdiction of a felony. EX-10.22 8 SEPARATION AGREEMENT--JIM TRIGG Exhibit 10.22 [LOGO OF CARBIDE/GRAPHITE GROUP, INC.] ================================================================================ To: From: J. Trigg, Jr. W. B. Fowler ================================================================================ Date April 25, 1997 ---------------- SUBJECT: TERMINATION, CONFIDENTIALITY & NON-COMPETITION AGREEMENT PERSONAL & CONFIDENTIAL ======================= It was agreed by the C/G Board of Directors that you will be granted one year severance pay and one year of medical coverage (as provided by the Company and currently in effect at the time of termination) in the event you are terminated from the Company for a reason other than cause as defined in the attached Schedule A. In addition, we request that you sign the attached Confidentiality and Non-Competition Agreement included as Schedule B. This agreement is an important protection for the Company and is referred to in the definition of "Cause" relating to the termination agreement. If you are in agreement with the termination provisions, please sign below. Also, please sign the Confidentiality and Non-Competition Agreement separately at the bottom of Schedule B. /s/ Walter B. Fowler WBF:nlf Walter B. Fowler Attachments /s/ Jim Trigg, Jr. - ------------------------------ Jim Trigg, Jr. Date: 4/30/97 ------------------------- SCHEDULE A CAUSE For purposes of this Agreement, "Cause" shall mean (i) the willful and continued failure by the Executive to perform substantially his duties to the Corporation or its subsidiaries (other than any such failure resulting from his disability) within a reasonable period of time after a written demand for substantial performance is delivered to the Executive by the Chairman, which demand specifically identifies the manner in which the Chairman believes that the Executive has not substantially performed his duties, (ii) embezzlement or theft from the Corporation or any subsidiary or affiliate by the Executive or the commission or perpetration by the Executive of any act involving moral turpitude, or (iii) any material and willful violation by the Executive of his obligations under the Confidentiality and Non-Competition Agreement (Schedule B attached). - 1 - SCHEDULE B CONFIDENTIALITY AND NON-COMPETITION AGREEMENT (a) For a three-year period commencing on the date on which the Executive's employment with the Corporation, or any of its affiliates, terminates for whatever reason (the "Date of Termination"), (i) the Executive shall hold in a fiduciary capacity for the benefit of the Corporation all secret or confidential information, knowledge or data relating to the Corporation or its affiliates, and their respective businesses which shall not be public knowledge (other than information which becomes public as a result of acts of the Executive or his representatives in violation of this Agreement), including without limitation, customer lists, bids, proposals, contracts, matters subject to litigation, technology or financial information of the Corporation or its subsidiaries and other know-how, and (ii) the Executive shall not, without the prior written consent of the Corporation, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it in writing. (b) For a three-year period commencing on the Date of Termination, the Executive will not, directly or indirectly, (i) own, manage, operate, control or participate in the ownership, management or control of, or be connected as an officer, employee, partner, director, or consultant or otherwise, with, or have any financial interest in (except for (A) ownership as of the date hereof, (B) any ownership in the common stock of the Corporation, or (C) any ownership of less than 5% of the outstanding equity interest in any entity) - 1 - SCHEDULE B (Cont'd) CONFIDENTIALITY AND NON-COMPETITION AGREEMENT (I) the manufacture or marketing of graphite electrodes, (II) the manufacture or marketing of specialty carbon and graphite products, (III) the manufacture or marketing of needle coke, or (IV) the manufacture or marketing of calcium carbide and its direct derivatives, in each case, in any market in which the Corporation or its affiliates conducts or solicits business or (ii) solicit or contact any employee of the Corporation or its affiliates with a view to inducing or encouraging such employee to leave the employ of the Corporation or its affiliates with a view to inducing or encouraging such employee to leave the employ of the Corporation or its affiliates for the purpose of being employed by the Executive, an employer affiliated with the Executive, or any competitor of the Corporation or any affiliate thereof. (c) The Executive acknowledges that the provisions of this Schedule B are reasonable and necessary for the protection of the Corporation and that the Corporation will be irrevocably damaged if such provisions are not specifically enforced. Accordingly, the Executive agrees that, in addition to any other relief to which the Corporation may be entitled in the form of actual or punitive damages, the Corporation shall be entitled to seek and obtain injunctive relief from a court of competent jurisdiction (without the posting of a bond therefor) for the purposes of restraining the Executive from any actual or threatened breach of such provisions. /s/ Jim Trigg, Jr. - ------------------------------ Jim Trigg, Jr. Date: 4/30/97 ------------------------- EX-10.33 9 INCENTIVE BONUS PLAN OF THE COMPANY Exhibit 10.33 CARBIDE/GRAPHITE GROUP, INC. ANNUAL INCENTIVE PLAN I. Purpose. The purpose of the Carbide/Graphite Group, Inc. Annual Incentive ------- Plan (the "Plan") is to provide a means whereby Carbide/Graphite Group, Inc. And its designated subsidiaries may (i) provide incentives and rewards to designated key employees by making part of each such individual's pay dependent upon the financial success of the Company, as defined below, (ii) attract and retain persons of outstanding executive ability as key employees of the Company and motivate such key employees to exert their best efforts on behalf of the Company, and (iii) make the Company's compensation programs competitive with those of other similar employers. II. Administration. The Plan shall be administered by the Committee. The -------------- Committee shall have full power and authority to interpret the Plan, make factual determinations, and to prescribe, amend and rescind any rules, forms or procedures as it deems necessary or appropriate for the proper administration of the Plan and to make any other determinations and take such other actions as it deems necessary or advisable in carrying out its duties under the Plan. Any determinations, decisions, actions or interpretations to be made under the Plan by the Committee shall be made in its sole discretion, not in any fiduciary capacity and need not be uniformly applied to similarly situated individuals. All decisions and determinations by the Committee shall be final, conclusive and binding on the Company, all Participants, and any other persons having or claiming an interest hereunder. III. Definitions. ----------- 3.1 "Award" means the actual percentage of Compensation that a Participant earns for a Plan Year as determined in accordance with Article V. 3.2 "Board" means the Board of Directors of Carbide/Graphite Group, Inc. 3.3 "Company" means Carbide/Graphite Group, Inc. and each of its subsidiaries designated by the Board, which has elected to cover its Employees hereunder by resolution of its board of directors. 3.4 "Compensation" means an Executive's base salary rate as in effect on the last day of a Plan Year without regard to any deferral of base salary under any type of plan maintained by the Company. 3.5 "Committee" means the Compensation Committee of the Board. 3.6 "Effective Date" means August 1, 1996. 3.7 "Executive" means any executive employee of the Company employed on a regular, full-time basis. Individuals employed by the Company in a causal or temporary capacity (i.e., those hired for a specific job of limited duration) ---- and individuals characterized as "leased employees," within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended, or persons characterized by the Company as "independent contractors," no matter how characterized by the Internal Revenue Service, other governmental agency or a court, shall not be considered "Executives" for the purpose of the Plan. Any change of characterization of an individual shall, unless determined otherwise by the Board, take effect on the actual date of such change without regard to any retroactive recharacterization. For the purposes of Section 6.3, only an individual who is a member of select group of management or highly compensated employees within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended shall be treated as an "Executive." 3.8 "Participant" means an Executive that the Committee has designated as eligible to participate in the Plan under Article IV. 3.9 "Plan" means the Carbide/Graphite Group, Inc. Annual Incentive Plan as set forth herein and as it may be amended from time to time. 3.10 "Plan Year" means the calendar year commencing on January 1, 1997 and each calendar year thereafter. 3.11 "Separates from Employment" means the Executive's termination of employment from the Company for any reason other than death, retirement under a retirement plan of the Company or disability as defined in the Company's long-term disability plan. Except as otherwise provided herein, a Separation from Employment shall be deemed to have occurred on the last day of the Employee's service to the Company not taking into account any compensation continuation arrangement or severance benefit arrangement that may be applicable. 3.12 "Target Award" means the theoretical percentage of Compensation that the Committee determines a Participant may receive if the Company achieves exactly its financial goals for a Plan Year. IV. Participation. For each Plan Year, the Committee shall designate, taking ------------- into account the recommendation of the Chief Executive Officer of the Company, each Executive who will participate in the Plan. In determining whether to recommend that an Executive become a Participant under the Plan, the Committee shall take into consideration the Executive's present and potential contribution to the success of the Company and such other factors as the Committee may deem proper and relevant. The Committee may determine to recommend that an Executive become a Participant after the beginning of a Plan Year in which case the Executive shall be eligible for a prorated Award based on the number of complete quarters 2 during which the Participant was eligible for an Award, but all other terms of the Plan shall apply. V. Determination of Award. ---------------------- 5.1 Financial Criteria. As soon as practicable, but in any event within 90 days after the start of each Plan Year, the Committee shall determine the financial criteria which shall be the basis for determining the Awards for such Plan Year and communicate such criteria to all Participants. The financial criteria will be based on the Company's level of "earnings before interest, taxes, depreciation and amortization" (such level shall be deemed to be achieved only after taking into account the total amount of Awards to be paid under the ----- Plan for such Plan Year) unless the Committee determines and announces to Participants, that different criteria will be utilized. The financial criteria and the method for determining individual Awards based upon that criteria will be set forth on Exhibit A hereto. The Committee shall also announce the threshold achievement of financial criteria below which no Award shall be paid and the maximum Award, which shall not exceed 200% of a Participant's Target Award. 5.2 Calculation of Award. For each Plan Year, the Committee shall calculate the amount of aggregate Awards based upon the financial criteria and the actual financial results. 5.3 Announcement of Award. Annual results will be announced by the Committee to all Participants immediately following the announcement of the Company's financial results for the Plan Year, normally 60 days following the end of such Plan Year. VI. Payment of Award ---------------- 6.1 Awards. The Committee shall authorize Awards to be made for a Plan Year if the financial criteria have been satisfied for the full Plan Year. Except as provided in Section 6.3, any Award due shall be paid to each Participant promptly after authorization. 6.2 Withholding Tax. Notwithstanding any other provision of this Plan, the Company shall be entitled to withhold from, or in respect of, any Award to be made an amount sufficient to satisfy all federal, state and local tax withholding requirements relating thereto. 6.3 Deferrals. Each Executive may elect, in accordance with the terms of the Company's Deferred Compensation Plan, to defer the receipt of an Award hereunder if a timely election is made in accordance with the terms of that plan. VII. Separation from Employment. If prior to the date scheduled by the Committee -------------------------- for payment of an Award for a Plan Year, a Participant incurs a Separation from Employment, no payments shall be made in respect of that Participant's Award unless the Committee 3 determines otherwise; provided, however, that in the event the Participant Separates from Employment in a Plan Year in which a Change of Control of the Company occurs, a percentage of the Award payments, if any, for the full Plan Year shall be made to such Participant equal to the percentage of the Plan Year during which the Participant was in the employ of the Company. For the purposes hereof, a "Change of Control of the Company" shall be deemed to have taken place if an person, together with all affiliates and associates of such person acquires more than 50% of the voting power of the Company's outstanding voting securities, the Company liquidates or sells substantially all of its assets or a merger in which the Company's then stockholders do not, immediately after the merger, own or control at least 50% of the voting power of the Company's outstanding voting securities. VIII. General Provisions. ------------------ 8.1 Transferability. No Award under this Plan shall be transferred, assigned, pledged or encumbered by the Participant and any attempt to do so shall be void. In addition, a Participant's rights hereunder are not subject, in any manner, to attachment or garnishment by creditors of the Participant or the Participant's estate. In the event of a Participant's death during employment with the Company, payments of any unpaid Award(s) shall be made to the Participant's estate. 8.2 Unfunded Arrangement. The Plan is an unfunded incentive compensation arrangement. Nothing contained in the Plan, and no action taken pursuant to the Plan, shall create or be construed to create a trust of any kind. A Participant's right to receive an Award shall be no greater than the right of an unsecured general creditor of the Company. All Awards shall be paid from the general funds of the Company, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such Awards. 8.3 No Rights to Employment. Nothing in this Plan, and no action taken pursuant hereto, shall confer upon any Participant the right to continue in the employ of the Company, or affect the right of the Company to terminate the Participant's employment at any time for cause or for no cause whatsoever. 8.4 Adjustment for Non-Recurring Items, Etc. Notwithstanding anything herein to the contrary, if the Company's financial performance is affected by any event that is of a non-recurring nature, the Committee may make such adjustments in the financial criteria as it shall determine to be equitable and appropriate in order to make the calculations of Awards, as nearly as may be practicable, equivalent to the calculation that would have been made without regard to such event. In the event of a significant change of the business or assets of the Company under circumstances involving an acquisition or a merger, consolidation or similar transaction, the Committee shall, in good faith, recommend to the Board for approval such revisions to the financial criteria and the other terms and conditions used in calculating Awards 4 for the then current Plan Year as it reasonably deems appropriate in light of any such change. 8.5 Notices. Any notice hereunder to be given to the Company shall be in writing and shall be delivered in person to the Secretary of the Company, or shall be sent by registered mail, return receipt requested, to the Secretary of the Company at the Company's executive offices, and any notice hereunder to be given to the Participant shall be in writing and shall be delivered in person to the Participant, or shall be sent by registered mail, return receipt requested, to the Participant at his last address as shown in the employment records of the Company. Any notice duly mailed in accordance with the preceding sentence shall be deemed given on the date postmarked. 8.6 Applicable Law. The Plan shall be construed and governed in accordance with the laws of the Commonwealth of Pennsylvania. 8.7 Termination and Amendment of the Plan. The Board reserves the right to amend, suspend, or terminate the Plan at any time; provided, however, that any amendment, suspension or termination shall not adversely affect the rights of Participants to receive Awards calculated for a completed Plan Year. 8.8 Miscellaneous. (a) If the Company shall find that any person to whom any payment is payable under this Plan is unable to care for his affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefor shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Company to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Company may determine. Any such payment shall be a complete discharge of the liabilities of the Company under this Plan. (b) This Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns and the Participant and his heirs, executors, administrators and legal representatives. 5 EX-10.40 10 CONSTRUCTION AGREEMENT--SEADRIFT COKE, L.P. EXHIBIT 10.40 [LOGO OF FOSTER WHEELER USA CORPORATION] FOSTER WHEELER USA CORPORATION 2020 DAIRY ASHFORD . HOUSTON, TEXAS 77077 . PHONE 281-597-3000 September 25, 1997 Letter No.: 13-037624 - 2.1 - 104 File No.: 37624 - 2.1 Mr. Jim Trigg General Manager Seadrift Coke L.P. P.O. Box 192 Port Lavaca, Texas 77979 SUBJECT: Seadrift Coke L.P. Port Lavaca, Texas Coker Expansion Project SEADRIFT COKE L.P./FWUSA ENGINEERING, PROCUREMENT AND ----------------------------------------------------- CONSTRUCTION AGREEMENT FOR COKER EXPANSION PROJECT -------------------------------------------------- Dear Jim, Please find attached one fully executed original of the subject Agreement for your files. Very truly yours, /s/ Mike Veit Mike Veit Project Manager MV:sw cc: M. Autrey I. Bremner D. Pettit J. Archambault, Esq. ENGINEERING, PROCUREMENT, AND CONSTRUCTION AGREEMENT BETWEEN SEADRIFT COKE, L.P. AND FOSTER WHEELER USA CORPORATION FOR COKER EXPANSION PROJECT INDEX ----- ARTICLE DESCRIPTION - ------- ----------- 1 DEFINITIONS 2 SERVICES BY FWUSAC 3 SERVICES BY OWNER 4 PRICE 5 TERMS OF PAYMENT 6 RELATIONSHIP OF THE PARTIES 7 PRICE ADJUSTMENT 8 CHANGES IN THE WORK 9 TIME OF PERFORMANCE 10 INSURANCE 11 INDEMNIFICATION FOR BODILY INJURIES AND PROPERTY DAMAGES 12 TITLE AND RISK OF LOSS TO MATERIALS & EQUIPMENT 13 RECORDS AND ACCOUNTING 14 MECHANICAL ACCEPTANCE; COMPLETION OF THE WORK 15 GUARANTEES AND WARRANTIES 16 INDEMNIFICATION AGAINST PATENT INFRINGEMENT 17 INDUSTRIAL PROPERTY RIGHTS 18 LIEN INDEMNIFICATION 19 CONTINUOUS PROSECUTION OF THE WORK 20 FORCE MAJEURE 21 CONSEQUENTIAL DAMAGES 22 ASSIGNMENT OF AGREEMENT 23 SUBCONTRACTING 24 WAIVER 25 NOTICES 26 SUSPENSION OF THE WORE 27 TERMINATION OF THE WORK 28 CAPTIONS 29 CONTROLLING LAW 30 SEVERABILITY 31 ENTIRETY OF CONTRACT 2 EXHIBIT DESCRIPTION - ------- ----------- A SCOPE OF WORK B COMPENSATION BASIS C PROJECT SCHEDULE D PLANT COMPLETION STANDARD 3 THIS Agreement (hereinafter "Agreement") is made effective the 2nd day of June, 1997, hereinafter ("EFFECTIVE DATE") between SEADRIFT COKE, L.P. (hereinafter "OWNER"), a Texas limited partnership, with its principal offices at Port Lavaca, Texas and FOSTER WHEELER USA CORPORATION (hereinafter "FWUSAC"), a Delaware corporation, with its principal offices at Perryville Corporate Park, Clinton, New Jersey. WITNESSETH WHEREAS, OWNER desires to have constructed a COKER EXPANSION PROJECT (hereinafter referred to as the "Plant") on its real property located at the OWNER's Seadrift, Texas facility; WHEREAS, OWNER desires FWUSAC to undertake the performance of certain required engineering, procurement, and construction work and services for the Plant; and WHEREAS, FWUSAC desires to undertake the performance of said work and services for the Plant; NOW, THEREFORE, the parties hereto, in consideration of their respective obligations, undertakings and commitments hereinafter set forth, covenant and agree as follows: 1. DEFINITIONS Wherever used in this Agreement or in the other Contract Documents, hereinafter defined, the following terms have the meanings indicated which are applicable to both the singular and plural thereof: 1.1 "Agreement" or "Contract" means the Agreement between the parties hereto covering the Work to be performed as represented and constituted by the Contract Documents, which are attached to the Agreement and made a part thereof. 1.2 "Completion of Construction" means FWUSAC has: a) Provided erection in accordance with the drawings and specifications; b) Completed its portion of the pre-commissioning Work; c) Completed final cleanup, painting and insulation Work; and d) Delivered all required documentation to the OWNER. 1.3 "Construction Aids" means any or all materials, supplies, and temporary facilities and such other items as are required for construction of the Plant, but which are not intended to become a permanent part of the Plant. 1.4 "Contract Documents" means and includes this Agreement with all its Exhibits, attachments and all Specifications, Drawings, Modifications and Appendices hereto. 1.5 "Contract Price" means the total of the amounts to be paid to FWUSAC pursuant to this Agreement. 1.6 "Drawings" means all drawings which show the character and scope of the Work to be performed and which have been produced by or for FWUSAC in the design, construction, and erection of the Plant. 1.7 "Equipment" means any and all material, supplies, equipment and facilities of whatever nature designed or specified by FWUSAC hereunder and intended to become a permanent part of the Plant. 4 1.8 "Modification" means (1) a written amendment to the Contract Documents signed by both parties hereto or (2) a Change Order as provided for in Article 8 herein. 1.9 "Plant" or "Project" means the COKER EXPANSION PROJECT and related equipment and systems to be built at OWNER's Seadrift, Texas facility. 1.10 "Project Completion" means Final Acceptance of the Plant has been achieved. 1.11 "Ready for Commissioning" means the Plant, unit, facility, or part thereof has been erected in accordance with the drawings, specifications and applicable codes, to the extent necessary to permit commissioning, and pre-commissioning activities have been completed by FWUSAC as detailed in Exhibit E. 1.12 "Site" means the land and other places on, under, in or through which the Plant is to be constructed which includes real property located at the OWNER's Seadrift, Texas Facility. 1.13 "Specifications" means those portions of the Contract Documents consisting of written technical descriptions of materials, equipment, construction systems, standards and workmanship as applied to the Work and certain administrative details applicable thereto produced by or for FWUSAC in furtherance of the design, construction, and erection and maintenance of the Plant. 1.14 "Subcontractor" means an individual, firm or corporation having either a direct contract with FWUSAC or a contract executed by FWUSAC as OWNER's agent, or any other lower-tier Subcontractor who performs any part of the design or any part of the Work at the Site. 1.15 "Vendor "means any third party supplying any Equipment or Construction Aids to FWUSAC with or without the services of supervision of installation at the Site, but without installation labor at the Site. 1.16 "Work" means the entire completed construction of the Plant or the various separately identifiable parts thereof required to be furnished under the Contract Documents and is the result of performing services, furnishing labor and furnishing and incorporating materials and Equipment into the Plant all as required by the Contract Documents. 1.17 "Mechanical Completion Date" shall mean the date of completion of erection of the respective unit or section of the Plant, exclusive of insulation and painting. 1.18 "Work in Progress" shall mean all portions of the Work and all equipment, supplies, and materials to be incorporated into the Work, or intended or earmarked for the Project, while in transit to the Site or while stored in and off the Site. 1.19 "Mechanical Acceptance" has the meaning defined in Subarticle 14.1. 1.20 "Final Acceptance" has the meaning defined in Subarticle 14.2. 1.21 "FWCI" shall mean Foster Wheeler Constructors, Inc., which is FWUSAC's construction subcontractor. 5 2.0 SERVICES BY FWUSAC FWUSAC shall exercise all reasonable skill, care and diligence in the performance of the WORK under the Agreement and shall carry out all his responsibilities in accordance with recognized professional standards in the United States of America. FWUSAC shall in accordance with the provisions of this Agreement perform the following services as required for construction of the Plant, as defined in Exhibit A: 2.1 Furnish home office engineering services consisting of process and equipment engineering, mechanical design, procurement and general engineering services as, and to the extent, required for construction of the Plant to be performed by FWUSAC, including the placement of the subcontract for construction to FWCI . FWUSAC procurement services shall include equipment inquiries, bid evaluations and inspection services to the extent approved by OWNER. 2.1.1 Under FWUSAC's construction subcontract to FWCI, FWCI shall be responsible for providing the required construction management and supervisory personnel, craft personnel on a direct hire basis, subcontract services as required, small tools, construction equipment, construction procedures, and construction of the Plant. 2.2 Inspect all Equipment required for the Plant to the extent FWUSAC deems necessary, 2.3 Furnish required supervisory construction personnel and other required personnel including construction subcontract services; Construction Aids, small tools, construction equipment and the like, not furnished by construction subcontractors; and construct the Plant. 2.4 Prior to Ready for Commissioning, supply OWNER with: a) The final tracings, and electronic file copies prepared by FWUSAC for the Plant. b) Five (5) sets of Mechanical Catalogs containing bulletins, information and data furnished by Vendors; key drawings and data prepared by FWUSAC, all and to the extent set forth in attached Engineering Standard of Exhibit A . c) Five (5) sets of Process Technical Specifications. 2.5 Obtain all license and permits required to be obtained in FWUSAC's name for performance of the Work. 2.6 Nothing in this Agreement shall operate to prevent FWUSAC carrying out similar WORK for other clients. 2.7 Appoint one or more individuals who shall be authorized to act on behalf of FWUSAC and with whom OWNER may consult at all reasonable times, and whose instructions, requests, and decisions will be binding upon FWUSAC as to all matters pertaining to the Services to be rendered under this Agreement as defined below. 6 3.0 SERVICES BY OWNER OWNER shall perform the following services in connection with the work, without cost to FWUSAC: 3.1 Provide all necessary basic design data and any other engineering services except as otherwise provided herein. This shall include, but not be limited to, necessary soil bearing data and foundation design criteria, topographical surveys, benchmarks for design and construction, and identification of any hazardous, latent, hidden or other conditions not discoverable by visual inspection (walk-through) of the property at grade level. 3.2 Procure all necessary permits, licenses, easements, rights of way, and a clear and level site free of any above and below grade obstructions, other than those obstructions identified on Owner's drawings of the Site, provided to FWUSAC in the course of performing the Work as required for construction and operation of the Plant other than the permits and licenses to be obtained by FWUSAC pursuant to Article 2. 3.3 Issue all purchase orders in OWNER's name for all Equipment and materials to be incorporated into the plant, based on requisitions and / or bills of materials prepared by FWUSAC and / or FWCI. Procure all necessary know-how, engineering agreements and patent licenses required for the Plant other than those to be obtained by FWUSAC pursuant to Article 2. 3.4 Provide a clear, well-drained, fenced and policed security area for a Construction Storage area, unloading area, and piping fabrication area. 3.5 Provide a clear and well-drained Construction Parking area. 3.6 Provide a finished surface road from the construction parking area to the main work road. 3.7 Grade and maintain the construction road and access roads to the Work site within the OWNER's property. 3.8 Furnish, consistent with FWUSAC's construction schedule the completely furnished and equipped existing building for (a) the control room wherein FWUSAC shall install the instrumentation and interconnections thereto for the instrumentation of the Plant; and (b) the existing electrical control room wherein FWUSAC shall, receive the 5 kV and 480 kV power and install the electrical switch gear and motor control centers and the interconnections thereof required for the Plant. 3.9 Provide, in a safe and ready for service condition, all new, and /or modified existing equipment, piping and materials of OWNER and its subcontractors and vendors to which FWUSAC must tie-in, or provide interface connections, or incorporate in the Plant, in the performance of FWUSAC's Work, including that performed by FWUSAC's Subcontractors. 3.10 Provide clear access to the Battery Limits, all temporary facilities as required for construction of the Plant, and provide a location for disposal of waste material. 7 3.11 Furnish and install all fire-fighting equipment and piping and controls for same. Furnish all Utilities and other materials at the battery limits of the Plant at quantities and conditions as required for construction and testing purposes, including any necessary fill or dirt, compressed air, petroleum feedstocks, coke, natural gas, fuel oil, electricity, testing water and potable water, and telecommunication connections. 3.12 Furnish all tools, record sheets, log tables, laboratory and testing facilities, instrument charts, spare parts, catalysts, chemicals, solvents, feedstocks and any other consumable supplies for maintenance and operation, including testing of the Plant. 3.13 OWNER shall assume care, custody and control of the Plant and parts thereof after they are Ready for Commissioning. Thereafter, in association with FWUSAC and its Subcontractors, and in accordance with Exhibit D hereof, OWNER will provide all maintenance, labor, materials and utilities necessary to maintain, operate and test the Plant, and any unit, or parts thereof. Furnish all labor, including standby labor during start-up; and materials and utilities required for maintenance and operation of the Plant from the date of Ready for Commissioning. 3.14 OWNER shall provide such approvals as are required under the terms of this Agreement in such reasonable time as not to delay or disrupt the performance of the WORK. 3.15 OWNER shall negotiate and obtain at its cost all necessary licenses or other approvals that may be required in respect of the WORK from the relevant Government and other Authorities, which are not required to be obtained by FWUSAC under Article 2.6 above. 3.16 Appoint one or more individuals who shall be authorized to act on behalf of OWNER, with whom FWUSAC may consult at all reasonable times, and whose instructions, requests, and decisions will be binding upon OWNER as to all matters pertaining to this Agreement and to the performance of the parties hereunder. 4.0 PRICE 4.1 OWNER agrees to pay FWUSAC in the manner, and as designated in Article 5.0 hereof as full and complete compensation for FWUSAC's services under this Agreement, the sum of the following amounts; all the costs and charges incurred in performance of the Work, including but not limited to the costs of engineering services, procurement services, funding of Equipment (if required), and construction of the Plant in accordance with Exhibit B. 4.2 FWUSAC's rates and prices are exclusive of any taxes, duties and/or levies whatsoever which may be or become payable outside the United States in respect of the WORK or in connection therewith (such as, but not limited to, corporate or personal income tax, withholding tax, and any and all sales, export, import, VAT, and other similar taxes and duties). 8 5.0 TERMS OF PAYMENT 5.1 The amounts payable to FWUSAC pursuant to Subsection 4.1, as adjusted, shall be due and payable in accordance with the basis set forth in Exhibit B, including all reimbursable costs and fees earned for Work performed during the previous month and chargeable to OWNER under this Agreement, upon OWNER's receipt of FWUSAC's monthly invoices therefor. Provided however, Invoices for field construction labor shall be submitted on a weekly basis, and paid by OWNER on a weekly basis though a zero balance account. Charges for home office personnel and salaried personnel on the site will be invoiced on a monthly basis. All payments shall be made, within 30 days of receipt of invoice by OWNER and shall be made in US Dollars to FWUSAC's designated bank in New Jersey. The invoice shall be accompanied by itemization of all items of reimbursable costs, and other documents to support invoices. Payment by OWNER to vendors and subcontractors for purchase orders and subcontracts shall be in accordance with their respective terms and approved by FWUSAC as being in conformity therewith. 5.2 OWNER agrees that payments due to FWUSAC shall be paid in full, free of any withholdings. 6.0 RELATIONSHIP OF THE PARTIES 6.1 For purposes of this Agreement and all services to be provided hereunder, FWUSAC shall be considered an independent contractor. 6.2 Neither FWUSAC nor any subcontractor, nor the employees of either shall be deemed to be the servants, employees, or otherwise the agents of OWNER and is without power of authority to act on behalf of OWNER to incur any liability on OWNER's account. 7.0 PRICE ADJUSTMENT The Price specified in Subarticle 4.1 shall be adjusted as a change in the Work, for the following causes: 7.1 Increases in the design capacity of the Plant by the addition of and/or replacement of any major items of Equipment specified in the attached Exhibit A. 7.2 Changes by OWNER to the design set forth in Exhibit A. 7.3 In the event OWNER requires the purchase of equipment other than Equipment selected by FWUSAC. 7.4 Overtime work in FWUSAC's home or branch offices or at the job site, including payroll taxes and insurance premiums computed on such premiums; provided such overtime is undertaken by FWUSAC with OWNER's written authorization. 7.5 Costs and charges resulting from a decrease in the length of the work week required by law or area practices which become effective after the effective date of this Agreement. 9 7.6 Alterations in, additions to, or deletions from the Plant which are requested by OWNER or required by the OWNER's Insurance Carriers, or soil bearing data, foundation and earthwork or other design criteria being at variance with that contained in Exhibit A. 7.7 Increases or decreases in the costs and charges to FWUSAC resulting from any change in OWNER's safety or loss-prevention procedures. 7.8 Interferences with continuous prosecution of the Work or from suspension of the Work by OWNER or Force Majeure causes except strikes or other concerted acts of workmen or disputes with workmen. 7.9 Costs and charges for changes in the Work as set forth in the Agreement but not above specified. 8.0 CHANGES IN THE WORK 8.1 OWNER shall have the right at any time prior to Mechanical Acceptance of the Plant, to request alterations in, additions to or deletions from the Work. In each case, FWUSAC shall promptly prepare and submit to OWNER a detailed estimate of the net effect of such change on the Contract Price, and on the reimbursable costs set forth in Article 4 hereof and including the cost of preparation of the estimate whether on a lump sum, time and material, or reimbursable rate basis. Upon approval of the estimate by OWNER, the said Contract Price shall be adjusted by the amounts set forth in such estimate. In the event that OWNER elects not to have the change effected after FWUSAC's preparation of the estimate as set forth herein, OWNER shall pay to FWUSAC the costs and charges occurred in preparation of the estimate. 8.2 In the event any changes in laws, rules, regulations, (including taxes) applicable FWUSAC's performance of the Work, occur after the effective date of this Agreement, such changes shall result in a Change in the Work for the benefit of FWUSAC. 8.3 In the event Changes in the Work affect FWUSAC's guarantees hereunder and OWNER requires FWUSAC to implement such Changes, FWUSAC's guarantee shall be modified accordingly. 8.4 If a Change in the Work causes a revision in the time required for achieving Mechanical Completion of the Plant, the contemplated date of completion shall be accordingly adjusted. 9.0 TIME OF PERFORMANCE FWUSAC shall promptly commence the Work and with its best efforts, and endeavor to attain Mechanical Completion of the Plant on or about , 1998. If FWUSA fails to meet the mutually agreed upon ------------- -- Mechanical Completion Date, the sole remedy of the Owner and the sole liability of FWUSAC, shall be that OWNER shall retain, and FWUSAC shall forego receipt, of the schedule component of the at-risk fee associated the achievement of agreed upon the Mechanical Completion Date. 10 10.0 INSURANCE 10.1 FWUSAC shall obtain and maintain during the performance of the Work hereunder the following insurance: 10.1.1 Workmen's Compensation Insurance and Employer's Liability Insurance in accordance with the laws of the state in which FWUSAC may be required to pay compensation, with limits for Employer's Liability of $1,000,000 per accident or diseases, aggregate as to disease. 10.1.2 Commercial General Liability including Contractual Liability, Products, Completed Operations, covering claims for bodily injury, including death, and damage to property, with combined single limits of $1,000,000 for bodily injury and property damage per occurrence /aggregate. 10.1.3 Automobile Liability Insurance with a combined single limit for bodily injury and property damage of $1,000,000. 10.1.4 Excess Liability Insurance, in excess of the coverages under Articles 10.1.2 and 10.1.3, which in combination with the coverages under Articles 10.1.2 and 10.1.3 shall have a combined single limit of US $5.000,000 per occurrence /aggregate. 10.2 OWNER shall obtain and maintain during the performance of the Work hereunder the following insurance: 10.2.1 Builder's All-Risk Insurance including inland transportation covering all Equipment, material, machinery, and structures intended to become a permanent part of the Plant and temporary facilities used in or incidental to performance of the Work, while in transit to the Job Site, awaiting and during erection, and until Final Acceptance, shall be maintained by the OWNER, with a deductible of (One-Hundred Thousand Dollars) $100,000. FWUSAC shall be responsible for the deductible of $100,000 under the OWNER's Builder's All-Risk Insurance for claims due to the negligence of FWUSAC and its subcontractor, Foster Wheeler Constructors, Inc. OWNER will waive its insurer's rights of subrogation under this policy. 10.3 The insurance to be provided pursuant to Subarticle 10.1 and Subarticle 10.2 shall be subject to the normal limitations and exclusions applying to each type of policy of insurance. All insurance to be carried pursuant to this Article 10.0 shall be endorsed to require the insurer to furnish FWUSAC and OWNER with thirty (30) days' written notice prior to the effective date of any modification or cancellation of such insurance. 10.4 FWUSAC shall furnish OWNER with certificates showing that the insurance policies to be carried by FWUSAC in accordance with Subarticle 10.1 have been issued. FWUSAC shall reinstate the aggregate of its Commercial General Liability or Excess Liability policy in the event the required limits of (Five Million Dollars) $5,000,000 per occurrence/ aggregate are impaired by losses not relating to this Agreement, during the term of this Agreement. 11 11.0 INDEMNIFICATION FOR BODILY INJURIES AND PROPERTY DAMAGES 11.1 FWUSAC shall hold harmless and indemnify OWNER against any claims for bodily injury (including death) to employees of OWNER, FWUSAC, and its subcontractors, and for damage to or loss of property of OWNER, occurring or sustained during performance of the Work hereunder, and to the extent caused by the negligent acts or omissions of FWUSAC, and its Subcontractors in the performance of the Work, provided FWUSAC's and its Subcontractor's liability for damage to the property of OWNER shall be limited to the aggregate total of amount of U.S. $100,000. 11.2 OWNER does hereby release and agrees to hold harmless and indemnify FWUSAC and its Subcontractors from any claim, loss or liability resulting from damage to the Plant, and for damage to other property of OWNER and the property of OWNER'S personnel, in excess of the aggregate total amount of $100,000. OWNER shall obtain from its Business Interruption, Extra Expense and Property Damage insurers a Waiver of Subrogation in favor of FWUSAC and its Subcontractors and their respective affiliates for loss or damage to OWNER's property in excess of the aggregate total amount of U.S. $100,000. 11.3 OWNER shall indemnify and hold harmless FWUSAC and its subcontractors from and against any and all liability for death, illness or injury to any third party or for loss or damage to any third party's property and against all claims, demands, proceedings and causes of action resulting from FWUSAC'S performance of Work under this Agreement, except to the extent such third party claim is caused by the negligence of FWUSAC. 12.0 TITLE AND RISK OF LOSS TO MATERIALS & EQUIPMENT 12.1 Title and Risk of Loss to all Equipment and Materials shall pass to OWNER as and when title and Risk of Loss passes from the Vendor or Supplier. 13.0 RECORDS & ACCOUNTING 13.1 FWUSAC shall keep full and detailed accounts and records in accordance with its established accounting procedures. 13.2 FWUSAC shall permit OWNER to have access to and review and audit at all reasonable time its records and accounts relating to any costs reimbursable, to FWUSAC by OWNER, pursuant to this Agreement, provided however, OWNER's audit rights shall not apply to CONTRACTOR's fixed rates, overlays, multipliers, fixed mark-up rates, and fixed percentage charges, fixed amounts, or lumpsum amounts, such as but not limited to benefits, bond rates, tools, insurance, overhead, and fee for profit. Such periodic reviews and audits shall be made during the performance of the Work; final audits shall be made within twelve (12) months after the Completion of the Work. 14.0 MECHANICAL ACCEPTANCE; COMPLETION OF THE WORK 14.1 Upon completion of the erection of the Plant, or any part thereof capable of being isolated by temporary physical boundaries from uncompleted parts of the Plant and consisting of equipment and facilities which can be properly and safely commissioned independently from uncompleted parts of the Plant, except insulation and painting, and upon completion of pre-commissioning work as specified in attached Exhibit D [Plant Completion Standard 05A1], FWUSAC shall give 12 OWNER written notice that the Plant or part thereof as herein defined is Ready for Commissioning. Within five working days after the receipt of said notice, OWNER shall give FWUSAC a letter of Mechanical Acceptance or shall notify FWUSAC in writing of any items requiring completion, correction or repair. Upon completion, correction or repair of every item about which OWNER has notified FWUSAC, FWUSAC shall give OWNER written notice of such completion, correction or repair, and within five working days after receipt of said notice, OWNER shall give FWUSAC the letter of Mechanical Acceptance, or shall notify FWUSAC in writing of all items requiring completion, correction or repair. The notification procedure shall be repeated until OWNER issues the letter of Mechanical Acceptance. If OWNER does not comply with the provisions of the preceding notification procedure, OWNER shall be deemed to have Mechanically Accepted the Plant, or part thereof, covered by said FWUSAC notice as of the fifth working day after the receipt of said FWUSAC notice. After Mechanical Acceptance, OWNER may start commissioning the Plant or part thereof. 14.2 After Mechanical Acceptance, FWUSAC shall complete the painting and insulation work and perform final clean-up of the Plant or part thereof as heretofore defined. After completion of all painting, all insulation work and final clean-up, FWUSAC shall notify OWNER in writing that construction is complete. Within five working days after the date of receipt of said FWUSAC notice, OWNER shall give FWUSAC a letter of Final Acceptance stating that the work has been completed and accepted, or shall notify FWUSAC in writing of any painting, insulation or clean-up items requiring completion, correction or repair. Upon completion, correction or repair of all such items about which OWNER has notified FWUSAC, FWUSAC shall give OWNER written notice of such completion, correction or repair. Within five (5) working days after the receipt of said FWUSAC notice, OWNER shall give FWUSAC the letter of Final Acceptance stating that the work has been completed and accepted or shall notify FWUSAC in writing of any painting, insulation or clean-up items requiring completion, correction or repair. The notification procedure shall be repeated until OWNER issues the letter of Final Acceptance. If OWNER does not comply with the provisions of the preceding notification procedure, OWNER shall be deemed to have issued said letter of Final Acceptance as of the fifth working day after the receipt of said FWUSAC notice. After Final Acceptance, OWNER may start operating the Plant or part thereof. 15.0 GUARANTEES & WARRANTIES 15.1 If any part of the Plant designed by FWUSAC is found to be defective in service by reason of FWUSAC's faulty mechanical design within twelve (12) months after Mechanical Completion thereof, FWUSAC shall, make such changes in the said Plant design as are required to correct such deficiencies and OWNER shall reimburse FWUSAC for the costs of such correction at the same compensation rates as set forth in Exhibit B, exclusive however of any costs of reperforming FWUSAC engineering services, which cost of reperformed engineering services shall be for the account of FWUSAC. 15.2 Equipment --------- On any Equipment or any part thereof furnished hereunder by FWUSAC, FWUSAC shall endeavor to obtain from vendors and subcontractors the most advantageous guarantees with respect to the Equipment. In all cases, except with written contrary authorization from OWNER, FWUSAC shall request from vendors and subcontractors, a guarantee period of twelve (12) months from date of 13 completion of their work, or eighteen months from the date of shipment of vendor equipment, whichever occurs first. FWUSAC shall assist OWNER in enforcing such guarantees, but OWNER shall be responsible for the cost or expenses of FWUSAC relating to litigation to enforce such guarantees. 15.3 Field Workmanship If within twelve months from the date of Mechanical Acceptance of the Plant any part of the Plant pursuant to Section 14.1 is found to be defective as a result of faulty field workmanship performed, directed or supervised by FWUSAC, or its subcontractor FWCI, FWUSAC shall provide, and bear the cost of, supervision, construction tools, and craft labor performed by FWUSAC and its subcontractor FWCI, to correct such defective workmanship, and the cost of any and all Equipment and materials required for such correction will be the responsibility of OWNER and paid for by OWNER. FWUSAC shall not be responsible for any repairs or replacements made by OWNER or by others, without the prior written approval of FWUSAC to OWNER for such repair or replacement. 15.4 FWUSAC's liability for all warranties and guarantees pursuant to this Agreement is conditioned upon: (a) Operation of the Plant in accordance with the designs, drawings, specification, instructions, safety procedures, and other information and data furnished by FWUSAC hereunder. (b) OWNER giving FWUSAC prompt written notice upon discovery of each and every defect. Defects caused by normal corrosion, erosion, wear and tear, changes or repairs not authorized by FWUSAC in writing, faulty or improper maintenance or abnormal operating conditions or operating at conditions more severe than design criteria are excluded. 15.5 THE REMEDIES AND WARRANTIES SET FORTH IN THIS CONTRACT ARE GIVEN IN LIEU OF ALL OTHER WARRANTIES AND GUARANTEES, EXCEPT THAT OF TITLE, AND SHALL APPLY ON AN EXCLUSIVE BASIS. FWUSAC EXPRESSLY DISCLAIMS ANY OTHER WARRANTIES OR GUARANTEES ON THE REMEDIES AND WORK, EXPRESS OR IMPLIED WHETHER WRITTEN OR ORAL OR IMPLIED IN THE FACT OR IN LAW, AND WHETHER OR NOT BASED ON STATUTE, CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, INCLUDING BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR ANY WARRANTY ARISING FROM COURSE OF DEALING OR USAGE OF TRADE. TO THE EXTENT THAT ANY IMPLIED WARRANTIES MAY NOT BE DISCLAIMED UNDER THE APPLICABLE LAW, SUCH WARRANTIES ARE EXPRESSLY LIMITED TO THE DURATION OF THE WARRANTY PERIODS STATED IN THIS ARTICLE 15. WHERE A REMEDY IS NOT PROVIDED IN THIS AGREEMENT, THE PARTIES WILL HAVE THE RIGHTS AND REMEDIES AVAILABLE AT LAW OR EQUITY. 14 15.6 FWUSAC shall not be liable for any defects in the Work to the extent that they arise from inaccuracy of any information, and/or data provided by, or on behalf of, OWNER to FWUSAC. 15.7 FWUSAC's cumulative overall liability to OWNER for entering into this Agreement, whether under the provisions of the Agreement, contract, statute, strict liability, tort (including negligence) or otherwise at law, shall not exceed the amount paid by OWNER to FWUSAC hereunder. FWUSAC, and its subcontractor FWCI, shall be released from all liability for occurrences after the expiration of the warranty period stated above. 16.0 INDEMNIFICATION AGAINST PATENT INFRINGEMENT 16.1 FWUSAC shall hold OWNER harmless from, and shall defend at its own expense any suit instituted against OWNER because of OWNER's use of any of FWUSAC's process designs or apparatus or Equipment specially designed by FWUSAC, provided that: 16.1.1 the equipment has been operated in accordance with FWUSAC's design specifications, drawing, and instructions; 16.1.2 suit is based upon a charge of infringement of a claim of any patent granted prior to the effective date of this Agreement; 16.1.3 OWNER promptly notified FWUSAC in writing of any institution of such suit or of any warning or claim of infringement; 16.1.4 OWNER complies with all reasonable requests for assistance made by FWUSAC. Subject to the limits of the provisions of Section 16.3 FWUSAC shall pay judgment and court costs awarded against OWNER in such suit and all compensation and expenses of FWUSAC's own counsel and experts. OWNER may be represented by counsel of OWNER's selection at OWNER's expense. Upon receiving such notice from OWNER or from third persons, FWUSAC shall have the right to procure for OWNER at FWUSAC's expense the right to continue using said process of Equipment, or in the alternative, to replace said Equipment or process with a non- infringing Equipment or process or to modify said process or Equipment to the extent required to avoid infringement, provided such replacement or modification does not adversely affect the ability of the Plant to meet the guarantees set forth in this Agreement. 16.2 In connection with any Equipment purchased by OWNER for incorporation into the Plant, OWNER shall obtain from Vendors and Subcontractors protection against patent infringement to the extent as may be reasonably obtainable. 16.3 FWUSAC's liability to OWNER for patent infringement is solely limited to that stated in Sections 16.1 and monetary limits in the amount of the purchase price of said Equipment designed and manufactured by FWUSAC. 16.4 If OWNER select or licenses any process carried out by materials including Equipment, apparatus and accessories or combinations thereof included in the Work, or if OWNER supplies information pursuant to this Agreement, and if as a 15 result of the foregoing valid patents held by a third party are infringed or claimed to be infringed, OWNER shall hold FWUSAC harmless from any infringement, or any claim of infringement, of such patents, provided that FWUSAC: 16.4.1 Promptly transmits to OWNER all papers received by FWUSAC regarding possible infringement or served upon FWUSAC in any suit alleging infringement; and 16.4.2 Permits OWNER to take complete charge of the defense of such suit; and 16.4.3 Complies with all reasonable requests for assistance made by OWNER 17.0 INDUSTRIAL PROPERTY RIGHTS 17.1 Title to all Contract Documents including but not limited to all drawings, bills of material, flow diagrams, specifications, designs, information and data and Contract Document prepared by FWUSAC hereunder shall remain the property of FWUSAC. OWNER or its assigns pursuant to Article 22.0 shall have the right to use the information furnished it by FWUSAC solely for construction, reconstruction or replacement in kind, operation, repair and maintenance, of the Plant, and shall not disclose it to others except to the extent necessary to accomplish the foregoing and provided the recipient executes a confidentiality agreement in form and substance as set forth in Section 17.2 17.2 OWNER agrees to hold in confidence any and all information disclosed, directly or indirectly, to OWNER by FWUSAC or its affiliates under this Agreement. OWNER shall not willfully disclose any such information. Such obligation shall not apply to: (a) information which at the time of disclosure is in the public domain; (b) information which after disclosure is published or otherwise becomes part of the public domain through no fault of OWNER (but only after, and only to the extent that, it is published or otherwise becomes part of the public domain); (c) information which OWNER can show was in its possession at the time of disclosure and was not acquired, directly or indirectly, from FWUSAC or its affiliates or from a third party under an obligation of confidence; and (d) information which OWNER can show was received by it after the time of disclosure hereunder from a third party who did not require OWNER to hold it in confidence and who did not acquire it, directly or indirectly, from FWUSAC or its affiliates under an obligation of confidence. 17.3 For the purpose of the provisions of Section 17.2 disclosures made to OWNER under this Agreement which are specific, e.g., as to engineering and design practices and techniques, equipment, products, operating conditions and/or catalyst for treating specific feedstock, etc. shall not be deemed to be within the foregoing exceptions merely because they are embraced by general disclosures in the public domain or in the possession of OWNER. In addition, any combination of features shall not be deemed to be within the foregoing exceptions merely because individual features are in the public domain or in the possession. 16 of OWNER, but only if the combination itself and its principle of operation are in the public domain or in the possession of OWNER. 17.4 OWNER agrees to promptly disclose to FWUSAC any inventories or improvements which are conceived by any of OWNER's employees within a period of ten (10) years from date of Final Acceptance of the Plant, which inventions or improvements are based upon or derived from FWUSAC information required to be maintained in confidence by OWNER pursuant to Section 17.2 hereof, and OWNER agrees to grant and hereby grants to FWUSAC a non-exclusive worldwide, irrevocable, royalty-free license, including the right to sublicense others, under any and all such inventions and improvements, whether patentable or not, which are based on or derived from such FWUSAC information. 17.5 In the event OWNER desires to file a patent application on any invention or improvement in which any technical information furnished by FWUSAC is to be disclosed, OWNER agrees to provide FWUSAC prior to filing, with a copy of that part of the application which contains such information. If FWUSAC advises OWNER that the technical information included in the application is information to be held in confidence by OWNER under Section 17.2 hereof and OWNER is unable to prove otherwise to the reasonable satisfaction of FWUSAC, OWNER agrees not to permit the publication in any country of a patent based on such application; FWUSAC agrees, however, that such consent shall not be unreasonably withheld. 18.0 LIEN INDEMNIFICATION FWUSAC shall indemnify and save OWNER harmless from and against all claims, liens, attachments or charges, in the nature of mechanics or materialmen's liens, in favor of FWUSAC or any party performing services pursuant to this Agreement, payments to whom will be processed through or made by FWUSAC, provided OWNER (a) has paid FWUSAC all amounts then due and payable in accordance with this Agreement and (b) notifies FWUSAC promptly of any claim, lien attachment or charge of which it receives notice and (c) permits FWUSAC to defend any such claim, lien, attachment or charge, or post bond. In the event FWUSAC fails to discharge it s obligations within this paragraph OWNER may interplead any disputed funds in its possession into the registry of the appropriate state court in Calhoun County, Texas and shall be indemnified and held harmless from and against any liability, claim, demand, costs and expenses, including attorney fees and litigation costs relating to any claim or liens for labor performed or material furnished or relating to any security interest or any other kind of lien, charge or encumbrance arising directly or indirectly out of or in connection with the Work. 19.0 CONTINUOUS PROSECUTION OF THE WORK This Agreement contemplates continuous prosecution of the Work and all additional costs and charges incurred by FWUSAC resulting from interferences beyond FWUSAC's control or resulting from any Force Majeure causes shall be paid to FWUSAC by OWNER as a Change in the Work pursuant to Article 8.0 hereof. 17 20.0 FORCE MAJEURE Any delay in or failure of performance by FWUSAC shall not constitute default hereunder as and to the extent such delay or failure is caused by an occurrence beyond the control of FWUSAC, including: acts of God or the public enemy; expropriation or confiscation of facilities; compliance with any order of any governmental authority; acts of war, rebellion or sabotage or damage resulting therefrom; fires; floods; explosions; accidents; riots; strikes or other concerted acts of workmen or disputes with workmen; or any occurrence, whether or not of the same class or kind as those specifically above mentioned, which is not within the control of FWUSAC, and which by the exercise of reasonable diligence, FWUSAC is unable to prevent. 21.0 CONSEQUENTIAL DAMAGES 21.1 Each party hereto, does hereby release the other party hereto, and such other party's respective Subcontractors and their respective affiliates, of liability for any and all consequential, special, incidental, and indirect damages such as, but not limited to, loss of anticipated profits or revenue, loss of use of revenue, cost of capital, extra cost or increased cost of production, cost of replacement production, failure to achieve, or delay in achieving anticipated profits, or other damages of any nature sustained in connection with or as a result of the Work to be performed hereunder, whether based upon contract, tort, negligence, strict liability or otherwise. 21.2 For any such loss or damages within the contemplation of Section 21.1, each party shall obtain a Waiver of Subrogation rights of its Business Interruption, Extra Expense and Property Damage insurers in favor of other party hereto, and such other party's respective Subcontractors and their respective affiliates. 22.0 ASSIGNMENT OF AGREEMENT 22.1 The Agreement shall not be assigned by either party without the prior written consent of the other party hereto, except that it may be assigned without such consent to the successor of either party or to a person, firm or corporation acquiring all, or substantially all, of the business and assets of such party and except that OWNER hereby agrees that FWUSAC may assign in whole or in part, any of FWUSAC's rights and obligations under the Agreement to any affiliates or subsidiaries of Foster Wheeler Corporation. No assignment of the Agreement shall be valid until and unless the potential assignee shall agree to assume it. When duly assigned in accordance with the foregoing, the Agreement shall be binding upon, and shall inure to the benefit of, the assignee. 23. SUBCONTRACTING FWUSAC may subcontract any portions of the Work which in FWUSAC's opinion may be subcontracted to the advantage of the Work, including the subcontract to FWCI for the construction portion of the Work. Such subcontracting shall not relieve FWUSAC of any of its obligations or warranties under this Agreement. 18 24.0 WAIVER The failure of either party to enforce at any time any of the provisions of this Agreement or any rights in respect thereto, or to exercise an election herein provided, shall in no way be considered a waiver of such provisions, rights, or election or in any way affect the validity of this Agreement. 25.0 NOTICES Any written notices hereunder may be given by either party, either by personal delivery (delivery by Express Mail, or by courier such as DHL, or Federal Express, shall be considered personal delivery) or by facsimile addressed to the other party at the address specified below or to such other address as may be specified in writing from time to time. The effective date of such notices shall be the date of receipt. In the case of OWNER:- SEADRIFT COKE, L.P. An Affiliate of the Carbide/Graphite Group. Inc. P.O. Box 192 Port Lavaca, Texas 77979 Facsimile 1 512 552 8327 For the attention of: Mr. Jim Trigg, General Manager In the case of FWUSAC:- Foster Wheeler USA Corporation, Perryville Corporate Park, Clinton, New Jersey 08809-4000, Facsimile 1 908 730 5315 For the attention of Mr. Carl Bartoli, President 26.0 SUSPENSION OF THE WORK OWNER may at any time stop the Work or any part thereof by written notice to FWUSAC. Performance shall be resumed by FWUSAC within ten (10) days after the date of resumption fixed in a written notice from OWNER to FWUSAC and all additional costs and charges incurred by FWUSAC resulting from such suspension of the Work or part thereof, shall be paid to FWUSAC by OWNER as a Change in the Work pursuant to Article 7.10 hereof. 27.0 TERMINATION OF THE WORK 27.1 OWNER shall have the right at any time to terminate the Work upon thirty (30) days written notice to FWUSAC. FWUSAC shall have the right to terminate the Work or any part thereof in the event that OWNER repeatedly suspends the Work or has suspended the Work or such part thereof under Section 26.0 above and OWNER does not within thirty (30) days after the date of suspension give written notice to FWUSAC to resume performance within such thirty (30) day period. 19 27.2 In the event of termination of the Work as set forth in Section 27.1 above, OWNER shall pay to FWUSAC for amounts invoiced through the date of termination, plus those costs and charges incurred through orderly termination as follows: (a) The cost of FWUSAC's salaries and wages plus an agreed upon overlay of 100% to cover burdens and overhead, plus (b) All FWUSAC's costs and charges for items identified in the attached Exhibit B, except for costs and charges covered in (a) above, plus (c) A termination charge of 10% of the sum of (a) and (b) above OWNER shall not be liable to FWUSAC for any consequential or indirect damages, such as loss of anticipated profits, loss of use of revenue, or other special or incidental damages of any nature on account of such termination. 27.3 FWUSAC agrees, upon payments by OWNER as required in Section 27.2 above, to execute and deliver to OWNER all documents, in form satisfactory to OWNER and to take all steps necessary to fully vest in OWNER the right and benefits of FWUSAC under existing commitments to suppliers and others. 28.0 CAPTIONS Captions and headings of the Articles and other portions of the Agreement have been inserted for convenience of reference only and shall not in any manner affect the construction, meaning, or effect of anything herein contained, nor govern the rights and liabilities of the parties hereto. 29.0 CONTROLLING LAW This AGREEMENT shall be construed and interpreted in accordance with the laws of the State of Texas, United States of America. 30.0 SEVERABILITY If any provision of this Agreement is found to be illegal or unenforceable, such provision shall be deemed not to be a part of this Agreement, and the remaining provisions of this Agreement shall continue in full force and effect, but shall be interpreted to give effect to the extent feasible to the original written intent of the parties. 31.0 ENTIRETY OF AGREEMENT This Agreement together with the Exhibits referred to herein and other documents incorporated by reference, constitute the entire understanding between the parties hereto concerning the Work and services and there are not other representations, promises, contracts, guarantees, remedies or warranties affecting the Work and services; all previous figures, proposals, representations and agreements are hereby superseded and canceled. Any changes, alterations or additions to this Agreement shall be in writing, dated subsequent hereto and signed by duly authorized representatives of the parties. In the event of any conflict between this Agreement and any Exhibit, the terms of this Agreement shall govern. In the event of any conflict among Exhibits, the Exhibit of latest date shall govern. The following Exhibits are attached hereto and incorporated herein: 20 EXHIBIT A - SCOPE OF WORK EXHIBIT B - COMPENSATION BASIS EXHIBIT C - PROJECT SCHEDULE EXHIBIT D - PLANT COMPLETION STANDARD IN WITNESS where the parties hereto have caused this Agreement to be signed by their respective duly authorized representatives. ACCEPTED AND AGREED: ACCEPTED AND AGREED: SEADRIFT COKE, L.P. FOSTER WHEELER USA CORPORATION By: /s/ Jim Trigg By: /s/ Gasper P. Tiranno ---------------------------- ------------------------------- General Manager General Manager Executive Vice President - -------------------------------- ---------------------------------- (Title) (Title) [LOGO OF FOSTER WHEELER USA CORPORATION] FOSTER WHEELER USA CORPORATION SEADRIFT COKE L.P. FW CONTRACT 13-037624 COKER EXPANSION PROJECT EXHIBIT A SCOPE OF WORK SCOPE OF WORK ------------- Scope of Services - ----------------- The scope of FWUSAC services includes provision of engineering, design, inspection and construction services for expansion of an existing needle coker facility. The scope of services are outlined as follows: 2.1.1 Engineering and Design ---------------------- . Review of Process Flow Diagrams and process design basis for establishing requirements for expansion of the plant as established by Seadrift Coke . Completion of basic process engineering, existing systems interfaces . Process safety and environmental compliances as defined by Seadrift Coke . Project specifications and standards . Detailed engineering and design of facilities encompassing areas of: - Civil/Structural - Piping - Electrical - Instrumentation - Equipment . Constructibility studies . Equipment and material requisitions for procurement by Seadrift Coke . Equipment drawings review for compliance with purchase requisitions and project specifications . Field design and interface with construction management team of FWCI EXHIBIT A Page 1 2.1.2 Procurement Services for Equipment and Materials ------------------------------------------------ . Standards and specifications . Development of vendor list for approval . Issue of inquiries for equipment and materials as required by Seadrift Coke . Commercial and technical evaluation of vendor quotations . Bid clarification meetings . Bid tabulations for equipment and material . Vendor recommendation for purchase by Seadrift Coke . Inspection Plan . Traffic coordination for delivery of equipment and materials as required by Seadrift Coke. . Equipment Status reports 2.1.3 Project Management ------------------ . Project management to insure engineering design and construction coordination . QA/QC Program to insure compliance with engineering practices of FWUSAC . Project control system covering the following areas: - Engineering - Design - Vendor Coordination - Inspection - Construction The project control system will cover all aspects of planning, scheduling, cost control, progress measurement, and document management. . Monthly progress and cost reports for services by FWUSAC Page 2 2.1.4 Construction ------------ . Constructibility studies . Construction execution plan . Detail construction schedule and cost control . Coordination with project management for engineering and design deliverables. . Staffing of construction management and direct hire labor. . Early mobilization of field team for interface with engineering design. . Temporary facilities for piping fabrication and construction utilities as required to incorporate the work. . Materials and Equipment warehousing and laydown coordination for receipt of equipment and materials purchased directly by Seadrift Coke. . Field QA/QC program to insure full compliance with safety and proper construction procedures. . Installation of new equipment, foundations, structures, instrument controls and electrical distribution as required by design of the facility expansion. . Modification of existing equipment and facilities as defined by Seadrift Coke. . NDE and testing of equipment and installed material. 2.2 List of Deliverables -------------------- FWUSAC documents and drawings deliverables are listed below: . Project engineering and management - Coordination procedure - Project specifications - Overall project master schedule - EPC - Front-end and detailed schedules - Engineering - Design - Procurement Services - Construction - Updated Process Flow Diagrams - Heat and Material Balances - Design Pressure/Temperature Diagrams - Materials of Construction Diagrams - Updated P&ID's Page 3 - Line list for P&ID's - Utility summaries - Header and utility flow diagrams - Effluent summary - Flare load summary - Relief valve list/design basis/calculations - Control valve data sheets and specifications - Flow element data sheets - Functional description for DCS system - Shutdown and interlock sequence logic - Requisition Index - Equipment List for all new and modified equipment - Drawing Index - Instrument Index - Vendor document Index - Specifications Index . Equipment engineering - mechanical/electrical/instruments - Inquiry requisitions for Mechanical Equipment - Towers/drums/tanks - S/T Exchangers/Air Coolers - Compressors/Pumps - Mechanical Package Equipment - Electrical equipment requisitions - Control Valve and Relief Valve Requisitions - Tagged instruments requisitions - Certified vendor drawings - Mechanical catalogs - Spare Parts List . Civil/Structural - Criteria for foundation/structure/underground and trench designs - Design drawings showing plans, elevations, sections, details, MTO, and rebar quantities as required for the following: - Underground systems - Concrete foundations and structures - Steel structures - Pipe racks - Platforms/ladders/circular platforms - Electrical/instrument buildings - MCC buildings - Package equipment Page 4 . Piping - Piping design schematics - Mechanical and material specifications for all piping and valves - Requisitions for valves - Requisitions for alloy pipe materials - Underground piping drawings - Key plot plans - Equipment location plans - Piping plans and sections - Piping isometrics for all lines 3/4" and larger - Pipe support location plans - Fire water piping loop diagram and isometrics - Bulk material requisitions - Alloy steel piping material - Carbon steel piping material - Spring hangers and special pipe supports - Specialty piping items - Steam tracing tabulation with material summaries . Instrumentation - Instrument location plans - Instrument wiring drawings/cable tray layout - Instrument installation details - Instrument loop diagrams - Bulk material requisitions - Instrument fittings - Field instrument cable - Junction boxes - Installation materials . Electrical - Electrical load summary - One-line diagram - Area classification drawing - Power/lighting layout drawings - Motor control schematics - Grounding details drawings - Cable and raceway schedules - Bulk material requisitions for electrical items Page 5 . Insulation/fireproofing/steam tracing/painting - Insulation requirements including quantities summary - Fireproofing requirements for vessel skirts and structures - Steam tracing requirements and material summary - Painting requirements including quantities summary Page 6 [LOGO OF FOSTER WHEELER USA CORPORATION] FOSTER WHEELER USA CORPORATION SEADRIFT COKE L.P. FW CONTRACT 13-037624 COKER EXPANSION PROJECT EXHIBIT B COMPENSATION BASIS COMMERCIAL BASIS OF COMPENSATION -------------------------------- ENGINEERING AND PROCUREMENT SERVICES ------------------------------------ SECTION 1 - --------- 1.1 Basis of Reimbursement ---------------------- 1.1.1 Bare Salaries and Mark-Up of Straight-Time Reimbursable Labor Foster Wheeler shall be reimbursed for all the time devoted to the work by its personnel at the rate of wages and salaries, plus an overlay of 75% of bare wages and salaries to cover payroll burdens, benefits, and overhead expenses. This rate applies to all management, technical, and support personnel of Foster Wheeler USA's Houston Engineering Center. The range of bare salary rates and salary policies applicable to reimbursable personnel is shown in Commercial Appendix 3D. 1.1.2 Miscellaneous Home Office Expenses In addition to the reimbursement of labor, Foster Wheeler shall be reimbursed for miscellaneous home office expenses associated with the work, such as long-distance communication, technical computer applications, reproduction and others, at $6.50 per manhour. 1.1.3 Travel and Living Travel and Living expenses will be reimbursed as follows: 1. Actual reasonable expenses incurred for meals, lodging and rental car for Foster Wheeler personnel in travel status away from the office in connection with the project business 2. Travel by personal automobile at $0.30 per mile. 3. Air travel at economy class fare 1.1.4 Rental of Site Trailer It is understood and agreed that Seadrift Coke, L.P. will provide gratis a 14' x 70' trailer on site furnished per Foster Wheeler's requirements. Utilities for the trailer will be paid for by Seadrift Coke. L.P. Page 1 of 2 COMMERCIAL BASIS OF COMPENSATION -------------------------------- ENGINEERING AND PROCUREMENT SERVICES ------------------------------------ 1.1.5 Fixed Fee In addition to reimbursement of labor, miscellaneous home office expenses, and travel and living expenses, Foster Wheeler will be reimbursed a fixed fee of $150,000 for profit. 1.1.6 Earned Fee In addition to the above, a further $150,000 may be earned based on meeting mutually agreed objectives relating to schedule, cost, and quality in equal $50,000 portions. 1.1.7 Shared Cost Underrun In addition to the above cost reimbursements, fixed fee, and earned fee, Foster Wheeler will share with Seadrift Coke, L.P. on a 50/50 basis any underrun of the Target Price to be established upon completion of the definitive estimate and schedule. Page 2 of 2 Commercial Appendix 3D Rev. 4 February 1997 SALARY RATE RANGES - REIMBURSABLE PERSONNEL ------------------------------------------- FOSTER WHEELER USA CORPORATION ------------------------------ HOUSTON ENGINEERING CENTER --------------------------
January 1997 Salary Ranges Position Classification U.S. $1/Hour - ------------------------------ ----------------- FLOWSHEET DRAFTING 12.77 - 18.34 DESIGN AND DRAFTING 11.22 - 37.50 PROJECT ENGINEERING 19.58 - 50.41 PROJECT MANAGEMENT 43.04 - 63.09 SPECIALTY ENGINEERING 12.98 - 44.84 ENGINEERING SUPPORT SERVICES 11.00 - 16.39 PROCUREMENT SERVICES 14.51 - 34.13 PROCESS ENGINEERING 19.23 - 42.12 ESTIMATING 14.32 - 42.86 PROJECT CONTROL 11.58 - 44.75 DOCUMENT CONTROL 10.93 - 33.55 COMPUTER SERVICES 14.64 - 39.15 WORD PROCESSORS 12.35 - 15.11 PROJECT ACCOUNTING 8.54 - 30.35 SECRETARIAL & CLERICAL 9.00 - 18.62 SUPERVISORS/CHIEFS/ DESIGN ENGINEERS 18.02 - 59.13 DEPARTMENT HEADS 44.71 - 64.85
See applicable notes on tile following page. Commercial Appendix 3D Rev. 4 February 1997 SALARY RATE RANGES - REIMBURSABLE PERSONNEL ------------------------------------------- FOSTER WHEELER USA CORPORATION ------------------------------ HOUSTON ENGINEERING CENTER -------------------------- NOTES: - ----- 1. Salaries and wages are calculated for straight-time only and are exclusive of company benefits, payroll burdens, and overhead. Rates are applicable to personnel of Foster Wheeler USA Corporation, Houston payroll only. 2. Hourly rates are calculated on tile basis of 2,080 hours per year, 173 1/3 hours per month, or 40 hours per week. 3. The standard workweek is 40 hours per week. In accordance with Foster Wheeler's salary policies, overtime is defined as work in excess of eight hours a day or forty hours a week, and will be invoiced to the client as follows: a. Overtime hours worked by exempt employees shall be invoiced at zero percent premium. b. Overtime hours worked by nonexempt employees shall be invoiced at 50 percent premium. c. Overtime hours worked by Design and Flowsheet Drafting employees shall be invoiced at 50 percent premium for overtime work on Monday through Saturday, and at 100 percent premium for overtime work on Sundays and holidays. 4. Salary ranges are valid as of January 1997. 5. Actual salaries reimbursable on a particular contract will vary according to personnel assignments. During contract execution, tile actual salaries of the personnel assigned may fall outside the ranges shown as a result of individual merit increases, promotions, addition of personnel, or economic changes. Billings will be made on the basis of actual salaries. COMMERCIAL BASIS OF COMPENSATION -------------------------------- CONSTRUCTION SERVICES --------------------- COMMERCIAL TERMS ---------------- FOR --- COST REIMBURSABLE CONSTRUCTION SERVICES --------------------------------------- I. Introduction ------------ The Contractor shall be compensated for work performed on a cost reimbursable basis through the payment of field costs. Wage rates are subject to escalation upon mutual agreement between the client and FWCI. II. Reimbursable Field Costs ------------------------ The Contractor shall be reimbursed for the following costs at the rates specified or, if no rate is specified, at actual cost to the Contractor. 1. Field Labor - The Contractor shall be reimbursed for all field payroll ----------- labor costs of personnel employed on the jobsite such as craft supervisor, foremen, craftsmen, helpers, laborers, field clerks, technicians, etc. Field labor will be reimbursed at actual straight time wages of all hours worked plus a mark-up of forty-six (46%) percent to include the following items: a. Wages - Including straight time, show-up time and overtime. (Premium portion of overtime shall be reimbursed at cost without mark-up.) b. Fringe benefits - Covers the cost of medical, life insurance, vacation, retirement savings, holiday pay, and administrative cost for our benefit program for field hired employees. c. Taxes and insurance - Imposed by federal, state or local governmental authorities on field payrolls such as FICA Tax (Social Security), federal unemployment insurance, state unemployment insurance and workmen's compensation. Also included is an allowance to cover liability insurance coverage by FWCI. Page 1 of 3 COMMERCIAL BASIS OF COMPENSATION -------------------------------- CONSTRUCTION SERVICES --------------------- d. Small tools and consumables valued under $1000.00. The field hire craft labor rates (inclusive of the above) will be established through mutual agreement between FWCI and Seadrift for this project. Straight time rate is payable for the first forty (40) hours in the work week and overtime rate is payable for all hours over forty (40) in the work week at a rate of time and one half and all company holidays at a rate of double the straight time wage. 2. Contractor's Salaried Employees - The Contractor shall be reimbursed ------------------------------- for all of Contractor's salaried personnel who are employed on the project (both home office and field) on the basis of actual salary plus sixty-five (65%) percent for all hours worked. In addition to the above, Purchaser shall reimburse all travel expenses incurred in traveling to and returning from the jobsite (if required), and all living expenses (such as local transportation, food and lodging) incurred while on assignment at actual cost without mark- up in accordance with FWCI's travel and relocation allowance policy which is included herein. 3. Subcontracts - The Contractor shall be reimbursed for all subcontract ------------ cost for work or services entered into by the Contractor at the price charged to the Contractor by the Subcontractor. 4. Capital Tools - The Contractor may provide capital tools owned by the ------------- Contractor when such capital tools are available and time permits their shipment to the jobsite. The Contractor shall be reimbursed for such capital tools at the monthly rates and terms specified in the attached Capital Tool List and Small Tool List. The Contractor shall be reimbursed for all capital tools rented or leased by the Contractor from others at the price charged to the Contractor. 5. Small Tools and Consumables - A listing of typical small tools and --------------------------- consumables is attached hereto. Small Tools and Consumables are included in the base wage mark-up as noted in Section II.1.d. Page 2 of 3 COMMERCIAL BASIS OF COMPENSATION -------------------------------- CONSTRUCTION SERVICES --------------------- 6. Miscellaneous Field Materials - Miscellaneous field materials are ----------------------------- materials required for the work which are not considered as consumables under Item II.5 (Small Tools & Consumables) and are not provided by the Contractor under Item II.3 (Subcontracts). The Contractor shall be reimbursed for all such field materials at the price charged to the Contractor. 7. Field Office Expenses - Field office expenses are items required for --------------------- the operation of the Contractor's field office such as telephone, fax, postage, stationary, post office box rental, reproduction, electrical, etc. The Contractor shall be reimbursed for all field office expenses at the price charged to the Contractor. 8. Intangible Items The Contractor shall be reimbursed at actual cost for ---------------- permits, fees and royalties, and all sales, use, property, gross receipts, gross income, excise or other similar taxes which the Contractor's may be required to pay. 9. Other Field Expenses - The Contractor shall be reimbursed at actual -------------------- cost for all other field expenses not covered by the above reimbursable items. 10. Safety Related Costs - The Contractor will be reimbursed for safety -------------------- related costs including but not limited to: A. Safety Training required by the owner or Federal, State or local law. B. Specialized safety equipment including Nomex suits, Scott air packs, monitoring equipment, medical examinations, etc. Labor costs will be billed at the employers rate plus burdens and benefits. All other safety related costs will be billed at actual cost. 11. Terms of Payment - FWCI has not included in its rates consideration ---------------- for cost of money associated with payment terms. FWCI mutually agreed with Seadrift Coke a payment schedule which minimizes out of pocket costs. FWCI will be paid weekly for field labor. Monthly invoicing with thirty (30) day payment for home office expenses including salaried supervisory costs and third party purchases. Page 3 of 3 CONFIDENTIAL ------------ 02/02/97 FOSTER WHEELER CONTRUCTORS INC 1997 REIMBURSABLE BARE SALARIES AND CLASSIFICATIONS ---------------------------------------------- SALARY RATE RANGES ------------------
=============================================================================================== COST $/MO $/MO $/MO $/HR $/HR $/HR CODE DESCRIPTION HIGH LOW AVE HIGH LOW AVE =============================================================================================== FIELD SUPERVISORY POSITIONS - --------------------------- 8811 CONST MANGR/PROJECT SUPT $9,900 $5,000 $7,300 $57.12 $28.85 $42.12 8812 FIELD & AREA SUPT $8,000 $4,800 $5,800 $48.15 $27.69 $33.46 8831 CONSTRUCTION ENGINEERING $7,000 $2,600 $4,500 $40.38 $15.00 $25.96 8841 PROJECT CONTROL $7,500 $2,500 $4,000 $43.27 $14.42 $23.08 8851 MATERIAL MANAGER $6,000 $3,600 $4,600 $34.62 $20.77 $26.54 8861 GENERAL ADMINISTRATION $6,500 $2,000 $4,700 $37.50 $11.54 $27.12 8862 SAFETY SUPERVISION $6,000 $3,500 $4,700 $34.62 $20.19 $27.12 8871 SUBCONTRACT ADMIN $8,500 $3,500 $5,800 $49.04 $20.19 $33.46 8813 GENERAL CRAFT SUPV $6,500 $3,500 $4,900 $37.50 $20.19 $28.27 8832 QUALITY CONTROL $6,500 $4,300 $4,900 $37.50 $24.81 $28.27 8833 WELD TECHNICIANS $5,500 $3,800 $4,900 $31.73 $21.92 $28.27 HOME OFFICE POSITIONS - --------------------- 8461 ADMINISTRATION $9,900 $1,900 $3,280 $57.12 $10.96 $18.92 8411 CONST DIRS & MANAGERS $9,900 $6,900 $7,680 $57.12 $39.81 $44.31 8431 CONST ENG & QA/QC $6,900 $3,900 $5,300 $39.81 $22.50 $30.58 8441 PROJECT CONTROL $7,500 $3,200 $5,500 $43.27 $18.46 $31.73 8471 SUBCONTRACTS & PURCH. $8,500 $1,700 $5,300 $49.04 $9.81 $30.58 8421 PROPOSALS & ESTIMATING $8,500 $2,850 $6,100 $49.04 $16.44 $35.19 8451 CONST TOOLS & EQUIP NJ $6,500 $2,100 $3,900 $37.50 $12.12 $22.50 8452 CONST TOOLS & EQUlP TX $5,600 $1,500 $2,600 $32.31 $8.65 $15.00 ===============================================================================================
COMMERCIAL BASIS OF COMPENSATION -------------------------------- CONSTRUCTION SERVICES --------------------- REIMBURSABLE CONSTRUCTION COST WITH AT-RISK PROFIT FEE ------------------------------------------------------ Foster Wheeler Constructors, Inc. (FWCI) agrees to perform construction services for the Seadrift Coke, L.P. Coker Expansion Project located at Port Lavaca, Texas on a Cost Reimbursable basis with an At-Risk Fee for profit and general and administrative expenses based on meeting mutually agreed target budget and project schedule. FWCI is committed to the use of incentives because of our strong belief that incentive programs develop team spirit and overall project excellence with an emphasis on safety. FWCI is proposing that our profit is entirely at risk and based upon criteria specified below. FWCI will distribute a twenty (20%) percent share of its earned incentive as a bonus pool to site project supervision and labor. Seadrift Coke will also contribute a share of the bonus pool based upon a savings resulting from an underrun of the target manhours established for the project. The criteria for this employee distribution is that the individual must either be reassigned to another FWCI project or receive a reduction in force at Seadrift Coke. Employees who quit or are terminated for cause are not eligible. Bonus money to employees is determined by using a formula based on a percentage applied to the individuals gross wages. The At-Risk Profit Fee is earned by achieving or surpassing performance targets set through mutual agreement between Seadrift Coke and FWCI. The components of the overall profit fee be structured in three parts as follows: 1. Budget ------ A construction cost budget for the project will be established by late September, 1997 through mutual agreement between FWCI and Seadrift. If FWCI completes the project within the set budget, $250,000 will be paid to cover general administrative, overhead and profit. 2. Schedule -------- A construction schedule for the project will be established by late September, 1997 through mutual agreement between FWCI and Seadrift If FWCI completes the project within the scheduled time period, an additional $250,000 will be paid as an additional incentive fee. Page 1 of 2 COMMERCIAL BASIS OF COMPENSATION -------------------------------- CONSTRUCTION SERVICES --------------------- 3. Budget Underrun --------------- As an incentive to complete the project for less than the established cost budget, FWCI and Seadrift will share in the cost underrun. If FWCI underruns the budget by more than $250,000, 50% of cost underrun greater than $250,000 will be paid to FWCI as additional fee for general and administrative expenses and profit. 4. Manhour Underrun ---------------- Seadrift Coke will contribute to the bonus pool to site project supervision and field hired labor $7.00 per hour for each hour. The actual hours expended (direct and indirect) are under the mutually agreed target. 100% of these savings will be distributed to the above employees. FWCI is proposing this structure as we are confident that we have the supervisory and craft talent available to execute the project in a highly satisfactory manner. In addition, we have unique expertise in constructability, safety, planning, scheduling and cost control. We also feel that by including all of our personnel into project goals and rewards the project will achieve our mutual objectives. To this end, we will communicate our joint objectives to our workforce throughout the project. Attached for your ease in reviewing this incentive plan, is a sample calculation assuming certain project results. Page 2 of 2 COMMERCIAL BASIS OF COMPENSATION -------------------------------- CONSTRUCTION SERVICES --------------------- SEADRIFT COKE L.P., SEADRIFT TEXAS LABOR RATES TO APPLY TO THE ABOVE REFERENCED PROJECT
- -------------------------------------------- Classification Wage - -------------------------------------------- Craft Supervisor 19.00-24.00 - -------------------------------------------- Foreman 17.50 - -------------------------------------------- Mechanic A - Inst. Tech 16.00 - -------------------------------------------- Mechanic A - Comb Welder 15.50 - -------------------------------------------- Mechanic A 15.00 - -------------------------------------------- Mechanic B 14.50 - -------------------------------------------- Helper I 12.00 - -------------------------------------------- Helper II 10.00 - -------------------------------------------- Helper III 8.50 - -------------------------------------------- Laborer/Fire Watch/Hole Watch 8.00 - -------------------------------------------- Technician 13.50 - -------------------------------------------- Secretary 10.00 - -------------------------------------------- Timekeeper/Clerk 8.00 - --------------------------------------------
The above listed will receive time and half pay for working on approved holidays. COMMERCIAL BASIS OF COMPENSATION -------------------------------- CONSTRUCTION SERVICES --------------------- SAMPLE CALCULATION INCENTIVE FEE AND BONUS POOL DISTRIBUTION ----------------------------------------- BASIS OF CALCULATIONS - --------------------- . Construction Cost budget: $10,000,000 . Construction Labor Hours Budget (Direct/Indirect): 160,000 . Final Project Cost: $750,000 under Budget . Project Completed within Target Schedule . Labor Hours (Direct/Indirect): 15,000 Hours under Budget INCENTIVE FEE EARNINGS FOR FWCI - ------------------------------- . Final Project Costs within Budget: $250,000 . Project Completed within Project Schedule $250,000 . Final Project Costs Underrun $250,000 (500,000 x 50%) -------- . Total FWCI Incentive Fee Earned $750,000 BONUS POOL DISTRIBUTED TO PROJECT SUPERVISION AND ALL FIELD HIRED EMPLOYEES - --------------------------------------------------------------------------- . FWCI Share: 20% of $750,000 $150,000 . Seadrift Share: (15,000 hrs x $7.00/hr) $105,000 -------- TOTAL Bonus Pool Distribution $255,000 Page 1 of 1 [LOGO OF FOSTER WHEELER USA CORPORATION] FOSTER WHEELER USA CORPORATION SEADRIFT COKE L.P. FW CONTRACT 13-037624 COKER EXPANSION PROJECT EXHIBIT C PRELIMINARY PROJECT SCHEDULE
---------------------------------------------------------------------------------------------------- 1997 ---------------------------------------------------------------------------------------------------- MAY JUN JUL AUG SEP OCT ---------------------------------------------------------------------------------------------------- Description Start 8, 5, 12, 19, 26 2, 9, 16, 23 30, 7, 14, 21, 28 4, 11, 18, 25 1, 8, 15, 22 29, 6, 13 20 27 - ----------------------------------------------------------------------------------------------------------------------------------- ENGINEERING Process Design 05MAY97A Retail Engineering & Procurement 01JUL97A Equipment Deliveries 03NOV97* [GRAPH APPEARS HERE] CONSTRUCTION - ------------------------------ Field Mobilization 08SEP97* Civil 15SEP97* Piping 29SEP97* Equipment Erection 27OCT97* Electrical 10NOV97* Instrumentation 01DEC97* Insulation/Painting 15DEC97* Equipment Relocation 26JAN98* Work Commences 16FEB98* Mechanical Completion (T/A) 26FEB98* Mechanical Completion (Post T/A Work) 31MAR98* - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Start 01MAY97 ------------- Early Bar Sheet 1 of1 Finish 31MAR98 ------------- Progress Bar Seadrift Coke L.P. Date 01SEP97 Seadrift Coker Expansion EXHIBIT C Date 05SEP97 Preliminary Project Schedule - ------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------- 1997 1998 ---------------------------------------------------------------------------------------------- NOV DEC JAN FEB MAR ---------------------------------------------------------------------------------------------- Description Start 3, 10, 17, 24 1, 8, 15, 22,29 5, 12, 19, 26 2, 9, 16, 23 2, 9, 16, 23, 3 - ----------------------------------------------------------------------------------------------------------------------------- ENGINEERING Process Design 05MAY97A Retail Engineering & Procurement 01JUL97A Equipment Deliveries 03NOV97* [GRAPH APPEARS HERE] CONSTRUCTION - ------------------------------ Field Mobilization 08SEP97* Civil 15SEP97* Piping 29SEP97* Equipment Erection 27OCT97* Electrical 10NOV97* Instrumentation 01DEC97* Insulation/Painting 15DEC97* Equipment Relocation 26JAN98* Work Commences 16FEB98* Mechanical Completion (T/A) 26FEB98* Mechanical Completion (Post T/A Work) 31MAR98* - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Start 01MAY97 ------------- Early Bar Sheet 1 of1 Finish 31MAR98 ------------- Progress Bar Seadrift Coke L.P. Date 01SEP97 Seadrift Coker Expansion EXHIBIT C Date 05SEP97 Preliminary Project Schedule - ------------------------------------------------------------------------------------------------------------------------------------
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 1 USA CORPORATION REV 1 DATE September 4, 1997 CONTENTS PARA.NO. SUBJECT PAGE - -------- ------- ---- I. SCOPE 2 II. REFERENCES 2 A. API PUBLICATION 700 2 B. ISA RECOMMENDED PRACTICE 7.1 2 III. DEFINITIONS 2 A. PRE-COMMISSIONING 2 B. READY FOR COMMISSIONING 2 C. COMMISSIONING 2 D. COMPLETION OF CONSTRUCTION 3 IV. GENERAL PROCEDURES 4 A. MANUFACTURER OR VENDOR SERVICE 4 B. PERMITS 4 C. INSTRUCTION 4 D. PACKING AND SEALS 5 E. REMOVAL OF TEMPORARY BRACING 5 F. ROTATION AND ALIGNMENT 5 G. TIE-INS AT UNIT LIMITS 6 H. LEAK AND PRESSURE TESTS 6 I. INSPECTION 7 J. PRESSURE/VACUUM SAFETY RELIEF DEVICES 8 K. FLUSHING AND CHEMICAL/MECHANICAL CLEANING 8 L. TEMPORARY SCREENS, STRAINERS AND BLINDS 9 M. PURGING/INSERTING 9 N. DRYING OUT 9 0. VESSEL PACKING AND FIXED BEDS 10 P. HOUSEKEEPING 10 Q. MAINTENANCE, SPARE PARTS AND SPECIAL TOOLS 10 V. SPECIFIC PROCEDURES 11 A. VESSELS 11 B. SHELL AND TUBE EXCHANGERS 11 C. AIR-COOLED EXCHANGERS 12 D. FIRED HEATERS 12 E. PUMPS, COMPRESSORS AND DRIVERS 13 F. TANKS 13 G. PIPING SYSTEMS 14 H. ELECTRICAL POWER AND LIGHTING SYSTEMS 14 I. INSTRUMENT SYSTEMS 17 J. WATER SYSTEMS (SERVICE WELLS, COOLING TOWERS, FIRE WATER, SEA WATER) 19 EXHIBIT D [LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 2 USA CORPORATION REV 1 DATE September 4, 1997 I. SCOPE This standard is intended to define the transfer of responsibility from Foster Wheeler to the Constructor, if applicable; and to Owner for the care, custody and control of various units, systems or facilities of a plant. A tabulation of the specific work performance responsibilities required to place process equipment or systems into operation is presented. The responsibilities of the Constructor are included on this listing or if the Constructor is contracted by FW USA then the Constructor's responsibilities are contractually those of FW USA. II. References A. API Publication 700, Second Edition, September, 1980. The preceding content of this standard is derived from API 700. The major difference is that it indicates which items Foster Wheeler expects to undertake versus those which the Owner is expected to complete. B. ISA Recommended Practice 7.1 III. DEFINITIONS This section presents definitions which, along with the General and Specific Procedures given in Sections IV. and V., serve to clarify the basic principles associated with the transfer of responsibility from Foster Wheeler to the Owner at commissioning time. A. Pre-commissioning: Pre-commissioning activities are the nonoperating adjustments and cold alignment checks made by Foster Wheeler as detailed in Sections IV. and V. B. Ready for Commissioning: The plant, or part thereof, is "ready for commissioning" when the plant, unit, or facility, or any part thereof, has been erected in accordance with drawings, specifications, and applicable codes, to the extent necessary to permit commissioning, and when the pre-commissioning activities detailed in Sections IV. and V. have been completed. C. Commissioning: The commissioning period follows the completion of the precommissioning activities performed by Foster Wheeler. Commissioning activities are associated with the operation of items of equipment or facilities in preparation for plant startup and may continue through the initial operation of the plant. These activities are the Owner's responsibilities unless the contract specifically provides otherwise. [LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 3 USA CORPORATION REV 1 DATE September 4, 1997 D. Completion of Construction: Completion of construction means that Foster Wheeler has: 1. Erected the Plant. 2. Completed pre-commissioning work. 3. Completed all special commissioning activities. Special commissioning activities are defined as those activities not specifically covered herein and dictated by contractual agreements as being specifically required. 4. Completed final cleanup, painting, and thermal insulation work. [LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 4 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke IV. GENERAL PROCEDURES The general work procedures listed below outline the work to be performed by Foster Wheeler and by the Owner. Procedures applicable to specific systems or items of equipment are covered separately in Section V. A. Manufacturer or Vendor Service Assistance X X 1. Obtain the assistance of the manufacturer or vendor when necessary to make a satisfactory installation as agreed upon by Foster Wheeler and the Owner. 2. Obtain the assistance of the manufacturer or vendor, as X required, for technical assistance during run-in by the Owner's operating and maintenance personnel, for training, or for informational and operating purposes. 3. Furnish names and telephone numbers, including contacts, X of manufacturer's and vendors; technical service representatives for use by the Owner. B. Permits 1. Make applications for all permits issued in the Owner's X name that are required for plant installation, use, occupancy, and operation. C. Instructions 1. Maintain an adequate vendor instruction file so that X information may be readily retrieved throughout plant commissioning.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 5 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 2. Transmit to the Owner all applicable vendor's or X manufacturer's instructions and drawings. 3. Provide the Owner with any special X X instructions. D. Packing and Seals 1. Install mechanical seals and accessories, as required X 2. Install permanent packing and accessories, as required. X 3. Adjust and replace mechanical X seals, packing, and accessories, as necessary, during the commissioning period. E. Removal of Temporary Bracing 1. Remove all temporary supports, bracing, or other foreign X objects that were installed in vessels, transformers, rotating machinery, or other equipment to prevent damage during shipping, storage, and erection and repair any damage sustained. 2. Remove other items as specified in items V.C.1, V.G.8 and X V.J.1 for the appropriate equipment type. F. Rotation and Alignment 1. Check rotating machinery for correct direction of rotation X and for freedom of moving parts before connecting driver. 2. Perform cold alignment to the X manufacturer's tolerances. 3. Perform hot alignment. X 4. Perform any doweling required. X
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 6 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 5. Obtain the services of a factory representative to witness X installation of equipment, as required. G. Tie-ins at Unit Limits 1. Identify each tie-in location and tag. X 2. Prepare all Systems for safe tie-ins. X 3. Obtain approval and make the necessary tie-ins at the unit X limits, as required by the specifications and as directed by the Owner. 4. Remove blinds, car seals and so X forth, as required. H. Leak and Pressure Tests 1. Provide Test pressures on isometrics. X 2. Notify the Owner of the schedule for non-operating field X leak tests or field pressure tests on piping and field fabricated equipment, unless otherwise directed by the Owner. 3. Provide any special media for test purposes and facilities X for their disposal. 4. Conduct all tests in accordance with applicable codes, X specifications and regulations. 5. Witness tests. X 6. Maintain records, as required. X X 7. Dispose of test media in accordance X with the Owner's instructions.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 7 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 8. Conduct all operational tightness tests. X Note: Individual items of equipment of the following types, if pressure tested in the fabricator's shop, will not require retesting in the field, unless specified by the Owner. Such individual items of equipment shall be included in the testing of attendant piping systems whenever practical and approved by the Owner. 1. Vessels 2. Shell and tube exchangers 3. Air cooled exchangers I. Inspection 1. Conduct flow diagram check of installed systems. X X 2. Provide inspection of the plant to verify that erected X facilities conform to flow diagrams, construction drawings, vendor prints, and specifications. 3. Verify that specified materials have been installed in the X plant and document verification to the extent required by the Contract. 4. Verify and approve the plant check. Note any exceptions on X a separate work order list (punch list). 5. Provide for special inspections, such as those required by X X insurance or governmental agencies. 6. Perform and report routine shop X inspection and witness tests. 7. Perform shop inspection and witness X tests, as desired.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 8 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 8. Witness final shop inspections, as X desired. NOTE: Shop inspected equipment will not be reopened for inspection in the field except as specifically noted in Section V.A. J. Pressure/Vacuum Safety Relief Devices 1. Provide the Owner with a list of X proper pressure settings. 2. Transfer relief devices to and from the Owner's specified X testing facility. 3. Test, adjust and tag all safety devices and seal wherever X necessary or desirable. 4. Install all devices after testing, X adjusting and tagging. 5. Maintain records, as required. X K. Flushing and Chemical/Mechanical Cleaning 1. Except as noted in IV.P, V.D, V.E, V.F, V.J, V.K and V.M: a. Conduct all flushing, blowing, and chemical/mechanical X cleaning operations where such operations can be accomplished without using permanently installed equipment. b. Conduct all flushing and blowing operations where X permanently installed equipment must be used to obtain proper line velocities. c. Provide any special media for X flushing and/or cleaning purposes.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 9 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke d. Dispose of all media in X accordance with the Owner's instructions. 2. Turn systems over to the client X free of trash and construction debris (not necessarily free of welding slag). 3. Maintain records, as required. X L. Temporary Screens, Strainers, and Blinds 1. Provide and install all required temporary strainers. X 2. Clean strainers, as required, X during circulation. 3. Remove strainers when system is X adequately cleaned. 4. Provide, install, and remove all X blinds required for flushing. 5. Provide, install and remove all X blinds required for isolation. M. Purging/Inserting 1. Install purge/inserting connections. X 2. Provide purge materials and conduct X necessary purge operations. 3. Provide inserting materials and X introduce where specified. N. Drying Out 1. Dry out facilities, as required to prevent contamination X of catalysts, operating materials and/or product. 2. Dry out systems, refractories and linings when this drying X operation is to be accomplished with temporary facilities such as in refractory lined ducts and vessels.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 10 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 3. Dry out systems, refractories, and linings when this X drying can be accomplished by means of permanently installed equipment such as fired heaters. O. Vessel Packing and Fixed Beds 1. Install all inert materials such as sand, gravel, balls, X rings, and saddles. 2. Install all materials other than the materials X specifically noted in Section V. 3. Install all mixed beds involving combinations of materials X covered 1. and 2. above. 4. Inspect vessel interior before and during loading to X ensure proper installation. 5. Maintain records as required. X P. Housekeeping 1. At completion of construction, remove excess materials, X temporary facilities, and scaffolding; rough sweep or rake the area; and pick up trash. Washing or further cleanup is not included. 2. After completion of construction, maintain adequate X housekeeping practices, as required for safe operation. Q. Maintenance, Spare Parts and Special Tools 1. Before and during precommissioning, protect equipment from X normal weather conditions, corrosion or damage.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 11 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 2. After precommissioning is complete, provide adequate maintenance X for equipment, including the cleaning of strainers and the repairing of steam traps. 3. Provide the Owner with spare parts lists as recommended by the X manufacturers. 4. After precommissioning, maintain adequate spare parts and supplies. X V. Specific Procedures In addition to the work responsibilities described in Section IV, the detailed procedures outlined below further define the work responsibilities of Foster Wheeler and the Owner for specific systems and items of equipment. A. Vessels 1. Open vessels after erection and put in place any internals X requiring field installation. These internals will be inspected before and after installation. 2. Open both internal and external manways for inspection of vessel X by the Owner, unless otherwise specified. 3. Witness inspections to the extent desired. X 4. Head up after proper execution of closure permits. X B. Shell and Tube Exchangers 1. Perform field inspection, if required, of exchangers that have X been shop tested.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 12 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke C. Air-Cooled Exchangers 1. Inspect exchangers to ensure that temporary shipping X supports and erection material have been removed. 2. Adjust fan assemblies to obtain X specified tip clearance and test. 3. Check operation of louvers and X operating linkage. D. Fired Heaters 1. Perform pressure test in accordance with the applicable X codes and specifications. 2. Provide all nonoperating prefiring checks in accordance X with manufacturer's instructions. 3. Blow fuel lines, check them for cleanliness, and connect X burner piping. 4. Check operation of registers and dampers, and verify X position of indicators. 5. Check operation of air preheaters, blowers and soot X blowers. 6. Dry refractories during initial firing by following the X manufacturer's temperature cycles. 7. Conduct boilout, chemical cleaning, X and flushing operations as required. Dispose of wastes and cleaning media. 8. Obtain and charge liquid heat X transfer media, if required. 9. Conduct lightoff, drying, and X purging operations.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 13 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 10. Obtain service engineer for technical assistance during X installation or startup, if desired. E. Pumps, Compressors, and Drivers 1. Level baseplates and soleplates grout all bearing X surfaces. 2. Alleviate any excess piping stresses that may be imposed X on pipes, compressors, and drivers. 3. Chemically clean any completed lube X and seal oil system, when specified. Dispose of wastes and cleaning media in accordance with the Owner's instructions. 4. Charge the lube oil, seal oil, and X oil cooling systems with flushing oil. 5. Circulate flushing oil through lube oil, seal oil and oil X cooling systems for cleaning purposes. Dispose of any flushing oil. 6. Charge the lube oil, seal oil, and oil cooling systems X with the operating oil recommended by the manufacturer. 7. Operate equipment and make vibration, trip, governor, and X safety device checks, and any operating tests and adjustments required. 8. Obtain the assistance of a service engineer for technical X advise during installation or startup, if desired. 9. Maintain records as required. X
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 14 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke F. Tanks 1. After erection and installation, install any internals X which require field installation. 2. Test tank and internals, as required. Dispose of test X water in accordance with the Owner's instructions. 3. Conduct chemical cleaning or flushing operations, as X required. Dispose of wastes and cleaning media. 4. Witness test and inspections to the X extent desired. 5. Close after proper execution of X closure permits. G. Piping Systems 1. Notify the Owner of test schedule. X 2. Hydrostatically or pneumatically X test all piping as required by the codes and specifications. 3. Witness field pressure tests when X noticed. 4. Drain system and install orifice plates. Orifice plates X should not be installed before testing. If installed, they will be removed as necessary. (See Section V.J. for the removal or isolation of other inline components.) 5. Remove blinds and perform tightness X tests, as required. 6. Insulate or paint flanges, threaded joints, or field welds X after the specified testing of each item has been completed unless instructed otherwise by the Owner.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 15 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 7. Leave exposed all welded joints (longitudinal, girth, and X nozzle) in underground piping that have not been shop tested until the specified testing has been completed. This does not apply to the longitudinal fabrication joint in ERW pipe. After final testing of these joints, cover the system. 8. Check pipehangers, supports, guides, and pipe specialties X for the removal of all shipping and erection stops and for the correctness of cold settings for the design service. Also, provide the Owner with instructions for hot settings. 9. Check pipehangers, supports, guides, and pipe specialties X for hot settings and make minor adjustments as necessary. 10. Install permanent filter elements as required. X 11. Verify that specified valve packing has been provided on X valves installed in the plant. 12. Install car seals or chain locks on valves where required X by Engineering Flow Diagrams. 13. Check and record position of all car-sealed or chain- X locked valves; identify valves as specified. 14. Correct support, vibration, and thermal expansion problems X detected during commissioning. 15. Retorque all hot and cold service bolting during X commissioning as required.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 16 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke H. Electrical Power and Lighting Systems 1. Notify the Owner of the test schedule. X 2. Witness tests when notified and record test data if X desired. 3. Using a megohmmeter, make insulation tests on all wiring X except lighting wiring. 4. Using a megohmmeter, make insulation tests on motor and X transformer windings from phase to phase and phase to ground. 5. Make grounding system tests to determine the continuity of X connections and the value of resistance to ground. 6. Arrange for breakdown tests on oil samples from oil X insulated transformers larger than 100 kva absolute. 7. Charge electrical gear with oil and/or other media, when X required. 8. Perform trials and adjustments on all switchgear, motor X control equipment and generators. 9. Test and set switchgear and circuit breaker relays for X proper coordination as required by ENG STD 70A2. 10. Obtain local inspector's approval X where required. 11. Energize all substations, with approval of the Owner, X after completion of all tests. 12. Check phase sequence and polarity. X
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 17 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 13. Check installation of emergency power and lighting X systems, including light intensity. 14. Provide the Owner with a record of X work completed. 15. Measure light intensity if X required. I. Instrument Systems 1. Conduct any nonoperating checks to ensure instrument X operability, e.g., remove all shipping stops; check pointer travels; and verify instrument capability to measure, operate, and stroke in the direction and manner required by the process application. 2. As directed by the Owner's practice, bench or field X calibrate instruments with standard test equipment and make all required adjustments and control point settings. 3. Clean all transmission and control tubing by blowing with X cooled and filtered clean air before connecting to instrument components. 4. Clean all air-supply headers by blowing with clean air and X check them for tightness. 5. Leak test pneumatic control circuits in accordance with X the latest edition of ISA Recommended practice 7.1: Pneumatic Control Circuit Pressure Test. 6. Check piping from instruments to X process piping for tightness.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 18 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 7. Install and connect all system hardware and verify their X conformance to specifications and design criteria for function and range. 8. Check all electrical signals and alarm wiring for X continuity, correct source of power, and polarity. 9. Check thermocouples for proper joining of wires, position X of elements in wells, proper polarity, and continuity of receiving instruments. 10. Identify orifice plates by tagging and deliver to the X Owner. 11. Check and record bores of orifice plates and install after X completion of flushing operations. 12. Isolate or remove, if necessary, inline components such as X control valves, positive displacement meters, and turbine meters for pressure testing. Reinstall these items after testing the system with the components removed or isolated. 13. Isolate or remove inline components for flushing X operations and reinstall them on the completion of these operations. 14. Install any sealing fluids, as X required. 15. Fully pressurize and energize the transmitting and control X signal system(s) by opening process connections at primary sensors and final regulators, and by making control mode settings for automatic operation of equipment as the process unit is charged and brought on stream.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 19 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 16. Provide a schedule of recorder X charts. J. Water Systems (Service Wells, Cooling X Towers, Fire Water Systems, and Sea Water Systems) 1. Inspect for completeness and X correctness of installation and make any nonoperating checks that may be required. 2. Clean the cooling tower basin and X install screens in the suction pit before water circulation. 3. Provide test pump for wells; test X well delivery; and flush wells when wells are provided by Foster Wheeler. 4. Flush, drain, and clean the cooling tower basins. X 5. Clean intake screens after flushing. X 6. Adjust cooling tower fans to obtain X specified tip clearance and test. 7. Operate fire pumps to check output of systems. X 8. Head up reservoirs, vessels, tanks, and other water X systems equipment as required, fill with water, check for leaks, and flush to clean. 9. Provide insurance company inspection of the fire system as X required. 10 Obtain and install all required fire fighting chemicals X and portable equipment such as hoses, fire extinguishers, and related equipment.
[LOGO] PROJECT SPECIFICATION 37624-05A1 FOSTER WHEELER PLANT COMPLETION PAGE 20 USA CORPORATION REV 1 DATE September 4, 1997
WORK RESPONSIBILITY FW HEC FWCI Seadrift Coke 11. Establish water treatment program. X 12. Obtain the services of a water consultant to advise and X monitor the water treatment. X X
EX-10.48 11 CONSTRUCTION MANAGEMENT SERVICES--BROWN & ROOT INC. EXHIBIT 10.48 Contract [LOGO] C/G The Carbide/Graphite Group, Inc. - -------------------------------------------------------------------------------- Plant 3 Modernization Project Engineering, Procurement and Construction Management Services St. Marys, Pennsylvania June 1996 - -------------------------------------------- Process & Manufacturing Industries [LOGO OF BROWN & ROOT] [LOGO OF BROWN & ROOT] Brown & Root Post Office Box 3 Power And Manufacturing Houston, TX 77001-0003 - -------------------------------------------------------------------------------- Y. F. Boutros (713) 676-8727 General Manager FAX: (713) 676-3239 Engineering June 5, 1996 Mr. Arthur Martin Project Manager The Carbide/Graphite Group, Inc. 800 Theresia Street St. Marys, Pennsylvania 15857 Subject: Contract to Provide Engineering, Procurement, and Construction Management Services for the Plant 3 Modernization Project Dear Mr. Martin Brown & Root is pleased to submit this contract document to provide engineering, procurement, and construction management services for the subject project per a verbal agreement reached between Brown & Root and Mr. Mike Supon per a telephone conversation on June 4, 1996. The contract document includes a project description, scope of work, plan of work, and a commercial offering outlining an Incentive Program to achieve the project completion within the overall project budget and schedule. Please return an original signed copy of the Terms and Conditions attached to this document to authorize Brown & Root to proceed with the work. Very truly yours, /s/ Y. F. Boutros for Y. F. Boutros DNA YFB /kls:2801-004 A Halliburton Company THE CARBIDE/GRAPHITE GROUP, INC. PLANT 3 MODERNIZATION PROJECT ST. MARYS, PENNSYLVANIA CONTRACT TO PROVIDE ENGINEERING, PROCUREMENT, AND CONSTRUCTION MANAGEMENT SERVICES BROWN & ROOT, INC. 4100 Clinton Drive Houston, Texas 77020-6299 [LOGO OF BROWN & ROOT] 2801-006 TABLE OF CONTENTS 1.0 PROJECT DESCRIPTION 2.0 SCOPE OF WORK BY BROWN & ROOT 3.0 PLAN OF WORK 4.0 SCOPE OF SERVICES BY THE CARBIDE/GRAPHITE GROUP, INC. 5.0 COMMERCIAL OFFERING 6.0 TERMS AND CONDITIONS ATTACHMENTS . Engineering, Procurement, and Construction Management Organization . Division of Responsibilities - Construction Management . EPC Schedule . Terms and Conditions 2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 1 of 8 1.0 PROJECT DESCRIPTION The C/G Group, Inc.'s (C/G's) Plant 3 Modernization Project at St. Marys, Pennsylvania, includes the following: . 48-inch press system will have a complete redesign of coke screening and sizing, automatic batch weighing and carbon paste mixing, cooling, and pollution controls systems for this project. The equipment arrangement for an alternate case which uses a continuous bucket conveyor to convey coke fractions to the mixer system will be used as outlined in Brown & Root's study titled Conceptual Design and Capital Cost Estimate dated April 19, ------------------------------------------- 1996. . The equipment arrangement will be generally in accordance to Drawing Nos. 350-085-01A, Revision B, and 350-085-02A, Revision A, indicating the plan and sections through the Mill Mix Building. . 25-inch press system - The existing milling and screening system for the 48- inch press will be used for the 25-inch press once a new mill mix facility for the 48-inch press is commissioned. . New Plant air compressors which will have new air dryers, air receivers, and other miscellaneous components required to replace the plant's compressed air system which was sold to SGL. 2.0 SCOPE OF WORK BY BROWN & ROOT Brown & Root will provide the following Engineering, Procurement, and Construction Management (EPCM) services for C/G's Plant 3 Modernization Project at St. Marys, Pennsylvania. 2.1 Engineering Services -------------------- During this phase of the contract to provide EPCM services, the following discipline engineering deliverables will be prepared. . Process - Block Flow Diagrams - Process Flow Diagrams with Material Balances - Engineering Flow Diagrams - Utility Flow Diagrams - Major Equipment List - Description of Facilities - Process Descriptions . Mechanical Layout/Piping Design - Plot Plan - General Arrangement Drawings with Plan and Sections - Piping Layout Drawings and Sections 2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 2 of 8 . Mechanical - Mechanical Equipment Specifications with Data Sheets - Piping Specification - Insulation Specification - Coating Specification . Electrical - Electrical Equipment Specifications - Electrical Load List - Cable, Conduit, and Termination Schedule - Electrical Installation, Legends, and Symbols Drawings - Motor Elementary Diagrams - One Line Diagram for New Additions - One Line Diagrams for New MCCs and Switchgears - Underground Duct Bank Drawing - Cable Tray Plan Drawings for Mill Building - Grounding and Lighting Plan Drawings - Power and Instrument Conduit Plan Drawings - Short Circuit, Motor Starting, and Load Flow Studies - Fire Protection System Plan Drawings . Instrumentation and Control - PLC Control System Specifications - Instrument Specifications/Data Sheets - Instrument Index - Instrument Location Plans - Instruments Installation Details - Loop Diagrams, Interconnect Diagrams, and Wire Lists - Control Room Layout Plan - Logic Diagrams . Architecture - Architectural Specifications _ Architectural Drawings . Civil - Civil Specifications - Civil Drawings 2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 3 of 8 . Concrete - Concrete and Reinforcing Steel Specifications - Foundation Drawings . Structural - Structural Specifications - Structural Drawings . HVAC/Plumbing - Heating, Ventilating, and Air Systems Specifications - Ventilating Equipment Specification - HVAC Drawings . Plumbing - Plumbing System Specifications - Plumbing Drawings . Environmental - Ductwork Specification - Baghouse Specification - Induced Draft Fan Specification - Fume Incinerator Specification - Ductwork Process Flow Diagram . Fire Protection - Fire Protection Design Criteria - Fire Pumps Specification - Fire Detection and Alarm System Specification - FM2OO Systems Specification for Control Room Fire Protection - Dry Pipe Sprinkler and Standpipe System Specification - Underground Firewater Piping Specification 2.2 Procurement Services -------------------- Procurement activity will be based in Houston. Procurement activity will be based on the equipment list and specifications prepared by Brown & Root engineers. Procurement personnel will be assigned to the project staff to inquire, evaluate, and place purchase orders after review and approval by the originating engineer and C/G's designee. Procurement personnel will also expedite the delivery of equipment/supplies in accordance with the project schedule. Procurement personnel will also issue subcontract purchase orders and provide the required expediting services. 2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 4 of 8 2.3 Construction Management Services -------------------------------- Brown & Root proposes to provide an experienced team of construction management professionals to provide complete project construction management services for C/G's modernization project at the St. Marys' facility. To assist C/G's project personnel as to how we envision the responsibilities of all parties that will be involved in this project, we are providing a Division of Responsibilities matrix which is attached. This matrix is the most appropriate method of establishing a baseline to clearly define the services that Brown & Root proposes to provide C/G for the construction management requirements for this project. Our estimate is based on a reasonable contracting approach using a lump sum approach for major discipline packages. Our plan is also based on using our Construction Manager and Technical Services Manager for constructability reviews and coordination with engineering needs and activities. Our experience shows that the familiarity of the engineer's activities and personnel by these two key people will greatly enhance communications during the life of the project. We have marked-up the matrix with our understanding of C/G's needs and are prepared to meet and discuss this in more detail. 3.0 PLAN OF WORK For this project, Brown & Root will assume the role of EPCM contractor reporting to C/G's Project Manager who will be available full time with authority to make decisions and approve all the work. The engineering and procurement work other than construction management will be performed in our Houston offices where the project team will be assembled. Refer to the attached organization chart indicating the project team. Immediately upon C/G's approval to proceed with the project, Brown & Root will commence planning the sequential activities to complete engineering, procurement, construction, start-up, and commissioning of the proposed process facilities within a 20-month schedule. Brown & Root recommends that the following subcontracts be issued immediately to support engineering and the overall schedule: . Jenike-Johanson's Report (physical properties testing for coke fractions) . Geotechnical survey . Site survey Engineering and procurement items requiring long lead-time will have priority to provide momentum to the engineering and procurement schedule. The 12-month delivery items, such as Eirich's mixer system and automatic batch weighing system, will be placed on order within the first month. Brown & Root and C/G personnel will meet with Eirich Machines Company to finalize the requisition for the scope of supply and reconfirm the pricing of the mixer system. Evaluation 2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 5 of 8 of Eirich's capability to engineer and supply an automatic batch weighing system will also be important before issuing the purchase order to Eirich. Purchase orders will be issued for the mixer system and automatic batch weight system within the first month since early receipt of supplier's process and engineering data and drawings will be essential in achieving the overall schedule. Next, the flour mill and the electrical substation equipment items will be placed on order since their delivery schedule will be seven to eight months. Other equipment will be placed on order and expedited in accordance with the attached EPC schedule. For construction of this facility and through obtaining competitive bids, the following three major subcontractors specialized in performing the work efficiently, on schedule, and under the budget will be selected: . Civil/Architectural (C/A) . Mechanical/Piping/Insulation/Structural (M/S) . Electrical/Instrumentation (E/I) Also, specialized construction work in engineering, equipment/material supply, and construction capability will be awarded to selected subcontractors through bids for turnkey installation basis for the following: . Fire protection . Elevator . Electrical substation and switchgear building . Impedance heating The above subcontract activities are depicted on the EPC schedule included in our Conceptual Design and Capital Cost Estimate Study dated April 19, 1996. 4.0 SCOPE OF SERVICES BY THE CARBIDE/GRAPHITE GROUP, INC. C/G will assign a full time Project Manager who will review and approve our work and will be authorized to make timely decisions for C/G. We will need ready access to this individual at all times during the working hours. Brown & Root will prepare technical documents necessary to perform site survey and geotechnical investigation. Purchase orders for these services will be issued to surveying and geotechnical engineering firms in order to obtain these reports within the first month. C/G will obtain necessary environmental and construction permits for this project. Brown & Root understands C/G's environmental department is handling permitting for the project. We would like to point out that Brown & Root has an Environmental Engineering staff that could provide assistance to the C/G. The cost of these services are not included in this proposal. C/G will prepare operation instructions and training manuals which are not included in our estimate. 2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 6 of 8 C/G will provide timely access to all current facilities and provide the necessary data on existing facilities. 5.0 COMMERCIAL OFFERING Brown & Root offers to provide engineering, procurement, and construction management services for performance of the scope of work set forth within this proposal on the basis described in this Section. Brown & Root will provide all supervision, labor, equipment, materials, tools, and all other services necessary for complete engineering, procurement, and construction management services for C/G's Plant 3 Modernization Project at St. Marys, Pennsylvania, as more fully described in Brown & Root's Conceptual Design and Capital Cost Estimate Report dated April 19, 1996 (the Report). --------------------------- 5.1 Project Budget -------------- The budget estimate as set forth in the Report for engineering, procurement, and construction management (EPCM) services is as follows: Engineering and Procurement $3,000,000 Construction Management $ 606,000 Construction Management Fee $ 200,000 ---------- Total Budget Estimate $3,806,000 (original from Basic Design Study)
The estimated TIC Project Budget as set forth in the Report, including the EPCM estimate above, is $26,400,000. Since this estimated total installed cost (TIC) for the project budget set forth in Report does not include any Contractor's contingency, this budget amount henceforth will be termed "Total Project Challenge Budget." It is proposed that the following two budgets be established to provide incentives to control total project costs: . Target Budget for EPCM Services - $3,500,000 + $73,278 . Total Project Challenge Budget - $26,400,000 + $439,528 5.2 Incentive Program ----------------- Brown & Root proposes an Incentive Program in conjunction with the initial mark- up of 85% applied to direct engineering, procurement, and home office service manhours and mark-up of 55% applied to the field construction management personnel. The object of the Incentive Program is to encourage Brown & Root to perform quality engineering, procurement, and construction management work on time and within budget, and, at the same time, for the project outcome to be successful in the estimation of C/G. The available incentive awards 2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 7 of 8 shall be in accordance with the four independent provisions below and shall be determined within 30 days following mechanical completion. The Incentive Program will consist of four components: quality, EPCM budget control, Total Project Challenge Budget control, and project completion schedule. Each of these components will be worth the amount shown in the following paragraphs. 5.2.1 Quality The incentive award amount for Quality will be $50,000. This portion of the Incentive Program is entirely subjective and depends solely on C/G's evaluation of the quality of Brown & Root's efforts, including work product quality, responsiveness, and effectiveness on the project. 5.2.2 EPCM Budget Control The incentive award amount for budget control will be $100,000. The full incentive award for this portion of the Incentive Program will be earned in the event Brown & Root's total charges for the EPCM services at the conclusion of the project are at or below $3,500,000 plus approved budget variances. Maximum limit on total charges for B&R's EPCM services will be at $3,806,000, plus approved budget variances. If the EPCM services at the conclusion of the project fall between the $3,500,000 (Target EPCM budget) and $3,806,000 plus approved budget variances, the incentive amount will be prorated. 5.2.3 Total Project Challenge Budget At the conclusion of the project, if the total project costs fall below the $26,400,000 Total Project Challenge Budget plus approved budget variances, then these savings will be shared 70% to C/G and 30% to Brown & Root. 5.2.4 Project Completion Schedule The incentive award amount for project completion schedule will be $150,000. The full incentive for this component will be earned in the event the start-up of the new facility for the 48-inch press occurs on or before January 1, 1998 or as rescheduled due to approved schedule variances. This incentive amount will be prorated to the start-up date of February 15, 1998 or as rescheduled due to approved schedule variances. 6.0 TERMS AND CONDITIONS Attached is the Terms and Conditions under which which Brown & Root offers to perform EPCM services. 2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 8 of 8 TERMS AND CONDITIONS FOR ENGINEERING, PROCUREMENT AND CONSTRUCTION MANAGEMENT SERVICES Engineering, Procurement and Construction Management services for The Carbide/Graphite Group, Inc. ("Owner") will be performed by Brown & Root, Inc., ("B&R"), within the requirements of the Scope of Work defined in EPCM Contractor's Proposal dated May 10, 1996, on and subject to the following terms and conditions: 1. COMPENSATION ------------ 1.1 Owner will pay B&R for engineering and procurement services an amount equal to (i) the product of "Direct Salary Cost" (as defined below) multiplied by a multiplier of 1.85 (to cover "Direct Salary Cost", payroll burden allowance, general office overhead and profit), plus (ii) "All Other Expenses" (as defined below). 1.2 Owner will pay B&R for construction management services an amount equal to (i) the product of "Direct Salary Cost" (as defined below) multiplied by a multiplier of 1.55 (to cover B&R's "Direct Salary Cost", and payroll burden allowance), plus (ii) "All Other Expenses" (as defined below). In addition Owner will pay B&R a Fee of $200,000 for provision of Construction Management Services, payable in equal monthly installments during construction of project. Owner and B&R agree to participate in an Incentive Program as described in our Commercial Offering, Section 5.0 of the Proposal Document. a) DIRECT SALARY COST ------------------ "Direct Salary Cost" shall mean the direct salary and wages, including premium pay, actually earned by all personnel for time actually engaged in the services. Personnel whose time is chargeable to the services include engineers, designers, drafters, technicians, secretaries, clerks, purchasing and expediting personnel, estimators, construction managers and construction management site personnel and all other necessary employees, who are employed by B&R or by any other entities affiliated with B&R, for time directly engaged in the services. Payroll burden includes social Carbide/Graphite Group, Inc. 6/5/96 Page 1 of 8 MCP2 security taxes, unemployment and other payroll taxes, workers' compensation insurance, basic liability insurance, medical, life and accident insurance, sick leave, vacations, holiday pay, jury duty, and all other fringe benefits presently in effect. Salaries and wages payable to B&R's employees shall be as set forth in B&R's "Job Classification and Salary Grade Structures" tables and "Exempt and Non-Exempt Salary Range Structure" tables, as modified from time to time, relevant portions of which are available on request. The basic work week is 40 hours, but the actual work week will be determined by project requirements to obtain effective overall utilization of personnel. Hourly paid employees receive 1 and 1/2 times their regular rate for hours worked in excess of 40 hours per week or 8 hours per day as required by local, state or federal law. b) ALL OTHER EXPENSES ------------------ "All Other Expenses" include all costs and expenses directly attributable to performance of the services, which are in good accounting practice direct costs of the services and not covered by the allowances for payroll burden and general office overhead and profit. In-house services provided in the performance of the services such as reprographic services, microfilm services, automated design and drafting services, graphic and text processing services, purchasing and expediting services, computer services, automobile and transportation services, and such others as may be applicable will be charged at the rates published in B&R's Standard Pricing Schedules in effect at the time of performance of the services. Some of the in-house services may be subcontracted to affiliates of B&R. The Pricing Schedules shall apply regardless of whether the service is provided by B&R or by an affiliate of B&R. Copies of current applicable Pricing Schedules are available on request. Costs of outside services will be charged at actual invoice cost and include: consultants; subcontracted services; equipment rental; purchased plant equipment and materials; travel expenses; outside computer services; long distance telephone and telegraph charges; mailing and courier services; and others. Expenses for site based construction management services include: temporary facilities; transportation for management personnel; utilities for temporary facilities (power, water, sanitation); office supplies and equipment; travel expenses for site personnel; telephones, fax and job related communications; mobilization and per diem for site based personnel; home office services directly related to the project site maintenance; general business expenses; and fencing and parking lot expenses. Outside services are subject to a service charge of 3%. 2. BILLING, PAYMENT AND FUNDING ---------------------------- B&R will submit periodic billings, not more frequently than weekly, with complete supporting documentation meeting Owner's reasonable requirements for all charges. In the event Owner does not approve an entire billing, payment of the approved portion shall be made. Payment, without retainage shall be due 15 days from the date of any such billing. Payments not received 15 days after the due date shall be subject to interest charges in an amount equal to 1.0% per month. Carbide/Graphite Group, Inc. 6/5/96 Page 2 of 8 MCP2 3. AUDIT, RECORD RETENTION ----------------------- B&R shall retain all pertinent records relating to services performed hereunder for a period of 2 years after completion. Owner's approval and payment of periodic invoices shall not affect Owner's audit rights. Owner shall have access at all reasonable times until expiration of the retention period, and the right to audit, all records pertaining to direct salaries and wages, other costs reimbursable at actual cost, and usage of services chargeable pursuant to published Rate Schedules. Actual cost of items chargeable at stipulated markup allowances or by published Rate Schedules are not subject to audit. 4. INDEPENDENT CONTRACTOR ---------------------- In performing services, B&R will act as an independent contractor and will control the detailed manner and means of performance of the services. However, project management services, and procurement services will be performed as agent of Owner. Owner will furnish information required of it as expeditiously as necessary for orderly progress and B&R may rely on its accuracy and completeness. 5. EXTRA SERVICES -------------- Extra services shall not be performed, nor shall the scope of the services be increased or decreased, unless authorized by Owner and agreed to by B&R. The cost of studies and analyses required to determine scope changes shall be reimbursable and additive to any previous manhour targets or budgets based on the original scope. 6. PROPRIETARY INFORMATION, PATENTS -------------------------------- B&R shall accept proprietary information in confidence in accordance with the terms set forth in B&R's Standard Secrecy Agreement. A copy of this Agreement is available upon request. B&R will advise Owner of any patents or proprietary rights and any royalties, licenses, or other charges which B&R knows to be involved in the design performed by B&R, and obtain Owner's approval before proceeding. B&R does not perform patent searches or evaluation of claims, but will assist Owner in this regard if requested, on the basis set forth herein. All royalties, license fees, or infringement costs or expenses shall be paid by Owner as a cost of the services and reimbursed to B&R if paid by B&R. Carbide/Graphite Group, Inc. 6/5/96 Page 3 of 8 MCP2 7. STANDARD OF PERFORMANCE AND WARRANTY ------------------------------------ a) B&R'S SERVICES -------------- B&R's services will conform to the requirements defined in B&R's proposal in accordance with sound and generally accepted industry standards. If during performance B&R's services fail to meet the foregoing standard, B&R shall perform such corrective services as may be requested by Owner, or Owner may terminate B&R's services for unsatisfactory performance on 10 days' written notice. Any corrective services requested by Owner shall be paid for on the same basis as other services performed hereunder. In the event Owner terminates B&R's services for unsatisfactory performance, Owner shall assume all obligations, commitments, and claims that B&R may have theretofore in good faith undertaken or incurred in connection with the services and Owner shall pay B&R for services performed to date of termination and all costs of closing out the services. b) B&R'S WARRANTY -------------- B&R warrants that if any of its completed services are defective in that they fail to conform to the requirements defined in B&R's Proposal and are not in accordance with sound and generally accepted industry standards, B&R will perform such corrective services of the type originally performed as may be necessary to correct any such defective services brought to B&R's attention in writing by Owner within one year from completion of the services. Owner will compensate B&R for such corrective services on the same basis as other services performed hereunder. B&R shall not be responsible for corrective construction or repair work. c) ASSIGNED WARRANTIES ------------------- To the extent B&R procures materials and services in B&R's name, it will assign to Owner the warranty or guarantee of the manufacturer and supplier of items of machinery, equipment, materials or products manufactured or sold by others, and the warranty of construction contractors and subcontractors, consultants or specialized services of others and cooperate and assist Owner in Owner's enforcement thereof. B&R's responsibility with respect thereto is limited to such assignment, cooperation and assistance. d) LIMITATION ---------- Except as provided in this paragraph 7, B&R MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, AND B&R SHALL HAVE NO OTHER LIABILITY TO OWNER FOR ITS DEFECTIVE SERVICES, WHETHER CAUSED BY B&R'S ERROR, OMISSION, NEGLIGENCE (CONCURRENT OR SOLE) OR OTHERWISE. Carbide/Graphite Group, Inc. 6/5/96 Page 4 of 8 MCP2 8. INSURANCE AND ALLOCATION OF RISKS --------------------------------- a) GENERAL ------- This section allocates as between B&R and Owner the duty to obtain insurance for the benefit of both parties, their affiliated companies and their officers, agents and employees against liability for bodily injury (including death) of persons and for loss of or damage to property which result from or are related to the performance of B&R's services. b) B&R'S OPERATIONS ---------------- B&R shall fully insure for the benefit of the Owner and B&R: (1) all risks of liability for bodily injury and property damage to employees of B&R engaged in employment related to this performance of B&R's services, and (2) all risks of liability for bodily injury and property damage to third parties, including employees of Owner, related to the performance of B&R's services which occur in or about B&R's established engineering home offices, INCLUDING ALL LIABILITY WHICH FOR ANY REASON OWNER IS ALLEGED TO BE LEGALLY LIABLE, INCLUDING LIABILITY BASED ON OWNER'S SOLE OR CONCURRENT NEGLIGENCE. c) CONSTRUCTION AND OPERATION OF FACILITIES ---------------------------------------- Owner shall fully insure for the benefit of Owner and B&R and any subcontractor of B&R engaged in the performance of B&R's services, or shall arrange for one or more of the participants engaged in the construction of the project to fully insure: (1) all risks of liability for property damage to the construction project related to the performance of B&R's services and to any facilities of Owner at or near the project site, and (2) all risks of liability for bodily injury and property damage to third parties, including employees of Owner and employees of other participants engaged in the construction of the project which occur (a) during construction or (b) during operation of the facilities constructed as a part of the project, Carbide/Graphite Group, Inc. 6/5/96 Page 5 of 8 MCP2 INCLUDING ALL LIABILITY WHICH FOR ANY REASON B&R, OR ANY OF ITS SUBCONTRACTORS, IS ALLEGED TO BE LEGALLY LIABLE, INCLUDING LIABILITY BASED ON B&R'S ERROR, OMISSION OR SOLE OR CONCURRENT NEGLIGENCE. d) SELF INSURANCE -------------- Either party may elect to self insure any risk it has agreed to insure hereunder, and in that event it agrees to indemnify the parties who would have been beneficiaries of such insurance against any loss, liability or expense resulting from its election not to insure the risk. These reciprocal indemnities are given specifically in consideration for each other. e) SUBROGATION ----------- B&R shall obtain endorsements on all insurances obtained or maintained by it against risks assumed under this Agreement which shall waive all rights of subrogation against Owner, its affiliated companies and their officers, agents and employees. Owner shall obtain endorsements on all insurances obtained or maintained by it against risks assumed under this Agreement which shall waive all rights of subrogation against B&R, its affiliated companies, its subcontractors engaged in the performance of B&R's services, and their officers, agents and employees. Owner shall manage the allocation and insurance of risks among the participants in the construction of the project so as to obtain from the participants and their insurers waivers of subrogation, contribution and indemnity in favor of B&R, its affiliated companies, its said subcontractors, and their officers, agents and employees. f) INSURANCE --------- Unless otherwise agreed in writing by the parties, B&R shall provide Owner with certificates evidencing insurances in the following coverages and amounts: Workers' Compensation - Statutory Employer's Liability - $500,000 Comprehensive General Liability (including Contractual Liability but not including B&Rs' Errors & Omissions Liability) with combined single limit of $1,000,000 per occurrence for Bodily Injury and Property Damage. Comprehensive Automobile Liability with combined single limit of $1,000,000 per occurrence for Bodily Injury and Property Damage. Carbide/Graphite Group, Inc. 6/5/96 Page 6 of 8 MCP2 g) COOPERATION ----------- In the event any claim is asserted which is subject to this Agreement for bodily injury or property damage, Owner and B&R agree to cooperate with each other, and to require their respective insurers and contractors to cooperate in order that such claims are resolved in a manner consistent with the allocation of risks provided herein. 9. LIABILITY LIMITATIONS --------------------- This Article shall apply notwithstanding any other provision of this Agreement. 1) B&R shall not be liable to Owner or its affiliates in any action or claim for loss of profit, loss of product, loss of use or for indirect, consequential or special damages, EVEN IF CAUSED BY THE SOLE OR CONCURRENT NEGLIGENCE OF B&R. 2) ANY LIMITATION ON OR EXCULPATION FROM LIABILITY AFFORDED B&R BY THIS AGREEMENT SHALL BE APPLICABLE REGARDLESS OF WHETHER THE ACTION OR CLAIM IS BASED IN CONTRACT, TORT, STATUTE, STRICT LIABILITY OR OTHERWISE AND SHALL LIKEWISE LIMIT THE LIABILITY OF B&R'S AFFILIATES, SUBCONTRACTORS AND VENDORS OF ANY TIER AND THEIR RESPECTIVE OFFICERS, AGENTS AND EMPLOYEES. For purposes of this Article an "affiliate" of a party includes any parent, subsidiary or affiliated corporation, partnership or other legal entity, and its and their officers, agents, employees and insurers. 3) Except as expressly provided in this Article, there are no third- party beneficiaries of this Agreement. This Agreement does not create or confer any legal claim or cause of action in favor of any party not a signatory to this Agreement and the obligations and legal duties imposed on any party by this Agreement are owed exclusively to the other party or parties and are not owed to any party not a signatory to this Agreement. 10. TERMINATION ----------- Owner may, at its discretion, terminate the services under this Agreement at any time by giving 10 days WRITTEN notice. In such event, Owner shall assume all obligations, commitments, and claims that B&R may have theretofore in good faith undertaken or incurred in connection with the services, and Owner shall pay B&R for services performed to date of termination and all costs of closing out of the services, plus a reasonable termination charge. Carbide/Graphite Group, Inc. 6/5/96 Page 7 of 8 MCP2 11. ENTIRE AGREEMENT ---------------- The foregoing and the B&R's Proposal constitute the entire agreement between the parties and supersede any representations, warranties, or agreements heretofore made. This Agreement may be amended only by a document in writing signed by the parties. 12. GOVERNING LAW ------------- This Agreement shall be governed by the laws of the State of Texas. 13. B&R SERVICES ------------ Any engineering services required herein will be performed by Brown & Root Technical Services, Inc., an affiliated company of B&R. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year indicated below: CARBIDE/GRAPHITE GROUP, INC. BROWN & ROOT, INC. By: /s/ Michael F. Supon* By: /s/ John W. Redmon --------------------------- --------------------------- Title: Director of Engineering Title: President --------------------------- --------------------------- Date: 6/11/96 Date: 6/18/96 --------------------------- --------------------------- Attest: /s/ D. Arthur Martin Attest: /s/ William C. Brending --------------------------- --------------------------- * Note Addition to Contract in Section 5.2.2. Carbide/Graphite Group, Inc. 6/5/96 Page 8 of 8 MCP2 Division of Responsibilities - Construction Management - -------------------------------------------------------------------------------- LEGEND - ------ Own - C/G; Engr./Proc. - B&R; CM - B&R; CC - Construction Contractors R - Responsible I - Input A - Approval
- ------------------------------------------------------------------------------------- Required --------- Eng/ WORK ACTIVITIES Yes No Own Proc CM CC - ------------------------------------------------------------------------------------- A. CONSTRUCTION BID PACKAGES Identify Packages to be Contracted X A I R - ------------------------------------------------------------------------------------- Prepare List of Potential Contractors X I I R - ------------------------------------------------------------------------------------- Pre-qualify Potential Contractors X R - ------------------------------------------------------------------------------------- Approve List of Qualified Contractors X A I R - ------------------------------------------------------------------------------------- Package Schedule X R I - ------------------------------------------------------------------------------------- Instructions to Bidders X A R I - ------------------------------------------------------------------------------------- Bid Form X A R - ------------------------------------------------------------------------------------- Contracts Form X A R - ------------------------------------------------------------------------------------- Scope of Work X R I - ------------------------------------------------------------------------------------- General Conditions X I R I - ------------------------------------------------------------------------------------- Special Conditions X I R I - ------------------------------------------------------------------------------------- Clarifications X I R I - ------------------------------------------------------------------------------------- Addenda X I R I - ------------------------------------------------------------------------------------- Pre-bid Meeting X I I R - ------------------------------------------------------------------------------------- Conduct Site Visits X I I R I - ------------------------------------------------------------------------------------- Technical Evaluation X I R I - ------------------------------------------------------------------------------------- Commercial Evaluation X A I R - ------------------------------------------------------------------------------------- Bonding X R - ------------------------------------------------------------------------------------- Insurance Certificates (Current) X A R R - ------------------------------------------------------------------------------------- Recommendation for Award X A I R - ------------------------------------------------------------------------------------- Pre-award Meeting X I I R - ------------------------------------------------------------------------------------- Approval to Issue Contract X R I - ------------------------------------------------------------------------------------- Contract Award X R I - ------------------------------------------------------------------------------------- Contractor Kickoff Meeting X I I R I - ------------------------------------------------------------------------------------- Issued Revised Drawings X R I - ------------------------------------------------------------------------------------- Receive Vendor Drawings and Cut Sheets X I R - ------------------------------------------------------------------------------------- Review/Approve Vendor Drawings and Cut Sheets X I R - ------------------------------------------------------------------------------------- Expedite Vendor Drawings X I R - ------------------------------------------------------------------------------------- Monitor Contractor Work X I R - ------------------------------------------------------------------------------------- Contractor Request for Extras X A I I R - ------------------------------------------------------------------------------------- Issue Change Orders X A I R - ------------------------------------------------------------------------------------- Contractor Request for Payment X A I I R - ------------------------------------------------------------------------------------- Issue Progress Payment to Contractor X R I - ------------------------------------------------------------------------------------- Evaluate Contractor Performances & Closeout Contracts X I I R - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
2801-002 [LOGO OF BROWN & ROOT] Page 1 of 2 Division of Responsibilities - Construction Management - -------------------------------------------------------------------------------- LEGEND - ------ Own - C/G; Engr./Proc. - B&R; CM - B&R; CC - Construction Contractors R - Responsible I - Input A - Approval
- ------------------------------------------------------------------------------------- Required --------- Eng/ WORK ACTIVITIES Yes No Own Proc CM CC - ------------------------------------------------------------------------------------- B. CONSTRUCTION SUPERVISION Management/Supervision X R - ------------------------------------------------------------------------------------- Administration X R - ------------------------------------------------------------------------------------- Safety Program X I I R - ------------------------------------------------------------------------------------- Security X I I R - ------------------------------------------------------------------------------------- Temporary Facilities X R R R - ------------------------------------------------------------------------------------- Utilities X R R R - ------------------------------------------------------------------------------------- Construction Management Manual X - ------------------------------------------------------------------------------------- QA/QC Monitoring X I I R R - ------------------------------------------------------------------------------------- NDE X I R - ------------------------------------------------------------------------------------- QA/QC Reporting X R R - ------------------------------------------------------------------------------------- Field Accounting X I I R - ------------------------------------------------------------------------------------- Cost Reporting X R R - ------------------------------------------------------------------------------------- Purchasing - Process Equipment X R I - ------------------------------------------------------------------------------------- Expediting X R I - ------------------------------------------------------------------------------------- Traffic X R - ------------------------------------------------------------------------------------- Receiving X R R - ------------------------------------------------------------------------------------- Purchasing - Field Bulks X A I I R - ------------------------------------------------------------------------------------- Warehousing X I R - ------------------------------------------------------------------------------------- Preventative Maintenance in Storage X I R R - ------------------------------------------------------------------------------------- Project Schedule X A I R - ------------------------------------------------------------------------------------- Weekly Work Schedules X I I R R - ------------------------------------------------------------------------------------- Document Distribution X I R - ------------------------------------------------------------------------------------- As-builts X I R R - ------------------------------------------------------------------------------------- Inspections X I I R R - ------------------------------------------------------------------------------------- Preventative Maintenance in Installation X R - ------------------------------------------------------------------------------------- Identify Process and Utility Systems X I I R I - ------------------------------------------------------------------------------------- Initial Start-up Requirements by System X R I I I - ------------------------------------------------------------------------------------- Component Identification X I I R I - ------------------------------------------------------------------------------------- Progress Components X I R - ------------------------------------------------------------------------------------- Punchlist Preparation X I I I R - ------------------------------------------------------------------------------------- Flush and Run System X I I I R - ------------------------------------------------------------------------------------- Notice of Completion X R R - ------------------------------------------------------------------------------------- Care, Custody, and Control X R I - ------------------------------------------------------------------------------------- Start-up/Commissioning X R I - ------------------------------------------------------------------------------------- Operations and Maintenance Manuals X R I - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
2801-002 [LOGO OF BROWN & ROOT] Page 2 of 2 THE C/G GROUP, INC. EPC SCHEDULE PLANT 3 MODERNIZATION PROJECT, ST. MARYS, PA.
- ------------------------------------------------------------------------------------------------------------------------------------ ----------- 1996 ------------ ------------------- 1997 ------------------- ------ 1998 ------- - ------------------------------------------------------------------------------------------------------------------------------------ YEAR 1996-1998 MONTHS Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May - ------------------------------------------------------------------------------------------------------------------------------------ CONTRACT AWARD MONTH 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 - ------------------------------------------------------------------------------------------------------------------------------------ ENGINEERING - ------------------------------------------------------------------------------------------------------------------------------------ DESIGN CRITERIA LEGEND - ------------------------------------------------------------------------------------------------------- BFD/PFD/P&ID's a SPECIFICATION START DATE - ------------------------------------------------------------------------------------------------------- EQUIPMENT LIST b BID INQUIRY START DATE - ------------------------------------------------------------------------------------------------------- EQUIPMENT ARRANGEMENTS c P.O. AWARD - ------------------------------------------------------------------------------------------------------- PLOT PLAN d DELIVERY DATE - ------------------------------------------------------------------------------------------------------- SPECIFICATIONS e EQUIPMENT INSTALLED/ - ------------------------------------------------------------------------------------------------------- TASK COMPLETE DETAIL ENGINEERING - ------------------------------------------------------------------------------------------------------------------------------------ JENIKE/JOHANSON REPORT acd - ------------------------------------------------------------------------------------------------------------------------------------ GEOTECHNICAL REPORT ab cd - ------------------------------------------------------------------------------------------------------------------------------------ SURVEY ab cd - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ PROCUREMENT - ------------------------------------------------------------------------------------------------------------------------------------ MIXER SYSTEM c d - ------------------------------------------------------------------------------------------------------------------------------------ AUTO-BATCH WEIGHING SYSTEM c d - ------------------------------------------------------------------------------------------------------------------------------------ FLOUR MILL a b c d - ------------------------------------------------------------------------------------------------------------------------------------ ENGINEERED BUILDING STEEL a b c d - ------------------------------------------------------------------------------------------------------------------------------------ SERVICE BINS/BINS a b c d - ------------------------------------------------------------------------------------------------------------------------------------ STEARIC ACID PUMPS a b c d - ------------------------------------------------------------------------------------------------------------------------------------ COAL TAR PITCH PUMPS a b c d - ------------------------------------------------------------------------------------------------------------------------------------ ROTARY FEEDERS a b c d - ------------------------------------------------------------------------------------------------------------------------------------ SCREENERS a b c d - ------------------------------------------------------------------------------------------------------------------------------------ BELT CONVEYORS a b c d - ------------------------------------------------------------------------------------------------------------------------------------ SCREW CONVEYORS a b c d - ------------------------------------------------------------------------------------------------------------------------------------ BUCKET ELEVATORS a b c d - ------------------------------------------------------------------------------------------------------------------------------------ CAGE PAKTOR a b c d - ------------------------------------------------------------------------------------------------------------------------------------ ROLL CRUSHER a b c d - ------------------------------------------------------------------------------------------------------------------------------------ PLC's a b c d - ------------------------------------------------------------------------------------------------------------------------------------ (less than) 4 MONTHS DELIVERY ITEMS a b c d - ------------------------------------------------------------------------------------------------------------------------------------ 25" PRESS - ------------------------------------------------------------------------------------------------------------------------------------ MATERIALS HANDLING EQUIPMENT a b c d - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
Page 1 THE C/G GROUP, INC. EPC SCHEDULE PLANT 3 MODERNIZATION PROJECT, ST. MARYS, PA.
- ------------------------------------------------------------------------------------------------------------------------------------ ----------- 1996 ------------ ------------------- 1997 ------------------- ----- 1998 ------- - ------------------------------------------------------------------------------------------------------------------------------------ YEAR 1996-1998 MONTHS Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May - ------------------------------------------------------------------------------------------------------------------------------------ CONTRACT AWARD MONTH 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTRUCTION - ------------------------------------------------------------------------------------------------------------------------------------ CONSTRUCTION & S/C MOBILIZATION - ------------------------------------------------------------------------------------------------------------------------------------ S/C# (1) SITE CLEARING - ------------------------------------------------------------------------------------------------------------------------------------ (1) EXCAVATION/BLASTING - ------------------------------------------------------------------------------------------------------------------------------------ (1) CONCRETE FOUNDATIONS & BLDGS a b c e - ------------------------------------------------------------------------------------------------------------------------------------ (1) U/G UTILITIES WATER/AIR/SEWER - ------------------------------------------------------------------------------------------------------------------------------------ ** (2) STRUCTURAL ERECTION a b c d e - ------------------------------------------------------------------------------------------------------------------------------------ (2) ARCHITECTURAL a b c d e - ------------------------------------------------------------------------------------------------------------------------------------ ** (2) EQUIPMENT/PIPING ERECTION a b c e - ------------------------------------------------------------------------------------------------------------------------------------ (3) ELECTRICAL/ INSTRUMENTATION a b c U/G DUCT e E/I e - ------------------------------------------------------------------------------------------------------------------------------------ (4) FIRE PROTECTION a b c e - ------------------------------------------------------------------------------------------------------------------------------------ (5) ELEVATOR a b c d e - ------------------------------------------------------------------------------------------------------------------------------------ (6) ELECTRICAL SUBSTATION a b c d e - ------------------------------------------------------------------------------------------------------------------------------------ (7) IMPEDANCE HEATING a b c e - ------------------------------------------------------------------------------------------------------------------------------------ START-UP - ------------------------------------------------------------------------------------------------------------------------------------ PERFORMANCE TEST - ------------------------------------------------------------------------------------------------------------------------------------ 25" PRESS - ------------------------------------------------------------------------------------------------------------------------------------ ** (2) SCREENING SYSTEM MODIFICATIONS a b c d e - ------------------------------------------------------------------------------------------------------------------------------------ START-UP - ------------------------------------------------------------------------------------------------------------------------------------ PERFORMANCE TEST - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
NOTES: ** STRUCTURAL/MECHANICAL/PIPING/INSULATION/PAINTING (SUBCONTRACT) S/C SUBCONTRACTS Page 2 [LOGO OF CARBIDE/GRAPHITE] The Carbide/Graphite Group, Inc. [LOGO OF BROWN & ROOT] Brown & Root, Inc. Plant 3 Modernization Project Minerals & Metals Group St. Marys, Pennsylvania Engineering, Procurement, and Construction Management Organization Senior Construction C/G Manager Project Manager Project Manager ------------------- ------------------- --------------- D. Griswold D.N. Assar A. Martin Construction Manager Procurement -------------------- --------------- To Be Named T.O. Moore Scheduling --------------- Technical Services To Be Named Manager Administrative Clerk -------------------- ---------------------- To Be Named To Be Named Process Mechanical Electrical Instrument Civil/Structural Engineer Engineer Engineer Engineer Engineer - ------------- --------------- ------------- ------------ ---------------- D.A. Parikh L.M. O'Quinn M. Crawford S. Holcomb M. Gonzalez Environmental Mechanical/Piping Engineer Designer/Plant Layout - ------------- --------------------- R. D'Olier To Be Named 2801-003 (Revised 06/05/96) Page 1 of 1 EX-11.5 12 CALCULATION OF EARNINGS PER SHARE EXHIBIT 11.5 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES CALCULATION OF EARNINGS PER SHARE For the Fiscal Year and Each of the Quarters in the Fiscal Year ended July 31, 1997 (in thousands, except share and per share information)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Fiscal 1997 ----------- ----------- ----------- ----------- ----------- Earnings Information: - --------------------- Income from continuing operations............. $3,523 $4,621 $4,748 $5,536 $18,428 Extraordinary loss on early extinguishment of debt, net................ - - - (126) (126) ----------- ----------- ----------- ----------- ----------- Net income applicable to Common Stock......... $3,523 $4,621 $4,748 $5,410 $18,302 =========== =========== =========== =========== =========== Common and Common Equivalent Shares: - ------------------------------------ Weighted average shares outstanding........ 8,335,522 8,493,855 8,606,439 8,632,272 8,517,022 Common shares issuable upon exercise of outstanding stock options: Primary................................. 441,659 303,616 218,485 208,603 305,684 Fully diluted........................... 441,696 317,640 223,536 235,556 348,718 ----------- ----------- ----------- ----------- ----------- Common and common equivalent shares outstanding for the period: Primary................................. 8,777,181 8,797,471 8,824,924 8,840,875 8,822,706 Fully diluted........................... 8,777,218 8,811,495 8,829,975 8,867,828 8,865,740 =========== =========== =========== =========== =========== Earnings per Share Information: - ------------------------------- Income from continuing operations: Primary................................. $0.40 $0.53 $0.54 $0.63 $2.09 Fully diluted........................... $0.40 $0.52 $0.54 $0.62 $2.08 Net income applicable to Common Stock: Primary................................. $0.40 $0.53 $0.54 $0.61 $2.07 Fully diluted........................... $0.40 $0.52 $0.54 $0.61 $2.06
EX-13.1 13 1997 ANNUAL REPORT EXHIBIT 13.1 Management's Discussion & Analysis The Carbide/Graphite Group, Inc. - ------------------------------------------------------------------------------- Overview of Results ------------------- Income from continuing operations for the fiscal year ended July 31, 1997 was $18.4 million, or $2.09 per share, versus $14.3 million, or $1.67 per share, for the fiscal year ended July 31, 1996 and $12.3 million, or $1.59 per share, for the fiscal year ended July 31, 1995. Weighted average common and common share equivalents outstanding were 8,822,706, 8,577,451 and 7,747,756 for the fiscal years ended July 31, 1997, 1996 and 1995, respectively. In September 1995, the Company completed an initial public offering of its $0.01 par value common stock (Common Stock) in an underwritten secondary offering (the Initial Offering). In connection with the Initial Offering, the underwriters exercised an option to purchase 806,363 shares of Common Stock to cover over-allotments, resulting in the increase in weighted average common and common equivalent shares outstanding during fiscal 1997 and 1996. Extraordinary losses resulting from the early retirement of the Company's 11.5% Senior Notes due 2003 (the Senior Notes) during the fiscal years ended July 31, 1997 and 1996 reduced the Company's net income in those years to $18.3 million, or $2.07 per share, and $12.1 million, or $1.42 per share, respectively. Also, during the fiscal year ended July 31, 1995, the Company sold substantially all of its graphite specialty products line of business (Specialty Products) to SGL Carbon Corporation (SGL Corp.) for $62 million, less certain Specialty Products working capital items retained by the Company (the Specialty Products Sale). The $15.7 million net gain from the Specialty Products Sale and the net operating results of Specialty Products, classified as a discontinued operation in the Company's consolidated statement of operations, increased the Company's net income to $28.7 million, or $3.71 per share, for the fiscal year ended July 31, 1995. The Company's businesses include graphite electrode products, which includes graphite electrodes, needle coke and other graphite specialty products, and calcium carbide products, which includes pipeline acetylene, metallurgical applications and calcium carbide for fuel gas applications. The following table sets forth certain financial information for the periods discussed below and should be read in conjunction with the consolidated financial statements, including the notes thereto, appearing elsewhere in this report:
Year Ended July 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------ (dollar amounts in thousands) Net sales: Graphite electrode products $210,045 $179,925 $160,610 Calcium carbide products 79,541 79,469 80,846 - ------------------------------------------------------------------------------------------------------ Total net sales $289,586 $259,394 $241,456 - ------------------------------------------------------------------------------------------------------ Percentage of net sales: Graphite electrode products 72.5% 69.4% 66.5% Calcium carbide products 27.5 30.6 33.5 - ------------------------------------------------------------------------------------------------------ Total net sales 100.0% 100.0% 100.0% - ------------------------------------------------------------------------------------------------------ Gross profit as a percentage of segment net sales: Graphite electrode products 19.9% 16.2% 16.9% Calcium carbide products 15.6 19.9 20.0 Percentage of total net sales: Total gross profit 18.7% 17.3% 17.9% Selling, general and administrative 5.0 4.9 5.8 Operating income before other compensation 13.3 12.5 13.6 Operating income 12.8 11.8 12.6 Income from continuing operations 6.4 5.5 5.1 Net income 6.3 4.7 11.9 - ------------------------------------------------------------------------------------------------------
11 - -------------------------------------------------------------------------------- Fiscal 1997 versus Fiscal 1996 ------------------------------ Net sales for fiscal 1997 were $289.6 million versus $259.4 million in fiscal 1996, an 11.6% increase. Graphite electrode product sales increased 16.7% over the prior year to $210.0 million, while calcium carbide product sales were unchanged at $79.5 million. Within the graphite electrode products segment, graphite electrode net sales for fiscal 1997 were $147.2 million, a 9.9% increase over fiscal 1996 as a result of a 4.8% increase in shipments and a 4.7% increase in the average net sales price of graphite electrodes. Graphite electrode shipments in fiscal 1997 totaled 110.3 million pounds. Domestic and foreign electrode shipments as a percentage of total electrode shipments for fiscal 1997 were 53.2% and 46.8%, respectively, versus 49.6% and 50.4% in fiscal 1996. A domestic price increase during fiscal 1997 resulted in the increase in the average net sales price of graphite electrodes. The majority of foreign electrode sales are denominated in local currencies, most of which were weaker in relation to the U.S. dollar. As a result, net price realizations on foreign sales were lower for fiscal 1997 versus fiscal 1996, partially offsetting the benefits of the domestic price increase. Needle coke sales for fiscal 1997 were $28.6 million versus $16.5 million in fiscal 1996. Needle coke sales were up substantially over fiscal 1996 due to increased production capacity at the Company's needle coke facility. The Company estimates that as a result of capital expenditures during the first quarter of fiscal 1997, its current effective annual capacity of this facility is approximately 130,000 tons of needle coke, up approximately 20% over previous levels. In addition, the average net price for needle coke was 14.6% higher during fiscal 1997 as compared to fiscal 1996. Graphite specialty product sales during fiscal 1997 totaled $34.2 million versus $29.5 million for fiscal 1996. Included in graphite specialty product sales for fiscal 1997 and 1996 were $16.7 million and $15.6 million, respectively, of sales of large graphite rods and plates and other processing sales to SGL Corp. at cost under a supply agreement which expires in January 1998 (the SGL Supply Agreement). The SGL Supply Agreement was entered into in connection with the Specialty Products Sale. The increase in graphite specialty product sales during fiscal 1997 was the result of increased sales under the SGL Supply Agreement, as well as increased shipments of bulk and granular graphite. Within the calcium carbide products segment, pipeline acetylene sales were $27.6 million, a 1.8% decrease from fiscal 1996 on a 1.0% decrease in shipments and 0.8% decrease in prices. Offsetting this decline was a 1.4% increase in sales of calcium carbide for fuel gas applications which totaled $21.2 million. Also, carbide lime sales were up 8.9% to $3.1 million. The increases noted were primarily the result of increased shipments. Sales of calcium carbide for metallurgical applications were essentially unchanged at $24.7 million for fiscal 1997. All other calcium carbide product sales were also unchanged at $2.9 million. Gross profit as a percentage of graphite electrode product sales for fiscal 1997 was 19.9% versus 16.2% in fiscal 1996. The increase in the gross margin resulted from increased shipments and net selling prices for both needle coke and graphite electrodes, as well as increased needle coke production during the current fiscal year. Partially offsetting these benefits were the negative effects of increased feedstock costs at the Seadrift needle coke facility, which were 11.6% higher during fiscal 1997. Gross profit as a percentage of calcium carbide product sales for fiscal 1997 was 15.6% versus 19.9% for fiscal 1996. During fiscal 1996, the Company received a $1.0 million favorable settlement from a utility rate dispute with one of its electric power suppliers. The $1.0 million payment received was reflected as a reduction in cost of goods sold for fiscal 1996. Excluding this settlement, gross profit as a percentage of calcium carbide product sales for fiscal 1996 was 18.6%. The decrease in the calcium carbide gross margin was due primarily to lower sales of pipeline acetylene and higher raw material and labor costs during fiscal 1997. Selling, general and administrative expenditures for fiscal 1997 were $14.4 million versus $12.8 million in fiscal 1996. The increase was primarily the result of the settlement of a lawsuit in the fiscal 1997 first quarter, costs associated with the search for a new chief executive officer for the Company and an increase in employee-related costs in fiscal 1997.
GRAPHITE ELECTRODE PRODUCT CALCIUM CARBIDE NET SALES PRODUCT NET SALES dollars in millions dollars in millions Fiscal 1995 $160.6 Fiscal 1995 $80.8 Fiscal 1996 $179.9 Fiscal 1996 $79.5 Fiscal 1997 $210.0 Fiscal 1997 $79.5
12 - -------------------------------------------------------------------------------- Other compensation for fiscal 1997 was $1.6 million and included $1.4 million in charges associated with an incentive bonus plan for executives and certain key employees of the Company. The bonus payment was determined by the Company's Board of Directors. Other compensation for fiscal 1997 also included $0.2 million in charges associated with the Company's incentive or non-qualified, compensatory stock option plans or agreements (the MSOP). Other compensation for fiscal 1996 was $1.8 million and included $1.3 million for benefits earned under a non-qualified incentive compensation plan for eligible employees (PUP II). Other compensation for fiscal 1996 also included $0.5 million in payroll taxes and vesting charges associated with the MSOP. Early retirement/severance charges for fiscal 1997 represent costs associated with the retirement of two executives of the Company during fiscal 1997. In October 1994, the Company formally entered into a long-term contract with an engineering design and consulting firm to provide process design expertise and training services related to the construction of a graphite electrode plant in the People's Republic of China (the China Contract). Revenue related to the contract was recognized as services were performed for the process design expertise portion of the contract, and using a percentage of contract completed approach for the training services stage of the contract. Other income in fiscal 1996 represents revenues earned under the process design expertise portion of the contract, less applicable expenses. Total revenues under the contract were expected to be approximately $5.2 million, $4.1 million of which has been recognized as of July 31, 1997. At this time, the project has been delayed by the Chinese government, and management cannot determine whether the balance of the revenue expected under the contract will be realized. Net interest expense for fiscal 1997 was $7.9 million, including $9.4 million of interest expense and $0.3 million in amortization expense associated with the Senior Notes, less $1.5 million of interest income and $0.5 million in capitalized interest associated with a substantial modernization program in the Company's graphite electrode production facilities which is expected to result in approximately $34 million in facility improvements during fiscal 1997 and fiscal 1998 (the Modernization Program). The average outstanding balance of Senior Notes during fiscal 1997 was $81.6 million. Net interest expense for fiscal 1996 was $9.1 million, including $10.5 million of interest expense and $0.4 million in amortization expense associated with the Senior Notes, less $1.8 million of interest income. The average outstanding balance of Senior Notes during fiscal 1996 was approximately $91 million. Special financing expenses in fiscal 1996 represent charges for accounting, legal, printing and other fees related to the Company's public stock offerings in fiscal 1996. The Company's effective income tax rate for fiscal 1997 was 36.8% versus 30.9% for fiscal 1996. The Company's effective tax rate differs from the federal statutory rate primarily due to state taxes, less the benefits of its foreign sales corporation. Fiscal 1996's effective rate was unusually low due to adjustments to prior year estimates of the benefit from the Company's foreign sales corporation. Fiscal 1996 versus Fiscal 1995 ------------------------------ Net sales for fiscal 1996 were $259.4 million, versus $241.5 million in fiscal 1995, a 7.4% increase. Graphite electrode product sales increased 12.0% over the prior year to $179.9 million for fiscal 1996, while calcium carbide product sales decreased 1.7% to $79.5 million for fiscal 1996. Within the graphite electrode products segment, graphite electrode net sales for fiscal 1996 were $134.0 million versus $119.4 million in fiscal 1995, a 12.2% increase. Graphite electrode sales were higher due to a 7.6% increase in the average net sales price of graphite electrodes which resulted
GRAPHITE OUTSIDE EQUIVALENT ELECTRODE NEEDLE COKE CALCIUM CARBIDE SHIPMENTS SHIPMENTS SHIPMENTS pounds in millions short tons in thousands short tons in thousands Fiscal 1995 100.8 Fiscal 1995 48.0 Fiscal 1995 164.5 Fiscal 1996 105.3 Fiscal 1996 39.3 Fiscal 1996 160.2 Fiscal 1997 110.3 Fiscal 1997 59.5 Fiscal 1997 159.3
13 - -------------------------------------------------------------------------------- from price increases that took effect during the second half of fiscal 1996. Also, graphite electrode shipments for fiscal 1996 increased to 105.3 million pounds, a 4.5% increase over fiscal 1995. Domestic and foreign electrode shipments as a percentage of total electrode shipments for fiscal 1996 were 49.6% and 50.4%, respectively. Needle coke sales for fiscal 1996 were $16.5 million versus $18.6 million in fiscal 1995, an 11.3% decrease. The decline in needle coke sales was the result of the Company using more needle coke internally for electrode production. The effect of lower shipments was partially offset by an 8.3% increase in needle coke prices, which resulted from price increases implemented in January 1996. Other graphite specialty sales increased 30.2% in fiscal 1996 to $29.5 million, principally due to increased sales of bulk graphite to SGL Corp. under the SGL Supply Agreement. Sales to SGL Corp. were $15.6 million in fiscal 1996 versus $9.9 million in fiscal 1995. Within the calcium carbide products segment, pipeline acetylene sales were $28.1 million, an increase of 3.2% compared to fiscal 1995, on a 3.1% increase in shipments. Metallurgical application sales decreased 3.9% to $24.7 million due to a 2.6% decrease in shipments and a 1.7% decrease in the net sales price, which were due to increased competition in this market. In addition, sales of electrically calcined anthracite coal in fiscal 1996 decreased 20.8% to $2.6 million due to a 24.1% decrease in shipments. Calcium carbide sales for fuel gas applications of $20.9 million were essentially unchanged from fiscal 1995. Gross profit as a percentage of graphite electrode product sales for fiscal 1996 was 16.2%, versus 16.9% in fiscal 1995. Benefits derived from increased graphite electrode shipments and higher selling prices for graphite electrodes and needle coke were offset by sales under the SGL Supply Agreement, lower needle coke shipments and higher operating costs in the graphite electrode products business, principally decant oil costs. The SGL Supply Agreement, which was entered into in connection with the Specialty Products Sale, requires the Company to supply certain graphite products at prices which approximate the Company's manufacturing costs, which negatively impacted the graphite electrode product gross margin to a larger degree during fiscal 1996. Also, feedstock costs for needle coke, on average, were approximately 11.4% higher during fiscal 1996. Gross profit as a percentage of calcium carbide product sales for fiscal 1996 was 19.9%, versus 20.0% in fiscal 1995. During fiscal 1996, the Company received a $1.0 million favorable settlement from a utility rate dispute with one of its electric power suppliers. The $1.0 million payment received has been reflected as a reduction to cost of goods sold for fiscal 1996. Exclusive of this settlement, gross profit as a percentage of calcium carbide product sales for fiscal 1996 was 18.6%. Calcium carbide products' gross margin was lower in fiscal 1996 due primarily to the decreases in shipments and prices of calcium carbide for metallurgical applications and the lower shipments of electrically calcined anthracite coal. Selling, general and administrative costs for fiscal 1996 were $12.8 million, versus $13.9 million in fiscal 1995. The decrease was principally due to lower employee, marketing and consulting expenditures, as well as a $0.3 million reduction in amortization expense associated with intangibles. Other compensation for fiscal 1996 was $1.8 million and included $1.0 million in charges for the vesting of benefits earned under PUP II. Other compensation for fiscal 1996 also includes a $0.3 million non-cash charge for the revaluation of PUP II in connection with the Initial Offering. The revaluation resulted from the increase in the fair market value of the Company's Common Stock which was a result of the Initial Offering. Other compensation for fiscal 1996 also includes $0.5 million in payroll taxes and vesting charges associated with the MSOP. Other compensation in fiscal 1995 includes a $1.7 million non-cash charge representing a pro rata accrual for vested benefits earned under PUP II and $0.6 million in charges for the repurchase of stock options granted under the MSOP. Other income for fiscal 1996 and fiscal 1995 represents revenues earned under the process design expertise portion of the China Contract, less applicable expenses. Net interest expense for fiscal 1996 was $9.1 million, including $10.5 million of interest expense associated with the Senior Notes and $0.4 million of debt issue cost amortization, less $1.8 million in interest income associated with the Company's cash, cash equivalents and short-term investments.
OPERATING EBITDA INCOME (see page 19) dollars in millions dollars in millions Fiscal 1995 30.4 Fiscal 1995 37.7 Fiscal 1996 30.7 Fiscal 1996 41.3 Fiscal 1997 37.1 Fiscal 1997 50.9
14 - -------------------------------------------------------------------------------- The average outstanding balance of Senior Notes during fiscal 1996 was approximately $91 million. On a consolidated basis, interest expense for fiscal 1995 was $12.6 million and included $12.9 million of interest expense associated with Senior Notes and $0.8 million of debt issue cost amortization, less $1.4 million in interest income. The average outstanding balance of Senior Notes during fiscal 1995 was approximately $112 million. In fiscal 1995, $2.0 million in net interest expense was allocated to discontinued operations. Interest expense was allocated to discontinued operations based on the ratio of net assets of the discontinued business to consolidated equity plus corporate indebtedness. Special financing expenses in fiscal 1996 and 1995 represent charges for accounting, legal, printing and other fees related to the Company's public stock offerings. The Company's effective income tax rate for fiscal 1996 was 30.9%, versus 36.9% in fiscal 1995. The decrease in the 1996 effective rate was due primarily to benefits derived from the Company's foreign sales corporation and adjustments to prior year estimates. Recently Issued Accounting Pronouncements ----------------------------------------- On August 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) #121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS #121). The adoption of SFAS #121 had no impact on the Company's consolidated financial statements. On August 1, 1996, the Company adopted SFAS #123, "Accounting for Stock-Based Compensation" (SFAS #123). SFAS #123 establishes compensation measurement and recognition alternatives and disclosure requirements for stock- based compensation plans. The Company elected to continue to use the compensation measurement and recognition principles set forth in Accounting Principles Board Opinion #25, "Accounting for Stock Issued to Employees," to account for its stock-based compensation plans, an alternative available under SFAS #123. See Note 11 to the Company's consolidated financial statements appearing elsewhere in this report. In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS #128, "Earnings per Share" (SFAS #128). The Company will be required to adopt SFAS #128 for its fiscal year ending July 31, 1998. SFAS #128 requires the presentation of "basic" and "diluted" earnings per share, versus primary and fully diluted earnings per share currently disclosed. Under SFAS #128, basic earnings per share will be computed utilizing only the weighted average common shares outstanding during the relevant period. As a result, basic earnings per share will be materially higher than primary earnings per share for certain periods restated in connection with the implementation of SFAS #128. Diluted earnings per share will be computed utilizing both the weighted average shares and common stock equivalents outstanding. Diluted earnings per share will not differ materially from either primary or fully diluted earnings per share amounts previously disclosed. On a pro forma basis, basic earnings per share from continuing operations calculated in accordance with SFAS #128 were $2.16, $1.90 and $2.00 for the fiscal years ended July 31, 1997, 1996 and 1995, respectively. In June 1997, the FASB issued SFAS #130, "Reporting Comprehensive Income" (SFAS #130), and SFAS #131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS #131). The Company is required to adopt both accounting standards for its fiscal year ending July 31, 1999. The Company has not yet evaluated the effects of these new reporting standards. Liquidity and Capital Resources ------------------------------- The Company's liquidity needs are primarily for debt service, capital expenditures and working capital. The Company has undertaken the Modernization Program and several other major capital projects expected to result in expenditures of approximately $65 million in fiscal 1998 and $30 million in fiscal 1999. The Company believes that its liquid assets, capital resources and cash flows from operations will be sufficient to fund all of its liquidity needs, including the Modernization Program and the other major capital projects, at least through the expiration of its new revolving credit facility with PNC Bank, which expires on September 25, 2002 (See below). On September 26, 1997, the Company completed a tender offer for $79.9 million of its Senior Notes (the Tender). The tender price paid to holders of the Senior Notes was $1,086.20 for each $1,000 in Senior Note principal. Also, most holders received an additional $15.00 per $1,000 in Senior Note principal in exchange for their consent to eliminate substantially all of the restrictive covenants and certain default provisions in the indenture under which the Senior Notes were issued (the Senior Note Indenture) other than the covenants to pay interest on and principal of the Senior Notes and the default provisions related to such covenants. Consents were received by holders of more than a majority of the outstanding Senior Notes, resulting in the elimination of such restrictive covenants and default provisions. After the Tender, $0.1 million in Senior Notes were outstanding. 15 - -------------------------------------------------------------------------------- In connection with the Tender, the Company entered into an agreement with PNC Bank for a five-year, $125 million revolving credit facility with a $15 million sub-limit for standby letters of credit (the 1997 Revolving Credit Facility). This new revolving credit facility replaces the 1995 Revolving Credit Facility (described below). Interest under this new facility is based on, at the option of the Company, either PNC Bank's prime rate or a floating LIBOR rate plus a spread (currently 0.625%) based on a leverage calculation. Repayment of funds borrowed under the new credit agreement are not required until the expiration of the facility on September 25, 2002. The new facility can be extended under certain conditions. The restrictive covenants under the new credit agreement are substantially similar to those in the 1995 Revolving Credit Facility, although more restrictive in certain circumstances. Also, the Company has pledged all receivables and inventory as collateral under the new credit agreement. As a result of the Tender and revolving credit facility refinancing, the Company will record a pre-tax charge of approximately $10 million as an extraordinary loss on the early extinguishment of debt in the quarter ended October 31, 1997. The extraordinary charge is for the premiums paid to Senior Note holders in connection with the Tender and the write-off of unamortized deferred financing fees associated with the Senior Notes tendered and the 1995 Revolving Credit Facility. In the event that the Company's cash flows from operations and working capital are not sufficient to fund the Company's capital expenditures (including cash needs for the Modernization Program and its other major capital projects), service its indebtedness and pay any other obligation including those that may arise from legal proceedings, the Company would be required to obtain additional funding. There can be no assurance that sources of funds would be available in amounts sufficient for the Company to meet its obligations or on terms favorable to the Company. On December 1, 1995, the Company entered into an agreement with PNC Bank for the 1995 Revolving Credit Facility. The 1995 Revolving Credit Facility provided a $25 million line of credit, with a $10 million sub-limit for letters of credit. Borrowings under the 1995 Revolving Credit Facility were collateralized by the Company's accounts receivable and inventory. Interest under the 1995 Revolving Credit Facility was calculated, at the option of the Company, based upon either the greater of PNC Bank's prime rate, or an adjusted Eurodollar Rate, which was adjusted based upon the Company's interest coverage ratio. The most restrictive financial covenants under the 1995 Revolving Credit Facility included a minimum Consolidated Tangible Net Worth, as defined in the agreement, a minimum Interest Coverage Ratio (earnings before interest, taxes, depreciation and amortization to interest expense) of 2.25 to 1 and a minimum liquidity (working capital less borrowings under the facility) of $30.0 million. Cash, cash equivalents and short-term investments were $23.8 million as of July 31, 1997 versus $26.7 million as of July 31, 1996. Also, the Company had approximately $18 million of availability under the 1995 Revolving Credit Facility as of July 31, 1997. No borrowings were outstanding under the 1995 Revolving Credit Facility; however, approximately $7 million of letters of credit were outstanding. During fiscal 1997, total assets increased $23.0 million. The majority of the increase was the result of $33.8 million in capital expenditures, less $10.9 million in depreciation. Total liabilities increased $1.6 million during fiscal 1997. An increase in trade accounts payable was partially offset by a reduction in deferred tax and pension liabilities. Stockholders' equity increased $21.4 million during fiscal 1997 as a result of $18.3 million of net income and a $3.0 million increase, $0.4 million of which was a cash increase, resulting from option exercises during fiscal 1997. $1.9 million of the increase in stockholders' equity during fiscal 1997 resulted from tax benefits derived from the exercise of stock options during the period. Net cash provided by operations for fiscal 1997 was $32.2 million versus $17.5 million for fiscal 1996. Operating cash inflows for fiscal 1997 included $28.4 million in net income before adjustments to reconcile net income to cash provided by operations, plus $3.8 million in net cash inflows from changes in working capital items. Interest and income taxes paid in fiscal 1997 were $8.9 million and $5.9 million, respectively.
TOTAL DEBT TO ASSETS EQUITY dollars in millions RATIO Fiscal 1995 214.4 Fiscal 1995 2.6 Fiscal 1996 212.9 Fiscal 1996 1.1 Fiscal 1997 235.9 Fiscal 1997 0.8
16 - -------------------------------------------------------------------------------- The Company's investing activities have historically included capital expenditures ranging from $10.5 million in fiscal 1995 to $33.8 million in fiscal 1997, including capital expenditures for Specialty Products in fiscal 1995. The substantial increase in capital expenditures in fiscal 1997 is due primarily to the Modernization Program and other significant capital projects initiated in fiscal 1997. The Company believes that most of its future investing activity cash flow requirements will be for capital expenditures, including the Modernization Program. The Modernization Program is being funded with a substantial portion of the net proceeds from the Specialty Products Sale, such proceeds being included in investing activities in the consolidated statement of cash flows for fiscal 1995. The Company believes that cash flow provided by operations, together with borrowings under available credit facilities, will be adequate to fund the balance of its current investing needs. The Company's financing activities have principally represented short-term draw downs and repayments on its revolving credit facilities, as well as periodic repurchases of Senior Notes in open market transactions and cash inflows from exercises of stock options. Also, during fiscal 1996 financing activities included the effects of the Initial Offering, and a redemption of $9.0 million in Senior Notes. The Company regularly enters into forward foreign currency contracts to help mitigate foreign currency exchange rate exposure on customer accounts receivable and firm sales commitments denominated in foreign currencies. These contracts generally mature within 12 months and are principally unsecured exchange contracts with commercial banks. Gains and losses related to forward foreign currency contracts are deferred and recognized in income at the same time as the sale of the product. Gains and losses deferred as of July 31, 1997 and 1996 were not material. The cash flows from these contracts are classified in a manner consistent with the underlying nature of the transactions. See Note 4 to the consolidated financial statements for a detailed description of the Company's foreign currency exposure, including customer accounts receivable denominated in foreign currencies and forward foreign currency contracts outstanding.
CASH FLOW FROM CAPITAL OPERATIONS EXPENDITURES dollars in millions dollars in millions Fiscal 1995 7.5 Fiscal 1995 10.5 Fiscal 1996 17.5 Fiscal 1996 15.7 Fiscal 1997 32.2 Fiscal 1997 33.8
The Company also periodically enters into crude oil and heating oil futures contracts and swap agreements. Such contracts and agreements are accounted for as hedges of the Company's decant oil purchases, the primary raw material of its needle coke facility. Gains and losses and the associated activity related to these contracts and agreements are not material. Environmental and Legal Matters ------------------------------- The Company has investigated the regulatory requirements related to closing a pond located on its Louisville, Kentucky facility which was used to store non-hazardous production waste. In November 1993, the Company contacted the Kentucky Department of Environmental Protection (the Agency) and informed the Agency that, based on the Company's investigations of the historical facts related to the pond, the Company does not believe that any further remedial actions are required. At this point, the Company believes that the matter is closed with no further action required. The Company operated a permitted landfill for the disposal of residual wastes at its St. Marys facility. In July 1997, the Company closed the landfill and contracted outside of the Company for disposal services. The Company's closure plan was approved by the Pennsylvania Department of Environmental Resources during fiscal 1995. Costs related to the landfill closure and a 15-year monitoring commitment are expected to be approximately $0.8 million which have been recorded as of July 31, 1997. The timing of payments related to these activities, including payments for disposal services, is not expected to materially impact the Company's cash flow in the future. During fiscal 1995, the Company was named as a third-party defendant in a Superfund action in United States District Court in New Jersey relating to waste disposal at a landfill located in Sayreville, New Jersey (the Sayreville Litigation). Carbon/Graphite Group, Inc. was named as successor to Airco-Speer Company (Airco-Speer). Since this landfill was closed prior to the organization of the Company in 1988, the Company's only possible connection with the Sayreville Litigation would be if it were a successor to Airco-Speer, a claim which it disputes. Furthermore, in the purchase agreement by which the Company acquired its operating assets (the Asset Purchase Agreement) from The BOC Group plc (BOC), BOC agreed to provide an 17 - -------------------------------------------------------------------------------- indemnification for certain environmental matters. BOC has assumed and commenced the defense of the Sayreville Litigation and has agreed to indemnify the Company for certain losses associated therewith in accordance with the terms of the Asset Purchase Agreement. BOC in turn is being indemnified by certain plaintiffs in the litigation pursuant to a 1992 agreement. In addition, BOC asserts that the liability in this matter was settled by the 1992 agreement with the plaintiffs in the present case. As a result of a motion for summary judgement, the Court has substantially reduced the scope of claims which may be asserted against the Company. Based on the above, management does not believe that the Company will incur a material loss with respect to the Sayreville Litigation. In May 1997, the Company was served with a subpoena issued by a Grand Jury empaneled by the United States District Court for the Eastern District of Pennsylvania. The Company was advised by attorneys for the Antitrust Division of the United States Department of Justice (the DOJ) that the Grand Jury is investigating price fixing by producers of graphite products in the United States and abroad during the past five years. The Company is cooperating with the DOJ in the investigation. The DOJ has granted the Company and certain former and present senior executives the opportunity to participate in its Corporate Leniency Program, and the Company has entered into an agreement with the DOJ under which the Company and such executives who cooperate will not be subject to criminal prosecution with respect to the investigation if charges are issued by the Grand Jury. Under the agreement, the Company has agreed to use its best efforts to provide for restitution to its domestic customers for actual damages if any conduct of the Company which violated the Federal Antitrust Laws in the manufacture and sale of such graphite products caused damage to such customers. As far as the Company is aware, the DOJ has not made a finding that any person or company violated the law with respect to the subject matter of the Grand Jury proceeding. The proceeding is in its preliminary stages. At this time, management cannot determine whether a material loss will be incurred as a result of the proceeding. No provision for any liability related to such matters has been made in the consolidated financial statements. Four civil cases have been filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia asserting claims on behalf of purchasers for violations of the Sherman Act. Those cases have been consolidated. The consolidated case names the Company, UCAR International, Inc., SGL Carbon Corporation and SGL Carbon AG as defendants and seeks treble damages. The Company intends to vigorously defend against this consolidated action. The case is in its preliminary stages. At this time, management cannot determine whether a material loss will be incurred as a result of the case. No provision for liability related to such matters has been made in the consolidated financial statements. The Company is also party to various legal proceedings considered incidental to the conduct of its business or otherwise not material in the judgement of management. Management does not believe that its loss exposure related to these cases is materially greater than amounts provided in the consolidated balance sheet as of July 31, 1997. As of July 31, 1997, a $0.4 million reserve has been recorded to provide for estimated exposure on claims for which a loss is deemed probable. Forward-Looking Statements -------------------------- With the exception of the historical information contained in this report, the matters described herein are forward-looking statements concerning the future operations of the Company. Such statements are typically identified by the words "believe," "expect," "anticipate," "estimate" and other similar expressions. These statements involve risk and uncertainties which could be affected by factors such as changing worldwide economies and competitive conditions, availability of raw materials and demand for products, the resolution of outstanding legal proceedings and technological risks and other risks associated with the completion, start-up and on-going operation of major capital projects. Such statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on the information available to the Company at the time the statement is made. Changes in the above identified risks could have a material impact on such forward-looking statements. 18 - -------------------------------------------------------------------------------- Selected Consolidated Financial and Operating Information ---------------------------------------------------------
Year Ended July 31, 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts, percentages and pricing information) Statements of Operations Data(1): Net sales $289,586 $259,394 $241,456 $207,536 $193,918 Cost of goods sold 235,401 214,396 198,160 172,323 167,475 Selling, general and administrative 14,440 12,837 13,932 15,959 15,678 Other compensation(2) 1,591 1,772 2,315 5,471 900 Early retirement/severance charges(3) 1,100 - - - 1,389 Other income(4) - (308) (3,358) - - - ------------------------------------------------------------------------------------------------------------------------------- Operating income 37,054 30,697 30,407 13,783 8,476 Interest expense, net 7,894 9,073 10,518 9,604 3,374 Special financing expenses - 889 357 - - Provision for income taxes 10,732 6,416 7,206 1,644 1,712 - ------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations $ 18,428 $ 14,319 $ 12,326 $ 2,535 $ 3,390 - ------------------------------------------------------------------------------------------------------------------------------- Per share income (loss) from continuing operations applicable to common stock(5): $ 2.09 $ 1.67 $ 1.59 $ (0.17) $ 0.34 Balance Sheet Data (at period end)(6): Working capital $100,825 $104,825 $106,449 $ 77,456 $ 70,028 Property, plant and equipment, net 87,653 65,177 58,370 64,350 63,803 Total assets 235,860 212,870 214,409 192,434 171,870 Long-term debt 80,035 81,763 110,000 115,000 67,750 Convertible redeemable preferred stock - - - - 5,000 Stockholders' equity 96,209 74,808 43,012 15,439 51,556 Other Operating Data: Gross profit margin percentage 18.7% 17.3% 17.9% 17.0% 13.6% Operating income margin percentage, before other compensation 13.3 12.5 13.6 9.3 4.8 Operating income margin percentage 12.8 11.8 12.6 6.6 4.4 EBITDA(7) $ 50,945 $ 41,332 $ 37,686 $ 28,259 $ 19,393 Depreciation and amortization(7) 11,200 9,171 8,322 9,004 8,616 Capital expenditures(8) 33,765 15,670 10,526 8,950 7,738 Quantity of graphite electrodes sold (in thousands of pounds) 110,293 105,279 100,775 96,659 100,101 Graphite electrode average net price per pound $ 1.34 $ 1.28 $ 1.19 $ 1.09 $ 0.97 - -------------------------------------------------------------------------------------------------------------------------------
(1) Excludes the historical operating results of Specialty Products, which have been classified as income from operations of discontinued business, net of the related income tax effects. See the consolidated financial statements, including the notes thereto, appearing elsewhere in this report. (2) Represents other compensation expense related to the MSOP, various incentive bonus plans and a $5.1 million special bonus paid to certain key employees in fiscal 1994. (3) Represents costs associated with the retirement of two executives in fiscal 1997 and costs associated with a Company-wide early retirement/ severance program in fiscal 1993. (4) Represents income related to the China Contract. See "Management's Discussion and Analysis." (5) Loss per share from continuing operations applicable to common stock for fiscal 1994 includes the after-tax effect of the $5.1 million special bonus paid to certain key employees. Loss per share from continuing operations applicable to common stock in fiscal 1994 was adjusted for the redemption of convertible redeemable preferred stock and warrants in excess of carrying value. Dividends on convertible redeemable preferred stock were excluded from income applicable to common stock for fiscal 1993. Fully diluted earnings per share were not presented, as the dilution was not material. (6) July 31, 1994 and 1993 amounts include working capital items, property, plant and equipment and assets related to Specialty Products. (7) EBITDA is defined as operating income before depreciation and amortization, other compensation, early retirement/severance charges and other income. EBITDA is not presented as a measure of operating results under generally accepted accounting principles. However, management believes that EBITDA is an appropriate measure of the Company's ability to service its cash requirements. Depreciation and amortization included in the computation of EBITDA includes amortization of certain intangibles and does not include depreciation and amortization related to Specialty Products. (8) Prior to fiscal 1996, includes capital expenditures related to Specialty Products. 19 - -------------------------------------------------------------------------------- Quarterly Stock Information ---------------------------
Year Ended July 31, 1997 High Low - ------------------------------------------------------------------------------------------------------------ First $19 1/2 $15 1/4 Second 22 1/2 15 7/8 Third 25 19 3/4 Fourth 29 1/2 21 1/2 - ------------------------------------------------------------------------------------------------------------ Fiscal Year $29 1/2 $15 1/4 - ------------------------------------------------------------------------------------------------------------ Year Ended July 31, 1996 High Low - ------------------------------------------------------------------------------------------------------------ First* $17 1/4 $12 3/4 Second 16 1/4 12 1/4 Third 19 1/2 13 1/2 Fourth 19 3/4 15 1/4 - ------------------------------------------------------------------------------------------------------------ Fiscal Year $19 3/4 $12 1/4 - ------------------------------------------------------------------------------------------------------------
* The Company's Common Stock began trading on the NASDAQ National Market System on September 14, 1995. No Common Stock dividends were declared during fiscal 1997 or fiscal 1996. The Company estimates that as of September 26, 1997, there were 70 record holders and approximately 2,500 beneficial holders of its Common Stock. - ------------------------------------------------------------------------------- Report of Independent Accountants To the Board of Directors of The Carbide/Graphite Group, Inc.: We have audited the accompanying consolidated balance sheets of The Carbide/Graphite Group, Inc. and Subsidiaries (the Company) as of July 31, 1997 and 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended July 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of July 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 31, 1997 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Pittsburgh, PA 15219 September 10, 1997, except for Note 16 as to which the date is September 26, 1997 20 Consolidated Statements of Operations The Carbide/Graphite Group, Inc.
Year Ended July 31, 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share and per share information) Net sales $289,586 $259,394 $241,456 Operating costs and expenses: Cost of goods sold 235,401 214,396 198,160 Selling, general and administrative 14,440 12,837 13,932 Other compensation (Note 11) 1,591 1,772 2,315 Early retirement/severance charge (Note 14) 1,100 - - Other income (Note 14) - (308) (3,358) - --------------------------------------------------------------------------------------------------------------------------------- Operating income 37,054 30,697 30,407 Other costs and expenses: Interest expense, net (Note 8) 7,894 9,073 10,518 Special financing expenses (Note 2) - 889 357 - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes, discontinued operations and extraordinary loss 29,160 20,735 19,532 Provision for taxes on income from continuing operations (Note 6) 10,732 6,416 7,206 - --------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 18,428 14,319 12,326 Discontinued operations (Note 3): Gain on Specialty Products Sale, net of $9,069 tax provision - - 15,723 Income from operations of discontinued business, net of $387 tax provision - - 659 - --------------------------------------------------------------------------------------------------------------------------------- Income before extraordinary loss 18,428 14,319 28,708 Extraordinary loss on early extinguishment of debt, net of tax benefit of $84 in 1997 and $1,451 in 1996 (Note 8) (126) (2,177) - - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 18,302 $ 12,142 $ 28,708 - --------------------------------------------------------------------------------------------------------------------------------- Earnings per share information (Note 1): Income from continuing operations $ 2.09 $ 1.67 $ 1.59 Gain on Specialty Products Sale, net - - 2.03 Income from operations of discontinued business, net - - 0.09 Extraordinary loss on early extinguishment of debt, net (0.02) (0.25) - - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 2.07 $ 1.42 $ 3.71 - --------------------------------------------------------------------------------------------------------------------------------- Common and common equivalent shares 8,822,706 8,577,451 7,747,756 - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 21 Consolidated Balance Sheets The Carbide/Graphite Group, Inc.
July 31, 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share and per share information) Assets Current assets: Cash and cash equivalents (Note 1) $ 7,935 $ 16,586 Commercial paper (Note 4) 15,912 10,138 Accounts receivable - trade, net of allowance for doubtful accounts: $2,029 in 1997 and $1,896 in 1996 (Note 4) 49,088 45,392 Inventories (Note 5) 59,445 54,779 Income taxes receivable (Note 6) - 4,228 Deferred income taxes (Note 6) 4,687 4,704 Other current assets 6,269 5,107 - --------------------------------------------------------------------------------------------------------------------------------- Total current assets 143,336 140,934 Property, plant and equipment, net (Note 7) 87,653 65,177 Other assets 4,871 6,759 - --------------------------------------------------------------------------------------------------------------------------------- Total assets $235,860 $212,870 - --------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable, trade $ 21,036 $ 17,171 Income taxes payable (Note 6) 610 - Accrued expenses: Interest (Note 8) 3,835 3,920 Vacation 3,780 3,305 Workers' compensation 4,769 3,972 Other 8,481 7,741 - --------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 42,511 36,109 Long-term debt (Notes 4 and 8) 80,035 81,763 Deferred income taxes (Note 6) 7,161 8,834 Retirement benefit plans and other (Note 10) 7,294 8,571 Deferred revenue (Note 1) 2,650 2,785 - --------------------------------------------------------------------------------------------------------------------------------- Total liabilities 139,651 138,062 - --------------------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 9) - --------------------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Common Stock, $0.01 par value; 18,000,000 shares authorized; shares issued: 9,752,272 in 1997 and 9,397,670 in 1996 (Note 2) 97 94 Additional paid-in capital, net of equity issue costs of $1,398 (Note 2) 34,163 30,153 Treasury stock, at cost: 1,120,000 shares (4,895) (4,895) Retained earnings 66,683 48,381 Common Stock to be issued under options (Note 11) 161 1,151 Unfunded pension obligation (Note 10) - (76) - --------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 96,209 74,808 - --------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $235,860 $212,870 - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 22 Consolidated Statements of Cash Flows The Carbide/Graphite Group, Inc.
Year Ended July 31, 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Net income $ 18,302 $ 12,142 $ 28,708 Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization 10,882 8,853 8,213 Amortization of debt issuance costs 341 422 764 Amortization of intangible assets 318 318 642 Deferred revenue (135) (135) (135) Provision for Common Stock to be issued under options 47 86 632 Adjustments to deferred taxes (1,656) 2,870 (3,154) Provision for loss-accounts receivable 120 120 166 Gain on disposition of discontinued business - - (24,792) Extraordinary loss on early extinguishment of debt 210 3,628 - Increase (decrease) in cash from changes in: Accounts receivable (3,816) (265) (148) Inventories (4,666) (3,758) (6,689) Income taxes 2,921 (4,890) 175 Other current assets 2,908 3,746 (1,107) Accounts payable and accrued expenses 6,467 (3,729) 3,066 Net change in other non-current assets and liabilities (37) (1,937) 1,126 - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operations 32,206 17,471 7,467 - --------------------------------------------------------------------------------------------------------------------------------- Investing activities: Capital expenditures (33,765) (15,670) (10,526) Proceeds from disposition of discontinued business - - 56,371 Payments for purchases of short-term investments (5,550) (10,000) - - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) investing activities (39,315) (25,670) 45,845 - --------------------------------------------------------------------------------------------------------------------------------- Financing activities: Payments on revolving credit facilities - - (13,800) Proceeds from revolving credit facilities - - 13,800 Repurchase or redemption of Senior Notes, including premiums of $168 in 1997 and $2,604 in 1996 (1,896) (30,841) (5,000) Net change in cash overdraft - - (3,451) Proceeds from exercise of stock options under benefit plans 354 1,864 158 Repurchase of stock options - - (1,323) Purchase of treasury stock - - (1,020) Issuance of Common Stock, net of equity issue costs of $990 - 11,106 - - --------------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (1,542) (17,871) (10,636) - --------------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash - - (20) Net change in cash and cash equivalents (8,651) (26,070) 42,656 Cash and cash equivalents, beginning of period 16,586 42,656 - - --------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 7,935 $16,586 $42,656 - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 23 Consolidated Statements of Stockholders' Equity The Carbide/Graphite Group, Inc.
Common Stock to Foreign Additional be Issued Currency Unfunded Common Stock Paid-In Treasury Retained Under Translation Pension Shares Amount Capital Stock Earnings Options Adjustments Obligation - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands, except share information) Balance at July 31, 1994 7,200,000 $72 $ 7,220 $(3,875) $ 7,531 $ 5,194 $(197) $(506) Net income 28,708 Stock option compensation 632 Elimination of translation adjustment 197 Purchase of treasury stock (1,020) Repurchase of stock options (1,323) Exercise of stock options 49,375 160 (2) Tax benefit on exercise of stock options 180 Decrease in unfunded pension obligation 41 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at July 31, 1995 7,249,375 72 7,560 (4,895) 36,239 4,501 - (465) Net income 12,142 Stock option compensation 86 Issuance of Common Stock 806,363 8 11,098 Exercise of stock options 1,341,932 14 6,650 (3,436) Tax benefit on exercise of stock options 4,845 Decrease in unfunded pension obligation 389 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at July 31, 1996 9,397,670 94 30,153 (4,895) 48,381 1,151 - (76) Net income 18,302 Stock option compensation 47 Exercise of stock options 354,602 3 2,093 (1,037) Tax benefit on exercise of stock options 1,917 Decrease in unfunded pension obligation 76 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at July 31, 1997 9,752,272 $97 $34,163 $(4,895) $66,683 $ 161 - - - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 24 Financial Notes The Carbide/Graphite Group, Inc. - -------------------------------------------------------------------------------- 1. Summary of Significant Accounting Policies --------------------------------------------- Basis of Consolidation The consolidated financial statements include the accounts of The Carbide/Graphite Group, Inc. and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated. The preparation of the consolidated financial statements in accordance with generally accepted accounting principles requires management to make certain estimates and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements. They may also affect the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates upon resolution of certain matters. Organization The Company was formed on August 1, 1988 through the leveraged buyout of certain assets and liabilities of the carbide and graphite business units and a wholly owned Canadian subsidiary, Speer Canada, Inc. (Speer Canada), of The BOC Group plc (BOC), a British corporation, and named The Carbon/Graphite Group, Inc. The name of the Company was subsequently changed to The Carbide/Graphite Group, Inc. in May 1992. Recently Issued Accounting Pronouncements In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) #128, "Earnings per Share" (SFAS #128). See "Earnings Per Share" below. In June 1997, the FASB issued SFAS #130, "Reporting Comprehensive Income" (SFAS #130) and SFAS #131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS #131). The Company is required to adopt both accounting standards for its fiscal year ending July 31, 1999. The Company has not yet evaluated the effects of these new reporting requirements. Inventories Substantially all inventories are stated at the lower of cost or market, with cost determined under the last-in, first-out (LIFO) method. The supplies inventories are valued at the lower of average cost or market. Property, Plant and Equipment Property, plant and equipment is stated at cost and depreciated on a straight- line basis over the estimated useful service lives of the related assets. Interest costs associated with the construction of major capital additions are capitalized as part of the cost of the related assets. Gains or losses from the sale or retirement of assets are included in income. Repairs and maintenance are expensed as incurred. Revenue Recognition Net sales to customers are recognized when products are shipped. Deferred Revenue The Company has entered into a long-term supply contract to deliver carbide lime to a customer for which it has received the contract amount in advance. The Company is recognizing revenue associated with the agreement over the life of the contract. Cash Equivalents The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Environmental Expenditures The Company expenses or capitalizes environmental expenditures that relate to current operations, as adjusted for indemnity claims against BOC, as appropriate. Expenditures which do not contribute to future revenues and that relate to existing conditions caused by past operations are expensed. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. See Note 9. Earnings Per Share Primary earnings per share were computed by dividing net income applicable to Common Stock by the common and common equivalent shares outstanding during the respective periods. The dilutive effect of common stock equivalents was considered in the primary earnings per share computation utilizing the treasury stock method. Fully diluted earnings per share were not presented since the dilution was not material. The Company will be required to adopt SFAS #128 for its fiscal year ending July 31, 1998. SFAS #128 requires the presentation of "basic" and "diluted" earnings per share versus primary and fully diluted earnings per share currently 25 - -------------------------------------------------------------------------------- disclosed. Under SFAS #128, basic earnings per share will be computed utilizing only the weighted average common shares outstanding during the relevant period. Primary earnings per share currently disclosed is computed utilizing both the weighted average common shares outstanding and common stock equivalents outstanding during the period. As a result, basic earnings per share will be materially higher than primary earnings per share for certain periods restated in connection with the implementation of SFAS #128. Under SFAS #128, diluted earnings per share will be computed utilizing both the weighted average shares and common stock equivalents outstanding. Diluted earnings per share will not differ materially from either primary or fully diluted earnings per share amounts previously disclosed. Intangibles and Deferred Charges Deferred charges and intangibles are recorded at historical cost and amortized on a straight-line basis over the estimated economic life of the agreement or contract underlying the assets. - -------------------------------------------------------------------------------- 2. Public Offerings of Common Stock ----------------------------------- On September 19, 1995, the Company completed the Initial Offering during which 5,375,750 shares were sold to the public by certain selling stockholders in a secondary underwritten offering. The initial public offering price was $15.00 per share. The underwriters also exercised an option to purchase 806,363 primary shares of Common Stock to cover over-allotments, which resulted in $11.1 million in net proceeds to the Company. The majority of these proceeds were used to complete a redemption of the Company's Senior Notes (see Note 8), with the balance being used for general corporate purposes. In connection with the Initial Offering, 455,000 Common Stock options were exercised, resulting in $0.6 million in cash proceeds to the Company. On March 12, 1996, the Company completed a secondary offering, during which 1,032,236 shares of Common Stock were sold to the public by certain management and former management stockholders in an underwritten offering. In connection with this offering, 590,000 Common Stock options were exercised by certain selling stockholders, resulting in $0.8 million in cash proceeds to the Company. During the fiscal years ended July 31, 1996 and 1995, the Company recorded $0.9 million and $0.4 million, respectively, of charges for accounting, legal, printing and other fees related to its public stock offerings. These charges have been reflected as "special financing expenses" in the consolidated statements of operations for those years. - -------------------------------------------------------------------------------- 3. Sale of Graphite Specialty Products Business ----------------------------------------------- On January 17, 1995, the Company and SGL Corp. consummated the Specialty Products Sale. The gain on the Specialty Products Sale and the operating results of the business sold have been reclassified as a discontinued operation in the consolidated statement of operations for the fiscal year ended July 31, 1995. Net sales applicable to discontinued operations were $24.9 million for the year ended July 31, 1995. Interest expense allocated to discontinued operations was $2.0 million for the year ended July 31, 1995. The Company received $56.4 million in cash from SGL Corp. in connection with the Specialty Products Sale. Also, the Company paid approximately $10.2 million in taxes and $0.9 million in other costs and fees associated with the Specialty Products Sale, both of which were classified as operating cash outflows in the consolidated statement of cash flows for the fiscal year ended July 31, 1995. - -------------------------------------------------------------------------------- 4. Financial Instruments ------------------------ The Company's financial instruments as of July 31, 1997 and 1996 include its Senior Notes, with a carrying value of $80.0 million and $81.8 million, respectively, and an estimated fair value of $87.6 million and $87.5 million, respectively, as determined by an investment banking and trading company. As of July 31, 1997 and 1996, the Company held $15.8 million and $10.0 million, respectively, of GE Capital Corporation commercial paper with a maturity value of $16.2 million and $10.4 million, respectively. The commercial paper outstanding as of July 31, 1997 has maturities ranging from August 1997 to January 1998. In addition, the Company purchases and currently holds certain derivative financial instruments as hedging vehicles, as more fully described below. 26 - -------------------------------------------------------------------------------- The Company regularly enters into forward foreign currency contracts to help mitigate foreign currency exchange rate exposure on customer accounts receivable and firm sales commitments denominated in foreign currencies. The Company's accounts receivable as of July 31, 1997 and 1996 included the following foreign currency balances (in thousands):
July 31, 1997 1996 - ------------------------------------------- Japanese Yen $ 3,354 $ 5,915 British Sterling 3,371 4,401 French Francs 1,208 3,797 German Marks 3,134 1,548 Belgian Francs 334 1,220 Italian Lira 1,978 859 Other 923 1,949 - ------------------------------------------- Total Foreign Accounts Receivable $14,302 $19,689 - -------------------------------------------
As of July 31, 1997 and 1996, the Company held forward foreign currency contracts in the following foreign denominations (in thousands):
1997 1996 Contract Fair Contract Fair July 31, Value Value Value Value - -------------------------------------------------------------------- Japanese Yen $ 8,592 $ (375) $13,191 $(642) French Francs 5,044 (570) 9,193 30 German Marks 6,483 (581) 6,839 64 British Sterling 7,390 108 6,316 77 Italian Lira 4,350 (512) 4,326 172 Belgian Francs 1,701 (200) 2,761 9 Other 1,508 (145) 1,125 6 - -------------------------------------------------------------------- Total Foreign Currency Contracts $35,068 $(2,275) $43,751 $(284) - --------------------------------------------------------------------
These contracts generally mature within 12 months and are principally unsecured exchange contracts with commercial banks. Gains and losses related to forward foreign currency contracts are deferred and recognized in income at the same time as the sale of the product. Gains and losses deferred as of July 31, 1997 and 1996 were not material. The cash flows from these contracts are classified in a manner consistent with the underlying nature of the transactions. The Company also periodically enters into crude oil and heating oil futures contracts and swap agreements. Such contracts and agreements are accounted for as hedges of the Company's decant oil purchases, the primary raw material of its needle coke facility. Gains and losses and the associated activity related to these contracts and agreements are not material. - -------------------------------------------------------------------------------- 5. Inventories -------------- Inventories were as follows (in thousands):
July 31, 1997 1996 - ------------------------------------------- Finished Goods $13,990 $11,986 Work in Process 33,074 29,880 Raw Materials 11,256 9,132 - ------------------------------------------- 58,320 50,998 LIFO Reserve (9,434) (6,602) - ------------------------------------------- 48,886 44,396 Supplies 10,559 10,383 - ------------------------------------------- $59,445 $54,779 - -------------------------------------------
As of July 31, 1997 and 1996, approximately 68.7% and 83.1%, respectively, of the Company's inventory was valued on a LIFO basis. If valued on a current cost basis, total inventories would be $9.4 million and $6.6 million higher as of July 31, 1997 and 1996, respectively. During fiscal 1996, the Company received a $1.0 million favorable settlement from a utility rate dispute with one of its electric power suppliers. The $1.0 million payment received has been reflected as a reduction to cost of goods sold for the fiscal year ended July 31, 1996. 27 6. Income Taxes --------------- The components of the provision (benefit) for income taxes related to continuing operations included the following (in thousands):
Year Ended July 31, 1997 1996 1995 - -------------------------------------------------------------------------------- Current: Federal $11,581 $3,360 $ 8,239 State 807 186 490 - -------------------------------------------------------------------------------- 12,388 3,546 8,729 Deferred (1,656) 2,870 (1,523) - -------------------------------------------------------------------------------- $10,732 $6,416 $7,206 - --------------------------------------------------------------------------------
A reconciliation of the federal statutory income tax rate to the effective tax rate for continuing operations follows:
Year Ended July 31, 1997 1996 1995 - -------------------------------------------------------------------------------- Federal Statutory Rate 35.0% 35.0% 35.0% Effect of: State Income Taxes, Net of Federal Benefit 1.5 1.5 1.0 Current Year Foreign Sales Corporation Benefit (2.4) (3.2) (1.8) Prior Year Foreign Sales Corporation Adjustment 1.3 (1.9) - Non-Deductible Expenses 0.4 0.3 0.7 Other 1.0 (0.8) 2.0 - -------------------------------------------------------------------------------- Effective Tax Rate 36.8% 30.9% 36.9% - --------------------------------------------------------------------------------
The components of deferred tax assets and liabilities follow (in thousands):
1997 1996 Deferred Tax Deferred Tax Deferred Tax Deferred Tax July 31, Assets Liabilities Assets Liabilities - ----------------------------------------------------------------------------------------------- Depreciation - $9,979 - $10,371 Employee Retirement Benefits $1,257 - $1,034 - Inventory Adjustments 1,096 - 1,154 - Workers' Compensation 1,885 - 1,570 - Allowance for Doubtful Accounts 834 - 753 - Vacation Reserve 963 - 872 - Other 1,470 - 858 - - ----------------------------------------------------------------------------------------------- $7,505 $9,979 $6,241 $10,371 - -----------------------------------------------------------------------------------------------
All federal tax returns prior to fiscal 1995 have been settled with the Internal Revenue Service. Management does not believe that the settlement of its open tax years will have a material adverse effect on the Company's future operating results. 28 - -------------------------------------------------------------------------------- 7. Property, Plant and Equipment -------------------------------- Property, plant and equipment consisted of the following (in thousands):
July 31, 1997 1996 - -------------------------------------------------------------------------------- Buildings and Improvements $ 29,862 $ 27,691 Machinery and Equipment 210,729 195,951 - -------------------------------------------------------------------------------- 240,591 223,642 Accumulated Depreciation (183,840) (173,882) - -------------------------------------------------------------------------------- 56,751 49,760 Land 7,711 7,683 Construction in Progress 23,191 7,734 - -------------------------------------------------------------------------------- $ 87,653 $ 65,177 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 8. Long-Term Debt ----------------- As more fully described in Note 16, the Company has completed a tender offer with respect to its Senior Notes and refinanced its revolving credit facility. Long-term debt consisted of the following (in thousands):
July 31, 1997 1996 - -------------------------------------------------------------------------------- 11.5% Senior Notes Due 2003 (a) $80,035 $81,763 The 1995 Revolving Credit Facility (b) - - - -------------------------------------------------------------------------------- $80,035 $81,763 - --------------------------------------------------------------------------------
(a) In fiscal 1994, the Company issued its Senior Notes. Interest payments on the Senior Notes are due semi-annually on March 1 and September 1, with the principal due in August 2003. Under the indenture governing the Senior Notes (the Senior Note Indenture), the Company is precluded from paying dividends and making other restricted payments, as defined in the Senior Note Indenture, unless certain conditions exist at the time of such payment. In addition, the Company is precluded from selling, assigning, transferring, leasing, conveying or otherwise disposing of all or substantially all of its properties or assets in one or more related transactions unless certain conditions stipulated in the Senior Note Indenture are met. Also, the Company is limited in the amount of additional indebtedness it may assume, it may not enter into certain transactions with affiliates of the Company, as defined in the Senior Note Indenture, and, with certain exceptions set forth in the Senior Note Indenture, it may not incur any liens on any assets presently owned or acquired in the future or any income or profits therefrom. The Company may redeem or may be required to redeem Senior Notes prior to their maturity at various premium rates up to 11.5% of the face amount of the Senior Notes, depending on the date and the conditions under which the redemption takes place. During the fiscal year ended July 31, 1997, the Company repurchased $1.7 million in Senior Notes in an open market transaction. This repurchase resulted in a $0.1 million net extraordinary charge for the payment of the premium associated with the repurchase and the write-off of unamortized deferred financing fees associated with the original issuance of the Senior Notes. During fiscal 1996, the Company repurchased $19.2 million in aggregate principal amount of Senior Notes in open market transactions. These repurchases resulted in a $1.4 million net extraordinary charge for the fiscal year ended July 31, 1996 for the payment of the premiums associated with the repurchases and the write-off of unamortized deferred financing fees related to the original issuance of the Senior Notes. Also in fiscal 1996, the Company completed a redemption which resulted in a $9.0 million reduction in Senior Notes. The redemption was initiated pursuant to the Senior Note Indenture which permits the redemption of a limited amount of Senior Notes with proceeds obtained from the Initial Offering. The redemption resulted in a 29 - -------------------------------------------------------------------------------- $0.8 million net extraordinary charge recorded during the fiscal year ended July 31, 1996 for the payment of the premium associated with the redemption and the write-off of unamortized deferred financing fees related to the original issuance of the Senior Notes. The Company paid $4.2 million in debt issuance costs related to the issuance of the Senior Notes and the establishment of the 1995 Revolving Credit Facility, $1.6 million and $1.9 million of which have been included in other assets in the July 31, 1997 and 1996 consolidated balance sheets, respectively. (b) On December 1, 1995, the Company entered into the 1995 Revolving Credit Facility. The 1995 Revolving Credit Facility, which expires on December 1, 1998, provides a $25 million line of credit with a $10 million sub-limit for letters of credit. Borrowings under the 1995 Revolving Credit Facility are collateralized by the Company's accounts receivable and inventory. Interest under the 1995 Revolving Credit Facility is calculated, at the option of the Company, based upon either the greater of PNC Bank's prime rate, or an adjusted Eurodollar Rate, which is adjusted based upon the Company's interest coverage ratio. The most restrictive financial covenants under the 1995 Revolving Credit Facility include a minimum Consolidated Tangible Net Worth, as defined in the agreement, a minimum Interest Coverage Ratio (earnings before interest, taxes, depreciation and amortization to interest expense) of 2.25 to 1 and a minimum liquidity (working capital less borrowings under the facility) of $30.0 million. As of July 31, 1997, scheduled principal payments under all long-term debt instruments for the next five fiscal years are as follows: 1998 through 2002 -- $0; thereafter -- $80.0 million. A portion of interest expense previously classified as a reduction of income from continuing operations has been reclassified to discontinued operations within the Company's consolidated statement of operations for the fiscal year ended July 31, 1995. See Note 3. Interest expense for the fiscal years ended July 31, 1997, 1996 and 1995 was reduced by $1.5 million, $1.8 million and $1.4 million, respectively, of interest income earned on cash, cash equivalents and short-term investments. Also, during fiscal 1997 the Company capitalized $0.5 million in interest costs associated with capital expenditures. - -------------------------------------------------------------------------------- 9. Commitments and Contingencies -------------------------------- The Company leases various types of machinery, equipment and real estate, which are accounted for as operating leases. Future minimum rental payments under non- cancellable operating leases are as follows (in thousands):
July 31, - ------------------------------------------------ 1998 $1,427 1999 1,814 2000 1,388 2001 1,009 Thereafter 3,220 - ------------------------------------------------
Consolidated rent expense for the years ended July 31, 1997, 1996 and 1995 amounted to approximately $2.3 million, $2.4 million and $2.6 million, respectively, and included rent expense of $0.1 million related to discontinued operations during the fiscal year ended July 31, 1995. The Company purchases electricity from various local producers under long- term contracts which expire at various dates through 2007. These contracts require the Company to make future minimum payments aggregating approximately $4.0 million through the end of the contracts, whether or not the Company takes power in the future. The Company has investigated the regulatory requirements related to closing a pond located on its Louisville, Kentucky facility which was used to store non- hazardous production waste. In November 1993, the Company contacted the Kentucky Department of Environmental Protection (the Agency) and informed the Agency that, based on the Company's investigations of the historical facts related to the pond, the Company does not believe that any further remedial actions are required. At this point, the Company believes that the matter is closed with no further action required. The Company operated a permitted landfill for the disposal of residual wastes at its St. Marys facility. In July 1997, the Company closed the landfill and contracted outside of the Company for disposal services. The Company's closure plan was approved by the Pennsylvania Department of Environmental Resources during fiscal 1995. Costs related to the landfill closure and a 15-year monitoring commitment are expected to be approximately $0.8 million which have been recorded as of July 31, 1997. The timing of payments related to these activities, including payments for disposal services, is not expected to materially impact the Company's cash flows in the future. 30 - -------------------------------------------------------------------------------- During fiscal 1995, the Company was named as a third-party defendant in a Superfund action in United States District Court in New Jersey relating to waste disposal at a landfill located in Sayreville, New Jersey (the Sayreville Litigation). Carbon/Graphite Group, Inc. was named as successor to Airco-Speer Company (Airco-Speer). Since this landfill was closed prior to the organization of the Company in 1988, the Company's only possible connection with the Sayreville Litigation would be if it were a successor to Airco-Speer, a claim which it disputes. Furthermore, in the Asset Purchase Agreement by which the Company acquired its operating assets from BOC, BOC agreed to provide an indemnification for certain environmental matters. BOC has assumed and commenced the defense of the Sayreville Litigation and has agreed to indemnify the Company for certain losses associated therewith in accordance with the terms of the Asset Purchase Agreement. BOC in turn is being indemnified by certain plaintiffs in the litigation pursuant to a 1992 agreement. In addition, BOC asserts that the liability in this matter was settled by the 1992 agreement with the plaintiffs in the present case. As a result of a motion for summary judgement, the Court has substantially reduced the scope of claims which may be asserted against the Company. Based on the above, management does not believe that the Company will incur a material loss with respect to the Sayreville Litigation. In May 1997, the Company was served with a subpoena issued by a Grand Jury empaneled by the United States District Court for the Eastern District of Pennsylvania. The Company was advised by attorneys for the Antitrust Division of the DOJ that the Grand Jury is investigating price fixing by producers of graphite products in the United States and abroad during the past five years. The Company is cooperating with the DOJ in the investigation. The DOJ has granted the Company and certain former and present senior executives the opportunity to participate in its Corporate Leniency Program, and the Company has entered into an agreement with the DOJ under which the Company and such executives who cooperate will not be subject to criminal prosecution with respect to the investigation if charges are issued by the Grand Jury. Under the agreement, the Company has agreed to use its best efforts to provide for restitution to its domestic customers for actual damages if any conduct of the Company which violated the Federal Antitrust Laws in the manufacture and sale of such graphite products caused damage to such customers. As far as the Company is aware, the DOJ has not made a finding that any person or company violated the law with respect to the subject matter of the Grand Jury proceeding. The proceeding is in its preliminary stages. At this time, management cannot determine whether a material loss will be incurred as a result of the proceeding. No provision for any liability related to such matters has been made in the consolidated financial statements. Four civil cases have been filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia asserting claims on behalf of purchasers for violations of the Sherman Act. Those cases have been consolidated. The consolidated case names the Company, UCAR International, Inc., SGL Carbon Corporation and SGL Carbon AG as defendants and seeks treble damages. The Company intends to vigorously defend against this consolidated action. The case is in its preliminary stages. At this time, management cannot determine whether a material loss will be incurred as a result of the case. No provision for liability related to such matters has been made in the consolidated financial statements. The Company is also party to various legal proceedings considered incidental to the conduct of its business or otherwise not material in the judgement of management. Management does not believe that its loss exposure related to these cases is materially greater than amounts provided in the consolidated balance sheet as of July 31, 1997. As of July 31, 1997, a $0.4 million reserve has been recorded to provide for estimated exposure on claims for which a loss is deemed probable. 31 - -------------------------------------------------------------------------------- 10. Employee Retirement Benefit Plans ------------------------------------- Pension Benefits The Company maintains defined benefit pension plans covering substantially all of its hourly employees. The benefits under these plans are based primarily on years of service and benefit rates established by union contracts. The Company's funding policy is to contribute annually the amount recommended by its consulting actuary, subject to statutory provisions. Net periodic pension cost included the following components (in thousands):
Year Ended July 31, 1997 1996 1995 - -------------------------------------------------------------------------------- Service Cost -- Benefits Earned During the Year $ 831 $ 697 $ 736 Interest Cost on Projected Benefit Obligation 1,273 1,009 940 Actual Return on Plan Assets (2,821) (797) (1,190) Deferral of Asset Gain 1,946 87 602 Net Amortization 375 237 390 - -------------------------------------------------------------------------------- Total Pension Cost 1,604 1,233 1,478 Less: Pension Cost in Discontinued Operations - - 88 - -------------------------------------------------------------------------------- Pension Cost in Continuing Operations $1,604 $1,233 $1,390 - --------------------------------------------------------------------------------
The funded status of the plans is reconciled to accrued pension cost as follows (in thousands):
July 31, 1997 1996 - -------------------------------------------------------------------------------- Accumulated Benefit Obligation, Including Vested Benefits of $14,987 for 1997 and $13,102 for 1996 $17,643 $15,435 Benefit Obligations for Estimated Future Service 1,111 1,752 - -------------------------------------------------------------------------------- Projected Benefit Obligation 18,754 17,187 Less: Plan Assets at Fair Value 15,971 12,044 - -------------------------------------------------------------------------------- Projected Benefit Obligation in Excess of Plan Assets 2,783 5,143 Unrecognized Transition Obligation (710) (821) Unrecognized Net Actuarial (Loss) Gain 1,356 (407) Unrecognized Prior Service Cost (4,508) (4,883) Additional Minimum Liability 2,751 4,359 - -------------------------------------------------------------------------------- Accrued Pension Cost $ 1,672 $ 3,391 - --------------------------------------------------------------------------------
Components of each plan's assets include primarily U.S. government obligations and common stocks. Significant assumptions used in determining net periodic pension cost and the related pension obligation as of and for the years ended July 31, 1997, 1996 and 1995 were: - -------------------------------------------------------------------------------- Discount Rate 7.5% Expected Long-Term Rate of Return on Plan Assets 8.0 - --------------------------------------------------------------------------------
The Company has recognized in the consolidated balance sheets a liability equal to the excess of the accumulated benefit obligation over the fair value of plan assets in accordance with SFAS #87, "Employers' Accounting for Pensions" (SFAS #87). The additional minimum liability was $2.8 million and $4.4 million at July 31, 1997 and 1996, respectively. The offset to this liability was a charge to an intangible asset equal to the unrecognized prior service cost. The intangible asset has been classified within other assets in the consolidated balance sheets. Any excess additional minimum liability over the intangible asset has been reported as a reduction of stockholders' equity. As a result of the Specialty Products Sale, the St. Marys defined benefit pension plan was partially curtailed, resulting in a pre-tax charge of $0.8 million. This charge has been classified as a reduction of the gain on the Specialty Products Sale in the consolidated statement of operations for the fiscal year ended July 31, 1995. 32 - -------------------------------------------------------------------------------- Postretirement Benefits The Company provides postretirement health care and life insurance benefits to substantially all of its hourly employees. The plans under which these benefits are provided are currently unfunded and require the employee to pay a portion of the benefit cost. Postretirement benefit expense for the years ended July 31, 1997, 1996 and 1995 included the following components (in thousands):
Year Ended July 31, 1997 1996 1995 - -------------------------------------------------------------------------------- Service Cost $105 $105 $111 Interest Cost 215 187 216 Prior Service Cost (4) (4) (4) Amortization of Actuarial Gain (17) (37) (15) - -------------------------------------------------------------------------------- $299 $251 $308 - --------------------------------------------------------------------------------
Postretirement benefit expense related to discontinued operations for fiscal 1995 was not material. A reconciliation of the accumulated postretirement benefit obligation to accrued postretirement benefit expense follows (in thousands):
Year Ended July 31, 1997 1996 - -------------------------------------------------------------------------------- Retirees $1,400 $1,038 Other Fully Eligible Plan Participants 782 884 Other Active Plan Participants 1,111 1,043 - -------------------------------------------------------------------------------- Accumulated Postretirement Benefit Obligation 3,293 2,965 Unrecognized Prior Service Cost 39 42 Unrecognized Actuarial Gains 342 553 - -------------------------------------------------------------------------------- Accrued Postretirement Benefit Expense $3,674 $3,560 - --------------------------------------------------------------------------------
For estimated expense and liability measurement purposes, the health care cost trend rate was assumed to increase 7.5% in fiscal 1998, with the rate of increase declining evenly each year to 5% in fiscal 2002 and thereafter. The assumed discount rate for the valuation of the accumulated postretirement benefit obligation at July 31, 1997 and 1996 was 7.5%. For the estimation of postretirement benefit expense for each of the fiscal years presented, the discount rate was 7.5%. If the assumed health care cost trend rate was increased by one percent, the fiscal 1997 net periodic postretirement benefit cost would have increased 3.0%, while the accumulated postretirement benefit obligation as of July 31, 1997 would have increased approximately 2.5%. Savings Investment Plan The Company has a defined contribution savings investment plan for substantially all salaried employees. Employee contributions up to a maximum of 6% of employee compensation are matched 50% by the Company. Additional employer contributions may be made at the discretion of the Board of Directors based on the Company's current year performance. The cost of these Company contributions was $2.0 million, $1.6 million and $1.8 million for the fiscal years ended July 31, 1997, 1996 and 1995, respectively. 33 - -------------------------------------------------------------------------------- 11. Other Compensation ---------------------- Management Stock Option Plans The Company adopted SFAS #123 for its fiscal year ended July 31, 1997. The Company adopted the disclosure requirements of SFAS #123. The measurement alternatives of SFAS #123 were not adopted. The Company has adopted the MSOP. The MSOP are incentive or non-qualified, compensatory stock option plans or agreements, participation in which is limited to officers, directors and/or key employees of the Company. Options granted under the MSOP generally vest over three years and expire ten years from the date of grant. The table below summarizes option activity for the periods indicated.
Year Ended July 31, 1997 1996 1995 - -------------------------------------------------------------------------------- Options Outstanding, Beginning of Year: Number 617,500 1,745,000 2,079,375 Weighted-Average Exercise Price $4.52 $1.54 $1.56 Granted: Number 176,500 125,000 - Weighted-Average Exercise Price $24.16 $15.75 - Weighted-Average Fair Value* $8.58 $5.57 - Exercised: Number (311,750) (1,252,500) (49,375) Weighted-Average Exercise Price $1.23 $1.49 $3.22 Forfeited or Expired: Number (36,000) - - Weighted-Average Exercise Price $15.75 - - Repurchased: Number - - (285,000) Weighted-Average Exercise Price - - $1.37 - -------------------------------------------------------------------------------- Options Outstanding, End of Year: Number 446,250 617,500 1,745,000 Weighted-Average Exercise Price $13.67 $4.52 $1.54 - --------------------------------------------------------------------------------
* The weighted-average fair value disclosed was computed utilizing the measurement alternatives suggested in SFAS #123. Such alternatives were not adopted by the Company for compensation measurement purposes. The following is a summary of the characteristics of the options outstanding as of July 31, 1997:
Options Outstanding, July 31, 1997 Range 1 Range 2 Total - ------------------------------------------------------------------------------------------------------ Number 180,750 265,500 446,250 Weighted-Average Exercise Price $2.41 $21.34 $13.67 Range of Exercise Prices $2.00-$3.50 $15.75-$28.875 $2.00-$28.875 Remaining Weighted-Average Contractual Life (in months) 27 114 79 Number of Options Currently Exercisable 173,250 67,167 240,417 Weighted-Average Exercise Price of Options Exercisable $2.37 $18.23 $6.80 - ------------------------------------------------------------------------------------------------------
34 - -------------------------------------------------------------------------------- As of July 31, 1997, 601,250 shares were reserved for issuance under the MSOP. Options granted under the MSOP for the fiscal years ended July 31, 1997 and 1996 were granted at the fair market value of the Company's Common Stock as quoted on the NASDAQ National Market System on the date of grant. The total compensation charge associated with the MSOP for the fiscal years ended July 31, 1997, 1996 and 1995 was $0.2 million, $0.5 million and $0.6 million, respectively. SFAS #123 requires the disclosure of pro forma net income and earnings per share amounts calculated as if the measurement alternatives suggested by SFAS #123 had been adopted. The following table summarizes the required pro forma disclosures for the fiscal year ended July 31, 1997 (in thousands, except per share amounts):
1997 Actual Pro Forma - ------------------------------------------------------- Net Income $18,302 $18,023 Earnings Per Share $2.07 $2.04 - -------------------------------------------------------
Significant assumptions used in determining fair value and compensation cost for stock options in accordance with SFAS #123 included the following: - ------------------------------------------------------- Risk-Free Rate of Return 6.3% Expected Life of Option 4 to 5 years Expected Volatility 31.1% Expected Dividend Yield 0.0% - -------------------------------------------------------
Bonus Plans In addition to the compensation expense recorded for the MSOP, the Company also recorded $1.4 million in compensation expense for the fiscal year ended July 31, 1997 associated with a bonus for executives and certain key employees of the Company. The bonus payment was determined by the Company's Board of Directors. During the fiscal years ended July 31, 1996 and 1995, the Company recorded compensation expense of $1.3 million and $1.7 million, respectively, associated with PUP II. All benefits under PUP II have been paid and the plan has been canceled. In connection with the payout of the benefits under PUP II, the Company issued 132,284 shares of Common Stock to certain participants. - -------------------------------------------------------------------------------- 12. Business Segment Information -------------------------------- The Company's operations consist of two segments: graphite electrode products and calcium carbide products. The graphite electrode products segment manufactures and markets graphite electrodes, primarily to electric arc furnace steel producers. In addition, this segment manufactures needle coke, the principal raw material used in the manufacture of graphite electrodes, as well as certain other graphite specialty products. The calcium carbide products segment manufactures and markets calcium carbide and its direct derivatives, primarily acetylene gas, that are used in the further manufacturing of specialty chemicals, cutting and welding applications, and metallurgical applications such as desulfurization in the ductile iron and steel industries. This segment also manufactures electrically calcined anthracite coal used in the aluminum industry. Sales of graphite electrodes and calcium carbide for metallurgical applications to customers in the steel and ductile iron industries accounted for approximately 60% of customer net sales from continuing operations for the fiscal years presented. Amounts due from customers in the steel industry at July 31, 1997 and 1996 were $34.0 million and $34.3 million, respectively. 35 - -------------------------------------------------------------------------------- Segment information is as follows (in thousands):
Year Ended July 31, 1997 1996 1995 - -------------------------------------------------------------------------------- Sales to Customers: Graphite Electrode Products $210,045 $179,925 $160,610 Calcium Carbide Products 79,541 79,469 80,846 Intersegment Sales, at Prevailing Market Prices: Graphite Electrode Products 248 308 206 Eliminations (248) (308) (206) - -------------------------------------------------------------------------------- Total Net Sales $289,586 $259,394 $241,456 - -------------------------------------------------------------------------------- Operating Income: Graphite Electrode Products $ 36,346 $ 24,026 $ 21,225 Calcium Carbide Products 10,616 13,623 13,655 Unallocated Corporate Expenses (9,908) (6,952) (4,473) - -------------------------------------------------------------------------------- Total Operating Income $ 37,054 $ 30,697 $ 30,407 - -------------------------------------------------------------------------------- Identifiable Assets: Graphite Electrode Products $171,643 $141,019 $130,541 Calcium Carbide Products 27,695 27,768 26,142 - -------------------------------------------------------------------------------- 199,338 168,787 156,683 Corporate Assets 36,522 44,083 57,726 - -------------------------------------------------------------------------------- Total Assets $235,860 $212,870 $214,409 - -------------------------------------------------------------------------------- Depreciation and Amortization: Graphite Electrode Products $ 9,377 $ 7,472 $ 6,449 Calcium Carbide Products 1,505 1,381 1,240 - -------------------------------------------------------------------------------- 10,882 8,853 7,689 Discontinued Operations - - 524 - -------------------------------------------------------------------------------- Total Depreciation and Amortization $ 10,882 $ 8,853 $ 8,213 - -------------------------------------------------------------------------------- Capital Expenditures: Graphite Electrode Products* $ 31,701 $ 12,883 $ 8,231 Calcium Carbide Products 2,064 2,787 2,295 - -------------------------------------------------------------------------------- Total Capital Expenditures $ 33,765 $ 15,670 $ 10,526 - -------------------------------------------------------------------------------- Sales Information: Total Net Sales to Geographic Areas: United States $199,895 $173,948 $156,086 Other Americas 23,943 19,382 20,567 Europe 40,465 36,072 38,310 Asia/Far East 25,283 29,992 26,493 - -------------------------------------------------------------------------------- Total Net Sales $289,586 $259,394 $241,456 - --------------------------------------------------------------------------------
* Includes capital expenditures from a discontinued business in fiscal 1995. See Note 3. 36 - -------------------------------------------------------------------------------- 13. Cash Flow Information ------------------------- Net cash payments for interest and income taxes were as follows (in thousands):
Year Ended July 31, 1997 1996 1995 - -------------------------------------------------------------------------------- Interest $8,913 $10,284 $13,706 Income Taxes 5,926 2,882 17,957 - --------------------------------------------------------------------------------
Included in income tax payments for fiscal 1995 were payments totaling approximately $10.2 million associated with the Specialty Products Sale. - -------------------------------------------------------------------------------- 14. Other Items --------------- Early Retirement/Severance Charge Early retirement/severance charges for the year ended July 31, 1997 represent costs associated with the retirement of two executives of the Company. Other Income In October 1994, the Company formally entered into the China Contract. Total revenues under the contract were expected to be approximately $5.2 million, $4.1 million of which has been recognized through July 31, 1997. Other income for the fiscal years ended July 31, 1996 and 1995 represents revenues earned under the process design expertise portion of the contract, less applicable expenses. At this time, the project has been delayed by the Chinese government, and management cannot determine whether the balance of the revenue expected under the contract will be realized. - -------------------------------------------------------------------------------- 15. Quarterly Results (Unaudited) --------------------------------- The following table sets forth certain unaudited consolidated quarterly operating information of the Company (in millions, except per share information):
Year Ended July 31, 1997: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Fiscal Year - ----------------------------------------------------------------------------------------------------------------- Net Sales $67.7 $75.1 $74.9 $71.9 $289.6 Gross Profit 11.8 13.3 14.3 14.8 54.2 Operating Income 7.5 9.2 9.5 10.9 37.1 Income from Continuing Operations 3.5 4.6 4.7 5.6 18.4 Extraordinary Loss* - - - 0.1 0.1 Net Income 3.5 4.6 4.8 5.4 18.3 Per Share: Income from Continuing Operations 0.40 0.53 0.54 0.63 2.09 Net Income 0.40 0.53 0.54** 0.61 2.07 - ----------------------------------------------------------------------------------------------------------------- Year Ended July 31, 1996: - ----------------------------------------------------------------------------------------------------------------- Net Sales $63.9 $64.4 $65.2 $65.9 $259.4 Gross Profit 10.7 11.2 11.7 11.4 45.0 Operating Income 7.3 7.8 8.0 7.6 30.7 Income from Continuing Operations 2.7 3.7 4.0 3.9 14.3 Extraordinary Loss* 0.9 1.1 0.1 0.1 2.2 Net Income 1.8 2.6 3.9 3.8 12.1 Per Share: Income from Continuing Operations 0.33 0.43 0.46 0.46 1.67 Net Income 0.22 0.30*** 0.45 0.44 1.42 - -----------------------------------------------------------------------------------------------------------------
* Represents net charges associated with the early retirement of Senior Notes. See Note 8. ** Includes a $1.1 million pre-tax charge for early retirement/severance benefits. See Note 14. *** Includes a $1.0 million pre-tax favorable settlement from a utility rate dispute. See Note 5. 37 - -------------------------------------------------------------------------------- 16. Subsequent Event -------------------- On September 26, 1997, the Company completed a tender offer for $79.9 million of its Senior Notes (the Tender). The tender price paid to holders of the Senior Notes was $1,086.20 for each $1,000 in Senior Note principal. Also, most holders received an additional $15.00 per $1,000 in Senior Note principal in exchange for their consent to eliminate substantially all of the restrictive covenants and certain default provisions in the Senior Note Indenture other than the covenants to pay interest on and principal of the Senior Notes and the default provisions related to such covenants. Consents were received by holders of more than a majority of the outstanding Senior Notes, resulting in the elimination of such restrictive covenants and default provisions. After the Tender, $0.1 million in Senior Notes were outstanding. In connection with the Tender, the Company entered into an agreement with PNC Bank for the 1997 Revolving Credit Facility, a five-year, $125 million revolving credit facility with a $15 million sub-limit for standby letters of credit. This new revolving credit facility replaces the 1995 Revolving Credit Facility. Interest under the 1997 Revolving Credit Facility is based on, at the option of the Company, either PNC Bank's prime rate or a floating LIBOR rate plus a spread (currently 0.625%) based on a leverage calculation. Repayment of funds borrowed under the new credit agreement are not required until the expiration of the facility on September 25, 2002. The new facility can be extended under certain conditions. The restrictive covenants under the new credit agreement are substantially similar to those in the 1995 Revolving Credit Facility, although more restrictive in certain circumstances. Also, the Company has pledged all receivables and inventory as collateral under the new credit agreement. As a result of the Tender and revolving credit facility refinancing, the Company will record a pre-tax charge of approximately $10 million as an extraordinary loss on the early extinguishment of debt in the quarter ended October 31, 1997. The extraordinary charge is for the premiums paid to Senior Note holders in connection with the Tender and the write off of unamortized deferred financing fees associated with the Senior Notes tendered and the 1995 Revolving Credit Facility. 38 EX-21.1 14 SUBSIDIARIES AND AFFILIATES OF THE COMPANY EXHIBIT 21.1 The subsidiaries or affiliates of the Company are:
Name Jurisdiction of Incorporation ---- ----------------------------- Carbide/Graphite Management Corporation Delaware Corporation C/G Specialty Products Management Corporation Delaware Corporation Carbon/Graphite International Barbados Foreign Sales Corporation Seadrift Coke, L.P. Texas Limited Partnership Carbide/Graphite Business Trust Delaware Business Trust
EX-23.1 15 CONSENT OF INDEPENDENT ACCOUNTANTS Coopers Coopers & Lybrand L.L.P. & Lybrand a professional services firm EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of The Carbide/Graphite Group, Inc. on Form S-8 (Registration No. 333-570) of our reports dated September 10, 1997, except for Note 16 as to which the date is September 26, 1997, on our audits of the consolidated financial statements and financial statement schedule of The Carbide/Graphite Group, Inc. and Subsidiaries as of July 31, 1997 and 1996 and for each of the three years in the period ended July 31, 1997, which reports are incorporated by reference or included in this Form 10-K. Pittsburgh, Pennsylvania October 28, 1997 Coopers & Lybrand L.L.P., is a member of Coopers & Lybrand International, a limited liability association incorporated in Switzerland. EX-27.1 16 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY INCLUDED UNDER ITEM 8 OF THIS FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JUL-31-1997 AUG-01-1996 JUL-31-1997 7,935 0 51,117 (2,029) 59,445 143,336 271,493 (183,840) 235,860 42,511 80,035 0 0 97 96,112 235,860 289,586 289,586 235,401 249,721 2,691 120 7,894 29,160 10,732 18,428 0 (126) 0 18,302 2.09 2.08
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