-----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, Ifm5oLbfOJbO6CFmHyphF8srRzpKUw19wtLw1IGxRdSvUoCTUyATNoiuwLIcYJaU Kj1b4sD2CvNwI7hCVjom1Q== 0000932440-00-000137.txt : 20000331 0000932440-00-000137.hdr.sgml : 20000331 ACCESSION NUMBER: 0000932440-00-000137 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UCAR INTERNATIONAL INC CENTRAL INDEX KEY: 0000931148 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 061385548 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13888 FILM NUMBER: 589088 BUSINESS ADDRESS: STREET 1: 3102 WEST END AVENUE SUITE 1100 STREET 2: J-4 CITY: NASHVILLE STATE: TX ZIP: 37203 BUSINESS PHONE: 6157068227 MAIL ADDRESS: STREET 1: 3102 WEST END AVENUE SUITE 1100 STREET 2: J-4 CITY: NASHVILLE STATE: TN ZIP: 37203 10-K405 1 ANNUAL REPORT ON FORM 10K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) |X|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR |_|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: (1-13888) UCAR INTERNATIONAL INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 06-1385548 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) ------------------------ Suite 1100, 3102 West End Avenue 37203 Nashville, Tennessee (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 760-8227 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED: Common stock, par value New York Stock Exchange $.01 per share ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None ------------------------ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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| As of March 1, 2000, 45,119,788 shares of common stock were outstanding. The aggregate market value of the outstanding common stock as of March 1, 2000 (based upon the closing sale price of the common stock on the New York Stock Exchange on such date) held by non-affiliates of the registrant was $694 million. ------------------------ DOCUMENTS INCORPORATED BY REFERENCE The information required under Part III is incorporated by reference from the UCAR International Inc. Proxy Statement for the Annual Meeting of Stockholders to be held on May 9, 2000, which will be filed on or about March 31, 2000. ================================================================================ TABLE OF CONTENTS PAGE PRELIMINARY NOTES............................................................1 IMPORTANT TERMS...........................................................1 PRESENTATION OF FINANCIAL, MARKET AND LEGAL DATA..........................2 PART I.......................................................................4 ITEM 1. BUSINESS..........................................................4 INTRODUCTION..............................................................4 RISK FACTORS.............................................................11 CORPORATE HISTORY........................................................16 MARKETS AND INDUSTRY OVERVIEW............................................25 MANUFACTURING PROCESSES..................................................30 PRODUCTS.................................................................33 RAW MATERIALS AND SUPPLIERS..............................................34 ITEM 2. PROPERTIES.......................................................41 ITEM 3. LEGAL PROCEEDINGS.................................................. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ PART II....................................................................... ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS............................................................. MARKET INFORMATION......................................................... DIVIDEND AND STOCK REPURCHASE POLICIES AND RESTRICTIONS.................... RECENT SALES OF UNREGISTERED SECURITIES.................................... ITEM 6. SELECTED FINANCIAL DATA............................................ ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................... GENERAL.................................................................... RESULTS OF OPERATIONS...................................................... EFFECTS OF INFLATION...................................................... EFFECTS OF CHANGES IN CURRENCY EXCHANGE RATES.............................. LIQUIDITY AND CAPITAL RESOURCES............................................ RESTRICTIONS ON DIVIDENDS AND STOCK REPURCHASES............................ ACCOUNTING CHANGES......................................................... ASSESSMENT OF THE EURO..................................................... COSTS RELATING TO PROTECTION OF THE ENVIRONMENT............................ ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS...... ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................................142 PART III...................................................................143 ITEMS 10 TO 13 (INCLUSIVE...............................................143 EXECUTIVE OFFICERS AND DIRECTORS........................................143 PART IV146 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K...................................................146 SIGNATURE..................................................................151 EXHIBIT INDEX..............................................................153 PRELIMINARY NOTES IMPORTANT TERMS We use the following terms to identify various companies or groups of companies, markets or other matters. These terms help to simplify the presentation of information in this Report. UCAR refers to UCAR International Inc. only. UCAR is an independent corporation and our public parent company. UCAR is the issuer of the publicly traded common stock covered by this Report. UCAR GLOBAL refers to UCAR Global Enterprises Inc. only. UCAR Global a direct wholly owned subsidiary of UCAR and the direct or indirect holding company for all of our operating subsidiaries. UCAR Global was the issuer of our outstanding 12% senior subordinated notes due 2005 (the "SUBORDINATED NOTES") and was the primary borrower under our senior secured bank credit facilities (the "EXISTING BANK FACILITIES"). UCAR FINANCE refers to UCAR Finance Inc. only. UCAR Finance is a direct wholly owned finance subsidiary of UCAR and the borrower under our senior secured credit facilities (the "NEW SENIOR FACILITIES"). UCAR GRAPH-TECH refers to UCAR Graph-Tech Inc. only. UCAR Graph-Tech is our wholly owned subsidiary engaged in the development, manufacture and sale of flexible graphite. CARBONE SAVOIE refers to Carbone Savoie S.A.S. only. Carbone Savoie is a 70% owned subsidiary engaged, along with one of our wholly owned subsidiaries, in the development, manufacture and sale of graphite and carbon cathodes. SUBSIDIARIES refer to those companies which, at the relevant time, were majority owned or wholly owned directly or indirectly by UCAR or its predecessors to the extent that those predecessors activities related to the carbon and graphite business. All of UCAR's subsidiaries have been wholly owned (with de minimis exceptions in the case of certain foreign subsidiaries) from at least January 1, 1996 through December 31, 1999, except for: o our Russian subsidiary, which was acquired in late 1996 and early 1997 and has been wholly owned since then, o our German subsidiary, which was acquired in early 1997 and 70% owned until early 1999, when it became wholly owned in order to facilitate the cessation of its manufacturing operations, o Carbone Savoie, which was acquired in early 1997 and has been 70% owned since then, and o our South African subsidiary, which was 50% owned until April 1997, when it became wholly owned. WE, US or OUR refers collectively to UCAR and its subsidiaries and predecessors described above, or if the context so requires, UCAR, UCAR Global or UCAR Finance, individually. HOME MARKETS refer to North America, Western Europe, Brazil and South Africa. We have major manufacturing facilities located in each of these markets, and these are our largest markets. All other markets are called "EXPORT MARKETS." FREE TRADING MARKETS refer: o in the case of graphite electrodes, flexible graphite and graphite specialties industries, to the entire world, excluding China, and o in the case of cathodes, and carbon specialties, to the entire world excluding China and the former Soviet Union. We sometimes use this term when describing markets for various products because information about excluded markets is believed to be unreliable or not readily available. We believe that China is generally a net importer of graphite electrodes. PRESENTATION OF FINANCIAL, MARKET AND LEGAL DATA We present our financial information on a consolidated basis. This means that we consolidate financial information for all subsidiaries where our ownership is greater than 50%. We use the equity method to account for 50% or less owned interests, and we do not restate financial information for periods prior to the acquisition of subsidiaries. This means that, prior to April 1997, financial information for our South African subsidiary is only reflected on the single line in the Consolidated Financial Statements entitled "UCAR share of net income from company carried at equity." For the same reason, the financial information for our German subsidiary and Carbone Savoie is consolidated, since their acquisitions, on each line of the Consolidated Financial Statements and the equity of the other 30% owners (until early 1999, in the case of our German subsidiary) in those subsidiaries is reflected on the lines entitled "minority stockholders' equity in consolidated entities" and "minority stockholders' share of income." Unless otherwise stated, when we refer to "EBITDA" we mean operating profit (loss), plus depreciation, amortization, impairment losses on long-lived assets, inventory write-down, and that portion of restructuring charges applicable to non-cash asset write-offs. The amount of restructuring charges applicable to non-cash asset write-offs was $22 million for 1995 and $29 million for 1998. There was a restructuring credit of $6 million in 1999. We believe that EBITDA is generally accepted as providing useful information regarding a company's ability to incur and service debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from continuing operations or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. Our method for calculating EBITDA may not be comparable to methods used by other companies and is not the same as the method for calculating EBITDA under the New Senior Facilities. 2 References to cost in the context of our low-cost producer strategy do not include the unusual charges identified in the Consolidated Financial Statements on the lines entitled "antitrust investigations and related lawsuits and claims," "restructuring charge (credit)," "impairment loss on long-lived Russian assets," "impairment loss on long-lived graphite specialties assets," "write-down of graphite specialties inventory" or "securities class action and stockholder derivative lawsuits," the impact of accounting changes, or the impact of expenses incurred in connection with lawsuits initiated by us. Unless otherwise noted, all cost savings and reductions are estimates based on a comparison to costs in 1998 or the 1998 fourth quarter (annualized) and on the assumption that net sales and other operating conditions remain the same in 1999, 2000, 2001, 2002 and thereafter as they were in 1998. Neither any statements in this Report nor any charge taken by us relating to any legal proceedings constitute an admission as to any wrongdoing or liability. Market data relating to the steel industry has been derived from publications by the International Iron and Steel Institute and other industry sources as well as our own estimates. Market data relating to the fuel cell industry has been derived from publications by securities analysts relating to "BALLARD POWER SYSTEMS LTD.", other industry sources and public filings, press releases and other public documents of Ballard as well as our own estimates. Market and market share data relating to the graphite and carbon industry as well as cost information relating to our competitors has been derived from the sources described above and public filings, press releases and other public documents of our competitors as well as our own estimates. Unless otherwise noted, when we refer to dollars we mean U.S. dollars. 3 PART I ITEM 1. BUSINESS INTRODUCTION We are the world's largest manufacturer of high quality graphite and carbon electrodes and cathodes as well as flexible graphite. We have a global business, selling our products in over 80 countries and owning 15 manufacturing facilities located in Brazil, France, Italy, Mexico, Russia, Spain, South Africa and the United States. We operate in two business segments: o graphite electrodes, which had net sales of $562 million and gross profit of $196 million in 1999, and o graphite and carbon products, which had net sales of $269 million and gross profit of $62 million in 1999. We generated $212 million of EBITDA in 1999. GRAPHITE ELECTRODE BUSINESS SEGMENT. Graphite electrodes, our principal products, are consumed primarily in the production of steel in electric arc furnaces, the steelmaking technology used by all "mini-mills." Steel produced in electric arc furnaces, which constitutes the growth sector of the steel industry, has grown at an annual trendline rate of about 4% for more than 30 years. Graphite electrodes are also used for refining steel in ladle furnaces and in other smelting processes. Graphite electrodes accounted for about 72% of our net sales in 1997, 69% in 1998 and 68% in 1999. GRAPHITE AND CARBON PRODUCTS BUSINESS SEGMENT. This segment includes carbon electrodes, graphite and carbon cathodes, flexible graphite, graphite specialties and carbon specialties. Carbon electrodes are used primarily in the production of silicon metal, which is used in the manufacture of aluminum. Carbon electrodes accounted for about 5% of our net sales in each of 1997, 1998 and 1999. Graphite and carbon cathodes are both used as lining for furnaces that smelt aluminum. Cathodes accounted for about 8% of our net sales in 1997, 10% in 1998 and 11% in 1999. Flexible graphite is used in gasket and other sealing applications primarily for internal combustion engines, pipe flanges and chemical and petrochemical industry process equipment. Flexible graphite is a natural graphite-based product, while most of our other products are petroleum coke based products. We are developing applications for advanced natural graphite materials in the fuel cell, heat management, fire protection and energy management industries. Flexible graphite accounted for about 3% of our net sales in 1997, 4% in 1998 and 1999. 4 Our other graphite and carbon products accounted for about 12% of our net sales in each of 1997, 1998 and 1999. In addition to the steel and metals industries, we sell these products to the semiconductor, automotive and aerospace industries. INDUSTRY OVERVIEW. We estimate that the worldwide market for graphite and carbon products served by us was about $4 billion in 1999. Customers for our products are located in virtually every industrialized country in the world. Electrodes act as conductors of electricity in a furnace, generating sufficient heat to melt scrap metal or other raw materials used to produce steel, silicon metal or other metals. The electrodes are gradually consumed in the course of that production. Graphite electrodes are used primarily in the production of steel in an electric arc furnace. On average, in a typical electric arc furnace producing steel, one electrode must be replaced every eight to ten operating hours. Graphite electrodes are currently the only products available that have the high levels of electrical conductivity and the capability of sustaining the high levels of heat required in an electric arc furnace producing steel. Demand for graphite electrodes is directly related to the amount and efficiency of electric arc furnace steel production. We estimate that, on average, the cost of graphite electrodes represents about 3% of the cost of producing steel in a typical electric arc furnace. Electric arc furnace steel production has, for many years, been the growth sector of the steel industry. It grew from about 14% of total steel production in 1970 to about 34% in 1999. Electric arc furnace steel production has historically exhibited less cyclicality than total steel production. It has experienced only three downturns since 1976. Over the past two decades, electric arc furnace steelmaking has become more efficient. This improved efficiency has resulted in a decrease in the quantity of graphite electrodes consumed per metric ton of steel produced (known as "SPECIFIC CONSUMPTION"). During the period from the early 1990's through late 1997, increased levels of electric arc furnace steel production more than offset the decrease in specific consumption. This resulted in increased demand for graphite electrodes. During 1997 through 1999, we estimate that an aggregate of about 53 million metric tons of net new electric arc furnace steelmaking capacity was added worldwide. We estimate that about 18 million metric tons of that net new capacity was added in 1999. Further, we believe that a portion of the net new capacity added in the last three years has not yet become fully operational. We are aware of about 44 million metric tons of announced net new electric arc furnace steelmaking production capacity that is scheduled to be added in 2000 through 2002. Throughout 1998 and continuing into the 1999 first quarter, steel production, including steel produced in electric arc furnaces, declined as a result of adverse global and regional economic conditions. As a result, demand for graphite electrodes declined. Due to the continued strength of the U.S. and European economies and the beginning of recovery in other areas of the global economy, we believe that, in the 1999 second quarter, worldwide electric arc furnace steel production began to gradually increase. We are benefiting from that increase. Our volume of 5 graphite electrodes sold has gradually increased. We believe that graphite electrode industry fundamentals support our long-term strategy and the beginning of recovery in pricing worldwide. Presently, there is one other global manufacturer and nine other regional or local manufacturers of graphite electrodes in the free trading markets. There have been no significant entrants in the manufacture of graphite electrodes since 1950. We believe that it is unlikely that new "greenfield" graphite electrode manufacturing facilities will be built during the next several years due to, among other things, the relatively high cost of building a new facility. Further, we believe that it is unlikely that there will be significant new entrants in the manufacture of these products during the next several years due to, among other things, the need for extensive manufacturing process know-how as well as that high cost. We believe that the graphite electrode manufacturing capacity utilization rate in the free trading markets was about 91% in 1997, about 85% in 1998 and about 87% in 1999. Since September 1998, we have reduced our annual graphite electrode manufacturing capacity by about 30,000 metric tons. We believe that this reduction represented about 4% of estimated graphite electrode manufacturing capacity in the free trading markets. Since September 1998, two of our competitors have reduced their annual graphite electrode manufacturing capacity. Their announced reductions total more than 28,000 metric tons. As a result of these reductions, we believe that, if graphite electrode demand returned to 1997 levels, the current graphite electrode manufacturing capacity utilization rate in the free trading markets would be at least 95%. In 1998 and 1999, demand and prices for most of our other products was adversely affected by the same global and regional economic conditions which affected graphite electrodes. Currently on the whole, demand for most of our other products is relatively stable. Pricing for most of those products has, however, not yet strengthened. OUR STRENGTHS. LARGEST MARKET SHARES. We have the largest share of the free trading markets in all of our major product lines. We believe that, in 1999, our share of the free trading markets was: o about 29% in graphite electrodes, o about 37% in carbon electrodes, o about 30% in graphite and carbon cathodes, and o about 35% in flexible graphite. NEW MANAGEMENT TEAM. Over the past two years, there has been a substantial change in our management team. We have a new chairman of the board and chief executive officer, a new chief financial officer, a new chief information officer, a new controller and a new treasurer. There are also four new members of UCAR's Board of Directors. We believe that our current management team enables us to capture the benefits of both new perspectives as well as vast experience in our industry. 6 We have adopted new incentive compensation programs which reward management for improvements in our financial performance. These include a cash bonus plan which focuses on targets relating to such matters as improvements in return on invested capital, earnings per share and operating cash flow (before fines and settlements), achievement of cost savings and achievement of key initiatives in such areas as safety, product quality, productivity and efficiency, product development, divestitures, acquisitions and strategic alliances. LOW COST PRODUCER OF HIGH QUALITY PRODUCTS. We have in the past implemented, and we currently are implementing, successful restructuring and reengineering plans and projects. These plans and projects have increased automation, improved operating efficiency and reduced costs, while at the same time improving product and service quality. We believe that our cost structure for manufacturing graphite electrodes and cathodes is currently the lowest among the major producers in the industry. GLOBAL MANUFACTURING BASE. We have three graphite electrode manufacturing facilities located in Europe, two in the United States and one each in Mexico, Brazil and South Africa. We have three cathode manufacturing facilities, one in Europe, one in Brazil and the other in the United States. We believe that our multiple fully integrated state-of-the-art facilities in diverse geographic regions provide us with significant operational flexibility. Among other things, we are able to incrementally adjust our graphite electrode and cathode manufacturing capacity utilization rate, as well as related costs, to accommodate anticipated changes in global sales volume and to shift graphite electrode and cathode manufacturing to regions where changes in currency exchange rates provide cost advantages. We believe that our global manufacturing base helps to minimize risks associated with dependence on any single economic region. EXCEPTIONAL CUSTOMER SERVICE. To assist customers to maximize their production and minimize their costs, we employ about 60 engineers who provide technical service to customers globally in, among other things, all areas of electric arc furnace design and operation, electrode specification and use, and related matters. We believe that we have more technical service engineers located in more countries than any of our competitors. In addition, we employ a global direct sales force, which operates from more than 20 sales offices. Carbone Savoie has its own dedicated sales and technical service groups that work closely with the sales and technical service groups of our strategic partner in the cathode business, Aluminium Pechiney S.A., to maximize use of their respective products and technologies in the aluminum industry. DIVERSIFIED CUSTOMER BASE. We sell our products in virtually every industrialized country in the world. Sales of our products outside the United States accounted for more than two-thirds of our net sales in 1999. In 1999, five of our ten largest customers were based in Europe, two were in Africa, and one was in each of the United States, Mexico and Brazil. No single customer or group of affiliated customers accounted for more than 4% of our net sales in 1999. PRODUCT INNOVATION AND PROCESS IMPROVEMENTS. We conduct, at our two dedicated technology centers and our manufacturing facilities throughout the world, a focused technology program to develop new related products and expand applications for existing products as well as improve product quality and manufacturing processes. This program is conducted both independently and in conjunction with suppliers, customers, strategic partners and others. About 7 100 of our technical professionals are directly involved in this program. Their activities are integrated with the efforts of over 100 engineers at our manufacturing facilities who are focused on improving manufacturing processes. Carbone Savoie operates one of our technology centers, which is dedicated to cathodes and employs about 20 of our professionals. OUR BUSINESS STRATEGIES. Our strategic goal is to be the best global low cost manufacturer and customer service-driven company with the best product performance in the graphite and carbon industry by pursuing the following strategies. REDUCE COSTS AND IMPROVE OPERATING EFFICIENCIES AND PRODUCT QUALITY; RESTRUCTURE GRAPHITE SPECIALTIES BUSINESS. We are focusing significant efforts on reducing costs and improving product and service quality and manufacturing and operating processes, while seeking to maximize free cash flow, reduce leverage and maintain and enhance gross margins. UCAR's Board of Directors adopted a global restructuring and rationalization plan in September 1998, and we launched new initiatives to enhance the plan in October 1999. We believe that the plan is the most aggressive major cost reduction plan currently being implemented in the graphite and carbon industry. The plan generated cost savings at an annualized run rate of about $72 million by the end of 1999. We estimate that the plan will generate cost savings at an annualized run rate of about $112 million by the end of 2000, about $145 million by the end of 2001 and about $165 million by the end of 2002 and thereafter. The original plan included plant rationalization, plant cost reduction and overhead cost reduction. The plant rationalization phase of the plan involved the closure of our higher cost manufacturing facilities in Canada and Germany and the downsizing of our graphite electrode manufacturing facilities in Russia. The overhead cost reduction phase of the plan included relocation of our corporate headquarters to Nashville, Tennessee. We believe that the cost savings under the original plan have enabled us to strengthen our competitiveness. We also believe, however, that we must continue to generate additional cost savings to achieve the ultimate objectives of our low cost manufacturing strategy. Accordingly, in October 1999, we launched new initiatives to add $30 million of cost savings to the original plan by the end of 2002. Further, we completed a global benchmarking study during the 1999 third quarter that identified opportunities for performance improvements in certain key global administrative and transaction processing functions. These opportunities should allow for achievement of our target of reducing selling and administrative expenses from 11% of net sales in 1998 to 8% of net sales by the end of 2002. We are also evaluating every aspect of our supply chain performance. Our targets include decreasing inventories, as measured against inventory levels and based on production levels for the 1999 first nine months (annualized), by over 20%, or to about $180 million, and reducing our cash cycle time by about one-third by the end of 2002. We are seeking to improve product quality at the same time that we are seeking to reduce costs. We have set specific goals for product quality improvements, focusing on use of superior raw materials, technology and six sigma manufacturing capabilities. 8 In the 2000 first quarter, in response to economic conditions adversely affecting demand for graphite specialties and the profitability of our graphite specialties business, we announced that we would restructure that business. The business accounted for about 9% of our net sales in 1999. The restructuring will include elimination of low profitability product lines, rationalization of operations to generate cost savings and improve profitability for the remaining product lines, and use of graphite specialties technology to develop new and expand existing niche markets. We expect to complete the restructuring by the end of the 2001 first quarter. POWER OF ONE BUSINESS TRANSFORMATION INITIATIVE. In support of our strategy, we have launched a global business transformation initiative entitled POWER OF ONE. POWER OF ONE is a coordinated global self-assessment and business process transformation initiative driving one consistent theme throughout our organization: "becoming the best!" We expect the initiative to accelerate development and implementation of business opportunities and to develop leadership skills more broadly within all management levels as well as support our efforts to reduce cost, improve efficiencies, shorten cycle times and achieve "best in class" performance. DEVELOP STRATEGIC ALLIANCES AND GROWTH OPPORTUNITIES. We are pursuing strategic alliances that enhance or compliment our existing or related businesses. Strategic alliances may be in the form of joint venture, licensing, supply or other arrangements that leverage our strengths to achieve additional company-wide cost savings and to increase net sales, margins, cash flow and earnings in graphite electrode and other existing product lines and in related new product lines. We are also studying a number of financial options to create more value for our stockholders over the near term from our flexible graphite business. Our relationship with Aluminium Pechiney S.A. in the cathode business is an example of a successful strategic alliance. Aluminium Pechiney S.A. is not only a strategic partner but is also a significant customer under a long term supply contract. In the 1999 third quarter, we entered into an exclusive product development collaboration agreement and an exclusive long term supply agreement with Ballard Power Systems. Ballard is the world's leader in the development and commercialization of proton exchange membrane ("PEM") fuel cells. Fuel cells are devices that generate electricity through an environmentally clean chemical process as an alternative to internal combustion engines and other fossil fuel based energy sources. Industry sources expect wide commercialization of fuel cells to occur early in this decade. We have been actively working with Ballard for the past seven years in developing flexible graphite based material for use in flow field plates, which are essential elements of PEM fuel cells. We expect substantial growth in net sales of our flexible graphite beginning in 2003. DEVELOP AND EXPAND NEW AND EXISTING PROFITABLE TECHNOLOGIES. We are currently focusing our technological development efforts in several key areas in order to develop new related products and expand applications for our existing products, which we believe will enhance our profitability. DEBT RECAPITALIZATION. In February 2000, we completed a debt recapitalization. We obtained the New Senior Facilities, which consist of a $300 million, six year tranche A term loan 9 facility, a $350 million, eight year tranche B term loan facility and a $250 million, six year revolving credit facility. The tranche A and revolving facilities are dollar/euro dual currency facilities. We used the net proceeds of the New Senior Facilities to repay about $490 million of debt under our prior senior secured term loan facilities, to call all $200 million of our outstanding 12% senior subordinated notes due 2005 for redemption at a redemption price of 104.5% of the principal amount redeemed, plus accrued interest, to replace the outstanding borrowings under our prior revolving credit facility and to repay certain other debt. The debt recapitalization: o lowers our average interest rate (at current market interest rate levels) by about 200 basis points (equivalent to a reduction of annual interest expense by about $15 million at current debt levels), o extends the average maturities of our debt, o enables us to repay our debt without penalty or premium, and o increases our ability to repurchase common stock, make acquisitions and pursue strategic initiatives. LITIGATION AGAINST OUR FORMER PARENT COMPANIES INITIATED BY US. In February 2000, we commenced a lawsuit against our former parents, Mitsubishi Corporation ("MITSUBISHI") and Union Carbide Corporation ("UNION CARBIDE"). The other defendants are Mitsubishi International Corporation, a U.S. subsidiary of Mitsubishi, and two of the respective representatives of Mitsubishi and Union Carbide who served on UCAR's Board of Directors at the time of our leveraged equity recapitalization in January 1995 ("1995 EQUITY RECAPITALIZATION"). In the lawsuit, we allege, among other things, that certain payments made to our former parents in connection with the 1995 Equity Recapitalization were unlawful under the General Corporation Law of the State of Delaware, that our former parents were unjustly enriched by receipts from their investments in UCAR and that our former parents aided and abetted breaches of fiduciary duties owed to us by our former senior management in connection with illegal graphite electrode price fixing activities. We are seeking to recover more than $1.5 billion in damages, including interest. ANTITRUST LITIGATION AGAINST US. Since 1997, we have been served with subpoenas, search warrants and information requests by antitrust authorities in the United States, the European Union and elsewhere in connection with antitrust investigations. In addition, civil antitrust lawsuits have been commenced and threatened against us and other producers and distributors of graphite and carbon electrodes in the United States and elsewhere. We recorded a charge against results of operations for 1997 in the amount of $340 million as a reserve for estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. 10 In April 1998, UCAR pled guilty to a one-count charge of violating U.S. federal antitrust laws in connection with the sale of graphite electrodes and was sentenced to pay a fine in the aggregate amount of $110 million, payable in six annual installments (the "DOJ FINE"). In March 1999, our Canadian subsidiary pled guilty to a one-count charge of violating Canadian antitrust laws in connection with the sale of graphite electrodes and was sentenced to pay a fine of Cdn. $11 million. We have settled virtually all of the graphite electrode antitrust claims by steelmakers in the United States and Canada as well as antitrust claims by certain other customers. None of the settlement or plea agreements in connection with antitrust investigations or related lawsuits or claims contain restrictions on future prices of our graphite electrodes. We are continuing to cooperate with the antitrust authority in the European Union in its on-going investigation. In the aggregate, the fines and settlements are within the amounts we used for purposes of evaluating the $340 million reserve. Actual liabilities and expenses could be materially higher than such charge. The guilty pleas make it more difficult to defend against other investigations, lawsuits and claims. RISK FACTORS Investors in the common stock should consider carefully the following factors in addition to other information included in this Report. WE ARE DEPENDENT ON THE GLOBAL STEEL AND OTHER METALS INDUSTRIES AND OUR RESULTS OF OPERATIONS MAY DETERIORATE DURING GLOBAL AND REGIONAL ECONOMIC DOWNTURNS. Our principal products, graphite electrodes, are sold primarily to the electric arc furnace steel production industry. Many of our other products are sold primarily to other metals industries. These are global basic industries, and customers in these industries are located in virtually every industrialized country in the world. As a result, our customers are affected by changes in global and regional economic conditions. This, in turn, affects demand for and, to a lesser extent, prices of our products. Accordingly, we are directly affected by changes in global and regional economic conditions. As a result of global and regional economic conditions, demand for and prices of graphite electrodes and some of our other products declined in 1998 and early 1999. These circumstances reduced our net sales and net income. Demand began to recover later in 1999. We cannot assure you that this recovery will continue. We cannot assure you that the electric arc furnace steel industry will continue to be the growth sector of the steel industry or that other industries served by us will experience continued stability or growth or recover from current economic conditions affecting them, as the case may be. Accordingly, we cannot assure you that there will be stability or growth in demand for or prices of graphite electrodes or our other products. An adverse change in global or certain regional economic conditions could materially adversely affect us. OUR FINANCIAL CONDITION COULD SUFFER IF WE EXPERIENCE UNANTICIPATED COSTS AS A RESULT OF ANTITRUST INVESTIGATIONS, LAWSUITS AND CLAIMS. Since 1997, we have been subject to antitrust investigations, lawsuits and claims. We recorded a charge of $340 million against results of operations for 1997 as a reserve for estimated potential liabilities and expenses in connection 11 with antitrust investigations and related lawsuits and claims. To date, the fines and settlements in connection with antitrust investigations, lawsuits and claims have been within the amounts used by us to evaluate the $340 million charge. We cannot assure you that remaining liabilities and expenses in connection with antitrust investigations and related lawsuits and claims will not materially exceed the remaining balance of such reserve. WE ARE HIGHLY LEVERAGED AND OUR SUBSTANTIAL DEBT AND OTHER OBLIGATIONS COULD LIMIT OUR FINANCIAL RESOURCES, OPERATIONS AND ABILITY TO COMPETE AND MAY MAKE US MORE VULNERABLE TO ADVERSE ECONOMIC EVENTS. We are highly leveraged. We also have substantial obligations in connection with antitrust investigations, lawsuits and claims. At December 31, 1999, we had total debt of $722 million, and a stockholders' deficit of $293 million. A majority of our debt has variable interest rates. We are dependent on our revolving credit facility for liquidity. Our high leverage and these obligations could have important consequences, including the following: o our ability to restructure or refinance our debt or obtain additional debt or equity financing for payment of these obligations, or for working capital, capital expenditures, acquisitions, joint ventures, stock repurchases or other general corporate purposes, may be impaired in the future, o a substantial portion of our cash flow from operations must be dedicated to debt service and payment of these obligations, thereby reducing the funds available to us for other purposes, o an increase in interest rates could result in an increase in the portion of our cash flow from operations dedicated to servicing our debt in lieu of other purposes, o we may have substantially more leverage and obligations in connection with antitrust investigations, lawsuits and claims than certain of our competitors, which may place us at a competitive disadvantage, and o our leverage and these obligations may hinder our ability to adjust rapidly to changing market conditions or other events, and our substantial leverage and these obligations makes us more vulnerable to insolvency, bankruptcy or other adverse consequences in the event of a downturn in general or certain regional economic conditions or our business or in the event that these obligations are greater than expected. OUR ABILITY TO SERVICE OUR DEBT AND MEET OUR OTHER OBLIGATIONS DEPENDS ON CERTAIN FACTORS BEYOND OUR CONTROL. Our ability to service our debt and meet our other obligations as they come due is dependent on our future financial and operating performance. This performance is subject to various factors, including certain factors beyond our control such as, among other things, changes in global and regional economic conditions, developments in antitrust investigations, lawsuits and claims involving us, changes in our industry, changes in interest or currency exchange rates, and inflation in raw material, energy and other costs. If our cash flow and capital resources are insufficient to enable us to service our debt and meet these obligations as they 12 become due, we could be forced to reduce or delay capital expenditures, sell assets or businesses, limit or discontinue, temporarily or permanently, business plans, activities or operations, obtain additional debt or equity financing, or restructure or refinance debt. We cannot assure you as to the timing of such actions or the amount of proceeds that could be realized from such actions. Accordingly, we cannot assure you that we will be able to meet our debt service obligations as they become due or otherwise. WE HAVE RESTRICTIVE SECURED DEBT COVENANTS WHICH COULD SIGNIFICANTLY AFFECT THE WAY IN WHICH WE CONDUCT OUR BUSINESS. The New Senior Facilities contain a number of covenants that, among other things, significantly restrict our ability to dispose of assets, incur additional indebtedness, repay or refinance other indebtedness or amend other debt instruments, create liens on assets, enter into leases, make investments or acquisitions, engage in mergers or consolidations, make capital expenditures or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities. We are also required to comply with specified financial ratios and tests, including minimum interest coverage and maximum leverage ratios. In addition, we cannot borrow under our new revolving credit facility if the aggregate amount of our payments made (excluding certain imputed interest) and additional reserves created in connection with antitrust, securities and stockholder derivative investigations, lawsuits and claims exceed $340 million by more than $130 million (which $130 million is reduced by the amount of certain debt incurred by us that is not incurred under the New Senior Facilities). Further, most of our assets are pledged to secure repayment of the New Senior Facilities. We are currently in compliance with the covenants contained in the New Senior Facilities. However, our ability to continue to comply may be affected by events beyond our control as described above. The breach of any of these covenants could result in a default under the New Senior Facilities, which would permit the senior lenders to declare all amounts thereunder immediately due. It would also permit them to terminate their commitments to extend credit under our revolving credit facility. This would have an immediate material adverse effect on our liquidity. If we were unable to repay our indebtedness to the senior lenders, the senior lenders could proceed against the collateral securing the New Senior Facilities. WE ARE SUBJECT TO RISKS ASSOCIATED WITH OPERATIONS IN MULTIPLE COUNTRIES. As a result of our international operations, we are subject to risks associated with operating in multiple countries, including: o currency devaluations and fluctuations in currency exchange rates, o imposition of or increases in custom duties and other tariffs, o imposition of or increases in currency exchange controls, including imposition of or increases in limitations on conversion of various currencies into dollars or euros or remittance of dividends, interest or principal payments other payments by subsidiaries, 13 o imposition of or increases in revenue, income or earnings taxes and withholding and other taxes on remittances and other payments by subsidiaries, o high inflation and hyperinflation in certain countries, o imposition or increases in investment restrictions and other restrictions or requirements by non-U.S. governments, and o in the case of operations in Russia, nationalization and other risks which could result from a change in government or other political, social or economic instability. We cannot assure you that such risks will not have a material adverse effect on us in the future. OUR RESULTS OF OPERATIONS FOR ANY QUARTER ARE NOT NECESSARILY INDICATIVE OF OUR RESULTS OF OPERATIONS FOR A FULL YEAR OR OTHERWISE. Our sales of graphite electrodes and other products fluctuate from quarter to quarter due to such factors as changes in global and regional economic conditions, changes in competitive conditions, scheduled plant shutdowns by customers, national vacation practices, 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. We have experienced, and expect to continue to experience, volatility with respect to demand for and prices of graphite electrodes and other products, both globally and regionally. These factors tend to affect our quarterly as well as annual results of operations. In addition, during the period prior to the effective date of a price increase, customers tend to buy additional quantities of graphite electrodes at the then lower pricing (known as "CUSTOMER BUY-INS"), which add to our net sales during that period. During the period following the effective date of a price increase, customers tend to use those additional quantities before placing further orders, which reduces our net sales during that period. Accordingly, results of operations for any quarter are not necessarily indicative of the results of operations for a full year or otherwise. OUR MARKET SHARE, NET SALES OR NET INCOME COULD DECLINE DUE TO VIGOROUS PRICE AND OTHER COMPETITION. Competition in the graphite and carbon products industry is based primarily on price, product quality and customer service. Graphite electrodes, in particular, are subject to rigorous price competition. Price increases by us or price reductions by our competitors, decisions by us with respect to maintaining profit margins rather than market share, changes in the desirability or necessity of entering into long term supply contracts with customers, or other competitive or market factors or strategies could adversely affect our market share, net sales or net income. Competition could prevent implementation of price increases or could require price reductions or increased spending on research and development, marketing and sales that could adversely affect our results of operations, cash flows or financial condition. IMPLEMENTATION OF FINANCIAL OPTIONS FOR UCAR GRAPH-TECH, OR ADDITIONAL STRATEGIC ALLIANCES FOR OTHER BUSINESSES, MAY NOT BE SUCCESSFULLY COMPLETED. We cannot assure you that we will complete implementation of any financial options for UCAR Graph-Tech or any additional strategic alliances for any of our other businesses. Further, we cannot assure you as to the timing or terms of, or net proceeds from, any transaction that may be completed. 14 WE MAY NOT BE SUCCESSFUL IN THE LITIGATION AGAINST OUR FORMER PARENTS INITIATED BY US. We have initiated litigation against our former parents. Successful prosecution of this litigation is subject to risks, including: o failure to successfully defend against motions to dismiss and other procedural motions prior to trial, o failure to successfully establish our theories of liability and damages or otherwise prove our claims at trial, o successful assertion by the defendants of substantive defenses to liability at trial or on appeal, and o successful assertion by the defendants of counterclaims or cross claims at trial or on appeal. We cannot assure you as to the ultimate outcome of the litigation, including the possibility, timing or amount of any recovery of damages by us or any liability we may have in connection with any counterclaims or cross claims. In addition, we cannot assure you as to the possibility, timing or amount of any settlement or the legal expenses to be incurred by us or as to the effect of the lawsuit on management's focus and time available for our on-going operations. WE ARE SUBJECT TO RISKS ASSOCIATED WITH MANUFACTURING OPERATIONS. As a result of our manufacturing operations, we are subject to risks relating to environmental and occupational health and safety liabilities and requirements, labor disputes and similar matters. We cannot assure you that such risks will not have a material adverse affect on us in the future. THERE ARE PROVISIONS IN SOME OF OUR IMPORTANT DOCUMENTS WHICH COULD HAVE THE EFFECT OF PREVENTING A CHANGE IN CONTROL OF UCAR. UCAR's Certificate of Incorporation and By-Laws contain provisions concerning voting, issuance of preferred stock, removal of officers and directors and other matters which may have the effect of discouraging, delaying or preventing a change in control of UCAR. In addition, UCAR's Board of Directors has adopted a stockholder rights plan which may have the same effect. Further, the New Senior Facilities restrict certain events which would constitute a change in control and provide that certain events which would constitute a change in control would also constitute an event of default. We cannot assure you that we will have the financial resources necessary to repay the New Senior Facilities upon the occurrence of such an event of default. THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WHICH COULD VARY SIGNIFICANTLY FROM ACTUAL EVENTS OR CIRCUMSTANCES DUE TO VARIOUS FACTORS. This Report contains forward looking statements. In addition, from time to time, we or our representatives have made or may make forward looking statements orally or in writing. These include statements about such matters as future production of steel in electric arc furnaces, future prices and volumes of and demand for graphite electrodes and other products, future operational and financial performance of various businesses, strategic plans and cost savings programs, impacts of regional and global economic conditions, divestiture, joint venture, operating, global integration, tax planning, financial and 15 capital projects, investigations, lawsuits and claims as well as related expenses, consulting fees and related projects, and future costs, cost savings and reductions, margins and earnings. The words "will," "may," "plan," "estimate," "project," "believe," "anticipate," "intend," "expect" and similar expressions identify some of these statements. Actual future events and circumstances (including future performance, results and trends) could differ materially from those set forth in these statements due to various factors. These factors include: o the possibility that global or regional economic conditions may not improve or may worsen, o the possibility that announced or anticipated additions to capacity for producing steel in electric arc furnaces or announced or anticipated reductions in graphite electrode manufacturing capacity may not occur, o the possibility that increased production of steel in electric arc furnaces may not result in increased demand for or price or volume stability or increases for graphite electrodes, o the occurrence of unanticipated events or circumstances relating to pending antitrust investigations, lawsuits or claims, o the commencement of investigations or lawsuits relating to the same subject matter of these pending investigations or lawsuits, o the possibility that the lawsuit against our former parents initiated by us could be dismissed or settled, our theories of liabilities or damages could be rejected, material counter claims could be asserted against us, legal expenses and distraction of management could be greater than anticipated or unanticipated events may occur, o the possibility of delays in or failure to achieve commercialization of PEM fuel cells or to achieve successful development of next generation flexible graphite-based flow field plates used in PEM fuel cells, the possibility of delays in or failure to achieve successful development and commercialization of other new or improved products, the possibility of delays in meeting or failure to meet targeted development objectives and the possible inability to fund and successfully complete expansion of manufacturing capacity to meet growth in demand for our products, if any, o the occurrence of unanticipated events or circumstances relating to strategic or other plans, cost savings programs, or divestiture, joint venture, operational, capital, global integration, tax planning, financial or other projects, and o changes in interest or currency exchange rates, changes in capital markets, changes in competitive conditions, changes in inflation affecting our raw material, energy or other costs, technological developments by others, and other risks and uncertainties, including those described or incorporated by reference in this Report. 16 All subsequent written and oral forward looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the SEC pursuant to the SEC's rules, we have no duty to update these statements. CORPORATE HISTORY GENERAL. Our business was founded in 1886 by National Carbon Company. In 1917, National Carbon Company, along with Union Carbide Company and three other companies, combined to form a new corporation named Union Carbide and Carbon Company, now known as Union Carbide Corporation. National Carbon Company became the Carbon Products Division of Union Carbide. In 1989, Union Carbide realigned each of its worldwide businesses into separate subsidiaries. As part of the realignment, the business of the Carbon Products Division was separated from Union Carbide's other businesses and became owned by us. We remained wholly owned by Union Carbide. In 1991, Union Carbide sold 50% of our common equity held by it to Mitsubishi for $232.5 million. At that time, we had total debt of $297 million that we had assumed from Union Carbide. That debt consisted of $209 million of long term debt, $4 million of payments due within one year on long term debt and $84 million of short term debt. In other words, treating each parent as responsible for 50% of our debt, Union Carbide received and Mitsubishi paid $381 million. In January 1995, we consummated the 1995 Equity Recapitalization pursuant to an agreement among Union Carbide, Mitsubishi, UCAR and a corporation affiliated with Blackstone Capital Partners II Merchant Banking Fund L.P. and its affiliates (collectively, "BLACKSTONE"). In the 1995 Equity Recapitalization: o UCAR issued common stock representing about 75% of the then outstanding common stock to Blackstone, an affiliate of Chase Manhattan Bank and certain members of management for $203 million, o UCAR Global and certain of its foreign subsidiaries borrowed $585 million under senior secured credit facilities arranged through Chase Manhattan Bank, o UCAR Global issued $375 million of 12% senior subordinated notes due 2005, o UCAR repaid about $250 million of then existing indebtedness, o UCAR repurchased all of our common equity then held by Mitsubishi for $406 million, o UCAR paid to Union Carbide a cash dividend of $347 million on our common equity then held by Union Carbide, which common equity was converted into about 25% of the common stock outstanding after the 1995 Equity Recapitalization, and o certain members of management received restricted stock matching a portion of the common stock purchased by them and options to purchase up to an aggregate of about 17 12% of the common stock outstanding after the 1995 Equity Recapitalization on a fully diluted basis, subject to certain vesting requirements. In addition, in the 1995 Equity Recapitalization, we transferred all of our operating subsidiaries to UCAR Global or subsidiaries of UCAR Global. UCAR currently has no material assets other than common stock of each of UCAR Global and UCAR Finance and intercompany debt owed to it. In August 1995, UCAR completed an initial public offering of common stock. In connection with the offering, UCAR sold common stock representing 22% of the common stock outstanding after the offering for net proceeds of $227 million and Union Carbide sold all of the common stock then owned by it for net proceeds of $199 million. UCAR Global used net proceeds received by UCAR to redeem $175 million aggregate principal amount of 12% senior subordinated notes due 2005 at a redemption price equal to 110% of the aggregate principal amount redeemed, plus accrued interest of $4 million. We used the balance of the net proceeds received by UCAR for general corporate purposes and to reduce other outstanding indebtedness. In October 1995, we refinanced the senior secured credit facilities obtained in connection with the 1995 Equity Recapitalization with the Existing Credit Facilities that had more favorable interest rates and covenants. In March 1996, Blackstone, an affiliate of Chase Manhattan Bank and certain members of management sold shares of common stock in a secondary public offering. After the offering, Blackstone owned about 20% of the then outstanding common stock. In February 1997, UCAR's Board of Directors authorized a program which, as amended in December 1997, authorized the repurchase of up to $200 million of common stock at prevailing prices from time to time in the open market or otherwise depending on market conditions and other factors, without any established minimum or maximum time period or number of shares. UCAR purchased an aggregate of $92 million of common stock (including common stock repurchased from Blackstone as described below) under this program. The last repurchase was made in 1997. We may reactivate this program at any time. In March 1997, the Existing Credit Facilities were amended to reduce interest rates, increase the amount available under our revolving credit facility to $250 million and change covenants to allow more flexibility in uses of free cash flow. In April 1997, Blackstone sold about 14% of the then outstanding common stock in a secondary public offering. Concurrently with the offering, we repurchased 1,300,000 shares of common stock from Blackstone for $48 million. This repurchase constituted part of the stock repurchase program described above. After the offering and the repurchase, Blackstone ceased to be a principal stockholder of UCAR. Since June 1997, we have been served with subpoenas, search warrants, information requests, complaints and petitions in the United States, the European Union and elsewhere in connection with antitrust investigations, lawsuits and claims and stockholder derivative and securities class action lawsuits. We have resolved the investigations in the United States and 18 Canada, and most of those lawsuits, as they relate to us. In addition, we have substantially changed our management team. RESTRUCTURING, RE-ENGINEERING AND OTHER PROJECTS. We have implemented several successful restructuring and re-engineering projects since the mid-1980s. These projects have eliminated work, improved operating efficiency and reduced costs. As part of our global restructuring and rationalization plan initially announced in September 1998 and new initiatives to enhance the plan launched in October 1999, we have been implementing projects to rationalize our plants, improve operating efficiency of our remaining plants and generate cost savings. We believe that the plan is the most aggressive major cost reduction plan currently being implemented in the graphite and carbon industry. To support the plan and other cost reduction efforts as well as efficiency and product quality improvement efforts, we have launched a global business transformation initiative entitled the POWER OF ONE. In February 2000, we announced that we would restructure our graphite specialties business to generate cost savings and improve profitability for its remaining product lines. We expect to complete the restructuring by the end of the first quarter 2001. ACQUISITION OF MINORITY INTERESTS AND INTEREST IN JOINT VENTURE Affiliate. In 1995 and 1996, we acquired substantially all of the shares of our then 54%-owned Brazilian subsidiary that were owned by public shareholders in Brazil for an aggregate purchase price of $55 million, plus expenses. In April 1997, we acquired the outstanding shares of our then 50%-owned South African affiliate from our then joint venture partner in South Africa. The purchase price was $75 million, plus expenses. We believe that these acquisitions have enabled us to better integrate worldwide operations, to recognize production efficiencies at various manufacturing facilities, to lower average company wide cost of sales and to better capture and manage cash flow from operations of these subsidiaries. ACQUISITIONS IN RUSSIA AND GERMANY. In late 1996, late 1997 and early 1998, we acquired substantially all of the equity of our Russian subsidiary. The aggregate investment was $57 million, plus expenses. In February 1997, through a newly formed 70%-owned German subsidiary, we acquired the graphite electrode business of Elektrokohle Lichtenberg AG., based in Berlin, Germany. The aggregate purchase price paid by our German subsidiary for the acquired assets was $15 million, plus expenses. We purchased the remaining 30% ownership in 1999 to facilitate the closure of its manufacturing operations. We acquired our Russian and German subsidiaries to expand geographically. While we have been a supplier to Eastern Europe for over 25 years, we believed that these acquisitions would increase our market penetration in Eastern Europe, Russia and the other countries of the former Soviet Union, and the Middle East. In addition, many of the electric arc furnace steel producers in these markets consume lower quality graphite electrodes. Accordingly, sales by these two subsidiaries of their lower quality electrodes would generally be additive to sales made by our other subsidiaries, which continued to export ultra-high-power graphite electrodes to their existing customer base in these regions. 19 The market for graphite electrodes in these regions has not grown as rapidly as we expected at the time of these acquisitions due primarily to global and regional economic conditions. In addition, beginning about August 1998, Russian economic conditions deteriorated critically. Those conditions have not yet substantially improved. In response, as part of our global restructuring and rationalization plan as initially announced in September 1998, we closed the manufacturing operations of our German subsidiary and downsized the manufacturing operations of our Russian subsidiary. Our Russian subsidiary now has capacity to finish the manufacturing of about 10,000 metric tons of electrodes annually. It is being supplied with partially manufactured electrodes primarily by our Spanish subsidiary. ACQUISITION OF ADDITIONAL CATHODE PRODUCT MANUFACTURING OPERATIONS. In January 1997, we acquired 70% of the outstanding shares of Carbone Savoie, previously a wholly owned subsidiary of Pechiney S.A. The purchase price was $33 million, plus expenses. Carbone Savoie has facilities in Notre Dame and Venissieux, France. As a result of the acquisition, we are the largest manufacturer of cathodes in the free trading markets and we are allied with Aluminium Pechiney S.A. Aluminium Pechiney S.A. is one of the world's leading producers of aluminum and the leading supplier of smelting technology to the aluminum industry. We are using that smelting technology and our graphite technology and expertise in high temperature industrial applications to develop further improvements in graphite cathodes. We believe that graphite cathode allow for substantial improvement in process efficiency. Graphite cathodes are used by Aluminium Pechiney S.A. in its own plants and will be marketed to its licensees as well as to third parties. CLOSURE OF CANADIAN MANUFACTURING OPERATIONS. As part of our global restructuring and rationalization plan, we permanently closed our manufacturing operations in Welland, Canada. These operations had capacity to manufacture about 23,000 metric tons of graphite electrodes annually as well as carbon and graphite cathodes. Cathodes continue to be manufactured in North America at our facility in Columbia, Tennessee. We completed the closure in the 1999 second quarter. STRATEGIC ALLIANCE IN THE FUEL CELL INDUSTRY. In the 1999 third quarter, we entered into an exclusive product development collaboration agreement and an exclusive long term supply agreement with Ballard, the world's leader in the development and commercialization of PEM fuel cells. This strategic alliance relates to the development and use of flexible graphite-based material in flow field plates. Flow field plates are essential elements of PEM fuel cells. DEBT RECAPITALIZATION. In February 2000, we completed a debt recapitalization. We obtained the New Senior Facilities and used the net proceeds to repay our prior long term debt and certain other debt. BUSINESS STRATEGIES We have the largest share of the free trading markets in all of our major product lines. We believe that our average cost of sales of graphite electrodes is currently the lowest among major producers in our industry. In addition to our large market share and position as a low-cost producer of high quality products, we believe that our strengths include our new management 20 team, our global manufacturing base which includes multiple low cost locations and fully integrated state-of-the-art facilities, our exceptional customer technical service, our diversified customer base and our product innovation and process improvement capabilities. Our strategic goal is to be the best global low cost manufacturer and customer service- driven company with the best product performance in the graphite and carbon industry. We are focused on improving operating efficiencies, improving product quality and technical and commercial customer service, developing strategic alliances and growth opportunities, and developing and expanding new and existing profitable technologies. We seek to be the lowest cost supplier in our industry and to use that to our competitive advantage. Accordingly, we focus significant efforts on reducing costs, maximizing free cash flow, reducing leverage and maintaining and enhancing gross margins. We seek to use our strategies and build on our strengths to leverage earnings growth within existing product lines and through new product innovation and penetration of related new and niche markets. REDUCE COSTS AND IMPROVE OPERATING EFFICIENCIES. UCAR's Board of Directors adopted a global restructuring and rationalization plan in September 1998, and we launched new initiatives to enhance the plan in October 1999. The plan is intended to enhance stockholder value by focusing on optimizing margins, maximizing free cash flow, generating growth in earnings and strengthening competitiveness through operating and overhead cost reduction and plant rationalization. The plan is also intended, over the long term, to strengthen our position as a low cost supplier to the steel and metals industries and, over the near term, to respond to global and regional economic conditions that have been adversely impacting our customers. We believe that the plan is the most aggressive major cost reduction plan currently being implemented in the graphite and carbon industry. We believe that the cost savings under the plan have enabled us to strengthen our competitiveness. We also believe, however, that we must continue and enhance our focus on cost savings to achieve the ultimate objectives of the plan. Accordingly, in October 1999, based on an extensive analysis of our manufacturing, operating and organizational processes, we announced and launched new initiatives to add further targeted cost savings to the original plan by the end of 2002. The key elements of the original plan consisted of: o Rationalization of manufacturing operations, including closure of higher cost operations in Berlin, Germany and Welland, Canada and downsizing of operations in Vyazma, Russia. o Centralization and consolidation of administrative functions, including relocation of our corporate headquarters to Nashville, Tennessee, and centralization of our European administrative activities at our new European headquarters in Lausanne, Switzerland. o Implementation of more than 120 identified cost reduction projects in our operating facilities. 21 Our Berlin facility ceased operations in October 1998. Our Welland facility ceased production in April 1999. The Welland facility had capacity to manufacture about 23,000 metric tons of graphite electrodes annually as well as carbon and graphite cathodes. Graphite electrode production previously sourced from the closed facilities is now being sourced from our lowest cost facilities, which are located in Mexico and South Africa. Cathodes will continue to be manufactured in North America at our facility in Columbia, Tennessee. The annual graphite electrode manufacturing capacity of our Vyazma facility has been reduced from about 17,000 metric tons in early 1997 to about 10,000 metric tons at the end of 1998. Likewise, the number of employees at our Vyazma facility has been reduced from about 1,200 to about 600. These plant rationalization activities were completed on or ahead of schedule. In addition, the relocation of our corporate headquarters to Nashville, Tennessee was completed during the 1999 first quarter, ahead of schedule, and the centralization of our European administrative activities at our new European headquarters in Lausanne, Switzerland was substantially completed by the end of 1999, on schedule. About 366 positions, in addition to those at our Vyazma facility, have been eliminated pursuant to the original plan. Our new initiatives include increasing the number of identified cost reduction projects in our operating facilities to more than 230. A few of our more significant cost reduction projects include improving the power supply at our facility in Monterrey, Mexico, improving the furnaces in our graphite electrode and cathode manufacturing facilities in Caserta, Italy and Notre Dame France, and upgrading the acid treatment equipment in our flexible graphite manufacturing facility in Cleveland, Ohio. Several of the new identified projects are expected to result in additional benefits in terms of product quality and supply chain improvements. Other projects relate to such areas as energy conservation, raw material substitution, yield improvement, reduction in labor by automation, maintenance savings and reduction in plant administration. We are also evaluating every aspect of our supply chain performance for further improvements, including realignment and standardization of critical business processes, standardization of enterprise wide systems, and improvement of information technology infrastructure and interfaces with trading partners. Our targets include decreasing inventories, as measured against inventory levels and based on production levels for the 1999 first nine months (annualized), by over 20%, to about $180 million, and reducing our cash cycle time by about one-third by the end of 2002. Further, we completed a global benchmarking study during the 1999 third quarter that identified performance levels of certain key global administrative and transaction processing functions. This study has identified opportunities for performance improvement and cost savings that should allow for the achievement of our target of reducing selling and administrative expenses from 11% of net sales in 1998 to 8% of net sales by the end of 2002. Based on the study, work processes are being redesigned to, among other things, seek to improve shared services for better global efficiencies and standardize enterprise wide resource planning systems. The plan generated cost savings at an annualized run rate of about $72 million by the end of 1999. We estimate that the plan will generate cost savings at an annualized run rate of about $112 million by the end of 2000, about $145 million by the end of 2001 and about $165 million by the end of 2002 and thereafter. For 1999, our goal was to achieve annual cost savings of $64 million. We achieved cost savings of $73 million, consisting of $33 million in graphite electrode 22 cost of sales and $8 million of savings in graphite and carbon product cost of sales as well as $32 million of savings in overhead and taxes. In addition, since 1997, we have undertaken, with the assistance of consultants, various projects to further integrate global operations. Costs associated with these projects aggregated about $18 million over a two-year period ending mid-1999. We also estimate that, under current conditions, these projects will have a pay-back period of two years ending 2000. We are seeking to improve product quality at the same time that we are seeking to reduce costs. We have set specific goals for product quality improvements, focusing on use of superior raw materials, technology and six sigma manufacturing capabilities. RESTRUCTURING OUR GRAPHITE SPECIALTIES BUSINESS. During 1999 and into the 2000 first quarter, our graphite specialties business experienced significant adverse change due to a decline in demand for graphite specialties, particularly from certain segments of the semiconductor industry, growth in supply due to expansion by other producers, a decline in prices for graphite specialties, and delays in bringing new or improved products to market. The assets and inventory of this business are located primarily at our plant in Clarksburg, West Virginia. It accounted for about 9% of our net sales in 1999. In February 2000, we announced that we would restructure the business. The key elements of the restructuring consist of elimination of low profitability product lines, rationalization of operations to generate cost savings and improve profitability of remaining product lines, and use of graphite special technology to develop new and expand existing niche markets. We expect the restructuring to generate cost savings at an annual run rate of $7 million by the end of 2001. We expect to complete the restructuring by the end of the 2001 first quarter. POWER OF ONE BUSINESS TRANSFORMATION INITIATIVE. In support of our strategy, we have launched a global business transformation initiative entitled POWER OF ONE. POWER OF ONE is a coordinated global self-assessment and business process rationalization and transformation initiative driving one consistent theme throughout our organization: "becoming the best." We expect the initiative to accelerate development and implementation of business opportunities and develop leadership skills more broadly within all management levels as well as support our efforts to reduce costs and working capital needs, improve efficiencies and product quality, shorten cycle times and achieve "best in class" performance. The initiative is also designed to assure the successful completion of our previously announced cost reduction activities. The initiative will require an investment of $5 million in 2000 and $20 million to $25 million over the three years ending 2002. We believe, however, that most of this investment will be funded from cost savings expected to be realized. The initiative has mobilized our workforce towards reassessing every aspect of the way we do business. This pursuit of "best in class" performance has already challenged and empowered our workforce, identified "business-to-business" opportunities with both existing and potentially new trading partners, and established targets for improving quality, speed and efficiency across our extended enterprise. The POWER OF ONE initiative is company-wide and involves all levels of our workforce. 23 Strategically guided by management, POWER OF ONE teams quickly self-assessed our existing critical business processes through a comprehensive benchmarking exercise that compared our practices against the best global manufacturing enterprises. This exercise provided the direction for identifying opportunities for improvement and determining priorities. The concept of "business-to-business" has become critically important to us. The POWER OF ONE initiative assesses our core business processes through strong collaboration with all of our critical trading partners: our customers, suppliers and strategic partners. POWER OF ONE also extends across our other critical management processes, including financial, human resources, and knowledge and technology management. Through the initiative, new global policies and procedures are under development. We are reevaluating and redefining global processes, roles and responsibilities, and enabling technologies so that we can leverage POWER OF ONE for our global extended enterprise. DEVELOP STRATEGIC ALLIANCES AND GROWTH OPPORTUNITIES. We are pursuing strategic alliances that enhance or complement our existing or related businesses. Strategic alliances may be in the form of joint venture, licensing, supply or other arrangements that leverage our strengths to achieve additional company-wide cost savings and to increase net sales, margins, cash flow and earnings growth in graphite electrode and other existing product lines and in related new product lines. Our relationship with Aluminium Pechiney S.A. in the cathode business is an example of a successful strategic alliance. Aluminium Pechiney S.A. is not only a strategic partner but is also a significant customer under a long term supply contract. In the 1999 third quarter, we entered into an exclusive product development collaboration agreement and an exclusive long-term supply agreement with Ballard, the world's leader in the development and commercialization of PEM fuel cells. Fuel cells are devices that generate electricity through an environmentally clean chemical process as an alternative to internal combustion engines and other fossil fuel based energy sources. Industry sources expect wide commercialization of fuel cells to occur early in this decade, particularly as countries around the world deal with environmental problems created from other sources of energy. These industry sources estimate that the market for fuel cells is currently around $40 million and will grow to $10 billion over this decade. The market is being driven by advances in fuel cell technology, growth in worldwide power demand and deregulation of power utilities as well as environmental issues. Potential fuel cell applications include cars and other vehicles, power plants, generators, cellular phones and computers. We have been actively working with Ballard for the past 7 years in developing flexible graphite based material for use as flow field plates, which are essential elements of PEM fuel cells. During the collaboration period, we and Ballard have agreed to cooperate with each other, exclusively, in the research and development of flow field plates using flexible graphite, including next generation flow field plates. The agreements, which are expected to continue at least through most of this decade, contain customary product pricing and delivery, technology ownership and licensing, termination and other provisions. We expect substantial growth in net sales of our flexible graphite beginning in 2003. We believe that we will be able to support that 24 growth with our existing manufacturing capacity and, if necessary, incremental expansion of capacity. In the 1999 third quarter, we transferred our flexible graphite business to a newly formed, wholly owned subsidiary, UCAR Graph-Tech. UCAR Graph-Tech is engaged in the business of developing, manufacturing and selling technologically advanced and highly engineered natural graphite materials to meet needs in the fuel cell, heat management, fire protection, sealing and other industries. We intend to expand this business through internal growth, acquisitions and strategic customer partnerships. We are also evaluating a number of financial options to create more value for our stockholders over the near term from this business. Other current areas of focus include various portions of our graphite and carbon specialties business. In addition, we are focusing on establishing an alliance in the petroleum coke industry. Petroleum coke is the principal raw material used by us. DEVELOP AND EXPAND NEW AND EXISTING PROFITABLE TECHNOLOGIES. We are currently focusing our technological development efforts in several key areas in order to develop new related products and expand applications for our existing products, which we believe will enhance our profitability. Two areas of current focus are further quality improvements in supersize graphite electrodes and in graphite cathodes. Supersize electrodes are used in the modern high powered, larger electric arc furnaces which constitute the majority of newly built furnaces. Graphite cathodes can be used instead of carbon cathodes in smelting aluminum. Use of graphite cathodes allows for substantial improvements in process efficiency. We believe that the market for supersize graphite electrodes represents a growth sector of the graphite electrode business and that the market for graphite cathodes represents a growth sector of the cathode business. There are about three other manufacturers of supersize graphite electrodes and one other manufacturer of graphite cathodes in the world. We are developing applications for advanced natural graphite materials to meet heat shielding, dissipation and other management needs, fire retardant and protection needs, flow field and other chemical reaction management needs, and energy management needs in the semiconductor, transportation, textile, fuel cell, electrical, electronic and other industries. Other areas of focus include expanding the use of carbon refractories (one of our carbon specialties) in submerged arc furnace lining applications and developing new applications for our flexible graphite. We are also focusing our efforts on expanding the use of electrode-based electric arc furnaces for smelting of nonferrous materials. We believe that this represents a significant opportunity to expand the market for our technological strengths in high-temperature materials processing applications. MARKETS AND INDUSTRY OVERVIEW We estimate that, in 1999, the worldwide market for graphite and carbon products served by us was about $4 billion. These products are sold primarily to customers in the steel, silicon 25 metal, ferronickel, thermal phosphorous, titanium dioxide, aluminum and other metal industries. Customers in these industries are located in virtually every industrialized country in the world. USE OF GRAPHITE ELECTRODES IN ELECTRIC ARC FURNACES. There are two primary technologies for steelmaking: o basic oxygen furnace steel production, and o electric arc furnace steel production. Electric arc furnace steelmakers are called "market mills" or "mini-mills" because of their smaller capacity as compared to basic oxygen furnace steelmakers. Graphite electrodes are used primarily in electric arc furnace steel production. They are also used to refine steel in ladle furnaces and in other smelting processes such as production of titanium dioxide. Electrodes act as conductors of electricity into the furnace, generating sufficient heat to melt scrap metal, iron ore or other raw materials used to produce steel, silicon metal or other metals. The electrodes are gradually consumed in the course of that production. Graphite electrodes are used primarily in the production of steel in an electric arc furnace. These electric arc furnaces typically range in size from those that produce about 25 metric tons of steel per production cycle to those that produce about 150 metric tons per production cycle. Electric arc furnaces operate using either alternating or direct electric current. The vast majority of electric arc furnaces use alternating current. Each of these furnaces typically uses nine electrodes (in three columns of three electrodes each) at one time. The other electric arc furnaces, which use direct current, typically use one column of three electrodes. The size of the electrodes varies depending on the size of the furnace, the size of the furnace's electric transformer and the planned productivity of the furnace. In a typical furnace using alternating current and operating at a typical number of production cycles per day, one of the nine electrodes is fully consumed (requiring the addition of a new electrode), on average, every eight to ten operating hours. The actual rate of consumption and addition of electrodes for a particular furnace depends primarily on the efficiency and productivity of the furnace. Therefore, demand for graphite electrodes is directly related to the amount and efficiency of electric arc furnace steel production. Graphite electrodes are currently the only products available that have the high levels of electrical conductivity and the capability of sustaining the high levels of heat generated in an electric arc furnace producing steel. Therefore, graphite electrodes are essential for electric arc furnace steel production. We estimate that, on average, the cost of graphite electrodes represents about 3% of the cost of producing steel in a typical electric arc furnace. HISTORICAL GROWTH OF ELECTRIC ARC FURNACE STEEL PRODUCTION AND RECENT DEVELOPMENTS. Electric arc furnace steel production has, for many years, been the growth sector of the steel industry. There are currently in excess of 2,000 electric arc furnaces operating worldwide. Worldwide electric arc furnace steel production grew from about 90 million metric tons (about 14% of total steel production) in 1970 to about 268 million metric tons (about 34% of total steel production) in 1999. We estimate that steelmakers worldwide added net new electric arc furnace 26 steel production capacity of about 16 million metric tons in 1997, about 19 million metric tons in 1998 and about 18 million metric tons in 1999. Electric arc furnace steel production has historically exhibited less cyclicality than total steel production. Worldwide electric arc furnace steel production had experienced only two downturns from 1976 through 1997, each of which lasted about a year. As a result of conditions generally affecting economies in the Asia/Pacific region and ultimately, in differing degrees, economies worldwide, a third downturn began in late 1997 and continued at least into the 1999 first quarter. Electric arc furnace steel production declined from about 271 million metric tons in 1997 (about 34% of total steel production) to about 264 million metric tons in 1998 (about 34% of total steel production). As a result of the continued strength in the U.S. and European economies and the beginning of recovery in other areas of the global economy, we believe that worldwide electric arc furnace steel production began to gradually recover from the most recent downturn in the 1999 second quarter. Electric arc furnace steel production increased slightly to about 268 million metric tons (about 34% of total steel production) in 1999. The following table illustrates the growth in electric arc furnace steel production. WORLDWIDE STEEL PRODUCTION IN ELECTRIC ARC FURNACES (In millions of metric tons) [BAR CHART] RELATIONSHIP BETWEEN GRAPHITE ELECTRODE DEMAND AND ELECTRIC ARC FURNACE STEEL PRODUCTION. We believe that the worldwide growth in electric arc furnace steel production has been due primarily to improvements in the cost effectiveness and operating efficiency of electric arc furnace steelmaking. We believe that growth has also been due to the fact that, as a result of recent technical advances, electric arc furnace steelmakers are capable of producing nearly all of the product lines available from basic oxygen furnace steelmakers. 27 Developments in electric arc furnace steelmaking that we believe improved cost effectiveness and operating efficiency over the past two decades include: o changes in equipment design and production processes stemming from the now largely completed conversion of furnaces from a refractory lined system to a water cooled system, which sharply reduce specific consumption, o use of higher quality scrap metals and other raw materials, and o improvements in the size, strength and quality of graphite electrodes (including those developed by us). This improved efficiency resulted in a decrease in specific consumption. We estimate that specific consumption declined from about 6.4 kilograms of graphite electrodes per metric ton of steel produced in 1974 to about 2.5 kilograms per metric ton in 1999. From 1992 through late 1997, increased levels of electric arc furnace steel production more than offset the decrease in specific consumption. This resulted in increased demand for graphite electrodes. We believe that, on average, as the costs (relative to the benefits) increase for electric arc furnace steelmakers to achieve significant further efficiencies in electric arc furnace graphite electrode consumption, the decline in specific consumption will continue at a more gradual pace. We further believe that the rate of decline in the future will be impacted by the addition of new electric arc furnace steelmaking capacity. To the extent that this new capacity replaces old capacity, it has the effect of reducing industrywide specific consumption due to the efficiency of new electric arc furnaces. To the extent this new capacity increases industrywide electric arc furnace steel production capacity and that capacity is utilized, it creates additional demand for graphite electrodes. PRODUCTION CAPACITY AND PRICING. From the mid-1980s through the early 1990s, in response to downward pressure on pricing due to excessive production capacity and declining specific consumption, there was a consolidation in the number of graphite electrode producers and a reduction in graphite electrode manufacturing capacity in the free trading markets. Beginning in late 1997 and continuing at least into the 1999 first quarter, global and regional economic conditions adversely impacted steel production, including steel produced in electric arc furnaces. As a result, demand for graphite electrodes declined in 1998 and in the 1999 first quarter. It began to gradually increase in the 1999 second quarter due to a gradual recovery in global and regional economic conditions. We believe that the graphite electrode manufacturing capacity utilization rate in the free trading markets was about 91% in 1997, about 85% in 1998 and about 87% in 1999. In response to the adverse global and regional economic conditions, as part of our global restructuring and rationalization plan initially announced in September 1998, we reduced our annual graphite electrode manufacturing capacity by about 30,000 metric tons. We believe that these reductions represented about 4% of estimated graphite electrode manufacturing capacity in the free trading markets. We are not aware of any construction of new graphite electrode manufacturing facilities anywhere in the free trading markets. Since September 1998, two of our 28 competitors have reduced their annual graphite electrode manufacturing capacity. Their announced reductions total more than 28,000 metric tons. As a result of these reductions, we believe that, if graphite electrode demand returned to 1997 levels, the current graphite electrode manufacturing capacity utilization rate in the free trading markets would be at least 95%. From 1992 through late 1997, there was a significant improvement in pricing of graphite electrodes in the free trading markets. There has been downward market pressure on graphite electrode pricing since mid-1998. None of the settlement or plea agreements in connection with antitrust investigations or related lawsuits or claims contain restrictions on future prices of our graphite electrodes. OUR GRAPHITE ELECTRODE MARKET SHARE. We estimate that about two-thirds of the electric arc furnace steelmakers in the free trading markets and about 85% of the electric arc furnace steelmakers in the home markets purchased all or a portion of their graphite electrodes from us in 1999. We further estimate that we supplied about 39% of all graphite electrodes purchased in the home markets and about 29% of those purchased in the free trading markets in 1999. Sales of graphite electrodes in the home markets accounted for about 80% of our net sales of graphite electrodes in 1999. We estimate that the market for graphite electrodes was about $2.7 billion worldwide and about $2.1 billion in the free trading markets in 1999. We estimate that, in 1999, sales in the United States accounted for about 22% of our total net sales of graphite electrodes and we sold graphite electrodes in over 80 countries, with no other country accounting for more than 15% of our total net sales of graphite electrodes. OUTLOOK FOR GRAPHITE ELECTRODES. During 1997 through 1999, we estimate that an aggregate of about 53 million metric tons of net new electric arc furnace steelmaking capacity was added worldwide. We estimate that about 18 million metric tons of that net new capacity was added in 1999. Further, we believe that a portion of the net new capacity added in the last three years has not yet become fully operational. We are aware of about 44 million metric tons of announced net new electric arc furnace production capacity that is scheduled to be added in 2000 through 2002. This includes those announced additions to capacity which had been scheduled to be added in 1999 or earlier, but were delayed. It excludes those that have been cancelled. Notwithstanding the growth in capacity, as a result of global and regional economic conditions, steel production, including steel produced in electric arc furnaces, declined throughout 1998 and into the 1999 first quarter. As a result, demand for graphite electrodes declined. Due to the continued strength of the U.S. and European economies and the beginning of recovery in other areas of the global economy, we believe that, in the 1999 second quarter, worldwide electric arc furnace steel production began to gradually increase. We are benefiting from that increase. Our volume of graphite electrodes sold has gradually increased each quarter during 1999. In the aggregate, our volume increased by 17% in the 1999 fourth quarter as compared to the 1999 first quarter, effectively returning to the 1998 second quarter level. We believe that graphite electrode industry fundamentals support our long term strategy and the beginning of recovery in pricing worldwide. If future global economic conditions over the long 29 term are similar to those of the past two decades, we believe that worldwide production of steel in electric arc furnaces will continue to grow over the long term at its historical trendline annual growth rate of 4% and that, as a result, worldwide demand for graphite electrodes and the volume of graphite electrodes sold (in metric tons) will grow over the long term at an average annual rate of 1% to 2%. CARBON ELECTRODES. Carbon electrodes are used primarily to produce silicon metal, which is used in the manufacture of aluminum. Carbon electrodes are used and consumed in a manner similar to that of graphite electrodes, although at lower temperatures and with different consumption rates. We estimate that demand for carbon electrodes in the free trading markets was about 69,000 metric tons in 1997, about 63,000 metric tons in 1998 and about 60,000 metric tons in 1999. We believe that the decline was due primarily to the impact of global and regional economic conditions on worldwide production of silicon metal. As a result of the beginning of recovery in global and regional economic conditions, we believe that demand for carbon electrodes is beginning to gradually improve. We estimate that we sold about 37% of the carbon electrodes purchased in the free trading markets in 1999. We estimate that the worldwide market for carbon electrodes was about $120 million in 1999. We are the only major manufacturer of carbon electrodes in North and South America. CATHODES. Cathodes consist primarily of blocks used as lining for furnaces used to smelt aluminum. In a typical smelting furnace operating at a typical rate and efficiency of production, the cathodes must be replaced every 5 to 8 years. As a result of the acquisition of Carbone Savoie, we are the largest manufacturer of cathodes in the free trading markets and we are allied with Aluminium Pechiney S.A. Aluminium Pechiney S.A. is one of the world's leading producers of aluminum and the leading supplier of smelting technology to the aluminum industry. We are using that smelting technology and our graphite technology and expertise in high temperature industrial applications to develop further improvements in graphite cathodes. We believe that use of graphite cathodes (instead of carbon cathodes) allow a substantial improvement in process efficiency. There are only three producers of graphite cathodes in the world. We estimate that we sold about 30% of the carbon and graphite cathodes sold in the free trading markets in 1999. We estimate that the worldwide market for graphite and carbon cathodes was about $230 million in 1999. We believe that demand for cathodes in the free trading markets will grow over the long term at an average annual growth rate of about 2% to 3%, similar to the long term growth rate of the aluminum industry. We also believe that the demand for graphite cathodes will exceed that of carbon cathodes as new smelting furnaces are built and existing smelting furnaces are converted from carbon cathodes to graphite cathodes. Over the past three years, the market for graphite cathodes has grown from about 15% to about 25% of the total market for cathodes in the free trading markets. We believe that the market for graphite cathodes will continue to grow over the next several years at a comparable rate. FLEXIBLE GRAPHITE. Flexible graphite is used in gasket and other sealing applications primarily for internal combustion engines, pipe flanges and chemical and petrochemical industry 30 process equipment. Flexible graphite is a natural graphite-based product, while most of our other products are petroleum coke-based products. The volume of flexible graphite sold has grown at an average annual rate of about 10% over the past ten years, due primarily to demand for a high quality sealing material to replace asbestos. We believe that growth for these uses will continue, at a more moderate pace, over the next several years. We estimate that we sold about 35% of the flexible graphite purchased in the free trading markets in 1999. We estimate that the worldwide market for flexible graphite was about $85 million in 1999. We are developing applications for advanced natural graphite materials in the fuel cell, heat management and fire protection industries. We believe that the market for flexible graphite in the fuel cell industry could exceed $2 billion by 2010. OTHER PRODUCTS. Our other products include carbon specialties, graphite specialties and composite tooling. Our graphite and carbon specialties are used in the metals, chemicals, transportation, energy, semiconductor and aerospace industries. Demand for graphite specialties has been weak in 1999 and into the 2000 first quarter. We believe, however, that demand for carbon specialties, particularly from the chemical and aluminum industries, and demand for refractories and composite tooling will continue to grow over the long term at their average annual historical growth rate of about 4% to 5%. MANUFACTURING PROCESSES The manufacture of a graphite electrode takes, on average, about two months. Graphite electrodes range in size from three inches to 30 inches in diameter and two feet to nine feet in length and weigh between 20 pounds and 4,800 pounds (2.2 metric tons). The manufacture of graphite electrodes involves the six main processes described below. FORMING: Calcined petroleum coke is crushed, screened, sized and blended in a heated vessel with coal tar pitch. The resulting plastic mass is extruded through a forming press and cut into cylindrical lengths (called "green" electrodes) before cooling in a water bath. BAKING: The "green" electrodes are baked at about 1,400 degrees Fahrenheit in specially designed furnaces to purify and solidify the pitch and burn off impurities. After cooling, the electrodes are cleaned, inspected and sample-tested. IMPREGNATION: Baked electrodes are impregnated with a special pitch when higher density, mechanical strength and capability to withstand higher electric currents are required. REBAKING: The impregnated electrodes are rebaked to solidify the special pitch and burn off impurities, thereby adding strength to the electrodes. GRAPHITIZING: Using a process which we developed, the rebaked electrodes are heated in longitudinal electric resistance furnaces at about 5,000 degrees Fahrenheit to restructure the carbon to its 31 characteristically crystalline form, graphite. After this process, the electrodes are gradually cooled, cleaned, inspected and sample-tested. MACHINING: After graphitizing, the electrodes are machined to comply with international specifications governing outside diameters, overall lengths and joint details.Tapered sockets are machine- threaded at each end of the electrode to permit the joining of electrodes in columns by means of correspondingly double- tapered machine-threaded graphite nipples. Carbon electrodes (which can be up to 55 inches in diameter) and graphite and carbon cathodes are manufactured by a comparable process (excluding, in the case of carbon electrodes and cathodes, impregnation and graphitization). Graphite and carbon specialties are made by a process similar to the process for manufacturing electrodes but using different mixtures of raw materials and different processing time periods. Flexible graphite is made from mined natural graphite flake that is acid treated, heat treated and rolled into sheets of desired thickness and width. We generally warrant to our customers that our electrodes and cathodes will meet our specifications. Electrode and cathode returns and replacements have aggregated less than 1% of net sales in each of the last three years. The closure of our manufacturing operations in Canada and Germany and the downsizing of our manufacturing operations in Russia reduced our graphite electrode manufacturing capacity by about 11%. We now have the capacity to manufacture about 245,000 metric tons of graphite electrodes annually. We have the capacity to manufacture about 30,000 metric tons of carbon electrodes annually and about 40,000 metric tons of cathodes annually. The following table sets forth certain information regarding our sales volumes: FOR THE YEAR ENDED DECEMBER 31, 1997 1998 1999 ---- ---- ---- (Metric tons) Volume of graphite electrodes sold(a)..... 250,000 211,000 206,000 Volume of carbon electrodes sold.......... 28,000 25,000 22,000 Volume of cathodes sold(b)................ 31,000 33,000 31,000 - ------------------- (a) Includes graphite electrodes sold by our South African subsidiary both before and after its acquisition in April 1997. The assets, liabilities, results of operations and cash flows of our South African subsidiary are not consolidated in the Consolidated Financial Statements before that date. (b) Includes cathodes sold by Carbone Savoie both before and after its acquisition in January 1997. The assets, liabilities, results of operations and cash flows of Carbone Savoie are not consolidated in the Consolidated Financial Statements before that date. We operate 15 manufacturing facilities and three machine shops located in Brazil, France, Italy, Mexico, Russia, South Africa, Spain, the United Kingdom and the United States. Graphite 32 electrodes are manufactured in each country (other than the United Kingdom) in which we have a manufacturing facility. Carbon electrodes are manufactured in the United States. Graphite and carbon cathodes are manufactured in Brazil, France and the United States. Graphite and carbon specialties are manufactured in France and the United States. Flexible graphite is manufactured in the United States. We believe that our multiple fully integrated state-of-the-art manufacturing facilities in diverse geographic regions provide us with significant operational flexibility. We use robotics and statistical process controls in manufacturing processes and have a total quality control program that involves significant in-house training. We utilize sophisticated "pipeline" manufacturing and logistical systems at most of our electrode and cathode manufacturing facilities. These controls, programs and systems have improved product quality, reduced waste in the manufacturing process, resulted in more efficient utilization of manufacturing personnel and equipment, improved efficiency in customer order processing and reduced inventory requirements. We have installed at some of these facilities and intend to install at our other graphite electrode and cathode manufacturing facilities proprietary process technology to further reduce manufacturing cycle times, increase cost efficiency and improve coordination between production scheduling and forecast sales. Through our restructuring and re-engineering projects and plans, we have sought to modularize our graphite electrode and graphite and carbon cathode manufacturing capacity. This enables us to seek to incrementally adjust capacity in use, as well as related costs, to accommodate anticipated changes in global sales volume. We believe that our modular facilities, together with the diverse worldwide locations of our manufacturing operations, enable us to shift manufacturing to regions whose changes or currency exchange rates provide cost advantages. In addition, generally we seek to manage our manufacturing operations on a global basis, allocating production among our worldwide manufacturing facilities to minimize the number of products made at each facility and to maximize capacity utilization at as many of our facilities as possible. This enables us to, among other things, seek to minimize our fixed costs per ton produced. We also believe that our global manufacturing base helps us to minimize risks associated with dependence on any single economic region. We believe that we have adequate existing permanent graphite and carbon electrode and cathode manufacturing capacity to meet any increased demand over the near term. Under current conditions, we are able to incrementally add new permanent graphite electrode manufacturing capacity (up to about 15% to 20% of our existing capacity), primarily through "de-bottlenecking" at existing facilities, when and as required, at an estimated initial investment of less than $500 per annual metric ton produced. Major maintenance at our facilities is conducted on an ongoing basis. Manufacturing operations at any facility may be subject to curtailment due to new laws or regulations, changes in interpretations of existing laws or regulations or changes in governmental enforcement policies. 33 PRODUCTS GRAPHITE ELECTRODES. Our principal products are graphite electrodes. Graphite electrodes are consumed primarily in the production of steel in electric arc furnaces. They are also used to refine steel in ladle furnaces and in other smelting processes. Electric arc furnace steel production requires significant heat (as high as 5,000 degrees Fahrenheit, which we believe is the hottest operating temperature in any industrial or commercial manufacturing process worldwide) to melt scrap metal, iron ore or other raw materials. That heat is generated by graphite electrodes as electricity (as much as 150,000 amps) passes through them and creates an electric arc between the graphite electrodes and the raw materials. The graphite electrodes arc gradually consumed in the production process. We believe that we provide the broadest range of sizes in graphite electrodes and that the quality of our graphite electrodes is competitive with or better than that of comparable products of any other major manufacturer. We also believe that there are presently no commercially viable substitutes for graphite electrodes in electric arc furnace steelmaking. OTHER GRAPHITE AND CARBON PRODUCTS. We manufacture carbon electrodes. Carbon electrodes are consumed primarily in the production of silicon metal and also in the production of ferronickel and thermal phosphorous. The production of these materials involves processes similar to the production of steel in electric arc furnaces, but at lower temperatures. We manufacture carbon and graphite cathodes. Cathodes consist primarily of blocks used as liners for, and acting as conductors of electricity in, aluminum smelting furnaces. We manufacture flexible graphite which is used in gasket and other sealing applications primarily for internal combustion engines, pipe flanges and process equipment used in the chemical and petrochemical industries. It is also used as packing for valves. Flexible graphite is subject to ongoing product development that results in product improvements that tend to generate higher margins. We manufacture graphite and carbon specialties for use in the metals, chemicals, transportation, energy, semiconductor and aerospace industries. Our carbon specialties consist primarily of carbon refractories that are used as lining for blast furnaces. They also include pastes that are used as fillers between cathode blocks and between refractory bricks. Our graphite specialties consist primarily of isomolded, molded and extruded graphite shapes sold to specialty machine shops and end users for machining and, to a lesser extent, superfine grain products sold primarily to the semiconductor industry and molds, insulation substrates and other machined products. Most of these machined products are manufactured for specific applications or to meet customer specifications. In connection with restructuring our graphite specialties business, we intend to eliminate some of these products. In addition, we manufacture composite tooling, which is tooling made from graphite blocks. 34 RAW MATERIALS AND SUPPLIERS Our primary raw materials are engineered by-products and residues of the petroleum and coal industries. We use these raw materials because of their high carbon content. The primary raw materials for graphite electrodes, graphite cathodes and graphite specialties are calcined petroleum cokes (needle coke for electrodes and regular grade cokes for cathodes and specialties), coal tar pitch and petroleum pitch. The primary raw materials for carbon electrodes, carbon cathodes and carbon specialties are calcined anthracite coal and coal tar pitch and, in some instances, a petroleum coke-based material. We also use graphite fines in the manufacture of some of our non-electrode products. Graphite fines are waste products from the machining of graphite electrodes. The primary raw material for flexible graphite is natural graphite flake, which must be acid treated before further processing. We are the only manufacturer of flexible graphite who acid treats graphite flakes. Other manufacturers purchase flakes which have been acid treated by third parties. We believe our acid treating process gives us a competitive advantage in terms of process efficiency, product quality and product innovation. Over the past 10 years, we have been able to reduce our raw materials costs (as well as processing and production costs) per pound due to improvements in technology (as well as process efficiency). We purchase our raw materials from a variety of sources, typically under annual purchase contracts. We purchase petroleum needle coke from all of the major suppliers under annual purchase contracts that are part of longer term understandings on price. We believe that the quality of our raw materials on the whole is competitive with or better than those available to our major competitors and that, under current conditions, our raw materials are available in adequate quantities at market prices. Since all of our products (other than flexible graphite) use the same primary raw materials, we believe that we are able to purchase raw materials on a more cost efficient basis than some of our competitors with more limited product lines and production volumes. Electric power or natural gas used in manufacturing processes is purchased from local suppliers under short-term contracts or in the spot market. The availability and price of raw materials and energy may be subject to curtailment or change due to limitations which may be imposed under new legislation or governmental regulations, suppliers' allocations to meet the demands of other purchasers during periods of shortage (including, in the case of energy suppliers, shortages arising due to extended cold weather), interruptions in production by suppliers, and market and other events and conditions. Over the past several years, we have mitigated the effect of raw material and energy price increases on our results of operations through a combination of improved operating efficiency, permanent on-going cost savings and, prior to 1998, passing such price increases on to customers. We cannot assure you, however, that such measures will successfully mitigate future increases in the price of raw materials or energy. In the 1999 fourth quarter and the 2000 first quarter, there was a substantial increase in the worldwide market price of oil, which could affect the price of petroleum coke. A substantial increase in raw material or energy prices, which cannot be mitigated or passed on to customers, or a continued interruption in supply, particularly in the supply of petroleum coke, would have a material adverse effect on us. 35 SALES AND CUSTOMER SERVICE We have a global business with a diversified customer base. We sell our products in virtually every industrialized country in the world. Sales of our products to customers outside the United States accounted for more than two-thirds of our net sales in 1999. Our customer base includes both steelmakers and non-steelmakers. In 1999, four of our ten largest customers were purchasers of non-graphite electrode products or purchasers of graphite electrodes for non-steelmaking purposes. In 1999, five of our ten largest customers were based in Europe, two were in Africa, and one was in each of the United States, Mexico and Brazil. No single customer group of affiliated customers accounted for more than 4% of our net sales in 1999. Our products are sold primarily by our direct sales force, which operates from more than 20 sales offices located in the United States, Europe and other home markets as well as export markets. Our direct sales force is supported by our customer technical service personnel, and, to a lesser extent, by independent sales agents, most of whom have worked with us for many years, in various countries outside the home markets. We have had, for many years, a strong commitment to provide a high level of technical service to customers, which supports our sales activities and which seeks to assist customers to maximize their production and minimize their costs. We employ about 60 engineers based at our facilities in the United States, Europe and other home markets to provide technical service to customers globally in, among other things, all areas of electric arc furnace design and operation, electrode specification and use and related matters. This technical service includes periodically monitoring certain customers' electric arc furnace efficiency levels. We believe that we have more technical service engineers located in more countries than any of our competitors. Our sales and service groups include those dedicated to cathodes who are employed by Carbone Savoie. Carbone Savoie's sales and service groups work closely with those of Aluminium Pechiney S.A. to maximize use of their respective products and technologies. RESEARCH AND DEVELOPMENT We have two dedicated technology centers, one based in United States and the other in France . We conduct, at those centers and our manufacturing facilities throughout the world, a focused technology program to develop new related products and expand applications for existing products as well as improve product quality and manufacturing processes. This program is conducted both independently and in conjunction with suppliers, customers, strategic partners and others. About 100 of our technical professionals are directly involved in this program. Their activities are integrated with the efforts of over 100 engineers at our manufacturing facilities who are focused on improving manufacturing processes. One of our technology centers is dedicated to cathodes and operated by Carbone Savoie. It employs about 20 of our professionals. Developments by us include larger and stronger electrodes, new chemical additives to enhance raw materials used in the manufacture of graphite electrodes, proprietary technology used in the manufacture of advanced natural graphite materials such as our proprietary acid treating process, environmentally benign cold pastes used with cathodes and refractories, and 36 proprietary hot press technology used in the manufacture of carbon refractories. We have received recognition for the high quality of our products under several programs around the world and have been awarded preferred or certified supplier status by many major steel and other manufacturing companies. In addition, we were selected from among all of the major producers of natural graphite materials in the world for the opportunity to enter into an exclusive long term product development collaboration agreement with Ballard relating to PEM fuel cells. We believe that our selection was due to, among other things, the high quality of our development efforts. In January 2000, Ballard unveiled its most recent fuel cell stack, the Mark 900. Our flexible graphite is a key component. Two areas of current focus are further quality improvements in supersize graphite electrodes and in graphite cathodes. Supersize electrodes are used in the modern high powered, larger electric arc furnaces that constitute the majority of newly built furnaces. Graphite cathodes can be used instead of carbon cathodes in smelting aluminum. Use of graphite cathodes allows for substantial improvements in process efficiency. We believe that the market for supersize graphite electrodes and graphite cathodes represent growth sectors of the graphite electrode and cathode businesses. There are about three other manufacturers of supersize graphite electrodes and one other manufacturer of graphite cathodes in the world. Other areas of focus include expanding the use of carbon refractories (one of our carbon specialties) in submerged arc furnace lining applications and developing new applications for our flexible graphite. We are also focusing our efforts on expanding the use of electrode-based electric arc furnaces for smelting of nonferrous materials. We believe that this represents a significant opportunity to expand the market for our technological strengths in high-temperature materials processing applications. We are developing applications for advanced natural graphite materials to meet heat shielding, dissipation and other management needs, fire retardant and protection needs, flow field plate and other chemical reaction needs, and energy management needs in the semiconductor, transportation, textile, fuel cell and other industries. Our research and development expenses (other than certain expenses at our manufacturing facilities, which are included in cost of sales) were $9 million in 1997, 1998 and 1999. DISTRIBUTION Our customers generally seek to negotiate electrode prices and anticipated volumes on an annual basis. Our customers then generally place orders for electrodes three to six months prior to the specified delivery date. Such orders are cancelable by the customer. Therefore, we manufacture electrodes and seek to manage electrode inventory levels to meet rolling sales forecasts. We generally seek to maintain an appropriately low level of finished electrode inventories, taking into account these factors and the length of electrode manufacturing cycles. Other products are generally manufactured or fabricated to meet customer orders. Accordingly, inventory levels will vary with demand for these finished products. Recently, we have entered into a long term supply contract with Ballard for use of flexible graphite in flow field plates 37 in PEM fuel cells and with purchasers of carbon electrodes. We may, from time to time in the future, enter into long term supply contracts with purchasers of our other products. Finished products are generally stored at our manufacturing facilities. We ship our finished products to customers primarily by truck and ship, using "just in time" techniques where practicable. Proximity of manufacturing facilities to customers can provide a competitive advantage in terms of cost of delivery of electrodes, cathodes and other large or heavy products to customers. The significance of these costs is affected by fluctuations in exchange rates, methods of shipment, import duties and whether the manufacturing facilities are located in the same economic trading region as the customer. We believe that we are generally better positioned in terms of such proximity than our major competitors to supply graphite electrodes and graphite and carbon cathodes to the free trading markets. INTELLECTUAL PROPERTY We own or have obtained licenses to various domestic and foreign patents, patent applications and trademarks related to our products, processes and business. These patents expire at various times over the next 20 years. These patents and patent applications in the aggregate are important to our competitive position and growth opportunities, particularly in connection with our flexible graphite business. We do not believe, however that a single patent or patent application is material to us. The tradename and trademark UCAR are owned by Union Carbide and licensed to us on a royalty-free basis under a license expiring in 2015. This license automatically renews for successive ten-year periods. It permits non-renewal by Union Carbide commencing after the first ten-year renewal period upon five years' notice of non-renewal. The tradename and trademark CARBONE SAVOIE are owned by Carbone Savoie and used in connection with cathodes manufactured by it. It is a registered trademark in Europe. We own various tradenames and trademarks used in our flexible graphite business. Several of them are registered in the United States and elsewhere. These tradenames and trademarks are, together, the only ones which are material to us. We have know-how and proprietary information which is important to our competitive position and growth opportunities. We seek to protect our know-how and proprietary information, as we believe appropriate, through written confidentiality and restricted use agreements with employees, consultants and others and various operating and other procedures. We cannot assure you that protection for our intellectual property under our patents and our measures to protect know-how and proprietary information will be effective or that our use of intellectual property does not infringe the rights of others. COMPETITION Competition in the graphite and carbon industry is based primarily on price, product quality and customer service. 38 GRAPHITE ELECTRODES. There is one other global manufacturer and nine other regional or local manufacturers of graphite electrodes in the free trading markets. We believe that we are the largest manufacturer in the world and SGL Carbon AG (whose plants are located in North America and Europe) is the second largest. We estimate that we supplied about 39% of the graphite electrodes purchased in the home markets and about 29% of those purchased in the free trading markets in 1999. Other manufacturers of graphite electrodes include: The Carbide/Graphite Group, Inc. (whose plants are located in the United States); and four manufacturers in Japan (one of whom, Showa Denko Carbon, Inc., has a plant located in the United States). There are also government-controlled and independent graphite electrode manufacturers in China. China is the only country that is not in the free trading markets with respect to graphite electrodes. The manufacturers in China generally provide less reliable delivery and produce lower quality products (with higher rates of breakage and specific consumption) for use in China and in countries which are its traditional trading partners. China and those partners are generally net importers of graphite electrodes. The antitrust investigations, lawsuits and claims are having an impact on the graphite electrode industry. We believe that, at a minimum, these impacts include increased price competition and increased debt or cost burdens, or both, for most manufacturers in the industry. In December 1998, the U.S. subsidiary of SGL Carbon AG commenced a proceeding for reorganization under Chapter 11 of the U.S. Bankruptcy Code. This proceeding was dismissed in March 2000 on the grounds that it was not commenced in good faith. It is possible that other competitors could commence similar proceedings. It is also possible that, as a result of these proceedings or the increased debt or costs mentioned above, one or more of our competitors could divest graphite electrode manufacturing facilities. This could increase the number or change the capabilities of our competitors. It is not uncommon for companies subject to such proceedings to enjoy, at least temporarily, a cost advantage as compared to their competitors. This advantage may enable them to compete more aggressively on price. In addition to the external circumstances described above, our competitive position in the industry could be impacted by internal circumstances. These include decisions by us with respect to maintaining profit margins rather than market share or other competitive or market strategies. All of the circumstances described above could adversely affect our market share or results of operations. They could also affect our ability to institute price increases or compel us to reduce prices or increase spending on research and development or marketing and sales, all of which could adversely affect us. OTHER GRAPHITE AND CARBON PRODUCTS. There are two significant manufacturers of carbon electrodes in the world (excluding the government-controlled and independent manufacturers in the non-free trading markets). 39 We believe that we are the largest and SGL Carbon AG is the second largest. We estimate that we supplied about 37% of the carbon electrodes purchased in the free trading markets in 1999. There are eight manufacturers of cathodes in the world (excluding the government-controlled and independent manufacturers in the non-free trading markets). We believe that we are the largest and SGL Carbon AG is the second largest. We estimate that we supplied about 30% of the cathodes purchased in the free trading markets in 1999. There are about 10 manufacturers of flexible graphite in the world. We believe that we are the largest and SGL Carbon AG is the second largest. We estimate that we supplied about 35% of the flexible graphite purchased in the free trading markets in 1999. With respect to our other products, we compete with other graphite and carbon product manufacturers as well as manufacturers of non-graphite or carbon products used for similar purposes. OTHER COMPETITIVE FACTORS. The manufacture of high quality graphite and carbon products is a mature, capital intensive business which requires extensive process know-how developed over years of experience working with the various raw materials and with raw material suppliers, furnace manufacturers and steel, aluminum or other metal producers or other end users (including working on the specific applications for finished electrodes and cathodes). It also requires high quality raw material sources and a developed energy supply infrastructure. There have been no significant new entrants in the manufacture of graphite electrodes since 1950. We believe that it is unlikely that new "greenfield" graphite electrode manufacturing facilities will be built during the next several years due to, among other things, the relatively high cost of building a new facility. Accordingly, while we cannot assure you that such will be the case, we believe that it is unlikely that there will be significant new entrants in the manufacture of these products during the next several years due to, among other things, the need for extensive manufacturing process know-how as well as that high cost. ENVIRONMENTAL MATTERS Since the 1970s, a wide variety of federal, state, local and foreign laws and regulations relating to the storage, handling, generation, treatment, emission, release, discharge and disposal of certain substances and wastes have been adopted. These laws and regulations (and the enforcement thereof) are periodically changed. We are subject to many of these laws and regulations. We have experienced some level of regulatory scrutiny at most of our current and former facilities, have been required to take remedial action and have incurred related costs in the past and may experience further regulatory scrutiny, be required to take further remedial action and incur additional costs in the future. Although this has not been the case in the past, these costs could have a material adverse effect on us in the future. The principal United States laws and regulations to which we are subject are described below. The Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Safe Drinking Water Act and similar state or local laws regulate air emissions, water discharges and hazardous waste generation, treatment, storage, handling, transportation and disposal. The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SUPERFUND"), and similar state laws provide for responses to and liability for releases of hazardous substances into the environment. The Toxic Substances Control Act and related laws are designed to assess the risk of new products to health and to the environment at early 40 developmental stages. In addition, laws adopted or proposed in various states impose or may impose, as the case may be, reporting or remediation requirements if operations cease or property is transferred or sold. Our manufacturing operations outside the United States are subject to the laws and regulations of the countries in which those operations are conducted. These laws and regulations primarily relate to pollution prevention and the control of risks arising from industrial activities having high potential impact on the environmental quality of the air, water and soil. Regulated activities include, among other things: use of hazardous substances; packaging, labeling and transportation of products; management and disposal of toxic wastes; discharge of industrial and sanitary wastewater; and emissions to the air. We believe that we are currently in material compliance with the federal, state, local and foreign environmental laws and regulations to which we are subject. We have received and continue periodically to receive notices from the United States Environmental Protection Agency (the "USEPA") or state environmental protection agencies, as well as claims from others, alleging that we are a potentially responsible party (a "PRP") under Superfund and similar state laws for past and future remediation costs at hazardous substance disposal sites. Although Superfund liability is joint and several, in general, final allocation of responsibility at sites where there are multiple PRPs is made based on each PRPs relative contribution of hazardous substances to the site. Based on information currently available to us, we believe that any potential liability associated with being named a PRP will not have a material adverse effect on us. We have sold or closed a number of facilities that had solid waste landfills. In the case of sold facilities, we have retained ownership of the landfills. We have closed and subsequently monitored these landfills, and we believe that we have done so in accordance with applicable laws and regulations. To date, the costs associated with the landfills have not been, and we do not anticipate that future costs will be, material to us. We establish accruals for environmental liabilities where it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. We adjust accruals as new remediation and other commitments are made and as information becomes available which changes estimates previously made. Estimates of future costs of environmental protection are necessarily imprecise due to numerous uncertainties, including the impact of new laws and regulations, the availability and application of new and diverse technologies, the extent of insurance coverage, the identification of new hazardous substance disposal sites at which we may be a PRP and, in the case of sites subject to Superfund and similar state laws, the ultimate allocation of costs among PRPs and the final determination of remedial requirements. Subject to the inherent imprecision in estimating such future costs, but taking into consideration our experience to date regarding environmental matters of a similar nature and facts currently known, we believe that costs and capital expenditures (in each case, before adjustment for inflation) for environmental protection will not increase materially over the next several years. 41 INSURANCE We obtain insurance against civil liabilities relating to personal injuries to third parties, for loss of or damage to property and for environmental matters to the extent that it is currently available and provides coverage that we believe is appropriate upon terms and conditions and for premiums that we consider fair and reasonable. We believe that we have insurance providing coverage for claims and in amounts that we believe appropriate as described above. We cannot assure you, however, that we will not incur losses beyond the limits of or outside the coverage of our insurance. We currently believe that recovery under our insurance, if any, will not materially offset liabilities that have or may become due in connection with antitrust investigations, lawsuits or claims. EMPLOYEES At December 31, 1999, we had 4,404 employees, of which 1,988 were in Europe (including Russia), 816 were in Mexico and Brazil, 397 were in South Africa, 9 were in Canada, 1,189 were in the United States and 5 were in the Asia/Pacific region. At December 31, 1999, we had 3,030 hourly employees. Primarily as a result of implementation of our global restructuring and rationalization plan, we had 11% fewer employees at December 31, 1999 than at December 31, 1998. At December 31, 1999, about 62% of our worldwide employees were covered by collective bargaining or similar agreements which expire at various times in each of the next several years. At December 31, 1999, about 2,324 employees, or 53% of our employees, were covered by agreements which expire, or are subject to renegotiation, at various times during 2000 or the 2001 first quarter. We believe that our relationships with our unions are satisfactory and that we will be able to renew or extend our collective bargaining or similar agreements on reasonable terms as they expire. We cannot assure you, however, that renewed or extended agreements will be reached without a work stoppage or strike or will be reached on terms satisfactory to us. A prolonged work stoppage at any one of our manufacturing facilities could have a material adverse effect on us. Excluding our subsidiaries prior to the time when we acquired them, we have not had any material work stoppages or strikes during the past decade. ITEM 2. PROPERTIES We operate the following facilities, which are owned or leased as indicated. OWNED OR LOCATION OF FACILITY PRIMARY USE LEASED -------------------- ----------- -------- UNITED STATES Irvine, California.... Machine Shop and Sales Office Leased Niagara Falls, New York Coal Calcining Facility Owned Cleveland, Ohio....... Flexible Graphite Manufacturing Facility Owned and Sales Office Parma, Ohio........... Technology Center Owned Clarksville, Tennessee Electrode Manufacturing Facility and Owned Sales Office Columbia, Tennessee... Electrode and Cathode Manufacturing Owned Facility and Sales Office Nashville, Tennessee.. Corporate Headquarters and Sales Office Leased Lawrenceburg, Tennessee Carbon Specialties Manufacturing Facility Owned Clarksburg, West Virginia Graphite Specialties Manufacturing Owned Facility and Sales Office 42 EUROPEAN Calais, France........ Electrode Manufacturing Facility Owned Notre Dame, France.... Electrode and Graphite Specialties Owned Manufacturing Facility and Sales Office Notre Dame, France.... Cathode Manufacturing Facility and Sales Leased Office Rungis, France........ Sales Office and Administrative Office Leased Venissieux, France.... Cathode Manufacturing Facility and Owned Technology Center Caserta, Italy........ Electrode Manufacturing Facility Owned Malonno, Italy........ Machine Shop Owned Milan, Italy.......... Administrative and Sales Office Leased Moscow, Russia........ Sales Office Leased Vyazma, Russia........ Electrode Manufacturing Facility Owned Pamplona, Spain....... Electrode Manufacturing Facility and Owned Sales Office Lausanne, Switzerland(a) Sales Office and European Headquarters Owned Sheffield, United Kingdom Machine Shop and Sales Office Owned INTERNATIONAL Salvador Bahia, Brazil Electrode and Cathode Manufacturing Owned Facility Sao Paulo, Brazil..... Sales Office Leased Welland, Canada....... Sales Office Owned Beijing, China........ Sales Office Leased Hong Kong, China...... Sales Office Leased Monterrey, Mexico..... Electrode Manufacturing Facility and Owned Sales Office Singapore............. Sales Office Leased Meyerton, South Africa Electrode Manufacturing Facility and Owned Sales Office - ------------------- (a) Sales office and European headquarters are located in a leased facility in Gland, Switzerland and will be moved to Lausanne, Switzerland in 2000. We believe that our facilities, which are of varying ages and types of construction, are in good condition, are suitable for our operations and generally provide sufficient capacity to meet our requirements for the foreseeable future. We do not own any other properties which are material to our financial condition. ITEM 3. LEGAL PROCEEDINGS ANTITRUST INVESTIGATIONS. On June 5, 1997, we were served with subpoenas issued by the United States District Court for the Eastern District of Pennsylvania (the "DISTRICT COURT") to produce documents to a grand jury convened by attorneys for the Antitrust Division of the U.S. Department of Justice (the "DOJ") and a related search warrant in connection with a criminal 43 investigation as to whether there has been any violation of U.S. federal antitrust law by producers of graphite electrodes. Concurrently, representatives of Directorate General -Competition of the Commission of the European Communities, the antitrust enforcement authority of the European Union (the "EU COMPETITION AUTHORITY"), visited offices of one of our French subsidiaries for purposes of gathering information in connection with an investigation as to whether there has been any violation of the antitrust law of the European Community by those producers. In October 1997, we were served with subpoenas by the DOJ to produce documents relating to, among other things, our carbon electrode and bulk graphite businesses. In December 1997, UCAR's Board of Directors appointed a special committee of outside directors to exercise the power and authority of UCAR's Board of Directors in connection with antitrust investigations and related lawsuits and claims. In April 1998, pursuant to a plea agreement between the DOJ and the Company, the DOJ charged UCAR and unnamed co-conspirators with participating from at least July 1992 until at least June 1997 in an international conspiracy involving meetings and conversations in the Far East, Europe and the United States resulting in agreements to fix prices and allocate market shares in the United States and elsewhere, to restrict co-conspirators' capacity and to restrict non-conspiring producers' access to manufacturing technology for graphite electrodes. In addition, pursuant to the agreement, UCAR pled guilty to a one count charge of violating U.S. federal antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a non-interest-bearing fine in the aggregate amount of $110 million. The fine is payable in six annual installments of $20 million, $15 million, $15 million, $18 million, $21 million and $21 million, respectively, commencing July 23, 1998. The agreement was approved by the District Court and, as a result, under the agreement, we will not be subject to prosecution by the DOJ with respect to any other violations of U.S. federal antitrust law occurring prior to April 1998. The payments due in 1998 and 1999 were timely made. In January 2000, pursuant to a plea agreement with the DOJ, Robert P. Krass, former Chairman of the Board, President and Chief Executive Officer, who retired and resigned from all positions with us in March 1998, pled guilty to a one count charge of violating U.S. federal antitrust law in connection with the sale of graphite electrodes and was sentenced to a term of incarceration and payment of a fine. In February 2000, pursuant to a plea agreement with the DOJ, Robert J. Hart, former Senior Vice President and Chief Operating Officer, who retired and resigned from all positions with us in March 1998, pled guilty to a similar charge and was sentenced to a term of incarceration and payment of a fine. In January 2000, George S. Schwegler, former Director, Export Sales Europe, was indicted by the DOJ on similar charges. We do not intend to reimburse Messrs. Krass and Hart for their fines or Mr. Schwegler for any costs or fines he may incur as a result of such indictment. In April 1998, the Canadian Competition Bureau (the "COMPETITION BUREAU") commenced a criminal investigation as to whether there has been any violation of Canadian antitrust law by producers of graphite electrodes. In March 1999, pursuant to a plea agreement between our Canadian subsidiary and the Competition Bureau, our Canadian subsidiary pled guilty to a one count charge of violating Canadian antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a fine of Cdn. $11 million. The agreement was approved by 44 the court and, as a result, under the agreement, we will not be subject to prosecution by the Competition Bureau with respect to any other violations of Canadian antitrust law occurring prior to the date of the agreement. The fine was timely paid. We became aware, in June 1998, that the Japanese antitrust enforcement authority had commenced an investigation as to whether there has been any violation of Japanese antitrust law by producers and distributors of graphite electrodes. In addition, we became aware, in October 1999, that the Korean antitrust authority had commenced an investigation as to whether there has been a violation of Korean antitrust law by producers and distributors of graphite electrodes. We have no facilities or employees in Japan or Korea. We believe that, among other things, we have good defenses to any claim that we are subject to the jurisdiction of either such authority. In March 1999, the Japanese antitrust authority issued a warning letter to the four Japanese graphite electrode producers. While the Japanese antitrust authority did not issue a similar warning to us, the warning letter issued to the Japanese producers did reference us as a member of an alleged cartel. In January 2000, the EU Competition Authority issued a statement of objections initiating proceedings against us and other producers of graphite electrodes. The statement alleges that we and other producers violated antitrust laws of the European Community and the European Economic Area in connection with the sale of graphite electrodes. The statement does not set forth any proposed fines or the impact which cooperation by us or other producers would have on their respective fines, if any. The maximum fine for such a violation is ten percent of a company's revenue during the year preceding the year in which the fine is assessed. We believe that we have provided substantial cooperation to the EU Competition Authority and are, therefore, entitled to a reduction in the amount of any fine which would otherwise be assessed. We intend to vigorously protect our interests in connection with such proceeding. We believe that proceedings of this nature typically continue for about six to twelve months before any fine is assessed. Any such assessment would be subject to appeal before the Court of First Instance in Luxembourg, although the fine or collateral security therefor would be payable about three months after such assessment. In January 2000, Mitsubishi was indicted by the DOJ on a one count charge of violating U.S. federal antitrust law in connection with the sale of graphite electrodes. We are continuing to cooperate with the DOJ and the Competition Bureau in their continuing investigations of other producers and distributors of graphite electrodes. We are also cooperating with the EU Competition Authority in its on-going investigation. In connection therewith, we have produced and are producing documents and witnesses. It is possible that antitrust investigations seeking, among other things, to impose fines and penalties could be initiated by authorities in other jurisdictions. The guilty pleas make it more difficult for us to defend against other investigations as well as civil lawsuits and claims. ANTITRUST LAWSUITS. In 1997, various producers of graphite electrodes (including us) were served with complaints commencing various antitrust class action lawsuits. Subsequently, the 45 complaints were either withdrawn without prejudice to refile or consolidated into a single complaint in the District Court (the "ANTITRUST CLASS ACTION LAWSUIT"). In the consolidated complaint to the antitrust class action lawsuit, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of graphite electrodes. In August 1998, the District Court certified a class of plaintiffs consisting of all persons who purchased graphite electrodes in the U.S. (the "CLASS") directly from the defendants during the period from July 1, 1992 through June 30, 1997 (the "CLASS PERIOD"). In 1998, various producers of graphite electrodes (including us), Union Carbide and Mitsubishi were served with a complaint by Nucor Corporation and an affiliate commencing a civil antitrust and fraudulent transfer lawsuit in the District Court (the "NUCOR LAWSUIT"). In the complaint to the Nucor lawsuit, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of graphite electrodes and that payments to Union Carbide and Mitsubishi in connection with the 1995 Equity Recapitalization violated applicable state fraudulent transfer laws. The complaint seeks, among other things, an award of treble damages resulting from such alleged antitrust violations and an order to have payments made by us to Union Carbide and Mitsubishi in connection with the 1995 Equity Recapitalization declared to be fraudulent conveyances and returned to us for purposes of enabling us to satisfy any judgments resulting from such alleged antitrust violations. In 1998 and 1999, various producers of graphite electrodes (including us) were served by steelmakers in the U.S. and Canada with complaints and petitions commencing eight separate civil antitrust lawsuits in various courts (the "OTHER INITIAL LAWSUITS"). Such complaints and petitions allege that the defendants violated U.S. federal, Texas or Canadian antitrust laws and Canadian conspiracy law in connection with the sale of graphite electrodes. In 1999, various producers of graphite electrodes (including us) were served two complaints commencing two separate civil antitrust lawsuits in the District Court (the "FOREIGN CUSTOMER LAWSUITS"). The first complaint was filed by 26 steelmakers and related parties, all but one of whom are located outside the United States, and the second complaint was filed by 4 steelmakers, all of whom are located outside the United States. In each complaint, the plaintiffs allege that the defendants violated U.S. federal antitrust laws in connection with the sale of graphite electrodes sold or sourced from the United States and those sold and sourced outside the United States. The plaintiffs seek, among other things, an award of treble damages resulting from such alleged antitrust violations. We believe that we have strong defenses against claims alleging that purchases of graphite electrodes outside the United States are actionable under U.S. federal antitrust law. All antitrust lawsuits against one producer of graphite electrodes, SGL Carbon Corporation, the U.S. subsidiary of SGL Carbon AG, were stayed as a result of the filing in December 1998 of a petition by SGL Carbon Corporation in the United States District Court for the District of Delaware for reorganization in a proceeding under Chapter 11 of the U.S. Bankruptcy Code. In December 1999, the Third Circuit Court of Appeals ruled that the proceeding should be dismissed because it was not filed in good faith. The proceeding was dismissed in March 2000. 46 In November 1998, the distribution trustee for a company liquidated under the U.S. Bankruptcy Code applied for an order from the U.S. District Court for the District of Ohio to compel discovery from us to determine whether to institute proceedings against us for alleged violations of U.S. federal antitrust law in connection with the sale of carbon electrodes. The guilty pleas described above do not relate to carbon electrodes. The application was voluntarily withdrawn when we agreed to provide certain documents to the distribution trustee. We and the distribution trustee subsequently entered into an agreement tolling applicable statutes of limitations. Although no lawsuit relating to such alleged violations has been commenced by the distribution trustee, the distribution trustee has threatened to do so. In December 1999, we and another producer of carbon electrodes were served with a complaint by Globe Metallurgical, Inc. commencing a civil antitrust lawsuit in the District Court (the "GLOBE LAWSUIT"). In the complaint, the plaintiff alleges that the defendants violated U.S. federal antitrust law in connection with the sale of carbon electrodes and seeks, among other things, an award of treble damages resulting from such alleged violations Certain customers who purchased graphite electrodes, carbon electrodes or other products from us have threatened to commence antitrust lawsuits against us in the United States or in other jurisdictions with respect to the subject matter of the investigations and lawsuits described above. Through the date hereof, except as described in the next paragraph, we have settled all of the lawsuits described above, certain of the threatened civil antitrust lawsuits and certain possible antitrust claims by certain other customers who negotiated directly with us. The settlements cover virtually all of the actual and potential claims against us (but not other defendants) by customers in the United States and Canada arising out of alleged antitrust violations occurring prior to the date of the respective settlements in connection with the sale of graphite electrodes. Although each settlement is unique, in the aggregate they consist primarily of current and deferred cash payments with some product credits and discounts. All payments due thereunder have been timely made. Amounts due under the settlement of the antitrust class action will increase if additional claims are filed by members of the class (which includes purchasers of graphite electrodes who are located outside the United States but who purchased graphite electrodes from one of our U.S. subsidiaries) or if a purchaser of semi-graphitic electrodes is determined to be a member of the class and such purchaser files a claim thereunder. The foreign customer lawsuits and the Globe lawsuit have not been settled and are still in their early stages. We have been vigorously defending against these lawsuits as well as all threatened lawsuits and possible unasserted claims, including those mentioned above. We may at any time, however, settle these lawsuits as well as any threatened lawsuits and possible claims and are actively negotiating settlements of certain of these lawsuits and claims. It is possible that additional civil antitrust lawsuits seeking, among other things, to recover damages could be commenced against us in the United States and in other jurisdictions. 1997 ANTITRUST EARNINGS CHARGE. We recorded a pre-tax charge of $340 million against results of operations for 1997 as a reserve for potential liabilities and expenses in connection 47 with antitrust investigations and related lawsuits and claims. The $340 million reserve is calculated on a basis net of imputed interest on installment payments of the DOJ fine. While actual liabilities and expenses (including settled investigations, lawsuits and claims as well as the continuing investigations by the EU Competition Authority and unsettled pending, threatened and possible lawsuits and claims mentioned above) could be materially higher than $340 million, to the extent that these liabilities and expenses are reasonably estimable, at March 1, 2000, such amount continues to represent our estimate of these liabilities and expenses. In the aggregate, the fines, settlements and expenses described above are within the amounts we used to evaluate the $340 million charge. Through December 31, 1999, we have paid an aggregate of $209 million of fines and net settlement and expense payments and $7 million of imputed interest. At December 31, 1999, $131 million remains in the reserve and, based on information known to us at March 1, 2000, the aggregate amount of remaining committed payments for fines and settlements was about $79 million. The aggregate amount of remaining committed payments for imputed interest was about $13 million. About $26 million of the committed payments for fines and settlements are due on or before December 31, 2000. Amounts due under the settlement of the antitrust class action may be increased if additional claims are filed by members of the class. STOCKHOLDER DERIVATIVE LAWSUIT. In March 1998, UCAR was served with a complaint commencing a stockholder derivative lawsuit in the Connecticut Superior Court (Judicial District of Danbury). Certain former and current officers and directors of UCAR were named as defendants. UCAR was named as a nominal defendant. In the complaint, the plaintiff alleged that the defendants breached their fiduciary duties in connection with alleged non-compliance us and our employees with antitrust law. The plaintiff also alleged that certain of the defendants sold common stock while in possession of materially adverse non-public information relating to such non-compliance with antitrust laws. As described below, in October 1999, UCAR and the individual defendants entered into an agreement settling this lawsuit. The settlement received court approval in December 1999, and the appeal period expired in January 2000. SECURITIES CLASS ACTION LAWSUIT. In April and May 1998, UCAR was served with complaints commencing securities class actions which were filed in the U.S. District Court for the District of Connecticut. The complaints were consolidated into a single complaint and the Florida State Board of Administration was designated lead plaintiff. UCAR and certain former and current officers and directors of UCAR were named as defendants. The class of plaintiffs consists of all persons (other than the defendants) who purchased common stock during the period from August 1995 through March 1998. In the consolidated complaint, the lead plaintiff alleged that, during such period, the defendants violated U.S. federal securities law in connection with purchases and sales of common stock by making material misrepresentations and omissions regarding alleged violations of antitrust law and sought, among other things, to recover damages resulting from such alleged violations. As described below, in October 1999, UCAR and the individual defendants entered into an agreement settling this lawsuit. The settlement received court approval in January 2000, and the appeal period expired in February 2000. SETTLEMENT OF SECURITIES CLASS ACTION AND STOCKHOLDER DERIVATIVE LAWSUITS. In October 1999, UCAR and the individual defendants entered into agreements settling the securities class 48 action and stockholder derivative lawsuits. Under the agreements, a total of $40.5 million was contributed to escrow accounts for the benefit of former and current stockholders who are members of the class of plaintiffs for whom the securities class action was brought as well as plaintiffs' attorney's fees. We contributed $11.0 million and the insurers under our directors and officers' insurance policies at the time the lawsuits were filed contributed the balance of $29.5 million. In addition, Mary B. Cranston, a new outside director acceptable to both UCAR and the lead securities class action plaintiff, the Florida State Board of Administration, the eighth largest state employees' pension fund, has been added to UCAR's Board of Directors. We have incurred about $2.0 million of unreimbursed expenses related to the lawsuits. These expenses, together with the $11.0 million, were recorded as a one-time charge to operations of $13.0 million in the 1999 third quarter. OTHER PROCEEDINGS AGAINST US. In December 1999, the Supreme Court of Puerto Rico dismissed the final outstanding appeal of the prior dismissals of lawsuits by persons residing near our former facility in Yabucoa, Puerto Rico alleging property damage and personal injury due to air emissions and noise from the facility. We are involved in various other investigations, lawsuits, claims and other legal proceedings incidental to the conduct of our business. While it is not possible to determine the ultimate disposition of each of them, we do not believe that their ultimate disposition will have a material adverse effect on us. LAWSUIT INITIATED BY US AGAINST OUR FORMER PARENTS. In February 2000, at the direction of a special committee of UCAR's Board of Directors, we commenced a lawsuit, in the U.S. District Court for the Southern District of New York, against our former parents, Mitsubishi and Union Carbide. The other defendants named in the lawsuit are Mitsubishi International Corporation, a U.S. subsidiary of Mitsubishi, and two of the respective representatives of Mitsubishi and Union Carbide who served on UCAR's Board of Directors at the time of the 1995 Equity Recapitalization, Hiroshi Kawamura and Robert D. Kennedy. Mr. Kennedy, who was a director of UCAR at the time the lawsuit was commenced, resigned as such on March 14, 2000. In the lawsuit, we allege, among other things, that, in January 1995, Mitsubishi and Union Carbide had knowledge of facts indicating that UCAR had engaged in illegal graphite electrode price fixing activities and that any determination of UCAR's statutory capital surplus would be overstated as a result of those activities. We also allege that certain of their representatives knew or should have known about those activities. Mitsubishi was indicted by the DOJ in January 2000 for aiding and abetting those activities. In addition, we allege that, in January 1995, UCAR did not have the statutory capital surplus required to lawfully authorize the payments that UCAR made to its former parents. We also allege that Mitsubishi and Union Carbide were unjustly enriched by receipts from their investments in UCAR and that they knowingly induced or actively and substantially assisted former senior management of UCAR to engage in illegal graphite electrode price fixing activities in breach of their fiduciary duties to UCAR. Based on the allegations summarized above, we believe that Mitsubishi and Union Carbide are liable for more than $1.5 billion in damages, including interest. Some of our claims provide for joint and several liability; however, damages from our various claims would not generally be additive to each other. 49 Litigation such as this lawsuit is complex. We believe that our claims are strong, and are confident about the ultimate outcome. Accordingly, we afforded the defendants the opportunity to settle this lawsuit in advance of filing the complaint in the interest of achieving a fair and expeditious resolution. We currently intend to vigorously pursue this lawsuit to trial. Complex litigation can be lengthy and expensive. We expect to incur between $10 million and $20 million for legal expenses to pursue this lawsuit through trial. These expenses will be accounted as operating expenses and will be accrued as incurred. This lawsuit is in its earliest stages, the ultimate outcome of litigation such as this lawsuit is subject to many uncertainties, both substantive and procedural, including motions to dismiss, statute of limitation and other defenses, and claims for indemnification and other counterclaims. We may at any time settle this lawsuit. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 50 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The common stock is listed on the NYSE under the trading symbol "UCR." The closing sale price of the common stock was $17 13/16 on December 31, 1999, the last trading day of our last fiscal year. The following table sets forth, for the periods indicated, the high and low closing sales prices for the common stock as reported by the NYSE: HIGH LOW 1998: First Quarter......................... $41 1/4 $27 1/2 Second Quarter........................ $35 1/8 $29 Third Quarter......................... $30 5/8 $12 1/4 Fourth Quarter........................ $20 7/16 $14 5/8 1999: First Quarter......................... $19 1/2 $14 1/8 Second Quarter........................ $26 1/8 $13 3/4 Third Quarter......................... $28 1/16 $22 1/16 Fourth Quarter........................ $24 1/2 $15 7/8 As of March 1, 2000, there were 58 record holders of common stock. We estimate that about 5,400 stockholders are represented by nominees. The common stock is included in Standard & Poor's 400 Mid-Cap Index and the Russell 2000 Index. Effective August 7, 1998, UCAR adopted a Stockholder Rights Plan (the "RIGHTS PLAN"). Under the Rights Plan, one preferred stock purchase right (a "RIGHT") was distributed on September 21, 1998 to stockholders of record on August 20, 1998 as a dividend on each share of common stock outstanding on the record date. Each share of common stock issued after the record date is accompanied by a Right. When a Right becomes exercisable, it entitles the holder to buy one one-thousandth of a share of a new series of preferred stock for $110. The Rights are subject to adjustment upon the occurrence of certain dilutive events. The Rights will become exercisable only when a person or group becomes the beneficial owner of 15% or more of the outstanding shares of common stock or 10 days after a person or group announces a tender offer to acquire beneficial ownership of 15% or more of the outstanding shares of common stock. No certificates representing the Rights will be issued, and the Rights are not transferable separately from the common stock, unless the Rights become exercisable. 51 Under certain circumstances, holders of Rights, except a person or group described above and certain related parties, will be entitled to purchase shares of common stock (or, in certain circumstances, other securities or assets) at 50% of the price at which the common stock traded prior to the acquisition or announcement (or 50% of the value of such other securities or assets). In addition, if UCAR is acquired after the Rights become exercisable, the Rights will entitle those holders to buy the acquiring company's common shares at a similar discount. UCAR is entitled to redeem the Rights for one cent per Right prior to the time when the Rights become exercisable. If not redeemed, the Rights will expire on August 7, 2008. For stockholders who owned more than 15% of the outstanding shares of common stock on August 7, 1998, the thresholds described above are 22.5% (and not 15%) of the outstanding shares of common stock. The preferred stock issuable upon exercise of Rights consists of Series A Junior Participating Preferred Stock, par value $.01 per share, of UCAR. In general, each share of that preferred stock will be entitled to a minimum preferential quarterly dividend payment equal to the greater of $10 per share or 1,000 times the quarterly dividend declared on the common stock, will be entitled to a liquidation preference of $110,000 and will have 1,000 votes, voting together with the common stock. DIVIDEND AND STOCK REPURCHASE POLICIES AND RESTRICTIONS It is the current policy of UCAR's Board of Directors to retain earnings to finance strategic and other plans and programs, conduct business operations, fund acquisitions, meet obligations and repay debt. Any declaration and payment of cash dividends or repurchases of common stock will be subject to the discretion of UCAR's Board of Directors and will be dependent upon our financial condition, results of operations, cash requirements and future prospects, the limitations contained in the New Senior Facilities and other factors deemed relevant by UCAR's Board of Directors. We have a stock repurchase program and may reactivate it at any time. We do not anticipate paying any cash dividends. UCAR is a holding company that derives substantially all of its cash flow from UCAR Global. Consequently, UCAR's ability to pay dividends or repurchase common stock is dependent upon the earnings of UCAR Global and its subsidiaries and the distribution of those earnings by UCAR Global to UCAR. Under the New Senior Facilities, UCAR is permitted to pay dividends on and repurchase common stock, and UCAR Global is permitted to pay dividends to UCAR for those purposes, only in an aggregate amount of up to $25 million, plus up to an additional $25 million if certain leverage ratio and excess cash flow requirements are satisfied. We are also permitted to repurchase common stock from present or former directors, officers or employees in an aggregate amount of up to the lesser of $5 million per year (with unused amounts permitted to be carried forward) or $25 million on a cumulative basis since February 22, 2000. In addition, UCAR Global is permitted to pay dividends to UCAR in respect of UCAR's administrative fees and expenses and to fund payments in connection with antitrust, securities and stockholder 52 derivative investigations, lawsuits and claims. The total amount of dividends to fund those payments (in each case, excluding certain imputed interest, plus the total amount paid on intercompany debt owed to UCAR for the same purpose, (in each case, excluding certain imputed interest) plus the amount of additional reserves created with respect to these investigations, lawsuits and claims may not exceed $340 million by more than $130 million (which $130 million is reduced by the amount of certain debt incurred by us that is not incurred under the New Senior Facilities). UCAR Global is also permitted to pay dividends to UCAR of up to $15 million for the purpose of making an investment in UCAR Graph-Tech and may also distribute the capital stock of UCAR Graph-Tech to UCAR. RECENT SALES OF UNREGISTERED SECURITIES In 1998 and 1999, UCAR sold an aggregate of 228,177 shares of common stock to certain members of senior management under executive employee stock purchase program adopted by UCAR's Board of Directors in September 1998. The shares were sold for an aggregate of $3,631,251. These sales were exempt from registration under Section 4(2) of the Securities Act of 1933 because the shares were sold in transactions not involving any public offering. Certain officers and other employees elected to defer compensation pursuant to our compensation deferral program in 2000. To date, an aggregate of $1,075,476 was deferred, payment of which will be based on the performance of 75,623 shares of common stock based on the market price of the common stock on the date of deferral. Such transactions were exempt from registration under Section 4(2) of the Securities Act of 1933 because the transactions did not involve the public offering of securities. ITEM 6. SELECTED FINANCIAL DATA The following selected annual consolidated financial data (excluding the "quantity of graphite electrodes sold") have been derived from the audited Consolidated Financial Statements at the dates and for the periods indicated. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements at December 31, 1998 and 1999 and for each of the years in the three-year period ended December 31, 1999 and the related notes thereto included elsewhere in this Report.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- (Dollars in millions, except per share data) STATEMENT OF OPERATIONS DATA: Net sales.............................................. $ 901 $ 948 $1,097 $ 947 $ 831 Gross profit........................................... 345 365 411 343 258 Selling, administrative and other expenses............. 115 90 115 103 86 Restructuring charges (credit)(a)...................... 30 - - 86 (6) Impairment loss on long-lived Russian assets........... - - - 60 - Impairment loss on long-lived graphite specialties assets....................... - - - - 35 Antitrust investigations and related lawsuits and claims(b)............. - - 340 - - 53 FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- (Dollars in millions, except per share data) Securities class action and stockholder derivative lawsuits................................. - - - - 13 Operating profit (loss)................................ 189 268 (58) 77 130 Interest expense....................................... 93 61 64 73 84 Income (loss) before extraordinary item ............... 25 145 (160) (30) 42 Extraordinary item, net of tax(c)...................... 37 - - 7 - Net income (loss)...................................... (12) 145 (160) (37) 42 Earnings (loss) per common share: Basic: Income (loss) before extraordinary item....................................... $ 0.55 $3.15 $(3.49) $(0.66) $0.94 Net income (loss)............................ (0.26) 3.15 (3.49) (0.83) 0.94 ===== ==== ===== ===== ==== Weighted average common shares outstanding (IN THOUSANDS)................. 45,960 46,274 45,963 44,972 45,114 Diluted:Income (loss) before extraordinary item....................................... $ 0.52 $3.00 $(3.49) $(0.66) $0.91 Net income (loss)............................ (0.24) 3.00 (3.49) (0.83) 0.91 ===== ==== ===== ===== ==== Weighted average common shares outstanding (IN THOUSANDS)................ 48,763 48,469 45,963 44,972 46,503 BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents.............................. $ 53 $ 95 $ 58 $ 58 $ 17 Total assets........................................... 904 1,017 1,262 1,137 933 Total debt............................................. 668 635 732 804 722 Stockholders' equity (deficit)......................... (141) 17 (227) (287) (293) Working capital........................................ 215 263 94 203 105 OTHER DATA: Gross profit margin................................... 38.3% 38.5% 37.5% 36.2% 31.0% Operating profit (loss) margin........................ 21.0 28.3 (5.3) 8.1 15.6 Depreciation and amortization......................... $ 38 $ 36 $ 49 $ 51 $ 45 Capital expenditures.................................. 65 62 79 52 56 EBITDA (adjusted for non-cash restructuring charges and impairment losses)(d)................... 249 304 (9) 217 212 Cash flow provided by (used in) operations......... 130 172 172 (29) 80 Cash flow used in investing activities........ (116) (104) (221) (31) (39) Quantity of graphite electrodes sold (THOUSANDS OF METRIC TONS)(e)(f).................... 217 205 242 211 206
- ---------------------- (a) For 1995, represents costs recorded in connection with closing of graphite electrode operations at Columbia, Tennessee. These costs consisted primarily of write-offs of fixed assets and other shutdown costs. For 1998, represents costs recorded in connection with closing graphite electrode operations in Welland, Canada and Berlin, Germany and the consolidation of certain corporate administrative offices. These costs consisted primarily of severance, write-offs of fixed assets, and environmental and other shutdown costs. For 1999, represents a net reduction in the estimate of shutdown costs recorded in 1998. (b) Represents estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. (c) The 1995 extraordinary item resulted from early extinguishment of debt in connection with redemption of 12% senior subordinated notes due 2005 and a refinancing of senior credit facilities. The 1998 extraordinary item resulted from early extinguishment of debt in connection with refinancing of the senior credit facilities. 54 (d) EBITDA, for this purpose, means operating profit (loss), plus depreciation, amortization, write-down of graphite specialties inventory, impairment losses on long-lived assets and the portion of restructuring charges applicable to non-cash asset write-offs. The amount of restructuring charges applicable to non-cash asset write-offs was $22 million for 1995, $29 million for 1998 and $6 million credit in 1999. We believe that EBITDA is generally accepted as providing useful information regarding a company's ability to incur and service debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from continuing operations or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. Our method for calculating EBITDA may not be comparable to that used by other companies or provided for in our senior credit facilities. (e) Excludes graphite electrodes sold by our South African subsidiary, before it became wholly owned on April 21, 1997, of 27,000 metric tons in 1995, 26,000 metric tons in 1996 and 8,000 metric tons in 1997. (f) Management believes the quantity of graphite electrodes sold in the 1997 fourth quarter was impacted by customer buy-ins in advance of price increases effective in January 1998. The following quarterly selected consolidated financial data have been derived from the Consolidated Financial Statements for the periods indicated, which have not been audited. The selected quarterly consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements at December 31, 1998 and 1999 and for each of the years in the three-year period ended December 31, 1999 and the related notes thereto included elsewhere in this Report. FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (Dollars in millions, except per share data) 1998: Net sales..................... $244 $248 $233 $222 Gross profit.................. 93 96 82 72 Net income (loss)(a) (b)...... 35 31 (113) 10 Basic income (loss) per share before extraordinary item.... $0.77 $0.70 $(2.51) $0.39 Basic net income (loss) per share........................ 0.77 0.70 (2.51) 0.22 ==== ==== ====== ==== Diluted income (loss) per share before extraordinary item......................... $0.74 $0.67 $(2.51) $0.38 Diluted net income (loss) per share........................ 0.74 0.67 (2.51) 0.22 ==== ==== ====== ==== 1999: Net sales..................... $202 $211 $210 $208 Gross profit (d).............. 63 73 70 52 Net income (loss)(c)(d)....... 14 20 21 (13) Basic net income (loss) per share........................ $0.30 $0.45 $0.46 $(0.28) Diluted net income (loss) per share........................ 0.30 0.44 0.45 (0.28) ==== ==== ==== ====== ------------------ 55 (a) The 1998 third quarter includes a restructuring charge of $86 million recorded in connection with closing graphite electrode operations in Welland, Canada and Berlin, Germany and the consolidation of certain administrative offices and an impairment loss of $60 million associated with our Russian operations. (b) The 1998 fourth quarter includes an extraordinary pre-tax charge of $11 million ($7 million after tax) associated with early extinguishment of debt. (c) The 1999 third quarter includes a restructuring credit of $6 million related to lower net anticipated demolition costs resulting primarily from the outsourcing of a majority of the planned demolition at our plant in Welland, Canada and, to a lesser extent, lower severance and related costs. The 1999 third quarter also includes a $13 million charge for liabilities and expenses in connection with settlement of securities class action and stockholder derivative lawsuits. (d) The 1999 fourth quarter includes an impairment loss of $35 million associated with our long-lived graphite specialties assets and an inventory write-down of $8 million associated with graphite specialty products. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL COMPANY BACKGROUND. In 1995, UCAR International Inc. ("UCAR" and, together with its subsidiaries, "WE," "US" or "OUR") consummated a leveraged equity recapitalization (the "1995 EQUITY RECAPITALIZATION"), an initial public offering of common stock, a redemption of a portion of the subordinated notes (the "SUBORDINATED NOTES") issued in connection with the 1995 Equity Recapitalization and a refinancing of the senior credit facilities established in connection with the 1995 Equity Recapitalization with new senior credit facilities (the "EXISTING SENIOR FACILITIES"). In late 1996, late 1997 and early 1998, we acquired substantially all of the equity of our Russian subsidiary. The aggregate investment was $57 million, plus expenses. In January 1997, we acquired 70% of the outstanding shares of Carbone Savoie S.A.S. ("CARBONE SAVOIE"), previously a wholly owned subsidiary of Pechiney S.A. The purchase price was $33 million, plus expenses. Carbone Savoie has facilities in Notre Dame and Venissieux, France. In February 1997, through a newly formed 70%-owned German subsidiary, we acquired the graphite electrode business of Elektrokohle Lichtenberg AG, based in Berlin, Germany. The aggregate purchase price paid by our German subsidiary for the acquired assets was $15 million, plus expenses. In April 1997, we acquired the outstanding shares of our then 50%-owned South African affiliate from our then joint venture partner in South Africa. The purchase price was $75 million, plus expenses. In 1997, we refinanced the Existing Senior Facilities and repurchased $92 million of common stock. We also initiated, with the assistance of consultants, various projects to integrate global operations. The costs associated with these projects aggregated about $18 million. We estimate that, under current conditions, these projects will have a pay-back period of two years ending in 2000. Additionally, in 1997, UCAR's Board of Directors accelerated the vesting 56 of outstanding performance stock options associated with 1998 performance targets that resulted in a non-cash charge of $12 million. BUSINESS STRENGTHS AND STRATEGIES. We are the world's largest manufacturer of high quality graphite and carbon electrodes and cathodes as well as flexible graphite. We have a global business, selling our products in more than 80 countries and owning 15 manufacturing facilities located on four continents. We operate in two business segments: graphite electrodes, which are our principal products; and graphite and carbon products, which include carbon electrodes, graphite and carbon cathodes, flexible graphite, and graphite and carbon specialties. Our graphite and carbon products business segment contributes about one-third of our net sales. Graphite electrodes are consumed primarily in the production of steel in electric arc furnaces, the steelmaking technology used by all "mini-mills." Mini-mills constitute the growth sector of the steel industry. Graphite electrodes are also used for refining steel in ladle furnaces and in other smelting processes. Carbon electrodes are used primarily in the production of silicon metal, which is used in the manufacture of aluminum. Cathodes are used as lining for furnaces that smelt aluminum. Flexible graphite, a material made from natural graphite, is used in gaskets and for other sealing purposes. We are developing applications for advanced natural graphite material in the fuel cell, heat management and fire protection industries. In addition to the steel and metals industries, we sell other graphite and carbon products to the semiconductor, automotive, and aerospace industries. We have the largest share of the free trading markets in all of our major product lines. We believe that our average cost of sales of graphite electrodes is currently the lowest among major producers in our industry. In addition to our large market share and position as a low-cost producer of high quality products, we believe our strengths include our new management team, our global manufacturing base which includes multiple low cost locations and fully integrated state-of-the-art facilities, our exceptional customer technical service, our diversified customer base and our product innovation and process improvement capabilities. Our strategic goal is to be the best global low cost manufacturer and customer service-driven company with the best product performance in the graphite and carbon industry. We are focused on reducing costs and improving operating efficiencies, improving product quality and technical and commercial customer service, developing strategic alliances and growth opportunities, and developing and expanding new and existing profitable technologies. We seek to be the lowest cost supplier in our industry and to use that to our competitive advantage. We seek to use our strategies and build on our strengths to leverage earnings growth within existing product lines and through new product innovation and penetration of related new and niche markets. GLOBAL RESTRUCTURING AND RATIONALIZATION PLAN. UCAR's Board of Directors adopted a global restructuring and rationalization plan in September 1998 and we launched new initiatives to enhance the plan in October 1999. The plan is intended to enhance stockholder value by focusing on optimizing margins, maximizing free cash flow, generating growth in earnings and strengthening competitiveness through operating and overhead cost reductions and plant 57 rationalization. The plan is also intended, over the long term, to strengthen our position as a low cost supplier to the steel and metals industries and, over the near term, to respond to global economic conditions that have been adversely impacting our customers. We believe that the plan is the most aggressive major cost reduction plan currently being implemented in the graphite and carbon industry. The original plan included plant rationalization, plant cost reduction and overhead cost reduction. The original plan resulted in a 1998 third quarter restructuring charge of $86 million, of which $29 million was a non-cash charge. We also recorded a 1998 third quarter impairment loss on long-lived Russian assets of $60 million. We achieved cost savings of over $73 million in 1999, exceeding our original target of $64 million. We achieved savings of $41 million in cost of sales, including $33 million in graphite electrode cost of sales and $8 million in graphite and carbon product cost of sales, as well as savings of $32 million in overhead and taxes. We reduced overhead by $17 million, or 17%, in 1999 as compared to 1998. As planned, we ceased manufacturing operations at our plant in Berlin, Germany in 1998. Our Welland, Canada plant ceased production activities in April 1999. We completed, ahead of schedule, our consolidation of administrative offices with the relocation of headquarter activities to Nashville, Tennessee and European administration activities in our Swiss subsidiary. About 366 positions have been eliminated pursuant to those elements of the plan. We believe that the cost savings under the plan have enabled us to strengthen our competitiveness. We also believe that we must continue to enhance our focus on cost savings to achieve the ultimate objectives of the plan. Accordingly, in October 1999, we announced and launched new initiatives to add $30 million of further targeted cost savings to the plan by the end of 2002. The following table summarizes the new targets of the plan. SUMMARY OF ENHANCED TARGETED COST SAVINGS AS MEASURED BY YEAR END ANNUALIZED RUN RATES (Dollars in millions) COST ITEM 2000 2001 2002 --------- ---- ---- ---- Cost of sales (graphite electrodes)............. $ 59 $ 70 $ 75 Cost of sales (graphite and carbon products) ... 9 11 12 Total overhead (consisting of research and development, selling, administrative and other expenses and other income and expense). 25 32 37 Interest expense................................ 12 24 31 Provision for income taxes...................... 7 8 10 ---- ----- ---- NEW SAVINGS TARGETS............................. $112 $145 $165 ==== ==== ==== Original savings targets........................ $111 $135 $135 58 Among other things, we increased the number of identified plant cost reduction projects from the more than 120 originally identified to more than 230. Several of the new projects are expected to result in additional benefits in terms of product quality. We are also evaluating every aspect of our supply chain performance for further improvements, including realignment and standardization of critical business processes, standardization of enterprise wide systems, and improvement of information technology infrastructure and interfaces with trading partners. Our targets include decreasing inventories, as measured against inventory levels and based on production levels for the 1999 first nine months (annualized), by over 20%, to about $180 million, and reducing our cash cycle time by about one-third. Further, we completed a global benchmarking study during the 1999 third quarter that identified opportunities for performance improvement and cost savings in certain key global administrative and transaction processing functions. These opportunities should allow for the achievement of our target of reducing selling and administrative expenses from 11% of net sales in 1998 to 8% of net sales by the end of 2002. Based on the study, work processes are being redesigned to, among other things, seek to improve shared services for better global efficiencies and standardize enterprise wide resource planning systems. We have evaluated and continue to refine our debt, working and permanent capital, and organizational structures to improve cash management and reduce tax expense. The debt recapitalization we completed in February 2000, along with our tax planning initiatives, should allow us to benefit from our existing and anticipated tax credits, helping us to achieve our targeted effective average annual tax rate of 25% over the four years ending 2002. The majority of the savings expected from implementation of these opportunities are anticipated to be realized during 2001 and 2002. Our enhanced plan contemplates the reduction of gross debt to a target of $550 million by the end of 2002 and a substantial reduction in annual interest expense. Our ability to achieve this target and reduction could be affected materially by such factors as changes in market interest rate levels, delays in completing or failures to complete financing options for our flexible graphite business or strategic alliances, joint ventures or acquisitions, changes in strategic plans, or changes in conditions affecting us, our industry or our cost saving, tax planning or other initiatives. POWER OF ONE BUSINESS TRANSFORMATION INITIATIVE. In support of our strategy, we have launched a global business transformation initiative entitled POWER OF ONE. POWER OF ONE is a coordinated global self-assessment and business process rationalization and transformation initiative driving one consistent theme throughout our organization: "becoming the best." We expect the initiative to accelerate development and implementation of business opportunities and develop leadership skills more broadly within all management levels as well as support our efforts to reduce costs and working capital needs, improve efficiencies and product quality, shorten cycle times and achieve "best in class" performance. The initiative will require an investment of $5 million in 2000 and $20 million to $25 million over the three years ending 2002. We believe, however, that most of this investment will be funded from cost savings expected to be realized. 59 CHANGES AFFECTING OUR GRAPHITE SPECIALTIES BUSINESS. This business accounted for about 9% of net sales in 1999. During late 1999, the graphite specialties business experienced significant adverse change due to a decline in demand for graphite specialties, particularly from certain segments of the semiconductor industry, growth in supply due to expansion by other producers, a decline in prices for graphite specialties, and delays in bringing new or improved products to market. The assets and inventory of this business are located primarily at our plant in Clarksburg, West Virginia. Since the future estimated undiscounted cash flows expected to result from the use of these assets were below their respective carrying amounts, in the 1999 fourth quarter, we recorded an impairment loss of $35 million for the unrecoverable portion of these assets, effectively writing down the carrying value of these assets to their estimated fair value of $6 million, and an inventory write-down of $8 million to reduce the carrying amount of the inventory to the lower of cost or market. Due to these same factors, in February 2000, we announced that we would restructure the business. The key elements of the restructuring consist of elimination of certain product lines and rationalization of operations to reduce costs and improve profitability of remaining product lines. Accordingly, in the 2000 first quarter, we expect to record a restructuring charge of $8 million. The charge is expected to consist of $6 million of cash expenditures and $2 million of non-cash charges. We expect the restructuring to generate cost savings at an annual run rate of $7 million by the end of 2001. STRATEGIC ALLIANCES. We are pursuing strategic alliances that enhance or complement our existing or related businesses. Alliances may be structured as joint ventures, technology licensing, supply or other arrangements. Our relationship with Pechiney S.A. in the cathode business is an example of a successful strategic alliance. In the 1999 third quarter, we entered into exclusive product development and long-term supply agreements with Ballard Power Systems Ltd. relating to flexible graphite-based material for use in flow field plates, which are essential elements of proton exchange membrane fuel cells. We expect substantial growth in net sales of our flexible graphite business beginning in 2003. REFINANCING AND DEBT RECAPITALIZATION. In November 1998, the Existing Senior Facilities were refinanced and the indenture governing the Subordinated Notes (the "SUBORDINATED NOTE INDENTURE") was amended. In connection with the refinancing, we obtained additional term debt of $210 million. In February 2000, we completed a debt recapitalization. We obtained the new senior credit facilities (the "NEW SENIOR FACILITIES"), which consist of a /$300 million six year tranche A term loan facility, a $350 million eight year tranche B term loan facility and a /$250 million six year revolving credit facility. The tranche A and revolving facilities are dollar/euro dual currency facilities. We used the net proceeds from the New Senior Facilities to repay and terminate the Existing Senior Facilities, to call the Subordinated Notes for redemption at a redemption price of 104.5% of the principal amount redeemed, plus accrued interest, to replace the outstanding borrowings under our prior revolving credit facility and to repay certain other debt. The debt recapitalization lowers our average annual interest rate (at current market interest rate levels) by about 200 basis points (equivalent to a reduction of about $15 million in annual interest expense), extends the average maturities of our debt, enables us to repay our debt without penalty or premium, and increases our ability to repurchase common stock, make acquisitions and pursue strategic initiatives. 60 LITIGATION AGAINST OUR FORMER PARENT COMPANIES INITIATED BY US. In February 2000, we commenced a lawsuit against our former parents, Mitsubishi Corporation ("MITSUBISHI") and Union Carbide Corporation ("UNION CARBIDE"), Mitsubishi International Corporation, a U.S. subsidiary of Mitsubishi, and two of the respective representatives of Mitsubishi and Union Carbide who served on UCAR's Board of Directors at the time of the 1995 Equity Recapitalization. In the lawsuit we allege, among other things, that certain payments made to our former parents in connection with the 1995 Equity Recapitalization were unlawful under the General Corporation Law of the State of Delaware, that our former parents were unjustly enriched by receipts from their investments in UCAR and that our former parents aided and abetted breaches of fiduciary duties owed to us by our former senior management in connection with illegal graphite electrode price fixing activities. We are seeking to recover more than $1.5 billion in damages, including interest. We expect to incur $10 million to $20 million in legal expenses to pursue this lawsuit through trial. ANTITRUST LITIGATION AGAINST US. Since 1997, we have been served with subpoenas, search warrants and information requests by antitrust authorities in the United States, the European Union and elsewhere in connection with antitrust investigations. In addition, civil antitrust lawsuits have been commenced and threatened against us and other producers and distributors of graphite and carbon electrodes in the United States and elsewhere. We recorded a charge against results of operations for 1997 in the amount of $340 million as a reserve for estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. In April 1998, UCAR pled guilty to a one-count charge of violating U.S. federal antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a fine in the aggregate amount of $110 million, payable in six annual installments, of which $91 million is treated as a fine and $19 million is treated as imputed interest for accounting purposes. In March 1999, our Canadian subsidiary pled guilty to a one-count charge of violating Canadian antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a fine of Cdn. $11 million. We have settled virtually all of the graphite electrode antitrust claims by steelmakers in the United States and Canada as well as antitrust claims by certain other customers. None of the settlement or plea agreements contain restrictions on future prices of our graphite electrodes. We are continuing to cooperate with the antitrust authority in the European Union in its on-going investigation. Through December 31, 1999, we have paid an aggregate of $209 million of fines and net settlement and expense payments and an aggregate of $7 million of imputed interest. In the aggregate, the fines, and net settlements and expenses are within the amounts we used for purposes of evaluating the $340 million charge. Actual liabilities and expenses could be materially higher than such charge. The guilty pleas make it more difficult to defend against other investigations, lawsuits and claims. Our insurance has not and will not materially offset liabilities which have or may become due in connection with antitrust investigations or related lawsuits or claims. UCAR had been named as a nominal defendant in a stockholder derivative lawsuit and as a defendant in a securities class action lawsuit, each of which was based, in part, on the subject matter of the antitrust investigations, lawsuits and claims. In October 1999, UCAR and the other defendants settled these lawsuits for an aggregate of $40.5 million, of which $11.0 million was paid by us. These settlements have received court approval, and all appeal periods have expired. 61 We recorded a charge of $13 million, which includes $2 million of expenses, in the 1999 third quarter in connection with these settlements. GLOBAL ECONOMIC CONDITIONS. We are a global company and serve every geographic market worldwide. Accordingly, we are impacted in varying degrees, both positively and negatively, as country or regional conditions affecting the markets for our products fluctuate. In 1997, many of the markets for our products were experiencing strong demand. In addition, the markets for our products in Western Europe began to experience stronger demand as that region began to recover from the economic downturn it had experienced in 1996. Conversely, an economic downturn began in the Asia Pacific region. This downturn did not, however, materially affect the markets for our products until 1998. In 1998, the economic downturn in the Asia Pacific region directly or indirectly affected most of the worldwide markets for our products. This downturn directly affected demand for steel and other metals in the Asia Pacific region. To the extent that certain regions (such as Eastern Europe, Africa, South America and the Middle East) were major exporters of steel and other metals to the Asia Pacific region, this downturn also affected demand for their products. In some instances, those exporters sought to sell their products in other regions (such as North America and Western Europe), thereby adversely affecting demand for steel and other metals produced in those other regions. All of these factors resulted in a reduction in global demand for and production of steel and other metals. As a result, our customers sought to reduce their inventories of supplies (such as inventories of electrodes) as well as reduce their production rates. All of these circumstances adversely affected demand for graphite electrodes and some of our other products. We experienced downward pressure in certain markets on pricing of graphite electrodes and some of our other products beginning in early 1998. These circumstances negatively impacted our results of operations in 1998 and in the 1999 first quarter. As a result of the continued strength of the U.S. and European economies and the beginning of recovery in other areas of the global economy, we believe that, in the 1999 second quarter, worldwide electric arc furnace steel production began to gradually recover. Signs of recovery which we see include price increases of various steel end products that we believe are being implemented, operating rates of electric arc furnace steelmakers that we believe are increasing and requests by a significant percentage of our graphite electrode customers to enter into longer term (such as 12 month) as opposed to shorter term (such as 3 to 4 month) supply contracts in order to "lock-in" current graphite electrode prices before any possible price increase. We are benefiting from that recovery. Our volume of graphite electrodes sold in our home markets has gradually increased. By the 1999 third quarter, volume had returned to the 1998 second quarter level. Our volume in the 1999 fourth quarter exceeded our volume in the 1998 fourth quarter by 8%. However, we remain cautious on improvements in our volume of graphite electrodes sold overall, particularly in the export markets where prices are still depressed. Our average graphite electrode prices have fallen about 15% since the 1998 second quarter, with a much sharper decline in Europe and in our export markets. We believe, however, that industry fundamentals support our long-term strategy. 62 In 1998 and 1999, demand and prices for most of our other products were adversely affected by the same global economic conditions that affected graphite electrodes. Currently, demand for most of our other products is relatively stable. In particular, we have seen steady demand for graphite cathodes from the aluminum industry, and demand for flexible graphite has remained healthy. The demand for graphite specialties, particularly from certain segments of the semiconductor industry, and for certain products sold to the silicon metals industry, has remained weak. Pricing for most products in our graphite and carbon products business segment has not yet strengthened. OUTLOOK. We believe that worldwide production of steel in electric arc furnaces will continue to show steady recovery and growth. Demand for graphite electrodes in the 2000 first quarter to date is about 10% higher than in the 1999 first quarter. Demand for the full year is expected to be strong. This should result in an increase in graphite electrode manufacturing capacity utilization rate. The strength of the dollar as compared to the euro and other currencies in which we sell our products, as well as competitive pressures, continue to adversely affect our graphite electrode prices. This could adversely affect our earnings for a few more quarters. We believe that on the whole demand and prices for most of our graphite and carbon products will remain relatively steady in 2000, except for graphite specialties. We expect gross margins of the graphite and carbon products segment to decline slightly until the restructuring of our graphite specialties business is completed. Following completion, we expect those margins to return to 1999 levels or better in 2001. CURRENCY MATTERS. We incur manufacturing costs and sell our products in multiple currencies. As a result, in general, our results of operations and financial condition are affected by changes in currency exchange rates and by inflation in countries with highly inflationary economies where we have manufacturing facilities. To manage certain exposures to risks caused by changes in currency exchange rates, we engage in hedging activities and use various off-balance sheet financial investments. To account for translation of foreign currencies into dollars for consolidation and reporting purposes, we record foreign currency translation adjustments in accumulated other comprehensive income (loss) as part of stockholders' equity in the Consolidated Balance Sheets, except in the case of operations in highly inflationary economies (or which predominantly use the dollar for their purchases and sales) where we record foreign currency translation gains and losses as part of other (income) expense, net in the Consolidated Statement of Operations. We also record foreign currency transaction gains and losses as part of other (income) expense, net. During 1999, many of the currencies in which we manufacture and sell our products weakened against the dollar. The most significant change occurred in Brazil, where the Brazilian currency devalued about 49% against the dollar during 1999. In 1999, our stockholders' equity decreased by $48 million as a result of cumulative translation adjustments, including $33 million associated with our Brazilian subsidiary. In 1999, the net impact of currency changes included in other (income) expense, net was a gain of $2 million. 63 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items in the Consolidated Statements of Operations and the increase or decrease (expressed as a percentage of such item in the comparable prior period) of such items:
PERCENTAGE FOR THE YEAR ENDED INCREASE DECEMBER 31, (DECREASE) 1997 1998 1999 1997 to 1998 1998 TO 1999 ---- ---- ---- ------------ ------------ (Dollars in millions) Net sales..................................... $1,097 $947 $831 (14)% (12)% Cost of sales................................. 686 604 573 (12) (5) ------- ----- ----- --- ---- Gross profit................................... 411 343 258 (17) (25) Research and development....................... 9 9 9 0 0 Selling, administrative and other expenses..... 115 103 86 (10) (17) Other (income) expense, net.................... 5 8 (9) N/M N/M Restructuring charge (credit).................. -- 86 (6) N/M N/M Impairment loss on long-lived Russian assets... -- 60 -- N/M N/M Impairment loss on long-lived graphite specialties assets.......................... -- -- 35 N/M N/M Antitrust investigations and related lawsuits and claims............. 340 -- -- N/M N/M Securities class action and stockholder derivative lawsuits......... -- -- 13 N/M N/M Operating profit (loss)........................ (58) 77 130 N/M 169
- --------------------- N/M: Not Meaningful The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in the Consolidated Statements of Operations:
FOR THE YEAR ENDED DECEMBER 31, 1997 1998 1999 ---- ---- ---- Net sales............................................... 100.0% 100.0% 100.0% Cost of sales........................................... 62.5 63.8 69.0 ------ ------ ------ Gross profit............................................ 37.5 36.2 31.0 Research and development................................ .8 1.0 1.1 Selling, administrative and other expenses.............. 10.5 10.9 10.3 Other (income) expenses, net............................ .5 .8 (1.1) Restructuring charge (credit)........................... -- 9.1 (.7) Impairment loss on long-lived Russian assets............ -- 6.3 -- Impairment loss on long-lived graphite specialties assets................................. -- -- 4.2 Antitrust investigations and related lawsuits and claims.................... 31.0 -- -- Securities class action and stockholder derivative lawsuits................ -- -- 1.6 Operating profit (loss)................................. (5.3) 8.1 15.6
64 The following table sets forth, for the periods indicated, certain items in the Consolidated Statements of Operations and certain information as to gross profit margins related to our business segments:
GRAPHITE ELECTRODE BUSINESS GRAPHITE AND CARBON BUSINESS SEGMENT PRODUCTS BUSINESS SEGMENT FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1998 1999 1997 1998 1999 ---- ---- ----- ---- ---- ---- (Dollars in millions) (Dollars in millions) Net sales..................................... $788 $652 $562 $309 $295 $269 Cost of sales................................. 479 405 366 207 199 207 ----- ----- ---- ----- ----- ----- Gross profit.................................. 309 247 196 102 96 62 Gross profit margin........................... 39.2% 37.9% 34.9% 33.0% 32.5% 23.0%
1999 COMPARED TO 1998. Net sales in 1999 were $831 million, a decrease of $116 million, or 12%, from net sales in 1998 of $947 million. Gross profit in 1999 was $258 million, a decrease of $85 million, or 25%, from gross profit in 1998 of $343 million. Gross profit margin in 1999 was 31.0% of net sales as compared to gross profit margin in 1998 of 36.2% of net sales. The decrease in net sales and gross profit was primarily due to lower sales revenue per metric ton and volumes, and the impact of currency exchange rate changes. The impact of those factors was partially offset by lower cost of sales. The lower sales revenue per metric ton and volumes were due primarily to changes in global economic conditions that reduced demand for steel and other metals and changes in industry conditions. This, in turn, reduced demand and price for many of our products, particularly graphite electrodes. Lower cost of sales was primarily due to cost savings under our global rationalization and restructuring plan, partially offset by lower production levels which had the effect of increasing the average fixed cost per ton produced. The decrease in gross profit margin was primarily due to the fact that the percentage decrease in net sales was greater than the percentage decrease in cost of sales. GRAPHITE ELECTRODE BUSINESS SEGMENT. Net sales of graphite electrodes decreased 14%, or $90 million, to $562 million in 1999 from $652 million in 1998. The decrease was primarily attributable to a decrease in average sales revenue per metric ton. The average sales revenue per metric ton (in U.S. dollars and net of changes in currency exchange rates) of our graphite electrodes was $2,676 in 1999 as compared to $3,013 in 1998. The reduced average sales revenue per metric ton represented about $74 million of the $90 million decrease in net sales. The reduction in average sales revenue per metric ton was partially due to the lowering of prices by our Brazilian subsidiary because of competitive cost advantages resulting from the Brazilian currency devaluation, which accounted for about $24 million of the $74 million decrease in net sales. Other currency exchange rate changes, particularly with respect to the euro, accounted for about $19 million of the $74 million decrease in net sales. The balance of the $74 million decrease in net sales was largely attributable to lower graphite electrode selling prices both in home and export markets and, to a lesser extent, changes in product mix. The $16 million balance of the $90 million decrease in net sales was attributable to a reduction of 5,000 metric 65 tons, or 2%, in the volume of graphite electrodes sold to 206,000 metric tons in 1999 from 211,000 metric tons in 1998. Cost of sales for graphite electrodes decreased 10%, or $39 million, to $366 million in 1999 from $405 million in 1998. Gross profit declined 21%, or $51 million, to $196 million in 1999 from $247 million in 1998. Gross profit margin for graphite electrodes decreased to 34.9% in 1999 from 37.9% in 1998. The decrease in cost of sales was primarily due to lower volume and lower average graphite electrode cost per metric ton. The average graphite electrode cost per metric ton was $1,783 in 1999 as compared to $1,920 in 1998. The reduction in average graphite electrode cost per metric ton was due to cost savings under our global restructuring and rationalization plan. The impact of the cost savings was partially offset by the lower production levels and work in process inventory reduction efforts, both of which had the effect of increasing the average fixed cost per ton produced. The decrease in gross profit margin was primarily due to the fact that the percentage decrease in net sales was greater than the percentage decrease in cost of sales. GRAPHITE AND CARBON PRODUCTS BUSINESS SEGMENT. Net sales of graphite and carbon products decreased 9%, or $26 million, to $269 million in 1999 from $295 million in 1998. The decrease was primarily due to global economic conditions that resulted in lower demand for graphite specialties, particularly those sold to certain segments of the semiconductor industry and, to a lesser extent, those sold to the aerospace and aircraft industries, lower prices for graphite specialties, and lower demand for carbon electrodes sold to the silicon metals industry. Of the $26 million decrease in net sales, $18 million was attributable to our graphite specialties business and the balance was primarily attributable to a 12% decrease in net sales of carbon electrodes. The decrease in net sales of carbon electrodes was due to a 12% decrease in our volume of carbon electrodes sold. Net sales of cathodes sold to the aluminum industry were stable in 1999 as compared to 1998. The impact of a 6% decrease in the volume of cathodes sold was offset by the impact of changes in product mix. Our volume of graphite cathodes sold, which have higher selling prices and gross margins than carbon cathodes, doubled from 15% to 33% of all cathodes sold, while our volume of carbon cathodes sold declined by 25%. Cost of sales for graphite and carbon products increased 4%, or $8 million, to $207 million in 1999 from $199 million in 1998. The impact of an $8 million write-down of graphite specialties inventory and of cost per ton increases resulting from changes in product mix and lower operating levels, particularly at our graphite specialties and carbon electrode manufacturing facilities, were partially offset by cost savings under our global rationalization and restructuring plan. As a result of the changes described above, gross profit declined 35%, or $34 million, to $62 million in 1999 from $96 million in 1998. Gross profit margin for graphite and carbon products decreased to 23.0% in 1999 from 32.5% in 1998. The decrease in gross profit margin was due to the combination of the decrease in net sales and the increase in cost of sales. OPERATING PROFIT OF US AS A WHOLE. Operating profit was $130 million, or 15.6% of net sales, in 1999 as compared to $77 million, or 8.1% of net sales, in 1998. Operating profit in 1999 was impacted by a $35 million impairment loss on long-lived graphite specialties assets, a 66 $13 million charge for the settlement of securities class action and stockholder derivative lawsuits, and a $6 million restructuring credit related to plant closure activities. Operating profit in 1998 was impacted by an $86 million restructuring charge and a $60 million impairment loss on long-lived Russian assets. Excluding those charges, credit and impairment losses, operating profit in 1999 was lower than in 1998 due to lower gross profit, partially offset by lower selling, administrative and other expense and an improvement of $17 million in other (income) expense net. Selling, administrative and other expense decreased $17 million, or 17%, to $86 million in 1999 from $103 million in 1998, primarily due to lower corporate administration expenses resulting from cost savings under our global rationalization and restructuring plan and, to a lesser extent, a decrease of about $3 million in variable compensation expense due to lower earnings. Other (income) expense, net was income of $9 million in 1999 as compared to expense of $8 million in 1998. The change was primarily due to a $10 million reduction in consulting fees associated with projects that we initiated in 1997 to integrate worldwide operations, improve operating efficiencies and generate earnings growth and a gain of $2 million on the sale of the assets of our spray cooled systems business, partially offset by a $6 million reduction in interest income due to a reduction in short-term investments. OTHER ITEMS AFFECTING US AS A WHOLE. Interest expense increased to $84 million in 1999 from $73 million in 1998. The increase primarily resulted from higher average annual interest rates. Our average outstanding total debt was $782 million in 1999 as compared to $783 million in 1998. Our average annual interest rate was 10.7% in 1999 as compared to 8.8% in 1998. These average annual interest rates include imputed interest on the DOJ fine. The increase in the average annual interest rate was due to an increase in the margin over LIBOR which we paid under the Existing Senior Facilities as a result of the refinancing completed in November 1998, partially offset by a decrease in LIBOR. We incurred additional debt in 1998 and 1999 to finance a portion of the fines and settlements paid in connection with antitrust, securities and stockholder derivative investigations, lawsuits and claims. Provision for income taxes was $1 million for 1999 as compared to $32 million for 1998. During 1999, the provision for income taxes reflected a 23% effective rate, excluding the impact of the settlement of the securities class action and stockholder derivative lawsuits, the impairment loss on long-lived graphite specialties assets, the write-down of graphite specialties inventory and the restructuring credit. This is lower than the U.S. federal income tax rate of 35% primarily as a result of tax planning strategies, earnings repatriation plans, tax settlements, reassessment of reserves, and earnings resulting from consolidated entities with lower effective rates. For 1998, the provision for income taxes reflected a 29% effective rate, excluding the impact of the restructuring charge and the impairment loss on long-lived Russian assets. As a result of the changes described above, net income was $42 million in 1999, an increase of $79 million from a net loss of $37 million in 1998. 1998 COMPARED TO 1997. Net sales in 1998 were $947 million, a decrease of $150 million, or 14%, from net sales in 1997 of $1,097 million. Gross profit in 1998 was $343 million, a 67 decrease of $68 million, or 17%, from gross profit in 1997 of $411 million. Gross profit margin in 1998 was 36.2% of net sales as compared to gross profit margin in 1997 of 37.5% of net sales. These changes were due primarily to changes in global economic conditions that reduced demand for steel and other metals. This, in turn, reduced demand for most of our products, particularly graphite electrodes. GRAPHITE ELECTRODE BUSINESS SEGMENT. Net sales in 1998 were $652 million, a decline of $136 million, or 17%, from net sales in 1997 of $788 million. The majority of this decline, about $98 million, was due to lower volume of graphite electrodes sold. Our volume of graphite electrodes sold declined 31,000 metric tons to 211,000 metric tons in 1998 from 242,000 metric tons in 1997. The average selling price (in U.S. dollars and net of changes in currency exchange rates) declined $110 per metric ton to $3,013 per metric ton in 1998 from $3,123 per metric ton in 1997. The reduction in selling price was primarily due to the stronger dollar in relation to the other currencies in which we sell graphite electrodes. The adverse impact of the currency translation was about $34 million in 1998. Cost of sales declined $74 million, or 15%, to $405 million in 1998 from $479 million in 1997. The reduction was due primarily to lower volume of graphite electrodes sold. This decline in volume adversely affected our capacity utilization rate, which typically has the effect of increasing cost of sales per metric ton sold since the same fixed costs must be absorbed by a smaller quantity of products. As a result of the changes described above, gross profit declined $62 million, or 20%, to $247 million in 1998 from $309 million in 1997 and gross profit margin decreased to 37.9% of net sales in 1998 from 39.2% of net sales in 1997. 68 GRAPHITE AND CARBON PRODUCTS BUSINESS SEGMENT. Net sales in 1998 were $295 million, a decline of $14 million, or 5%, from net sales in 1997 of $309 million. The majority of this decline, about $13 million, was due to lower volume of carbon refractories sold. Carbon refractories are used primarily as lining for blast furnaces. Blast furnace linings last for several years and demand for refractories fluctuates based on the cycle for lining replacements. In addition, net sales of graphite specialties declined $7 million due to lower demand from the semi-conductor, aerospace and aircraft industries. Net sales of carbon electrodes declined $5 million due to lower volume of carbon electrodes sold as a result of lower demand for silicon metals. These decreases were partially offset by a $9 million increase in net sales of cathodes. This increase was due to increased volume and prices of cathodes sold as a result of increases in aluminum production and increases in demand for graphite cathodes in lieu of carbon cathodes in certain smelting furnace relinings. Cost of sales declined $8 million, or 4%, to $199 million in 1998 from $207 million in 1997. The decline was due primarily to lower overall volume of products sold and, to a lesser extent, changes in product mix. As a result of the changes described above, gross profit declined $6 million, or 6%, to $96 million in 1998 from $102 million in 1997 and gross profit margin declined to 32.5% of net sales in 1998 from 33.0% of net sales in 1997. OPERATING PROFIT FOR US AS A WHOLE. Operating profit in 1998 was $77 million as compared to an operating loss in 1997 of $58 million. Operating profit in 1998 was impacted primarily by restructuring charges of $86 million and impairment loss on Russian assets of $60 million. Operating profit in 1997 was impacted primarily by a charge of $340 million for estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. Excluding those charges and impairment loss, operating profit would have been $223 million in 1998 as compared to $282 million in 1997, a decrease of $59 million. In addition, operating profit as a percentage of net sales would have been 24% in 1998 as compared to 26% in 1997. Excluding those charges and impairment loss, the change in operating profit was primarily due to decreases in gross profit. Selling, administrative and other expenses decreased $12 million, or 10%, to $103 million in 1998 from $115 million in 1997. The decrease was due to the non-cash charge for accelerated vesting of outstanding performance stock options of $12 million in 1997 which did not recur in 1998. Other expense (net) was $8 million in 1998 as compared to $5 million in 1997. The increase was primarily due to consulting fees associated with projects that we undertook to improve operating efficiency, integrate worldwide operations and generate earnings growth. These fees totaled $9 million in 1998 as compared to $4 million in 1997. Interest income increased to $14 million in 1998 from $9 million in 1997, primarily because of higher average investment levels in Brazil. OTHER ITEMS AFFECTING US AS A WHOLE. Interest expense increased to $73 million in 1998 from $64 million in 1997. In 1998, the average outstanding total debt balance was $783 million and the average annual interest rate was 8.8% inclusive of imputed interest of $5 million on the non-interest-bearing $110 million antitrust fine payable to the DOJ in six annual installments. In 1997, the average outstanding total debt balance was $726 million and the average annual interest rate was 8.9%. We incurred additional debt to finance a portion of the fines and settlements paid in connection with the antitrust investigations and related lawsuits and claims. Provision for income taxes was $32 million in 1998 as compared to $39 million in 1997. In 1998, the provision for income taxes was significantly higher than the amount computed by applying the United States federal income tax rate primarily due to the non-deductibility of the impairment loss, imputed interest expense associated with the antitrust fine, limited deductibility of certain antitrust settlements, foreign losses resulting from the restructuring charge which provided no tax benefit, other taxes related to the restructuring charge, and the generation of excess foreign tax credits where we consider utilization unlikely. This was partially offset by foreign earnings taxed at lower rates. 69 EFFECTS OF INFLATION In general, our results of operations and financial condition are affected by the inflation in each country in which we have a manufacturing facility. During 1997 through 1999, the effects of inflation on our cost of sales in the United States and foreign countries (except for highly inflationary countries) have been generally offset by a combination of improved operating efficiency, permanent cost savings and, prior to 1998, increased prices for graphite electrodes and certain of our other products. Accordingly, during 1997 through 1999, these effects have not been material to us. The cost of petroleum coke, a principal raw material used by us, and natural gas, which is used by us in our electrode, cathode and graphite specialties baking operations, may fluctuate widely for various reasons, including fuel shortages and cold weather. Changes in such costs were not material to us during 1997 through 1999. The worldwide market price of oil increased significantly in late 1999 and early 2000. This could impact the price of petroleum coke. We cannot assure that future increases in our cost of sales or other expenses will not exceed the rate of inflation or the amounts, if any, by which we may be able to increase prices for our products. We account for our non-U.S. subsidiaries under the provisions of Statement of Financial Accounting Standards ("SFAS") 52, "Foreign Currency Translation." Accordingly, their assets and liabilities are translated into dollars for consolidation and reporting purposes. Foreign currency translation adjustments are generally recorded as part of stockholders' equity and identified as accumulated other comprehensive income (loss) in the Consolidated Balance Sheets. We maintain operations in Brazil, Russia and Mexico, countries which have had in the past, and may have now or in the future, highly inflationary economies, defined as cumulative inflation of about 100% or more over a three-calendar year period. In general, the financial statements of these foreign operations have been remeasured as described below as if the functional currencies of their economic environments were the U.S. dollar and translation gains and losses relating to operations in highly inflationary economies are included in other (income) expense, net in the Consolidated Statements of Operations rather than as part of stockholders' equity in the Consolidated Balance Sheets. In light of significant increases in inflation in Mexico, effective January 1, 1997, Mexico was considered to have a highly inflationary economy. Accordingly, translation gains and losses for our Mexican operations were included in the Consolidated Statements of Operations for 1997 and 1998. In 1999, we began to account for our Mexican subsidiary using the dollar as its functional currency, irrespective of Mexico's inflationary status, because its sales and purchases are predominantly dollar-denominated. Brazil was considered to have a highly inflationary economy in 1997. We have always considered Russia to have a highly inflationary economy. Accordingly, translation gains and losses are included in the Consolidated Statements of Operations for our Brazilian subsidiary in 1997, and for our Russian subsidiary in 1997, 1998 and 1999. 70 Foreign currency translation adjustments decreasing stockholders' equity amounted to $14 million in 1997, $27 million in 1998 and $48 million in 1999, including $33 million associated with our Brazilian subsidiary in 1999. EFFECTS OF CHANGES IN CURRENCY EXCHANGE RATES In general, our results of operations and financial condition are affected by the changes in currency exchange rates affecting the currency of each country in which we have a manufacturing facility. When the local currencies of foreign countries in which we have a manufacturing facility decline (or increase) in value relative to the dollar, this has the effect of reducing (or increasing) the dollar equivalent cost of sales and other expenses with respect to those facilities. This effect is, however, partially offset by the cost of petroleum coke, a principal raw material used by us, which is priced in dollars. We price products manufactured at our facilities for sale in local and certain export markets in local currencies. Accordingly, when the local currencies increase (or decline) in value relative to the dollar, this has the effect of increasing (or reducing) net sales. The result of these effects is to increase (or decrease) operating profit and net income. During 1997 through 1999, many of the currencies in which we manufacture and sell our products weakened against the dollar. This adversely affected our net sales and, to a lesser extent, benefited our cost of sales as reported in dollars. In the case of net sales of graphite electrodes, the adverse impact was $43 million in 1997, $34 million in 1998 and $19 million in 1999 (excluding $24 million in 1999 due to the lowering of prices by our Brazilian subsidiary because of competitive cost advantages resulting from the Brazilian currency devaluation). Through early 1998, we sought to mitigate these adverse impacts on net sales by increasing local currency prices for some of our products in various regions as circumstances permitted. We have not been able to do so since then. We cannot predict changes in currency exchange rates in the future or whether those changes will have positive or negative impacts on our net sales or cost of sales. We cannot assure you that we would be able to mitigate any adverse effects of such changes. Since late 1998, the Brazilian economy has been subject to various economic pressures. Inflation substantially increased and economic activity began to decline. In 1999, the Brazilian currency substantially devalued. These circumstances may affect other countries in South America. We have manufacturing operations in Brazil, and these circumstances can be expected to impact us. They may reduce demand for our products in Brazil or elsewhere in South America. They may also reduce our costs in Brazil, which are paid in local currency. In addition, they would increase our gross profit margin, since a significant portion of the sales of our Brazilian subsidiary are denominated in dollars. We cannot assure you, however, that these circumstances will not adversely affect us. To manage certain exposures to general economic and specific financial market risks caused by changes in currency exchange rates, we use various off-balance sheet financial instruments. The amount of currency exchange contracts used by us to minimize these risks was $353 million at December 31, 1997, $484 million at December 31, 1998 and $233 million at December 31, 1999. 71 Total outstanding dollar-denominated debt of our foreign subsidiaries (excluding our Russian, Mexican and Swiss subsidiaries which used the dollar as their functional currency) was $209 million at December 31, 1998 and $158 million at December 31, 1999. Changes in the currency exchange rates between the dollar and the currencies in the countries in which these subsidiaries are located result in foreign currency gains and losses that are reported in other (income) expense, net in the Consolidated Statements of Operations. While changes in currency exchange rates did not materially affect us in 1997 through 1999, we cannot assure you that such changes will not have a material adverse effect on us in the future. Our foreign subsidiaries with dollar-denominated debt have entered into foreign currency contracts to protect against changes in currency exchange rates. The amount of such contracts was $214 million at December 31, 1997, $209 million at December 31, 1998 and $129 million at December 31, 1999. We believe that such contracts reduce our exposure to changes in currency exchange rates related to such borrowings. LIQUIDITY AND CAPITAL RESOURCES Our sources of funds have consisted principally of invested capital, cash flow from operations, and debt financing. Our uses of those funds (other than for operations) have consisted principally of debt reduction and capital expenditures and, in 1997, repurchases of common stock; in 1996 and 1997, acquisition of controlling interests in various companies or businesses; and, in 1998 and 1999, payment of fines, liabilities and expenses in connection with antitrust investigations, lawsuits and claims. We are highly leveraged and have substantial obligations in connection with antitrust investigations, lawsuits and claims. We had total debt of $722 million and a stockholders' deficit of $293 million at December 31, 1999 as compared to total debt of $804 million and a stockholders' deficit of $287 million at December 31, 1998. Cash, cash equivalents and short-term investments were $20 million at December 31, 1999 as compared to $69 million at December 31, 1998. Debt (net of cash, cash equivalents and short-term investments) was $702 million at December 31, 1999 as compared to $735 million at December 31, 1998. OVERVIEW OF DEBT FINANCING. In connection with the 1995 Equity Recapitalization, we obtained senior credit facilities which provided for borrowings of up to $685 million, of which $585 million was used at that time. We also issued $375 million of Subordinated Notes, $175 million of which were redeemed in 1995. In October 1995, we replaced those senior credit facilities with the Existing Senior Facilities, which had more favorable interest rates and covenants. The Existing Senior Facilities initially provided for borrowings of up to $620 million, of which $520 million was used at that time. In March 1997, the Existing Senior Facilities were amended to reduce interest rates, increase our revolving credit facility and change certain covenants to allow greater flexibility. In April 1998, we obtained a limited waiver of breaches, if any, of certain covenants of the Existing Senior Facilities. We also agreed to amend certain provisions of the Existing Senior Facilities. These amendments had the effect of increasing interest rates paid by us. In addition, 72 we were able to borrow an additional $35 million under our revolving credit facility. Under the Subordinated Note Indenture, subject to certain exceptions, we could not incur additional indebtedness if our adjusted coverage ratio was less than certain specified ratios. In April 1998, as a result of the $340 million charge, our adjusted coverage ratio was less than those specified ratios. As a result, under the Subordinated Note Indenture, we could not, with limited exceptions, incur additional indebtedness (even under the Existing Senior Facilities). In November 1998, we refinanced the Existing Senior Facilities and amended the Subordinated Note Indenture. The refinancing consisted of the addition of a new $210 million senior secured term debt facility to the Existing Senior Facilities and the amendment of the Existing Senior Facilities. Together, these enabled us to incur additional debt in the refinancing and to have the ability (subject to compliance with applicable covenants) to borrow under our revolving credit facility. In February 2000, we completed a debt recapitalization. We obtained the New Senior Facilities and used the net proceeds to repay and terminate the Existing Senior Facilities, to call the Subordinated Notes for redemption and to repay certain other debt. Among other things, the debt recapitalization reduces our average annual interest rate and extends the average maturities of our debt. DEBT REDUCTION. As a result of our substantial leverage and the impacts of global and regional economic conditions on our business, we have placed high priority on efforts to manage cash and operations to reduce debt. During 1999, excluding antitrust fines, net settlements and expense payments and restructuring payments, we generated strong cash flow from operations of $179 million. Among other things, our inventory and other working capital reduction efforts generated $51 million of cash flow in 1999. As a result, during 1999, we reduced our total debt by more than $80 million and our net debt by more than $30 million while paying off, at the same time, almost $100 million of antitrust fines, net settlements and expense payments and restructuring payments. CASH FLOW AND PLANS TO MANAGE LIQUIDITY. For at least the past five years, we have had positive annual cash flow from operations, excluding payments in connection with restructurings, and investigations, lawsuits and claims. Typically, the first quarter of each year results in neutral or negative cash flow from operations (after deducting cash used for capital expenditures and excluding payments in connection with restructurings and investigations, lawsuits and claims and payments of interest on the Subordinated Notes (which have since been called for redemption)) due to various factors. These factors include customer order patterns, customer buy-ins in advance of annual price increases, and payment of variable compensation with respect to the immediately preceding year. Typically, the other three quarters result in significant positive cash flow from operations (after deducting cash used for capital expenditures and excluding those payments). The third quarter tends to produce relatively less positive cash flow primarily as a result of scheduled plant shutdowns by our customers for vacations. We believe that 2000 will follow this historical pattern. To minimize interest expense, except for our Brazilian subsidiary prior to mid-1999, we typically operate on a "zero-cash" basis. This means that we use, and are dependent on, funds 73 available under our revolving credit facility and monthly or quarterly cash flow from operations as our primary sources of liquidity. We believe that our global restructuring and rationalization plan, along with our POWER OF ONE initiative, will, over the next one to two years, improve our cash flow from operations for a given level of net sales. Among other things, we are seeking to improve cash flow from operations in 2000 through improvements in production scheduling, inventory management, cash management, and accounts payable and receivable management. Improvements in cash flow from operations resulting from the plan and that initiative are being partially offset by associated cash implementation costs, while they are being implemented. Our debt and obligations in connection with antitrust investigations, lawsuits and claims could have a material impact on our liquidity. Cash flow from operations services payment of these obligations, thereby reducing funds available to us for other purposes. Our leverage and these obligations make us more vulnerable to economic downturns or in the event that these obligations are greater than expected. Our ability to service our debt and meet these and other obligations as they come due is dependent on our future financial and operating performance. This performance, in turn, is subject to various factors, including certain factors beyond our control such as changes in our industry, changes in global and regional economic conditions and changes in interest and currency exchange rates. We cannot assure you that our cash flow from operations and capital resources will be sufficient to enable us to meet our debt service and other obligations when due. If we are unable to do so, we could be required to limit or discontinue, temporarily or permanently, certain of our business plans, activities or operations, reduce or delay certain capital expenditures, sell certain of our assets or businesses, restructure or refinance some or all of our debt or incur additional debt, or sell additional common stock or other securities. We cannot assure you that we would be able to take any of such actions on favorable terms or at all. We believe that the long-term fundamentals of our business continue to be sound. Accordingly, although we cannot assure you that such will be the case, we believe, based on our expected cash flow from operations and existing capital resources and taking into account our efforts to reduce costs, improve efficiencies, generate growth and earnings and maximize funds available to meet our debt service and other obligations, we will be able to manage our working capital and cash flow to permit us to service our debt and meet our obligations as they become due. DESCRIPTION OF NEW SENIOR FACILITIES. On February 22, 2000, we completed a debt recapitalization. We obtained the New Senior Facilities and used the net proceeds to repay and terminate the Existing Senior Facilities, to call the Subordinated Notes for redemption and to repay certain other debt. The New Senior Facilities consist of: o A Tranche A Facility providing for initial term loans of $138 million and of 161 million (equivalent to $158 million at February 22, 2000) to UCAR Finance Inc. 74 ("UCAR Finance"), a direct wholly owned special purpose finance subsidiary of UCAR. The Tranche A Facility amortizes in quarterly installments over six years, commencing June 30, 2000, with installments ranging from about $2 million in 2000 to about $17 million in 2005, with the final installment payable on December 31, 2005. o A Tranche B Facility providing for initial term loans of $350 million to UCAR Finance. The Tranche B Facility amortizes over eight years, commencing June 30, 2000, with nominal quarterly installments during the first six years, and quarterly installments of about $41 million in 2006 and 2007, with the final installment payable on December 31, 2007. o A Revolving Facility providing for revolving and swingline loans to, and the issuance of US dollar-denominated letters of credit for the account of, UCAR Finance and certain of our other subsidiaries in an aggregate principal and stated amount at any time not to exceed $250 million. The Revolving Facility terminates on February 22, 2006. As a condition to each borrowing under the Revolving Facility, we are required to represent, among other things, that the aggregate amount of payments made (excluding certain imputed interest) and additional reserves created in connection with antitrust, securities and stockholder derivative investigations, lawsuits and claims do not exceed $340 million by more than $130 million (which $130 million is reduced by the amount of certain debt incurred by us that is not incurred under the New Senior Facilities). The Company is required to make mandatory prepayments in the amount of: o Either 75% or 50% (depending on our leverage ratio, which is the ratio of our adjusted net debt to our adjusted total EBITDA) of adjusted excess cash flow. The obligation to make these prepayments, if any, arises after the end of each year with respect to adjusted excess cash flow during the prior year. o 100% of the net proceeds of certain asset sales or incurrence of certain indebtedness. o 50% of the net proceeds of the issuance of any equity securities by UCAR. We may make voluntary prepayments under the New Senior Facilities. There is no penalty or premium due in connection with prepayments (whether voluntary or mandatory). UCAR Finance makes secured and guaranteed intercompany loans of the net proceeds of borrowings under the New Senior Facilities to UCAR Global's subsidiaries. The obligations of UCAR Finance under the New Senior Facilities are secured, with certain exceptions, by first priority security interests in all of these intercompany loans (including the related security interests and guarantees). UCAR has unconditionally and irrevocably guaranteed the obligations of UCAR Finance under the New Senior Facilities. This guarantee is secured, with certain exceptions, by first 75 priority security interests in all of the outstanding capital stock of UCAR Global and UCAR Finance and all of the intercompany debt owed to UCAR. UCAR, UCAR Global and each of UCAR Global's subsidiaries has guaranteed, with certain exceptions, the obligations of UCAR Global's subsidiaries under the intercompany loans, except that our U.S. subsidiaries have not guaranteed obligations of our foreign subsidiaries. The obligations of UCAR Global's subsidiaries under the intercompany loans as well as these guarantees are secured, with certain exceptions, by first priority security interests in substantially all of our assets, except that no more than 65% of the capital stock or other equity interests in our foreign subsidiaries held directly by our U.S. subsidiaries and no other foreign assets secure obligations or guarantees of our U.S. subsidiaries. The interest rates applicable to the Tranche A and Revolving Facilities are, at our option, either leverage Euro LIBOR plus a margin ranging from 1.00% to 2.50% (depending on our leverage ratio) or the alternate base rate plus a margin ranging from 0.00% to 1.50% (depending on our leverage ratio). The interest rate applicable to the Tranche B Facility is, at our option, either Euro LIBOR plus a margin ranging from 2.50% to 2.75% (depending on our leverage ratio) or the alternate base rate plus a margin ranging from 1.50% to 2.00% (depending on our leverage ratio). The alternate base rate is the higher of the prime rate announced by Morgan Guaranty Trust Company of New York, or the federal funds effective rate plus 0.50%. UCAR Finance pays a per annum fee ranging from 0.375% to 0.500% (depending on our leverage ratio) on the undrawn portion of the commitments under the Revolving Facility. We enter into agreements with financial institutions, which are intended to limit, or cap, our exposure to incurrence of additional interest expense due to increases in variable interest rates. Use of these agreements is allowed with the New Senior Facilities. The New Senior Facilities contain a number of significant covenants that, among other things, restrict our ability to sell assets, incur additional indebtedness, repay or refinance other debt or amend other debt instruments, create liens on assets, enter into leases, investments or acquisitions, engage in mergers or consolidations, make capital expenditures, make dividend payments to UCAR, pay intercompany debt owed to UCAR, engage in transactions with affiliates, or pay dividends or make other restricted payments and that otherwise restrict corporate activities. UCAR Global is, however, permitted to pay dividends to UCAR of up to $15 million for the purpose of making an investment in UCAR Graph-Tech and may also distribute the capital stock of UCAR Graph-Tech to UCAR. In addition, we are required to comply with specified minimum interest coverage and maximum leverage ratios, which became more restrictive over time. In addition to the failure to pay principal, interest and fees when due, events of default under the New Senior Facilities include: failure to comply with applicable covenants; failure to pay when due, or other defaults permitting acceleration of, other indebtedness exceeding $7.5 million; judgment defaults in excess of $7.5 million to the extent not covered by insurance; certain events of bankruptcy; and certain changes in control. 76 Under the New Senior Facilities, UCAR is permitted to pay dividends on, and repurchase, common stock in an aggregate amount of up to $25 million, plus up to an additional $25 million if certain leverage ratio and excess cash flow requirements are satisfied. We are also permitted to repurchase common stock from present or former directors, officers or employees in an aggregate amount of up to the lesser of $5 million per year (with unused amounts permitted to be carried forward) or $25 million on a cumulative basis since February 22, 2000. UCAR Global is, however, also permitted to pay dividends to UCAR of up to $15 million for the purpose of making an investment in UCAR Graph-Tech and may also distribute the capital stock of UCAR Graph-Tech to UCAR. CASH FLOW PROVIDED BY OPERATING ACTIVITIES. Cash flow provided by operations was $80 million in 1999 as compared to cash flow used in operations of $29 million in 1998. This improvement of $109 million resulted primarily from a lower use of cash flow for working capital of approximately $111 million, partially offset by lower net income (including non-cash items) of approximately $3 million and a decreased use of cash associated with long term assets and liabilities of $1 million. Use of cash flow for working capital was $48 million in 1999, an improvement of $111 million from a use of $159 million in 1998. The improvement occurred despite the use of $64 million for payment of fines and net settlements and expense payments in connection with antitrust investigations and related lawsuits and claims (as compared to $142 million in 1998), the use of $12 million for settlement of the securities class action and stockholder derivative lawsuits, and the use of $23 million for restructuring payments during 1999. The working capital improvement was due primarily to reductions in the use of cash of $60 million for inventories ($27 million use of cash in 1998 as compared to $33 million source of cash in 1999), $38 million for payables and accruals ($38 million use of cash in 1998 as compared to nil use of cash in 1999), and $4 million for prepaid expenses and other assets, partially offset by an increase in the use of cash of $34 million for receivables ($49 million source of cash in 1998 as compared to $15 million source of cash in 1999). These improvements resulted primarily from improved cash and inventory management. CASH FLOW USED IN INVESTING ACTIVITIES. We used $39 million of cash flow in investing activities during 1999 as compared to $31 million during 1998. This increase of $8 million was primarily due to an increase in cash used for capital expenditures (net of a capital incentive grant) of $7 million and a reduction in cash used in short term investments by our Brazilian subsidiary of $1 million. Cash provided from the sale of assets was $9 million in both 1999 and 1998. CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES. Cash flow used in financing activities was $80 million in 1999 as compared to cash provided by financing activities of $62 million in 1998. Financing activities from long-term debt consisted of $62 million of net payments under the Existing Senior Facilities (including the revolving credit facility) in 1999 as compared to $128 million of net borrowings in 1998. The net payments made in 1999 were 77 funded primarily through improved cash and inventory management and decreased working capital requirements as compared to 1998. Net short-term debt reductions were $18 million in 1999 as compared to $58 million in 1998. Net short-term debt reductions were lower in 1999 due to lower short-term borrowings by our Brazilian subsidiary and lower borrowings by other non-U.S. subsidiaries to meet local cash needs. RESTRICTIONS ON DIVIDENDS AND STOCK REPURCHASES Under the New Senior Facilities, we are generally permitted to pay dividends on common stock and repurchase common stock in an aggregate amount of up to between $25 million and $50 million, depending on our leverage ratio and excess cash flow. 78 ACCOUNTING CHANGES In 1998, we changed our method of accounting for the cost of certain U.S. inventories from the last-in first-out method to the first-in first-out method. We believe the new method to be preferable because it provides improved consistency in accounting for worldwide inventories and avoids potential distortion of future profits from anticipated decrements. The Consolidated Financial Statements for all periods have been restated to reflect this change in accordance with the requirements of Accounting Principles Board Opinion 20, "Accounting Changes." The restatement did not have a material impact on consolidated net income (loss) or related per share amounts in 1996, 1997 or 1998. The restatement had no cash flow impact. In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. This statement establishes accounting and reporting standards for derivative instruments. This statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. We are currently evaluating the impact of SFAS 133 on our financial position, results of operations and cash flows. YEAR 2000 ISSUE The Year 2000 issue results from the fact that many computer programs were written using two rather than four digits to define the applicable year. Any computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in processing errors or miscalculations or failures causing disruptions of operations, including, among other things, temporary inability to process transactions, continue production or otherwise engage in normal business activities. We have not experienced any such material errors, miscalculations or failures affecting us or our critical suppliers, service providers or customers. The Company estimates that it incurred an aggregate incremental cost of about $3 million for internal and external services in connection with Year 2000 issues. ASSESSMENT OF THE EURO On January 1, 1999, eleven of the member countries of the European Union established fixed conversion rates between their existing currencies (called "LEGACY CURRENCIES") and one common currency called the euro. The euro trades on currency exchanges and may be used in business transactions. Beginning in January 2002, new euro-denominated currency will be issued and legacy currencies will be withdrawn from circulation. Our subsidiaries affected by the euro conversion are establishing plans to address issues raised by the euro currency conversion. These issues include, among others, the need to adapt computer and financial systems to accommodate euro-denominated transactions and the impact of a common currency on pricing. We believe that, under current conditions, the conversion of legacy currencies into the euro will not have a material adverse affect on us. 79 COSTS RELATING TO PROTECTION OF THE ENVIRONMENT We have been and are subject to increasingly stringent environmental protection laws and regulations. In addition, we have an on-going commitment to rigorous internal environmental protection standards. The following table sets forth certain information regarding environmental expenses and capital expenditures. Our capital expenditures were much higher in 1997 than subsequent years due to the one-time installation of air pollution and wastewater equipment. FOR THE YEAR ENDED DECEMBER 31, 1997 1998 1999 ---- ---- ---- (Dollars in millions) Expenses relating to environmental protection.................................. $14 $12 $13 Capital expenditures related to environmental protection.................................. 15 8 4 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS We are exposed to market risks primarily from changes in interest rates and currency exchange rates. To manage our exposure to these changes, we routinely enter into various transactions that have been authorized according to documented policies and procedures. We do not use derivatives for trading purposes or to generate income, and we never use leveraged derivatives. Our exposure to changes in interest rates results primarily from floating rate long-term debt tied to LIBOR or euro LIBOR. We enter into agreements with financial institutions which are intended to limit, or cap, our exposure to incurrence of additional interest expense due to increases in variable interest rates. During 1995, we purchased interest rate caps on up to $375 million of debt, limiting the floating interest rate factor on this debt to a weighted-average rate of 8.5% through 1997. During 1997, we purchased interest rate caps on up to $250 million of debt, limiting the floating interest rate factor on this debt to a weighted-average rate of 8.2% for the period commencing February 1998 and continuing through various dates ending February 2001. In February 1999, we purchased interest rate caps on $470 million of debt, limiting the floating interest rate factor on this debt to 5.1% through 1999. Fees related to these agreements are charged to interest expense over the term of the agreements. Our exposure to changes in currency exchange rates results primarily from: o investments in our foreign subsidiaries and in our share of the earnings of those subsidiaries, which are denominated in local currencies, o raw material purchases made by our foreign subsidiaries in a currency other than the local currency, and o export sales made by our subsidiaries in a currency other than the local currency. 80 When we deem it appropriate, we may attempt to limit our risks associated with changes in currency exchange rates through both operational and financial market activities. Financial instruments are used to attempt to hedge existing exposures, firm commitments and, potentially, anticipated transactions. We use forward, option and swap contracts to reduce risk by essentially creating offsetting currency exposures. We held contracts against these risks with an aggregate notional amount of about $484 million at December 31, 1998 and $233 million at December 31, 1999. All of our contracts mature within one year. All of our contracts are accounted for as speculative instruments and, accordingly, are marked to market monthly. Unrealized gains and losses on outstanding foreign currency contracts were not material at December 31, 1998 or December 31, 1999. We used a sensitivity analysis to assess the potential effect of changes in currency exchange rates and interest rates on reported earnings at December 31, 1999. Based on this analysis, a hypothetical 10% weakening or strengthening in the dollar would not have resulted in a material effect on our reported earnings. A hypothetical increase in interest rates of 100 basis points across all maturities would increase our interest expense about $7 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE Independent Auditors' Report......................................... 80 Consolidated Balance Sheets.......................................... 81 Consolidated Statements of Operations................................ 82 Consolidated Statements of Cash Flows................................ 83 Consolidated Statements of Stockholders' Equity (Deficit)............ 85 Notes to Consolidated Financial Statements........................... 86 All schedules are omitted because they are not required or are not applicable or because the information is included in the Consolidated Financial Statements or the notes thereto. 81 INDEPENDENT AUDITORS' REPORT To the Board of Directors UCAR International Inc.: We have audited the accompanying Consolidated Balance Sheets of UCAR International Inc. and Subsidiaries as of December 31, 1998 and 1999, and the related Consolidated Statements of Operations, Cash Flows and Stockholders' Equity (Deficit) for each of the years in the three-year period ended December 31, 1999. 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 financial position of UCAR International Inc. and Subsidiaries at December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP Nashville, Tennessee February 11, 2000, except as to Note 19, which is as of February 23, 2000 82 UCAR INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in millions, except per share data) AT DECEMBER 31, 1998 1999 ---- ---- ASSETS Current assets: Cash and cash equivalents.............................. $ 58 $ 17 Short-term investments................................. 11 3 Notes and accounts receivable.......................... 198 171 Inventories: Raw materials and supplies............................ 58 49 Work in process....................................... 150 113 Finished goods........................................ 56 42 ---- ---- 264 204 Prepaid expenses....................................... 47 25 ---- ---- Total current assets.................................. 578 420 ---- ---- Property, plant and equipment............................ 1,220 1,071 Less: accumulated depreciation.......................... 752 673 ---- ---- Net fixed assets...................................... 468 398 ---- ---- Other assets............................................. 91 115 ---- ---- Total assets.......................................... $ 1,137 $ 933 ===== ==== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable....................................... $ 67 $ 80 Short-term debt........................................ 19 -- Payments due within one year on long-term debt......... 63 82 Accrued income and other taxes......................... 28 39 Other accrued liabilities.............................. 198 114 ---- ---- Total current liabilities............................. 375 315 ---- ---- Long-term debt........................................... 722 640 Other long-term obligations.............................. 266 224 Deferred income taxes.................................... 48 33 Minority stockholders' equity in consolidated entities... 13 14 Stockholders' equity (deficit): Preferred stock, par value $.01, 10,000,000 shares -- -- authorized, none issued.................................. Common stock, par value $.01, 100,000,000 shares authorized, 47,411,296 shares issued at December 31, 1998, 47,440,536 shares issued at December 31, 1999......... -- -- Additional paid-in capital............................. 521 523 Accumulated other comprehensive (loss)................. (157) (205) Retained earnings (deficit)............................ (566) (525) Less: cost of common stock held in treasury, 2,226,498 shares at December 31, (85) (86) ---- ---- 1998, 2,338,038 shares at December 31, 1999........... Total stockholders' equity (deficit).................. (287) (293) ---- ---- Total liabilities and stockholders' equity (deficit).. $ 1,137 $ 933 ===== ==== See accompanying Notes to Consolidated Financial Statements. 83 UCAR INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in millions, except per share data) For the Year Ended December 31, ------------------------------- 1997 1998 1999 ---- ---- ---- Net sales........................................ $ 1,097 $ 947 $ 831 Cost of sales.................................... 686 604 565 Cost of sales - write-down of graphite specialties inventory.......................... -- -- 8 ------- ------ ------ Gross profit................................... 411 343 258 Research and development......................... 9 9 9 Selling, administrative and other expenses....... 115 103 86 Restructuring charge (credit).................... -- 86 (6) Impairment loss on long-lived Russian assets..... -- 60 -- Impairment loss on long-lived graphite specialties assets............................... -- -- 35 Antitrust investigations and related lawsuits and claims....................................... 340 -- -- Securities class action and stockholder derivative lawsuits.............................. -- -- 13 Other (income) expense, net...................... 5 8 (9) ------ ------ ------- Operating profit (loss)........................ (58) 77 130 Interest expense................................. 64 73 84 ------ ------ ------- Income (loss) before provision for income taxes (122) 4 46 Provision for income taxes....................... 39 32 1 ------ ------ ------- Income (loss) of consolidated entities......... (161) (28) 45 Less: minority stockholders' share of income.... 1 2 3 Plus: UCAR share of net income from company carried at equity ............................. 2 -- -- ------ ------ ------- Income (loss) before extraordinary item........ (160) (30) 42 Extraordinary item, net of tax................... -- 7 -- ------ ------ ------- Net income (loss)............................. $(160) $(37) $ 42 ====== ====== ======= Earnings (loss) per common share: Basic: ----- Income (loss) before extraordinary item....... $(3.49) $(0.66) $ 0.94 Extraordinary item, net of tax................ -- (0.17) -- ------- ------- ------- Net income (loss) per share................... $(3.49) $(0.83) $ 0.94 ======= ======= ======= Diluted: ------- Income (loss) before extraordinary item....... $(3.49) $(0.66) $ 0.91 Extraordinary item, net of tax................ -- (0.17) -- ------- ------- ------- Net income (loss) per share................... $(3.49) $(0.83) $ 0.91 ======= ======= ======= See accompanying Notes to Consolidated Financial Statements. 84 UCAR INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions, except per share data) For the Year Ended December 31, ------------------------------- 1997 1998 1999 ---- ---- ---- Cash flow from operating activities: Net income (loss)............................. $ (160) $ (37) $ 42 Extraordinary item, net of tax................ -- 7 -- Non-cash (credits) charges to net income (loss): Depreciation and amortization................ 49 51 45 Deferred income taxes........................ (38) (24) (26) Securities class action and stockholder derivative lawsuits....................... -- -- 13 Restructuring charge (credit)................ -- 86 (6) Impairment loss on long-lived Russian assets. -- 60 -- Impairment loss on long-lived graphite specialties assets....................... -- -- 35 Write-down of graphite specialties inventory. -- -- 8 Accelerated vesting of performance stock options. 12 -- -- Other non-cash (credits) charges............. 7 (3) 26 Antitrust investigations and related lawsuits and claims............................... 340 -- -- Working capital*.............................. (43) (159) (48) Long-term assets and liabilities.............. 5 (10) (9) ------ ------- ------ Net cash provided by (used in) operating activities............................... 172 (29) 80 ------ ------- ------ Cash flow from investing activities: Capital expenditures.......................... (79) (52) (56) Capital incentive grant....................... -- 3 -- Purchase of subsidiaries...................... (124) -- -- Purchases of short-term investments........... (59) (28) (20) Maturities of short-term investments.......... 39 37 28 Sale of assets................................ 2 9 9 ------- ------ ------ Net cash used in investing activities........ (221) (31) (39) ------- ------ ------ Cash flow from financing activities: Short-term debt borrowings, net............... 23 (58) (18) Revolving credit facility borrowings, net..... 35 (30) (3) Long-term debt borrowings..................... 64 210 -- Long-term debt reductions..................... (25) (52) (59) Financing costs............................... (2) (12) -- Purchase of treasury stock.................... (92) -- -- Sale of common stock.......................... 5 4 1 Dividends paid to minority stockholder........ -- -- (1) Tax benefit arising from exercise of employee stock options............................. 5 -- -- ------ ------ ------ Net cash provided by (used in) financing activities................................ 13 62 (80) ------ ------- ------ Net increase (decrease) in cash and cash equivalents (36) 2 (39) Effect of exchange rate changes on cash and cash equivalents.................................. (1) (2) (2) Cash and cash equivalents at beginning of period.... 95 58 58 ------ ------- ------ Cash and cash equivalents at end of period...... $ 58 $ 58 $ 17 ====== ======= ====== 85 UCAR INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions, except per share data) For the Year Ended December 31, ------------------------------- 1997 1998 1999 ---- ---- ---- Supplemental disclosures of cash flow information: Net cash paid during the year for: Interest expense............................. $ 62 $ 70 $ 76 Income taxes................................. 72 61 33 * Net change in working capital due to the following components: (Increase) decrease in current assets: Notes and accounts receivable................ $ (30) $ 49 $ 15 Inventories.................................. 5 (27) 33 Prepaid expenses............................. (1) (1) 3 Payments for antitrust investigations and related lawsuits and claims.................. (3) (142) (64) Payments for securities class action and stockholder derivative lawsuits.............. -- -- (12) Restructuring payments........................ -- -- (23) Increase (decrease) in payables and accruals.. (14) (38) -- ------- ------ ------ Working capital......................... $ (43) $(159) $ (48) ======= ===== ====== See accompanying Notes to Consolidated Financial Statements. 86
UCAR INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Dollars in millions) Accumulated Total Additional Other Retained Stockholders' Common Paid-in Comprehensive Earnings Treasury Equity Stock Capital (Loss) (Deficit) Stock (Deficit) ------ --------- ------------- --------- -------- ------------- Balance at December 31, 1996......... $ -- $ 498 $ (116) $ (365) $ -- $ 17 Comprehensive income (loss): Net loss.......................... -- -- -- (160) -- (160) Foreign currency translation adjustments...................... -- -- (14) -- -- (14) ------ ------- -------- --------- ------- --------- Total comprehensive income (loss).. -- -- (14) (160) -- (174) Exercise of employee stock options.. -- 6 -- -- -- 6 Tax benefit arising from exercise of employee stock options............. -- 5 -- -- -- 5 Repurchase of common stock.......... -- -- -- -- (92) (92) Vesting of performance stock options -- 12 -- -- -- 12 Cost of secondary offering.......... -- (1) -- -- -- (1) ------- ------- -------- --------- ------- --------- Balance at December 31, 1997.......... -- 520 (130) (525) (92) (227) Comprehensive income (loss): Net loss........................... -- -- -- (37) -- (37) Foreign currency translation adjustments....................... -- -- (27) -- -- (27) ------- ------- -------- --------- -------- ---------- Total comprehensive income (loss)... -- -- (27) (37) -- (64) Sale of common stock - stock options -- 1 -- -- -- 1 Sale of common stock - treasury stock -- -- -- (4) 7 3 -------- -------- -------- ---------- -------- --------- Balance at December 31, 1998........... -- 521 (157) (566) (85) (287) Comprehensive income (loss): Net income.......................... -- -- -- 42 -- 42 Foreign currency translation adjustments........................ -- -- (48) -- -- (48) --------- -------- -------- ----------- -------- --------- Total comprehensive income (loss).... -- -- (48) 42 -- (6) Sale of common stock - treasury stock -- -- -- (1) 1 -- Acquisition of common stock held in treasury..................... -- 2 -- -- (2) -- ---------- --------- -------- ----------- -------- -------- Balance at December 31, 1999............ $ -- $ 523 $ (205) $ (525) $(86) $(293) ========== ========= ======== ============ ======== ========
See accompanying Notes to Consolidated Financial Statements. 87 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) DISCUSSION OF BUSINESS AND STRUCTURE IMPORTANT TERMS The Company uses the following terms to identify various companies or groups of companies, markets or other matters in the Consolidated Financial Statements. "UCAR" refers to UCAR International Inc. only. UCAR is the issuer of the publicly traded common stock covered by the Consolidated Financial Statements. "UCAR Global" refers to UCAR Global Enterprises Inc. only. UCAR Global is a holding company and a direct wholly owned subsidiary of UCAR. UCAR Global is the issuer of the 12% senior subordinated notes due 2005 (the "Subordinated Notes") and is the primary borrower under the senior secured credit facilities (the "Existing Senior Facilities") outstanding at December 31, 1999. "Company" refers collectively to UCAR, its subsidiaries and its and their predecessors to the extent those predecessor's activities related to the graphite and carbon business. "Subsidiaries" refers to those companies which, at the relevant time, were majority owned or wholly owned directly or indirectly by UCAR. All of UCAR's subsidiaries have been wholly owned (with de minimis exceptions in the case of certain foreign subsidiaries) from at least January 1, 1996 through December 31, 1999, except for: o UCAR's Russian subsidiary, which was acquired in late 1996 and early 1997 and has been wholly owned since then. o UCAR's German subsidiary, which was acquired in early 1997 and 70% owned until early 1999, when it became wholly owned in order to facilitate the cessation of its manufacturing operations. o Carbone Savoie S.A.S. ("Carbone Savoie"), which was acquired in early 1997 and has been 70% owned since then. o UCAR's South African subsidiary, which was 50% owned until April 1997, when it became wholly owned. The Company operates in two business segments: graphite electrodes, and graphite and carbon products. The Company manufactures and markets graphite and carbon products, including electrodes, for the steel, ferroalloy, aluminum, chemical, aerospace and transportation industries. Its principal products are graphite electrodes, carbon electrodes, graphite and carbon cathodes, graphite and carbon specialties, and flexible graphite. 88 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (1) DISCUSSION OF BUSINESS AND STRUCTURE -- (CONTINUED) On February 10, 1997, UCAR's Board of Directors authorized a program to repurchase up to $100 million of common stock at prevailing prices from time to time in the open market or otherwise depending on market conditions and other factors, without any established minimum or maximum time period or number of shares. On April 3, 1997, the principal stockholder sold 6,411,227 shares in a secondary public offering. UCAR did not sell any shares in or receive any proceeds from the offering. Concurrently with the offering, as part of the program mentioned above, UCAR repurchased 1,300,000 shares from the principal stockholder for $48 million. After the offering and the repurchase of shares, the principal stockholder ceased to be a principal stockholder of UCAR. On December 8, 1997, UCAR's Board of Directors increased the maximum amount of common stock that may be purchased under the program mentioned above from $100 million to $200 million. Through December 31, 1997, UCAR purchased an aggregate of $92 million of common stock (including the shares repurchased from the principal stockholder) under the program. No common stock was purchased under the program in 1998 or 1999. Common stock of $2 million was acquired in 1999 in foreclosure on secured loans to certain former executive officers. ACQUISITION OF SUBSIDIARIES On November 10, 1996, the Company purchased the controlling equity interest in Graphite PLC, which operates a graphite electrode business in Vyazma, Russia. The Company acquired 90% of the equity of Graphite PLC through a tender offer to its major shareholders, which included members of the board of directors and employees of Graphite PLC. The aggregate investment was $50 million. Thereafter, in 1997 and early 1998, the Company increased its ownership to 99% (at December 31, 1998) of such equity for an additional investment of $7 million. Graphite PLC changed its name to UCAR Grafit OAO ("UCAR Grafit"). On January 2, 1997, the Company acquired 70% of the outstanding shares of Carbone Savoie, a wholly owned subsidiary of a competitor in the cathode business, for a purchase price of $33 million. Carbone Savoie is the leading manufacturer of cathodes that are used in the production of aluminum. On February 1, 1997, the Company, through a newly formed 70%-owned subsidiary, UCAR Elektroden GmbH ("UCAR Elektroden"), purchased the graphite electrode business of Elektrokohle Lichtenberg AG ("EKL") in Berlin, Germany. A private German company held the 30% minority interest in UCAR Elektroden. UCAR Elektroden and UCAR Grafit worked in tandem, with UCAR Elektroden manufacturing newly formed ungraphitized electrodes and UCAR Grafit baking, pitch impregnating, rebaking and graphitizing those electrodes. The aggregate purchase price paid by UCAR Elektroden for the EKL assets was $15 million. 89 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (1) DISCUSSION OF BUSINESS AND STRUCTURE -- (CONTINUED) The Company purchased the minority interest in UCAR Elektroden in 1999 to facilitate the cessation of its manufacturing operations. On April 22, 1997, the Company purchased the shares of its then 50%-owned joint venture affiliate, EMSA (Pty) Ltd.("EMSA"), held by the Company's joint venture partner. EMSA operates a graphite electrode manufacturing facility and sales office in South Africa. The purchase price was $75 million, plus expenses. These acquisitions were accounted for as purchases and, accordingly, the purchase prices have been allocated to the assets purchased and liabilities assumed based upon the fair values at the dates of purchase. The Company recorded $20 million and $6 million of goodwill in connection with the acquisitions of EMSA and UCAR Grafit, respectively. The Consolidated Financial Statements have not been restated to reflect the increased ownership of EMSA at any date or for any period prior to the date of purchase. On September 24, 1998, the Company announced that it was ceasing its manufacturing operations in Berlin, Germany, closing its manufacturing operations in Welland, Canada and downsizing its manufacturing operations in Vyazma, Russia. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Consolidated Financial Statements present the consolidated financial position, results of operations and cash flows of the Company at the dates and for the periods indicated. All significant intercompany transactions have been eliminated in consolidation. CASH EQUIVALENTS Cash equivalents are considered to be all highly liquid investments that are readily convertible to known amounts of cash and so near to maturity that they present insignificant risk of changes in value because of changes in interest rates. SHORT-TERM INVESTMENTS Investment securities consisted of government securities and other debt securities. The Company classifies these securities as held-to-maturity and, accordingly, has recorded them at amortized cost that approximates fair value. INVENTORIES Inventories are stated at cost or market, whichever is lower. Cost is determined generally on the "average cost" method. 90 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) FIXED ASSETS AND DEPRECIATION Fixed assets are carried at cost. Expenditures for replacements are capitalized and the replaced items are retired. Gains and losses from the sale of property are included in other (income) expense, net. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. The Company generally uses accelerated depreciation methods for tax purposes, where appropriate. Depreciation expense was $48 million in 1997, $50 million in 1998 and $44 million in 1999. The carrying value of fixed assets is assessed when factors indicating impairment are present. The Company determines such impairment by measuring undiscounted future cash flows. If impairment is present, the assets are reported at fair value. GOODWILL Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally 20 years. When circumstances warrant, the Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired assets. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows of the acquired assets, at the Company's internal rate of return. DERIVATIVE FINANCIAL INSTRUMENTS The Company does not use derivative financial instruments for trading purposes. They are used to manage well-defined currency exchange rate risks and interest rate risks. The Company enters into foreign currency instruments to manage exposure to currency exchange rate fluctuations. These foreign currency instruments, which include forward exchange contracts, purchased currency options and currency option collars, attempt to hedge primarily U.S. dollar- denominated debt held by several of the Company's foreign subsidiaries and identifiable foreign currency receivables, payables and commitments held by the Company's foreign and domestic 91 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) subsidiaries. Forward exchange contracts are agreements to exchange different currencies at a specified future date and at a specified rate. Purchased foreign currency options are instruments which give the holder the right, but not the obligation, to exchange different currencies at a specified rate at a specified date or over a range of specified dates. Currency option collars are financial arrangements for simultaneous purchases and sales of currency options having the same maturity and the same principal amount. The result is the creation of a range in which a best and worst price is defined, while minimizing option cost. Premiums and discounts on forward exchange contracts are amortized over the life of the contracts. Net premiums on options purchased (or sold under currency collar strategies) are amortized over the life of the options. Forward exchange contracts, purchased currency options and currency option collars are carried at market value. Gains and losses due to revaluation of these contracts or option positions are recognized currently as other (income) expense, net and are intended to mitigate income or expense caused by the accounting revaluation of the Company's foreign and domestic subsidiaries' net foreign exchange positions. The Company enters into agreements with financial institutions which are intended to limit, or cap, its exposure to the incurrence of additional interest expense due to increases in variable interest rates. Fees related to these interest rate cap agreements (as well as proceeds received under their provisions) are charged (or credited) to interest expense over the term of the agreements. RESEARCH AND DEVELOPMENT Research and development costs are charged to expense as incurred. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. STOCK-BASED COMPENSATION PLANS The Company accounts for stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, 92 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) "Accounting for Stock Issued to Employees" ("APB 25"). As such, compensation expense is recorded on the date of grant only if the market price of the underlying stock exceeded the exercise price or if ultimate vesting is subject to performance conditions. The total amount of recorded compensation expense, if any, is based on the number of awards that eventually vest. No compensation expense is recognized for forfeited awards, failure to satisfy a service requirement or failure to satisfy a performance condition. The Company's accruals of compensation expense for awards subject to performance conditions are based on the Company's assessment of the probability of satisfying the performance conditions. RETIREMENT PLAN The cost of pension benefits under the Company's retirement plans is determined by independent actuarial firms using the "projected unit credit" actuarial cost method. Contributions to the U.S. retirement plan are made in accordance with the requirements of the Employee Retirement Income Security Act of 1974. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS The estimated cost of future medical and life insurance benefits is determined by independent actuarial firms using the "projected unit credit" actuarial cost method. Such costs are recognized as employees render the service necessary to earn the postretirement benefits. Benefits have been accrued, but not funded. POSTEMPLOYMENT BENEFITS The Company accrues postemployment benefits expected to be paid before retirement, principally severance, over employees' active service periods. USE OF ESTIMATES Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the Consolidated Financial Statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSLATION Generally, except for operations in Brazil in 1997, Russia and Mexico in 1997 and 1998 and Russia in 1999, where high inflation has existed, unrealized gains and losses resulting from translating foreign subsidiaries' assets and liabilities into U.S. dollars are accumulated in other comprehensive income on the Consolidated Balance Sheet until such time as the operations are sold or substantially or completely liquidated. Except as described in the next sentence, translation gains and losses relating to operations, where high 93 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED) inflation has existed, are included in income in the Consolidated Financial Statements. Our Mexican subsidiary began using the U.S. dollar as its functional currency during 1999, as its sales and purchases are predominantly U.S. dollar-denominated. Accordingly, its translation gains and losses are included in income in the Consolidated Statements of Operations, regardless of its inflation status. OTHER ACCOUNTING MATTERS.. In 1998, the Company changed its method of accounting for the cost of certain U.S. inventories from the last-in first-out method ("LIFO") to the first-in first-out ("FIFO") method. The Company believes the new method to be preferable because it provides improved consistency in accounting for worldwide inventories and avoids potential distortion of future profits from anticipated decrements. The Consolidated Financial Statements for all periods were restated to reflect this change in accordance with the requirements of Accounting Principles Board Opinion No. 20, "Accounting Changes." The restatement did not have a material impact on consolidated net income (loss) or related per share amounts in 1997 or 1998. The restatement had no cash flow impact. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company is presently evaluating the impact of this statement on its financial position, results of operations and cash flows in the period of adoption. (3) UCAR GLOBAL ENTERPRISES INC. UCAR has no material assets, liabilities or operations other than those that result from its ownership of 100% of the outstanding common stock of UCAR Global and intercompany debt. Separate financial statements of UCAR Global are not presented because they would not be material to holders of the Subordinated Notes. The following table summarizes the consolidated assets and liabilities of UCAR Global and its subsidiaries at December 31, 1998 and 1999 and their consolidated results of operations for the three years ended December 31, 1999: 94 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (3) UCAR GLOBAL ENTERPRISES INC. -- (CONTINUED) At December 31, ------------------ 1998 1999 (Dollars in millions) Assets: Current assets............................... $ 578 $ 420 Non-current assets........................... 559 513 ----- ----- Total assets.............................. $ 1,137 $ 933 ===== ===== Liabilities: Current liabilities.......................... $ 375 $ 315 Non-current liabilities...................... 1,036 897 ----- ----- Total liabilities........................ $ 1,411 $ 1,212 ===== ===== Minority stockholders' equity in consolidated entities........................................ $ 13 $ 14 ===== ===== For the Year Ended December 31, ------------ 1997 1998 1999 ---- ---- ---- (Dollars in millions) Net sales.................................. $ 1,097 $ 947 $ 831 Gross profit............................... 411 343 258 Income (loss) before extraordinary item.... (160) (30) 42 Net income (loss).......................... (160) (37) 42 (4) FINANCIAL INSTRUMENTS The Company does not use derivative financial instruments for trading purposes. They are used to manage well-defined currency exchange rate and interest rate risks. FOREIGN CURRENCY CONTRACTS The amount of foreign exchange contracts used by the Company to minimize foreign currency exposure was $353 million at December 31, 1997, $484 million at December 31, 1998 and $233 million at December 31, 1999. Contracts hedging U.S. dollar-denominated debt totaled $214 million at December 31, 1997, $209 million at December 31, 1998 and $129 million at December 31, 1999. Of the total foreign exchange contracts outstanding, approximately $93 million (26%) were offsetting at December 31, 1997, approximately $142 million (29%) were offsetting at 95 December 31, 1998 and approximately $3 million (1%) were offsetting at December 31, 1999. SALE OF RECEIVABLES Certain of our foreign subsidiaries sold receivables of $90 million in 1997, $68 million in 1998 and $79 million in 1999. Receivables sold and remaining on the Consolidated Balance Sheets were $16 million at December 31, 1997, $6 million at December 31, 1998 and nil at December 31, 1999. INTEREST RATE RISK MANAGEMENT The Company enters into agreements with financial institutions, which are intended to limit, or cap, its exposure to the incurrence of additional interest expense due to increases in variable interest rates. During 1995, the Company purchased interest rate caps on up to $375 million of debt, limiting the floating interest rate factor on this debt to a weighted-average rate of 8.5% through 1997. During 1997, the Company purchased interest rate caps on up to $250 million of debt, limiting the floating interest rate factor on this debt to a weighted-average rate of 8.2% for the period commencing February 1998 and continuing through various dates ending February 2001. During 1999, the Company purchased interest rate caps on up to $470 million of debt, limiting the floating interest rate factor on this debt to a weighted-average rate of 5.10% through 1999. Fees related to these agreements are charged to interest expense over the term of the agreements. FAIR MARKET VALUE DISCLOSURES SFAS 107, "Disclosure about Fair Market Value of Financial Instruments," defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. Such fair values must often be determined by using one or more methods that indicate value based on estimates of quantifiable characteristics as of a particular date. Values were estimated as follows: CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, SHORT-TERM RECEIVABLES, ACCOUNTS PAYABLE AND OTHER CURRENT PAYABLES--The carrying amount approximates fair value because of the short maturity of these instruments. DEBT--Fair values of debt and related interest rate risk agreements approximate carrying value at December 31, 1997, 1998 and 1999, respectively, except for the Subordinated Notes which are carried at $200 million and had an estimated fair market value of $224 million at December 31, 1997, $216 million at December 31, 1998 and $209 million at December 31, 1999 based on quoted market prices. FOREIGN CURRENCY CONTRACTS--Foreign currency contracts are carried at market value. 96 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (5) SEGMENT REPORTING The Company has two reportable operating segments: graphite electrodes, and graphite and carbon products. The graphite electrode segment produces and markets graphite electrodes to electric arc furnace and ladle furnace steelmakers. The graphite and carbon products segment produces and markets carbon electrodes, flexible graphite, cathodes and graphite and carbon specialties. These reportable segments are managed separately because of the different products and markets they serve. The accounting policies of the reportable segments are the same as those described in Note 2. The Company evaluates the performance of its operating segments based on gross profit. Intersegment sales and transfers are not material. The following tables summarize financial information concerning the Company's reportable segments. The line item entitled "Other" includes corporate related items. For the Year Ended December 31, ------------------------------- 1997 1998 1999 ---- ---- ---- (Dollars in millions) Net sales to external customers: Graphite electrodes............. $ 788 $ 652 $ 562 Graphite and carbon products.... 309 295 269 ----- ----- ----- Consolidated net sales......... $ 1,097 $ 947 $ 831 ===== ===== ===== Gross profit: Graphite electrodes............. $ 309 $ 247 $ 196 Graphite and carbon products.... 102 96 62 ----- ----- ----- Consolidated gross profit...... $ 411 $ 343 $ 258 ===== ===== ===== Depreciation and amortization: Graphite electrodes............. $ 35 $ 36 $ 31 Graphite and carbon products.... 10 11 12 Other........................... 4 4 2 ----- ----- ----- Consolidated depreciation and amortization................. $ 49 $ 51 $ 45 ===== ===== ===== The Company does not report assets by business segment. Assets are managed based on geographic location because both business segments share certain facilities. 97 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (5) SEGMENT REPORTING -- (CONTINUED) The following tables summarize information as to the Company's operations in different geographic areas: For the Year Ended December 31, ------------------------------- 1997 1998 1999 ---- ---- ---- (Dollars in millions) Net sales (a): United States.................... $ 393 $ 321 $ 267 Canada........................... 54 56 50 Mexico........................... 98 65 49 Brazil........................... 64 57 48 France........................... 287 148 148 Italy............................ 54 47 42 Switzerland (b).................. -- 107 106 South Africa..................... 53 59 61 Other countries.................. 94 87 60 ----- ----- ----- Total.......................... $ 1,097 $ 947 $ 831 ===== ===== ===== (a) Net sales are based on location of seller. (b) During 1998, the Company formed a global export sales office in Switzerland. At December 31, --------------- 1997 1998 1999 ---- ---- ---- (Dollars in millions) Long-lived assets (c): United States.................... $ 172 $ 166 $ 126 Canada........................... 23 1 -- Mexico........................... 30 28 34 Brazil........................... 71 61 42 France........................... 87 97 95 Italy............................ 40 43 35 Russia........................... 65 2 2 South Africa..................... 81 62 56 Other countries.................. 21 23 20 ----- ----- ----- Total.......................... $ 590 $ 483 $ 410 ===== ===== ===== (c) Long-lived assets represent net fixed assets and goodwill, net of accumulated amortization. 98 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (6) LONG-TERM DEBT Note 19 describes the refinancing of long-term debt in February 2000. The following table presents the long-term debt of the Company: At December 31, --------------- 1998 1999 ---- ---- (Dollars in millions) Existing Senior Facilities: Tranche A Facility........................ $210 $158 Tranche B Facility........................ 119 118 Tranche C Facility........................ 210 209 Revolving Facility........................ 35 32 ---- --- Total Existing Senior Facilities........ 574 517 Subordinated Notes........................... 200 200 Italian lire loans and obligations........... 1 1 Deutsche mark loans.......................... 10 4 ---- --- Subtotal.................................. 785 722 Less: payments due within one year.......... 63 82 ---- --- Total................................... $ 722 $ 640 ==== === On March 19, 1997, the Existing Senior Facilities were amended to reduce interest rates, increase the Revolving Facility to $250 million from $100 million and change certain covenants to allow greater flexibility in uses of free cash flow. On April 10, 1998, the Company obtained a limited waiver of a breach, if any, of certain covenants relating to compliance with laws prior to March 13, 1998 and its obligation to deliver certain financial information within 90 days of the end of the prior year. In connection with the waiver, the Company agreed to grant a security interest in substantially all of its assets. The Company also agreed to amend certain provisions of the Existing Senior Facilities. These amendments had the effect of increasing interest rates. In addition, in reliance on the waiver, the Company was able to borrow an additional $35 million under the Revolving Facility. The waiver was not, however, effective for any additional borrowings and provided that it would terminate no later than July 10, 1999. Under the Subordinated Notes, subject to certain exceptions, the Company may not incur additional indebtedness if its adjusted coverage ratio is less than certain specified ratios. As a result of the $340 million charge against results of operations for 1997 as a reserve for estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims, its adjusted coverage ratio was less than those specified ratios and, under the indenture governing the Subordinated Notes (the "Subordinated Note Indenture"), it could not, with limited exceptions, incur additional indebtedness (even under the Existing Senior Facilities). 99 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (6) LONG-TERM DEBT -- (CONTINUED) On November 3, 1998, the Company amended the Subordinated Note Indenture. On November 10, 1998, the Company refinanced the Existing Senior Facilities. The refinancing consisted of the addition of the Tranche C Facility (as defined below) and amendments to, among other things, modify covenants and representations relating to compliance with laws, absence of material legal proceedings and absence of material adverse changes insofar as they relate to antitrust, stockholder derivative and securities investigations, lawsuits and claims. The amendments to the Subordinated Note Indenture, among other things, eliminated the $340 million charge from the calculation of the Company's adjusted coverage ratio. As a result of the refinancing and the amendment of the Subordinated Note Indenture, the Company had the ability (subject to compliance with applicable covenants, conditions and other terms in the future under both the Existing Senior Facilities and the Subordinated Notes) to borrow under the Revolving Facility. At December 31, 1999, $250 million was the maximum amount available for borrowing under the Revolving Facility, of which $32 million had been borrowed. EXISTING SENIOR FACILITIES The Existing Senior Facilities consist of: o A Tranche A Facility in the initial amount of $270 million consisting of: (i) a Tranche A Letter of Credit Facility providing for the initial issuance of up to $225 million (including reserves for interest rate and, if applicable, currency exchange rate fluctuations) of U.S. dollar-denominated letters of credit for the purpose of supporting U.S. dollar-denominated or foreign-currency denominated loans to certain foreign subsidiaries under facilities arranged with local lending institutions; (ii) a Tranche A Term Loan Facility providing for initial term loans of $45 million to UCAR Global; and (iii) a Tranche A Reimbursement Loan Facility to reimburse drawings under those letters of credit or refinance those local facilities. The Tranche A Facility amortizes in quarterly installments over four years, commencing March 31, 1998, with installments ranging from $50 million in 1998 to $85 million in 2001, with the final installment payable on December 31, 2001. o A Tranche B Facility providing for initial term loans of $120 million to UCAR Global. The Tranche B Facility amortizes over five years, commencing March 31, 1998, with nominal quarterly installments during the first four years, and quarterly installments aggregating $116 million in 2002, with the final installment payable on December 31, 2002. 100 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (6) LONG-TERM DEBT -- (CONTINUED) o A Tranche C Facility providing for initial term loans of $125 million to UCAR Global and $85 million to its Swiss subsidiary. The Tranche C Facility was added in connection with the refinancing. The Tranche C Facility amortizes over five years, commencing March 31, 1999, with nominal quarterly installments during the first four years, and quarterly installments aggregating $206 million in 2003, with the final installment payable on December 31, 2003. o A Revolving Facility providing for revolving and swingline loans to, and the issuance of U.S. dollar-denominated letters of credit for the account of UCAR Global and certain other U.S. subsidiaries in an aggregate principal and stated amount at any time not to exceed $250 million. The Revolving Facility terminates on December 31, 2001. As a condition to each borrowing under the Revolving Facility, the Company is required to represent, among other things, that the sum of payments and reserves relating to specified litigation liabilities has not and is not reasonably expected to exceed $400 million. The Company is required to make mandatory prepayments in the amount of : o Either 75% or 50% (depending on the ratio of (i) adjusted total debt plus adjusted reserves relating to specified litigation liabilities to (ii) adjusted total EBITDA) of adjusted excess cash flow. Adjusted excess cash flow is determined after taking into account, among other things, debt service on the Existing Senior Facilities and the Subordinated Notes. The obligation to make these prepayments, if any, arises after the end of each year with respect to adjusted excess cash flow during the prior year. Any mandatory prepayments would be reduced by voluntary prepayments made during the prior year. The refinancing increased the percentage of excess cash flow required to be applied to these prepayments. o 100% of the net proceeds of certain asset sales or incurrence of certain indebtedness. o 50% of the net proceeds of the issuance of any equity securities by UCAR. Mandatory prepayments require either prepayment of loans, reduction of letters of credit or both. No mandatory prepayments were required in 1997, 1998 or 1999. The Company may make voluntary prepayments under the Existing Senior Facilities up to four times each year. Effective immediately after December 31, 1999, there is no penalty or premium due in connection with prepayments (whether voluntary or mandatory). 101 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (6) LONG-TERM DEBT -- (CONTINUED) UCAR has unconditionally and irrevocably guaranteed the obligations of UCAR Global and the other borrowers under the Existing Senior Facilities. This guarantee is secured, with certain exceptions, by first priority security interests in all of the outstanding capital stock of UCAR Global and all of the intercompany debt owed to UCAR. Each of UCAR Global's subsidiaries has guaranteed, with certain exceptions, the obligations of UCAR Global and its other subsidiaries under the Existing Senior Facilities, except that our U.S. subsidiaries have not guaranteed obligations of our foreign subsidiaries. The obligations of UCAR Global and the other borrowers under the Existing Senior Facilities as well as these guarantees are secured, with certain exceptions, by first priority security interests in substantially all of the Company's assets, except that no more than 65% of the capital stock or other equity interests in its foreign subsidiaries held directly by its U.S. subsidiaries and no other foreign assets secure obligations or guarantees of its U.S. subsidiaries (including UCAR Global). After the refinancing, the interest rates applicable to the Tranche A and Revolving Facilities are, at the Company's option, either adjusted LIBOR plus a margin ranging from 2.25% to 2.75% (depending on the same ratio) or the alternate base rate plus a margin ranging from 1.25% to 1.75% (depending on the same ratio). The interest rate applicable to the Tranche B and Tranche C Facilities is, at the Company's option, either adjusted LIBOR plus 3.25% or the alternate base rate plus 2.25%. The alternate base rate is the higher of Chase Manhattan Bank's prime rate or the federal funds effective rate plus 0.50%. At the option of foreign borrowers under local facilities, the interest rate under the local facilities is either adjusted LIBOR plus 0.25%, an alternate base rate (which varies from facility to facility) or, in the case of local currency-denominated loans, the local interbank offered rate plus 0.25%. After the refinancing, UCAR Global pays a per annum fee ranging from 2.25% to 2.75% (depending on the same ratio) of the aggregate face amount of outstanding letters of credit under the Tranche A and Revolving Facilities and a per annum fee of 0.50% on the undrawn portion of the commitments under the Revolving Facility. The effect of the refinancing has been to increase interest rates by approximately 2.00% per annum and commitment fees by approximately 0.25% per annum from those which would otherwise have been payable in the absence of both the waiver and the refinancing. The Company enters into agreements with financial institutions, which are intended, to limit, or cap, its exposure to incurrence of additional interest expense due to increases in variable interest rates. Use of these agreements is allowed under the Existing Senior Facilities. The weighted-average interest rate on the Existing Senior Facilities was 7.38% during 1997, 7.08% during 1998 and 9.65% during 1999. 102 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (6) LONG-TERM DEBT -- (CONTINUED) The Existing Senior Facilities contain a number of significant covenants that, among other things, restrict the Company's ability to sell assets, incur additional indebtedness, repay or refinance other debt or amend other debt instruments, create liens on assets, enter into leases, investments or acquisitions, engage in mergers or consolidations, make capital expenditures, engage in transactions with affiliates, or pay dividends or make other restricted payments and that otherwise restrict corporate activities. In addition, the Company is required to comply with specified minimum interest coverage and maximum leverage ratios. The refinancing effected changes to these covenants to make them generally more restrictive. Among the changes is a change to the calculation of the leverage ratio so as to include reserves relating to specified litigation liabilities as debt. In addition to the failure to pay principal, interest and fees when due, events of default under the Existing Senior Facilities include: failure to comply with applicable covenants; failure to pay when due, or other defaults permitting acceleration of, other indebtedness exceeding $7.5 million; judgment defaults in excess of $7.5 million to the extent not covered by insurance; certain events of bankruptcy; and certain changes in control. Under the Existing Senior Facilities, UCAR is permitted to pay dividends on and repurchase common stock, and UCAR Global is permitted to pay dividends to UCAR for those purposes, only in an aggregate amount of up to $15 million in 1999 and $20 million in 2000 and thereafter. UCAR and UCAR Global are also permitted to repurchase common stock from present or former directors, officers or employees in an aggregate amount of up to the lesser of $5 million per year (with unused amounts permitted to be carried forward) or $25 million on a cumulative basis since October 19, 1995. In addition, UCAR Global is permitted to pay dividends to UCAR (i) in respect of UCAR's administrative fees and expenses and (ii) to fund payments in connection with antitrust investigations, lawsuits and claims and securities and stockholder derivative lawsuits and claims. The total amount of dividends to fund those payments, plus the total amount paid on intercompany debt owed to UCAR for the same purpose, may not exceed $400 million (adjusted for certain imputed interest expense). SUBORDINATED NOTES UCAR Global has $200 million aggregate principal amount of Subordinated Notes outstanding. Interest on the Subordinated Notes is payable semiannually at the rate of 12% per annum. The Subordinated Notes mature on January 15, 2005. On or after January 15, 2000, UCAR Global may redeem the Subordinated Notes in whole or in part at specified redemption prices beginning at 104.5% of the principal amount redeemed for the year commencing January 15, 2000 and reducing to 100% of the principal amount redeemed for the years January 15, 2003 and thereafter, in each case together with accrued and unpaid interest. 103 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (6) LONG-TERM DEBT -- (CONTINUED) Upon the occurrence of a change of control, (i) UCAR Global will have the option to redeem the Subordinated Notes in whole but not in part at a redemption price equal to 100% of the principal amount redeemed, plus a specified premium, plus accrued and unpaid interest and (ii) if UCAR Global does not so redeem the Subordinated Notes, UCAR Global will be required to make an offer to repurchase the Subordinated Notes at a price equal to 101% of the principal amount redeemed, together with accrued and unpaid interest. The Subordinated Notes are unsecured and subordinated to all existing and future senior indebtedness of UCAR Global. The Subordinated Notes will rank pari passu with any future senior subordinated indebtedness of UCAR Global and senior to all other subordinated indebtedness of UCAR Global. UCAR has unconditionally guaranteed the Subordinated Notes on a senior subordinated basis. The Subordinated Note Indenture contains a number of covenants that, among other things, restrict the Company's ability to incur additional indebtedness, pay dividends, make investments, create or permit to exist restrictions on distributions from subsidiaries, sell assets, repurchase Subordinated Notes, engage in certain transactions with affiliates or enter into certain mergers and consolidations. It also prohibits UCAR from engaging in any business activities other than holding the stock of UCAR Global and certain permitted investments. In addition to the failure to pay principal and interest when due or repurchase the Subordinated Notes when required, events of default under the Subordinated Notes include: failure to comply with applicable covenants; failure to pay at maturity or upon acceleration of other indebtedness exceeding $25 million; judgment defaults in excess of $25 million to the extent not covered by insurance; and certain events of bankruptcy. The Subordinated Note Indenture restricts the payment of dividends by UCAR Global to UCAR if at the time of the proposed dividend, UCAR Global is unable to meet certain indebtedness incurrence and income tests or the total amount of the dividends paid exceeds specified aggregate limits based on consolidated net income, net proceeds from asset and stock sales and certain other transactions. These restrictions are not applicable to dividends paid to UCAR in respect of UCAR's administrative fees and expenses and to purchase common stock held by present or former officers or employees subject to limits similar to those under the Existing Senior Facilities. DEUTSCHE MARK LOANS In order to consummate the purchase by UCAR Elektroden of net working capital assets from EKL (approximate U.S. dollar equivalent of $12 million), UCAR Elektroden arranged a bank facility with BHF Bank Aktiengesellschaft. The facility consists of a committed term loan of deutsche mark 17.3 million (U.S. dollar equivalent of approximately $9 million in December 1999) and a revolving line of credit for deutsche mark 2.5 million (U.S. dollar equivalent of 104 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (6) LONG-TERM DEBT -- (CONTINUED) approximately $1.3 million in December 1999). The term portion of the facility is committed through December 2000, with repayment of the outstanding balance of deutsche mark 17.3 million due on December 31, 2000. The revolving portion of the facility is committed for one year, with an option to renew annually. Credit support is provided by UCAR Global's guarantee of UCAR Elektroden's obligations under the facility. The facility requires that UCAR Global remain in compliance with the Existing Senior Facilities and that the facility not be subordinate to the obligations of the Existing Senior Facilities. It also restricts the withdrawal of capital from UCAR Elektroden. The shareholders of UCAR Elektroden have undertaken not to dispose of their capital contributions during the term of the facility. EXTRAORDINARY ITEM In November 1998, the Company recorded a charge of $11 million ($7 million after tax) related to the refinancing of the Existing Senior Facilities. The extraordinary charge represents $8 million of fees paid to amend the Existing Senior Facilities and the write-off of $3 million of deferred debt issuance costs. OTHER At December 31, 1999, payments due on long-term debt in the four years after 2000 are: $87 million in 2001; $117 million in 2002; $206 million in 2003; and $230 million after 2003. The Company's weighted-average interest rate on short-term borrowings outstanding was 9.1% at December 31, 1998 and 9.5% at December 31, 1999. 105 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (7) INCOME TAXES The following table summarizes the U.S. and non-U.S. components of income (loss) before provision for income taxes: For the Year Ended December 31, ------------ 1997 1998 1999 ---- ---- ---- (Dollars in millions) U.S....................................... $ (275) $ (39) $ (84) Non-U.S................................... 153 43 130 ---- ---- --- $ (122) $ 4 $ 46 ==== ==== ==== Total income taxes were allocated as follows: For the Year Ended December 31, ------------ 1997 1998 1999 ---- ---- ---- (Dollars in millions) Income from operations.................... $ 39 $ 32 $ 1 Extraordinary items....................... -- (4) -- Stockholders' equity (deficit)............ (5) -- -- ----- ----- ---- $ 34 $ 28 $ 1 ==== ==== ==== The income taxes credited to stockholders' equity (deficit) in 1997 relate to the tax benefit arising from the exercise of employee stock options. Income tax expense attributable to income from operations consists of: 1997 1998 1999 ---- ---- ---- (Dollars in millions) U.S. federal income taxes: Current.......................... $ 11 $ 10 $ (8) Deferred......................... (41) (4) (23) -- - -- $ (30) $ 6 $ (31) == ==== == Non-U.S. income taxes Current.......................... $ 66 $ 46 $ 35 Deferred......................... 3 (20) (3) ---- ---- ---- $ 69 $ 26 $ 32 ==== ==== ==== 106 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (7) INCOME TAXES -- (CONTINUED) In December 1992, the Company obtained an income tax exemption from the Brazilian government on income generated from graphite electrode production through 1999. The exemption reduced the net expense associated with income taxes by $6 million in 1997, $5 million in 1998 and $5 million in 1999. In 1998, the Company obtained an income tax exemption from the Swiss government. The exemption reduced the net expense associated with income taxes by $13 million in 1998 and $9 million in 1999. Income tax expense attributable to income from operations differed from the amounts computed by applying the U.S. federal income tax rate of 35 % to pretax income from operations as a result of the following: For the Year Ended December 31, ------------ 1997 1998 1999 ---- ---- ---- (Dollars in millions) Tax at statutory U.S. federal rate........... $ (43) $ 2 $ 16 Nondeductible (deductible) portion of estimated liabilities and expenses associated with antitrust investigations and related lawsuits and claims................................. 85 (18) -- Nondeductible portion of impairment loss..... -- 19 -- Nondeductible imputed interest associated with antitrust fines............................ -- 2 2 U.S. investment losses related to restructuring charge....................................... -- (32) 32 Other taxes related to restructuring charge.. -- 9 -- Foreign earnings taxed at different rates.... 4 -- -- Foreign operating losses with no benefit provided..................................... -- 9 (9) Non U.S. tax exemptions and holidays......... (6) (18) (14) Net taxes related to foreign dividends and other remittances............................ -- 8 -- Adjustments to deferred tax asset valuation allowance.................................... -- 55 (17) Other........................................ (1) (4) (9) ------ ---- ---- $ 39 $ 32 $ 1 ====== ==== ==== 107 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (7) INCOME TAXES -- (CONTINUED) The significant components of deferred income tax expense attributable to income from operations are as follows: For the Year Ended December 31, ------------ 1997 1998 1999 ---- ---- ---- (Dollars in millions) Deferred tax expense (exclusive of the effects of other components described below) $ (38) $ (79) $ (9) Increase (decrease) in beginning of the year balance of the valuation allowance for deferred tax assets................. -- 55 (17) ------- ------ ----- $ (38) $ (24) $(26) ======= ====== ===== The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1998 and 1999 are as follows: At December 31, ----------------- 1998 1999 ---- ---- (Dollars in millions) Deferred tax assets: Fixed assets.................................. $ 8 $ 11 Estimated liabilities and expenses associated with antitrust investigations and related lawsuits and claims......................... 23 10 Postretirement and other employee benefits.... 55 56 Net operating loss and credit carryforwards... 34 62 Provision for scheduled plant closings and other restructurings......................... 61 12 Other......................................... 15 31 ------- ------ Total gross deferred tax assets............. 196 182 Less: valuation allowance.................. (58) (41) ------- ------ Deferred tax assets........................ $ 138 $ 141 ======= ====== 108 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (7) INCOME TAXES -- (CONTINUED) At December 31, --------------- 1998 1999 ---- ---- (Dollars in millions) Deferred tax liabilities: Fixed assets................................ $ 86 $ 64 Inventory................................... 13 11 Other....................................... 6 7 ----- ----- Total gross deferred tax liabilities....... 105 82 ----- ----- Net deferred tax asset.................... $ 33 $ 59 ===== ===== Deferred income tax assets and liabilities are classified on a net current and noncurrent basis within each tax jurisdiction. Net deferred income tax assets are included in prepaid expenses in the amount of $35 million at December 31, 1998 and $18 million at December 31, 1999 and in other assets in the amount of $52 million at December 31, 1998 and $81 million at December 31, 1999. Net deferred tax liabilities are also included in accrued income and other taxes in the amount of $6 million at December 31, 1998 and $6 million at December 31, 1999 and separately stated as deferred tax liabilities in the amount of $48 million at December 31, 1998 and $34 million at December 31, 1999. The net change in the total valuation allowance for 1998 was an increase of $55 million. The increase resulted primarily from deferred taxes associated with the closure of manufacturing operations in Canada and Germany, settlement of antitrust lawsuits and claims and excess foreign tax credits where the Company considers realizability unlikely. The net change in the total valuation allowance for 1999 was a decrease of $17 million. The decrease results primarily from the elimination of deferred taxes no longer required due to the completion of the closure of manufacturing operations in Canada and Germany, the development of a plan to utilize foreign tax credits and the re-evaluation of the deductibility of settlements of antitrust lawsuits and claims. The Company has recomputed total excess foreign tax credit carryforwards to be $22 million at December 31, 1998 and $58 million at December 31, 1999. Of these tax credit carryforwards, $1 million expire in 2002, $21 million expire in 2003 and $36 million expire in 2004. The Company used foreign tax credits to reduce U.S. current tax liabilities in the amount of $54 million in 1997, $48 million in 1998 and nil in 1999. Based upon the level of historical taxable income and projections for future taxable income over the periods during which these credits are utilizable, management believes it is more likely than not the Company will realize the benefits of these deferred tax assets net of the existing valuation allowances at December 31, 1999. 109 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (7) INCOME TAXES -- (CONTINUED) U.S. income taxes have not been provided on undistributed earnings of foreign subsidiaries. The Company's intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax efficient to do so. Accordingly, the Company believes that any U.S. tax on repatriated earnings would be substantially offset by U.S. foreign tax credits. (8) OTHER (INCOME) EXPENSE, NET The following table presents an analysis of other (income) expense, net: For the Year Ended December 31, ------------ 1997 1998 1999 ---- ---- ---- (Dollars in millions) Interest income....................... $ (9) $ (14) $ (8) Global integration project consulting 4 9 (1) fees.................................. Bank fees............................. 2 3 3 Amortization of goodwill.............. 1 1 1 (Gain) loss on sale of assets......... -- 2 (3) Other................................. 7 7 (1) ---- ---- ---- Total other (income) expense, net... $ 5 $ 8 $ (9) ==== ==== ==== (9) INTEREST EXPENSE The following table presents an analysis of interest expense: For the Year Ended December 31, ------------ 1997 1998 1999 ---- ---- ---- (Dollars in millions) Interest incurred on debt............. $ 62 $ 66 $ 77 Amortization of debt issuance costs... 2 2 2 Interest imputed on antitrust fine.... -- 5 5 ---- ---- ---- Total interest expense........... $ 64 $ 73 $ 84 ==== ==== ==== 110 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (10) SUPPLEMENTARY BALANCE SHEET DETAIL At December 31, --------------- 1998 1999 ---- ---- (Dollars in millions) Notes and accounts receivable: Trade....................................... $ 172 $ 139 Other....................................... 31 37 ----- ----- 203 176 Allowance for doubtful accounts............. (5) (5) ----- ----- $ 198 $ 171 ===== ===== Property, plant and equipment: Land and improvements....................... $ 43 $ 47 Buildings................................... 199 120 Machinery and equipment and other........... 946 853 Construction in progress.................... 32 51 ----- ----- $ 1,220 $ 1,071 ===== ===== Other assets: Goodwill (net).............................. $ 15 $ 12 Deferred income taxes....................... 52 81 Benefits protection trust................... 2 2 Long-term receivables....................... 8 8 Other....................................... 14 12 ----- ----- $ 91 $ 115 ===== ===== Accounts payable: Trade....................................... $ 54 $ 67 Other....................................... 13 13 ----- ----- $ 67 $ 80 ===== ===== Other accrued liabilities: Accrued accounts payable.................... $ 13 $ 14 Payrolls.................................... 7 5 Restructuring............................... 57 28 Employee compensation and benefits.......... 31 30 Liabilities and expenses associated with antitrust investigations and related lawsuits and claims...................... 78 27 Other....................................... 12 10 ----- ----- $ 198 $ 114 ===== ===== 111 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (10) SUPPLEMENTARY BALANCE SHEET DETAIL -- (CONTINUED) At December 31, --------------- 1998 1999 ---- ---- (Dollars in millions) Other long-term obligations: Postretirement benefits..................... $ 83 $ 82 Employee severance costs.................... 12 5 Pension and related benefits................ 21 14 Liabilities and expenses associated with antitrust investigations and related 117 104 lawsuits and claims...................... Other....................................... 33 19 ---- ---- $ 266 $ 224 ==== ==== The following table presents an analysis of the allowance for doubtful accounts: At December 31, --------------- 1998 1999 ---- ---- (Dollars in millions) Balance at beginning of year.................... $ 6 $ 5 Additions....................................... -- 1 Deductions...................................... (1) (1) ---- ---- Balance at end of year.......................... $ 5 $ 5 ==== ==== (11) LEASES Lease commitments under noncancelable operating leases extending for one year or more will require the following future payments: (Dollars in millions) 2000................................................ $ 4 2001................................................ 3 2002................................................ 3 2003................................................ 2 2004................................................ 1 After 2004.......................................... 2 Total lease and rental expenses under noncancelable operating leases extending one month or more were $5 million in each of 1997, 1998 and 1999. 112 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (12) BENEFIT PLANS RETIREMENT PLANS AND POSTRETIREMENT BENEFIT PLANS Until February 25, 1991, the Company participated in the U.S. retirement plan of Union Carbide Corporation ("Union Carbide"). Effective February 26, 1991, the Company formed its own U.S. retirement plan which covers substantially all U.S. employees. Retirement and death benefits related to employee service through February 25, 1991 are covered by the Union Carbide plan. Benefits paid by the Union Carbide plan are based on final average pay through February 25, 1991, plus salary increases (not to exceed 6% per year) until January 26, 1995 when Union Carbide ceased to own at least 50% of the equity of the Company. All Company employees who retired prior to February 25, 1991 are covered under the Union Carbide plan. Pension benefits under the Company plan are based primarily on years of service and compensation levels prior to retirement. Net pension cost for the Company plan were $6 million in 1997, $7 million in 1998 and $6 million in 1999. Pension coverage for employees of foreign subsidiaries is provided, to the extent deemed appropriate, through separate plans. Obligations under such plans are systematically provided for by depositing funds with trustees, under insurance policies or by book reserves. Net pension costs for plans of foreign subsidiaries amounted to $1 million in 1997, $7 million in 1998 (which includes a $7 million curtailment loss for the Canadian pension plan recorded in conjunction with the Company's restructuring charge) and $2 million in 1999. The Company also provides health care and life insurance benefits for eligible retired employees. These benefits are provided through various insurance companies and health care providers. The Company accrues the estimated net postretirement benefit costs during the employees' credited service periods. The components of the Company's consolidated net pension costs are as follows: For the Year Ended December 31, ------------------------------- 1997 1998 1999 ---- ---- ---- (Dollars in millions) Service cost............................... $ 7 $ 8 $ 7 Interest cost.............................. 12 13 14 Expected return on assets.................. (12) (14) (14) Amortization .............................. -- (1) 1 Settlement (gain) loss..................... -- 1 (1) Curtailment loss........................... -- 7 1 --- --- --- Net pension cost........................ $ 7 $ 14 $ 8 === === === 113 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (12) BENEFIT PLANS -- (CONTINUED) The components of the Company's consolidated net postretirement benefit costs are as follows: For the Year Ended December 31, ------------------------------- 1997 1998 1999 ---- ---- ---- (Dollars in millions) Service cost................................ $ 2 $ 3 $ 2 Interest cost............................... 6 5 6 Amortization of prior service cost.......... (3) (3) (2) --- --- --- Net postretirement benefit cost.......... $ 5 $ 5 $ 6 === === === The reconciliation of beginning and ending balances of benefit obligations under, and fair value of assets of, all pension and postretirement benefit plans of the Company, and the funded status of the plans, are as follows:
Pension Benefits Postretirement Benefits ---------------- ----------------------- At December 31, At December 31, --------------- --------------- 1998 1999 1998 1999 ---- ---- ---- ---- (Dollars in millions) Changes in benefit obligation: Net benefit obligation at beginning of year............... $ 172 $ 199 $ 81 $ 84 Service cost.............................................. 8 7 3 2 Interest cost............................................. 13 14 5 5 Plan amendments........................................... 1 1 -- (5) Foreign currency exchange rate changes ................... (4) (3) (1) -- Actuarial (gain) loss..................................... 10 (6) 2 (5) Curtailment............................................... 4 -- (1) -- Settlement................................................ (3) (8) -- -- Special termination benefits.............................. 3 -- -- -- Gross benefits paid....................................... (5) (9) (5) (6) ------- ------- ------ ------ Net benefit obligation at end of year.................. $ 199 $ 195 $ 84 $ 75 ======= ======= ======= ====== Changes in plan assets: Fair value of plan assets at beginning of year............ $ 165 $ 174 $ -- $ -- Actual return on plan assets.............................. 17 27 -- -- Foreign currency exchange rate changes.................... (5) (2) -- -- Employer contributions.................................... 2 9 5 6 Settlement................................................ -- (8) -- -- Gross benefits paid....................................... (5) (9) (5) (6) ------- ------ ------- ------ Fair value of plan assets at end of year............... $ 174 $ 191 $ -- $ -- ======= ====== ======= ======
114 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (12) BENEFIT PLANS -- (CONTINUED)
Pension Benefits Postretirement Benefits ---------------- ----------------------- At December 31, At December 31, --------------- --------------- 1998 1999 1998 1999 ---- ---- ---- ---- (Dollars in millions) Reconciliation of funded status: Funded status at end of year........... $ (25) $ (4) $ (84) $ (75) Unrecognized net transition obligation (asset)............................... (6) (6) -- -- Unrecognized prior service cost........ 4 1 (1) (4) Unrecognized net actuarial (gain) loss. (1) (18) 2 (3) ------- ----- ------ ------- Net amount recognized at end of year $ (28) $(27) $ (83) $ (82) ======= ===== ====== =======
Assumptions used to determine net pension costs, pension projected benefit obligation, net postretirement benefit costs and postretirement benefits projected benefit obligation are as follows:
Pension Benefits Postretirement Benefits ---------------- ----------------------- At December 31, At December 31, --------------- --------------- 1998 1999 1998 1999 ---- ---- ---- ---- Weighted average assumptions as of measurement date: Discount rate..................................... 7.61% 7.67% 7.34% 8.06% Expected return on plan assets ................... 8.83% 8.45% N/A N/A Rate of compensation increase..................... 4.85% 5.16% 4.58% 5.25% Health care cost trend on covered charges: Initial....................................... N/A N/A 8.14% 8.13% Ultimate...................................... N/A N/A 5.11% 5.76% Years to ultimate............................. N/A N/A 6 6
Assumed health care cost trend rates have a significant effect on the amounts reported for net postretirement benefits. A one-percentage-point change in the health care cost trend rate would change the accumulated postretirement benefits net benefit obligation by approximately $5 million at December 31, 1999 and change net postretirement benefit costs by approximately $1 million for 1999. 115 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (12) BENEFIT PLANS -- (CONTINUED) OTHER NON-QUALIFIED PLANS Since January 1, 1995, the Company has established various unfunded, non-qualified supplemental retirement and deferred compensation programs for certain eligible employees. In 1995, the Company established a benefits protection trust (the "Trust") to partially provide for the benefits of employees participating in these plans. At both December 31, 1998, and 1999, the Trust had assets of approximately $2 million, which are included in other assets on the Consolidated Balance Sheets. SAVINGS PLAN The Company's employee savings plan provides eligible employees the opportunity for long-term savings and investment. Participating employees can contribute 1.0% to 7.5% of employee compensation as basic contributions and an additional 0.5% to 10.0% of employee compensation as supplemental contributions. The Company contributes on behalf of each participating employee an amount equal to 30% for 1997 and 50% for 1998 and 1999 of the employee's basic contribution. The Company contributed $2 million in each of 1997, 1998 and 1999. INCENTIVE PLANS In 1997, the Company provided group profit sharing plans for employees in various subsidiaries. Costs for these profit sharing plans were $19 million in 1997. Effective January 1, 1998, the Company implemented a global profit sharing plan for the Company's worldwide employees. This plan is based on the global financial performance of the Company. The cost for this plan was $10 million in 1998 and nil in 1999. (13) RESTRUCTURING PLAN In September 1998, the Company recorded a restructuring charge of $86 million in connection with a global restructuring and rationalization plan to reduce costs and improve operating efficiencies. The principal actions of the plan involve the closure of manufacturing operations in Welland, Canada and Berlin, Germany, and the centralization and consolidation of administrative and financial functions. These actions planned for the elimination of approximately 430 administrative and manufacturing positions, of which 366 positions had been eliminated at December 31, 1999. The $86 million charge consisted of a write-off of $29 million of assets and a reserve of $57 million. 116 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (13) RESTRUCTURING PLAN -- (CONTINUED) During 1999, it was determined that plant closure activities were estimated to result in lower cash costs than originally anticipated. These savings represent lower net anticipated demolition costs resulting primarily from the outsourcing of a majority of the planned demolition at our Welland plant and, to a lesser extent, lower severance and related costs. These developments resulted in a net reduction of the restructuring cost estimate of $6 million in the 1999 third quarter. The following is a summary of activity relating to the accrued liabilities associated with the restructuring plan:
Balance at 1999 Activity Balance At December 31 Change in December 31, 1998 Payments Estimate 1999 ---- -------- --------- ---- (Dollars in Millions) Severance and related costs $ 30 $ 16 $ 1 $ 13 Plant shut down and related costs 18 3 5 10 Postmonitoring and environmental 9 4 - 5 -------- ------- -------- -------- $ 57 $ 23 $ 6 $ 28 ======== ======== ======== =========
The Berlin plant ceased production activities in 1998. The Welland plant ceased production activities in April 1999. In addition, the relocation of corporate headquarters to Nashville, Tennessee was completed during the 1999 first quarter. Cash payments of $23 million were made during 1999. Payments of $7 million were associated with the Berlin plant, payments of $15 million were associated with the Welland plant and payments of $1 million were associated with the centralization and consolidation of administrative functions. The restructuring accrual is included in other accrued liabilities on the Consolidated Balance Sheets. (14) MANAGEMENT COMPENSATION AND INCENTIVE PLANS In 1995, UCAR entered into employment agreements with certain officers. The employment agreements provided the officers with the opportunity to receive bonuses based in part on the achievement of designated EBITDA targets. The Company recorded expenses applicable to these bonuses of $3 million in 1997 and nil in 1998 and 1999. At December 31, 1999, only one officer was subject to such an agreement. That officer retired on that date. In 1998, UCAR entered into a five-year employment agreement with its current president, chief executive officer and chairman of the board. UCAR has adopted several stock option plans. The aggregate number of shares subject to the plans was 6,387,000 at December 31, 1997 and 9,500,000 at December 31, 1998 and 1999. The plans permit options to be granted to employees and, in the case of one plan since March 1998, also to non-employee directors. 117 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (14) MANAGEMENT COMPENSATION AND INCENTIVE PLANS - (CONTINUED) In 1995, UCAR granted 12-year options to management to purchase 4,761,000 shares at an exercise price of $7.60 per share, of which options for 3,967,400 shares vested fully at the time of UCAR's initial public offering, and the balance were performance options, one-half of which vest in each of 1998 and 1999 on achievement of designated EBITDA targets. In December 1997, UCAR's Board of Directors approved the accelerated vesting of the outstanding performance options associated with the 1998 performance targets and, accordingly, the Company recorded compensation expense of $12 million. No compensation expense associated with these options was recorded in 1999 because the Company did not achieve the 1999 performance targets. The outstanding 1999 performance options have been forfeited and will be canceled. In addition, in 1999 and 2000, options to purchase an aggregate of 1,183,482 shares granted to two former officers were canceled. In 1996, UCAR granted 10-year options to mid-management to purchase 960,000 shares at an exercise price of $35.00 per share, and granted additional 10-year options to mid-management to purchase 4,000 shares at an exercise price of $40.44 per share. In 1997, UCAR granted 10-year options to mid-management to purchase 61,500 shares at an exercise price of $39.31 per share. The options vest eight years from the grant date. Accelerated vesting occurs if the market price of the common stock equals or exceeds specified amounts. At December 31, 1999, 460,350 of such options were fully vested. In 1997, UCAR granted fully vested 10-year options to management to purchase 155,000 shares at an exercise price of $37.59 per share. (14) In 1998, UCAR granted 10-year options to management to purchase shares as follows: o Options for 621,000 shares were granted to certain officers at exercise prices ranging from $29.22 to $34.36 per share. Options for 300,000 shares vest one year from the grant date, options for 221,000 shares vest two years from the grant date and options for 100,000 shares vest three years from the grant date. o Options for 1,935,000 shares were granted to certain officers and management at exercise prices ranging from $15.50 to $17.06 per share. Options for 17,000 shares vested on the grant date, options for 628,000 shares vest after one year from the grant date, and all remaining options vest seven years from the grant date, subject to accelerated vesting if the market price for the common stock equals or exceeds specified amounts. At December 31, 1999, 1,290,000 of such options were fully vested. In 1999, UCAR granted options to management to purchase shares as follows: o Options for 409,600 shares were issued to certain officers and management at exercise prices ranging from $14.13 to $25.81 per share. Options for 45,359 shares vested on the grant date, options for 269,101 shares vest 118 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (14) MANAGEMENT COMPENSATION AND INCENTIVE PLANS - (CONTINUED) one year from the grant date, and all remaining options vest seven years from the grant date, subject to accelerated vesting if the market price for the common stock equals or exceeds specified amounts. In 1998, UCAR adopted a loan program under which management borrowed approximately $3 million in 1998 and less than $1 million in 1999. In 1998, UCAR adopted stock purchase programs under which management may purchase shares at fair market value on the date of purchase. Management purchased stock were 201,373 shares in 1998 and 26,804 shares in 1999. The Company applies APB 25 in accounting for its stock-based compensation expense plans. Accordingly, no compensation cost has been recognized for its time vesting options. The compensation expense that has been charged against income for its performance vesting options was $12 million in 1997. If compensation expense for the Company's stock-based compensation plans was determined by the fair value method prescribed by SFAS 123, the Company's net income (loss) and net income (loss) per share would have been reduced or increased to the pro forma amounts indicated below: 119 INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (14) MANAGEMENT COMPENSATION AND INCENTIVE PLANS - (CONTINUED) For the Year Ended December 31, ------------ 1997 1998 1999 ---- ---- ---- (Dollars in millions, except per share data) Net income (loss): As reported............................... $ (160) $ (37) $ 42 Pro forma................................. (156) (41) 40 Diluted net income (loss) per share: As reported ............................. (3.49) (0.83) 0.91 Pro forma................................ (3.39) (0.91) 0.87 A summary of the status of the Company's stock-based compensation plans at the dates and for the period indicated is presented below:
For the Year Ended December 31, ------------------------------- 1997 1998 1999 ---- ---- ---- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- (Shares in thousands) Time vesting options: Outstanding at beginning of year............................... 3,572 $15.01 3,324 $16.98 5,826 $18.48 Granted at market price................ -- -- 1,884 17.06 410 19.91 Granted at price exceeding market................................ 62 39.31 621 32.37 -- -- Granted at price below market.......... 155 37.59 51 15.50 -- -- Exercised.............................. (432) 9.91 (10) 7.60 (16) 13.85 Forfeited/canceled..................... (33) 35.00 (44) 32.84 (943) 10.19 ------ ------ ------ ------ ------ ------ Outstanding at end of year............ 3,324 16.98 5,826 18.48 5,277 20.15 ====== ====== ====== ====== ====== ===== Options exercisable at year end................................... 2,799 13.55 2,841 13.76 4,176 15.32 Weighted-average fair value of options granted during year: At market............................. $ -- $ 8.53 $11.64 Exceeding market...................... 16.98 12.49 -- Below market........................ 17.47 7.99 --
120 INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (14) MANAGEMENT COMPENSATION AND INCENTIVE PLANS - (CONTINUED)
For the Year Ended December 31, ------------------------------- 1997 1998 1999 ---- ---- ---- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- (Shares in thousands) Performance vesting options: Outstanding at beginning of year................................. 1,508 $ 7.60 1,174 $ 7.60 938 $ 7.60 Granted.................................. -- -- -- -- -- -- Exercised................................ (284) 7.60 (45) 7.60 (3) 7.60 Forfeited/canceled....................... (50) 7.60 (191) 7.60 (389) 7.60 ------ ----- ----- Outstanding at end of year.............. 1,174 7.60 938 7.60 546 7.60 ====== ===== ===== Options exercisable at year end..................... 842 7.60 566 7.60 428 7.60
The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants in 1997, 1998 and 1999, respectively: dividend yield of 0.0% for all years; expected volatility of 30% in 1997, 35% in 1998 and 45% in 1999; risk-free interest rates of 6.4% in 1997, 4.9% in 1998 and 5.4% in 1999; and expected lives of 7 years in 1997 and 1998 and 8 years in 1999. The following table summarizes information about stock options outstanding at December 31, 1999: Options Outstanding Options Exercisable ------------------- ------------------- Weighted- Average Weighted- Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Prices Exercisable Prices --------------- ----------- ----- ------ ----------- ------ (Shares in thousands) Time vesting options: $7.60 1,371 7 years $ 7.60 1,371 $ 7.60 $14.13 to $18.69 2,142 8 years 17.05 1,919 17.02 $22.06 to $29.22 157 9 years 25.45 -- -- $30.59 to $40.44 1,607 6 years 34.46 886 35.36 ----- ------ 5,277 7 years 20.15 4,176 15.32 ===== ====== Performance vesting options: $7.60 546 7 years 7.60 428 7.60 === === 121 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (15) CONTINGENCIES ANTITRUST INVESTIGATIONS On June 5, 1997, the Company was served with subpoenas to produce documents to a grand jury convened by the U.S. Department of Justice (the "DOJ") and a related search warrant in connection with a criminal investigation as to whether there has been any violation of U.S. federal antitrust law by producers of graphite electrodes. Concurrently, the antitrust enforcement authority of the European Community (the "EU Competition Authority") visited the offices of one of the Company's French subsidiaries for purposes of gathering information in connection with an investigation as to whether there has been any violation of the antitrust law of the European Community by those producers. In October 1997, the Company was served with subpoenas by the DOJ to produce documents relating to, among other things, its carbon electrode and bulk graphite businesses. In December 1997, UCAR's Board of Directors appointed a special committee of outside directors to exercise the power and authority of UCAR's Board of Directors in connection with antitrust investigations and related lawsuits and claims. On April 7, 1998, pursuant to a plea agreement between the DOJ and UCAR, the DOJ charged UCAR and unnamed co-conspirators with participating from at least July 1992 until at least June 1997 in an international conspiracy involving meetings and conversations in the Far East, Europe and the United States resulting in agreements to fix prices and allocate market shares in the United States and elsewhere, to restrict co-conspirators' capacity and to restrict non-conspiring producers' access to manufacturing technology for graphite electrodes. On April 24, 1998, pursuant to the plea agreement, UCAR pled guilty to a one count charge of violating U.S. federal antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a non-interest-bearing fine in the aggregate amount of $110 million. The fine is payable in six annual installments of $20 million, $15 million, $15 million, $18 million, $21 million and $21 million, commencing July 23, 1998. The agreement was approved by the court and, as a result, under the plea agreement, the Company will not be subject to prosecution by the DOJ with respect to any other violations of the U.S. federal antitrust law occurring prior to 1998. The payments due in 1998 and 1999 were timely made. In the 2000 first quarter, pursuant to a plea agreement with the DOJ, the Company's former chief executive officer and chief operating officer, both of whom retired and resigned from all positions with the Company in March 1998, pled guilty to one count charges of violating U.S. federal antitrust law in connection with the sale of graphite electrodes and were sentenced to terms of incarceration and payment of fines. In December 2000, a former director, export sales Europe, was indicted by the DOJ on similar charges. The Company does not intend to reimburse those officers for their fines or that director, export sales Europe, for any costs or fines he may incur as a result of such indictment. 122 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (14) CONTINGENCIES - (CONTINUED) In April 1998, the Company became aware that the Canadian Competition Bureau (the "Competition Bureau") had commenced a criminal investigation as to whether there has been any violation of Canadian antitrust law by producers of graphite electrodes. In March 1999, pursuant to a plea agreement with the Competition Bureau, the Company's Canadian subsidiary pled guilty to a one count charge of violating Canadian antitrust law in connection with the sale of graphite electrodes and to pay a fine of Cdn. $11 million. The court approved the plea agreement and, as a result, under the plea agreement the Company will not be subject to prosecution by the Competition Bureau with respect to any other violations of Canadian antitrust law occurring prior to the date of the plea agreement. The fine was timely paid. In June 1998, the Company became aware that the Japanese antitrust enforcement authority had commenced an investigation as to whether there has been any violation of Japanese antitrust law of producers and distributors of graphite electrodes. In addition, in October, 1999, the Company became aware that the Korean antitrust authority had commenced an investigation as to whether there has been a violation of Korean antitrust law by producers and distributors of graphite electrodes. The Company has no facilities or employees in Japan or Korea. The Company believes that, among other things, it has good defenses to any claim that it is subject to the jurisdiction of either such authority. In March 1999, the Japanese antitrust authority issued a warning letter to the four Japanese graphite electrode producers. While the Japanese antitrust authority did not issue a similar warning to the Company, the warning letter issued to the Japanese producers did reference UCAR as a member of an alleged cartel. In January 2000, the EU Competition Authority issued a statement of objections initiating proceedings against UCAR and other producers of graphite electrodes. The statement alleges that UCAR and other producers violated the antitrust law of the European Community and the European Economic Area in connection with the sale of graphite electrodes. The statement does not set forth any proposed fines or the impact which cooperation by UCAR or other producers would have on their respective fines, if any. The maximum fine for such a violation is ten percent of a company's revenue during the year preceding the year in which the fine is assessed. UCAR believes that it has provided substantial cooperation to the EU Competition Authority and is, therefore, entitled to a reduction in the amount of any fine which would otherwise be assessed. UCAR intends to vigorously protect its interests in connection with such proceeding. UCAR believes that proceedings of this nature typically continue for about six to twelve months before any fine is assessed. Any such assessment would be subject to appeal before the Court of First Instance in Luxembourg, although the fine or collateral security therefor would be payable about three months after such assessment. In January 2000, Mitsubishi Corporation ("Mitsubishi"), a former parent of the Company, was indicted by the DOJ on a one count charge of violating U.S. federal antitrust law in connection with the sale of graphite electrodes. 123 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (15) CONTINGENCIES - (CONTINUED) The Company is continuing to cooperate with the DOJ and the Competition Bureau in their continuing investigations of others and with the EU Competition Authority in its continuing investigation. In connection therewith, the Company has produced and is producing documents and witnesses. It is possible that antitrust investigations seeking, among other things, to impose fines and penalties could be initiated by authorities in other jurisdictions. The guilty pleas make it more difficult for the Company to defend against other investigations as well as civil lawsuits and claims.The Company has been vigorously protecting, and intends to continue to vigorously protect, its interests in connection with the investigations described above. The Company may, however, at any time settle any possible unresolved charges. ANTITRUST LAWSUITS In 1997, various producers of graphite electrodes (including the Company) were served with complaints commencing various antitrust class action lawsuits. Subsequently, the complaints were either withdrawn without prejudice to refile or consolidated into a single complaint in the District Court (the "antitrust class action lawsuit"). In the consolidated complaint, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of graphite electrodes and seek, among other things, an award of treble damages resulting from such alleged violations. In August 1998, the court certified a class of plaintiffs consisting of all persons who purchased graphite electrodes in the United States (the "class") directly from the defendants during the period from July 1, 1992 through June 30, 1997 (the "class period"). In 1998, various producers of graphite electrodes (including the Company), Union Carbide Corporation ("Union Carbide"), another former parent of the Company, and Mitsubishi were served with a complaint by Nucor Corporation and an affiliate commencing a civil antitrust and fraudulent transfer lawsuit (the "Nucor lawsuit"). In the complaint to the Nucor lawsuit, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of graphite electrodes and that payments to Union Carbide and Mitsubishi in connection with the Company's leveraged equity recapitalization in January 1995 violated applicable state fraudulent transfer laws. The complaint seeks, among other things, an award of treble damages resulting from such alleged antitrust violations and an order to have payments made by UCAR to Union Carbide and Mitsubishi in connection with the recapitalization declared to be fraudulent conveyances and returned to UCAR for purposes of enabling UCAR to satisfy any judgments resulting from such alleged antitrust violations. In 1998 and 1999, various producers of graphite electrodes (including the Company) were served by steelmakers in the U.S. and Canada with complaints and petitions commencing eight separate civil antitrust lawsuits in various courts (the "other initial lawsuits"). Such complaints and petitions allege that the defendants violated U.S. federal, Texas or Canadian antitrust laws or Canadian conspiracy law in connection with the sale of graphite electrodes. 124 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (15) CONTINGENCIES -- (CONTINUED) In 1999, various producers of graphite electrodes (including the Company) were served two complaints commencing two separate civil antitrust lawsuits in the District Court (the "foreign customer lawsuits"). The first complaint was filed by about 27 steelmakers and related parties, all but one of whom are located outside the U.S., and the second complaint was filed by about 4 steelmakers, all of whom are located outside the U.S. In each complaint, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of graphite electrodes sold or sourced from the U.S. and those sold and sourced outside the U.S. The plaintiffs seek, among other things, an award of treble damages resulting from such alleged antitrust violations. The Company has been advised that is has strong defenses against claims alleging that purchases of graphite electrodes outside the U.S. are actionable under U.S. federal antitrust law. All antitrust lawsuits against one producer of graphite electrodes, SGL Carbon Corporation, the U.S. subsidiary of SGL Carbon AG, were stayed as a result of the filing in December 1998 of a petition by SGL Carbon Corporation in court for reorganization in a proceeding under Chapter 11 of the U.S. Bankruptcy Code. In the 2000 first quarter, the proceeding was dismissed because it was not filed in good faith. In November 1998, the distribution trustee for a company liquidated under Chapter 7 of the U.S. Bankruptcy Code applied for a court order to compel discovery from the Company to determine whether to institute proceedings against the Company for alleged violations of U.S. federal antitrust law in connection with the sale of carbon electrodes. The guilty pleas described above do not relate to carbon electrodes. The application was voluntarily withdrawn when the Company agreed to provide certain documents to the distribution trustee. The Company and the distribution trustee subsequently entered into an agreement tolling applicable statutes of limitations. Although no lawsuit relating to such alleged violations has been commenced by the distribution trustee, the distribution trustee has threatened to do so. In December 1999, the Company and another producer of carbon electrodes were served with a complaint by Globe Metallurgical, Inc. commencing a civil antitrust lawsuit in the District Court (the "Globe lawsuit"). The guilty please described above do not relate to carbon electrodes. In the complaint, the plaintiff alleges that the defendants violated U.S. federal antitrust law in connection with the sale of carbon electrodes and seeks, among other things, an award of treble damages resulting from such alleged violations. The Company understands that certain customers in other countries who purchased graphite electrodes, carbon electrodes or other products from the Company have threatened to commence antitrust lawsuits against the Company in the U.S. or in other jurisdictions with respect to the subject matter of the investigations and lawsuits described above. 125 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (15) CONTINGENCIES -- (CONTINUED) Through the date hereof, except as described in the next paragraph, the Company settled all of the lawsuits described above, certain of the threatened civil antitrust lawsuits and certain possible antitrust claims by certain other customers who negotiated directly with the Company. The settlements cover virtually all of the actual and potential claims against the Company (but not other defendants) by customers in the U.S. and Canada arising out of alleged antitrust violations occurring prior to the date of the respective settlements in connection with the sale of graphite electrodes. Although each settlement is unique, in the aggregate they consist primarily of current and deferred cash payments with some product credits and discounts. Through December 31, 1999, all fines and settlement payments due under the agreements and settlements, an aggregate of $209 million, net, have been timely paid. Likewise, all fines and settlements due thereunder from January 1, 2000 through the date hereof have been timely paid. The Company has paid $7 million in imputed interest related to the DOJ fine to date. As of December 31, 1999, and based on information known to the Company on March 1, 2000, the aggregate amount of fines and settlement payments remaining due under the agreements and settlements is approximately $79 million. Amounts due under the settlement of the antitrust class action will increase if additional claims are filed by members of the class (which includes purchasers of graphite electrodes who are located outside the U.S. but who purchased graphite electrodes from one of the Company's U.S. subsidiaries) or if a purchaser of semi-graphitic electrodes is determined to be a member of the class and such purchaser files a claim thereunder. The foreign customer lawsuits and the Globe lawsuit have not been settled and are still in their early stages. The Company has been vigorously defending, and has been directed by the special committee to continue to vigorously defend, against these lawsuits as well as all threatened lawsuits and possible unasserted claims, including those mentioned above. The Company may at any time, however, settle these lawsuits as well as any threatened lawsuits and possible claims and is actively negotiating settlements of certain of these lawsuits and claims. It is possible that additional civil antitrust lawsuits seeking, among other things, to recover damages could be commenced against the Company in the U.S. and in other jurisdictions. ANTITRUST EARNINGS CHARGE The Company recorded a charge of $340 million against results of operations for 1997 as a reserve for potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. Actual liabilities and expenses could be materially higher than $340 million. To the extent that the Company's liabilities and expenses are reasonably estimable, at March 1, 2000, the Company believes that $340 million continues to represent the estimate of such potential liabilities and expenses. In the aggregate, the fines and settlements described above are within the amounts used by the Company to evaluate the $340 million charge. 126 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (15) CONTINGENCIES -- (CONTINUED) STOCKHOLDER DERIVATIVE LAWSUIT In March 1998, UCAR was served with a complaint commencing a stockholder derivative lawsuit. Certain former and current officers and directors were named as defendants. UCAR was named as a nominal defendant. In the complaint, the plaintiff alleged that the defendants breached their fiduciary duties in connection with alleged non-compliance by the Company and its employees with antitrust laws. The plaintiff also alleged that certain of the defendants sold common stock while in possession of materially adverse non-public information relating to such non-compliance with antitrust law. As described below, this lawsuit has been settled. SECURITIES CLASS ACTION LAWSUIT In April and May 1998, UCAR was served with complaints commencing securities class actions. The complaints were consolidated into a single complaint and the Florida State Board of Administration was designated lead plaintiff. UCAR and certain former and current officers and directors were named as defendants. The class consists of all persons (other than the defendants) who purchased common stock during the period from August 1995 through March 1998. In the consolidated complaint, the plaintiff alleged that, during such period, the defendants violated U.S. federal securities law in connection with purchases and sales of common stock by making material misrepresentations and omissions regarding alleged violations of antitrust laws and sought, among other things, to recover damages resulting from such alleged violations. As described below, this lawsuit has been settled. SETTLEMENT OF SECURITIES CLASS ACTION AND STOCKHOLDER DERIVATIVE LAWSUITS In October 1999, UCAR and the individual defendants settled the securities class action and stockholder derivative lawsuits. The settlements have received court approval, and all appeal periods have expired. Under the settlements, a total of $40.5 million has been contributed to escrow accounts for the benefit of former and current stockholders who are members of the class for whom the securities class action was brought as well as for plaintiffs' attorney's fees. The Company contributed $11.0 million and the insurers under its directors and officer's insurance policies at the time the lawsuits were filed contributed the balance of $29.5 million. In addition, a new outside director, acceptable to both UCAR and the lead securities class action plaintiff, the Florida State Board of Administration, the eighth largest state employees' pension fund, has been added to UCAR's Board of Directors. The Company has incurred about $2.0 million of unreimbursed expenses related to the lawsuits. These expenses, together with the $11.0 million, were recorded as a charge to operations of $13.0 million in the 1999 third quarter. 127 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (16) EARNINGS PER SHARE Basic and diluted earnings per share are calculated based upon the provisions of SFAS 128, adopted in 1997, using the following share data: 1997 1998 1999 ---- ---- ---- Weighted-average common shares outstanding for basic calculation 45,963,407 44,971,598 45,114,278 Add: Effect of stock options...... -- -- 1,388,874 ----------- --------- --------- Weighted-average common shares outstanding, adjusted for diluted calculation...................... 45,963,407 44,971,598 46,503,152 ========== ========== ========== No outstanding options were considered in the 1997 and 1998 calculation of weighted-average common shares outstanding for the diluted calculation as they were not dilutive due to net losses in the respective periods. The calculation of weighted average common shares outstanding for the diluted calculation in 1999 excludes options for 1,898,657 shares because they were not dilutive due to the fact that the exercise prices were greater than the weighted average market price of the common stock. (17) STOCKHOLDER RIGHTS PLAN Effective August 7, 1998, UCAR adopted a Stockholder Rights Plan (the "Rights Plan"). Under the Rights Plan, one preferred stock purchase right (a "Right") was distributed as a dividend on each outstanding share of common stock. Each share of common stock issued after the distribution is accompanied by a Right. When a Right becomes exercisable, it entitles the holder to buy one one-thousandth of a share of a new series of preferred stock for $110. The Rights are subject to adjustment upon the occurrence of certain dilutive events. The Rights will become exercisable only when a person or group becomes the beneficial owner of 15% or more of the outstanding shares of common stock or 10 days after a person or group announces a tender offer to acquire beneficial ownership of 15% or more of the outstanding shares of common stock. No certificates representing the Rights will be issued unless the Rights become exercisable. Under certain circumstances, holders of Rights, except a person or group described above and certain related parties, will be entitled to purchase shares of common stock at 50% of the price at which the common stock traded prior to the acquisition or announcement. In addition, if UCAR is acquired after the Rights become exercisable, the Rights will entitle those holders to buy the acquiring company's shares at a similar discount. 128 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (17) STOCKHOLDER RIGHTS PLAN -- (CONTINUED) UCAR is entitled to redeem the Rights for one cent per Right under certain circumstances. If not redeemed, the Rights will expire on August 7, 2008. For stockholders who owned more than 15% of the outstanding shares of common stock on August 7, 1998, the thresholds described above are 22.5% (and not 15%) of the outstanding shares of common stock. The preferred stock issuable upon exercise of Rights consists of Series A Junior Participating Preferred Stock, par value $.01 per share, of UCAR. In general, each share of that preferred stock will be entitled to a minimum preferential quarterly dividend declared on the common stock, will be entitled to a liquidation preference of $110,000 and will have 1,000 votes, voting together with the common stock. (18) IMPAIRMENT LOSSES During August 1998, the Russian economic and business climate experienced significant adverse change. This change, when considered in conjunction with the current and historical operating and cash flow losses of the Company's manufacturing operations in Vyazma, Russia, indicated the need for assessing the recoverability of the long-lived and intangible assets of these operations. The Company estimated future undiscounted cash flows expected to result from the use of the related assets and concluded they were less than the carrying amount of these assets. Accordingly, the Company recorded an impairment loss of $60 million for the unrecoverable portion of these assets, effectively writing down the carrying value of these assets to their estimated fair value of $2 million. The impairment loss affected the graphite electrode business segment and consisted of $55 million of long-lived assets and $5 million of goodwill. During late 1999, the Company's graphite specialties business experienced significant adverse changes in performance due to a decline in demand and prices for graphite specialties. In addition, performance adversely changed due to delays in bringing new or improved products to markets. This change indicated the need for assessing the recoverability of the long-lived assets of this business. These assets are located primarily at the Company's plant in Clarksburg, West Virginia. The Company estimated the future undiscounted cash flows expected to result from the use of these assets and concluded they were below the respective carrying amounts. Accordingly, the Company recorded an impairment loss of $35 million for the unrecoverable portion of these assets, effectively writing down the carrying value of the fixed assets to their estimated fair value of $6 million. Additionally, an inventory write-down of $8 million was recorded to reduce their carrying amount to the lower of cost or market. The impairment loss and inventory write-down affected the graphite and carbon products segment. 129 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (18) IMPAIRMENT LOSSES -- (CONTINUED) The fair value of the long-lived assets was calculated on the basis of discounted estimated future cash flows. Estimates of the discounted future cash flows are subject to significant uncertainties and assumptions. Accordingly, actual values could vary significantly from such estimates. (19) SUBSEQUENT EVENTS GRAPHITE SPECIALTIES RESTRUCTURING - (UNAUDITED) In the first quarter of 2000, the Company announced that it would retain and restructure its graphite specialties business. The Company originally intended to divest or joint venture this business, but the demand and prices for graphite specialties declined significantly. As a result, the Company was unable to obtain a strategic value for the business and, accordingly, has determined to restructure it. Net sales of the graphite specialties business represent approximately 9% of the Company's 1999 net sales. Completion of the restructuring is expected within the next twelve months. The Company expects to record a restructuring charge in the 2000 first quarter which management believes will approximate $8 million, consisting of an expected $6 million of cash expenditures and $2 million of non-cash charges. REFINANCING On February 22, 2000, the Company completed a debt recapitalization. The Company obtained new senior secured credit facilities (the "New Senior Facilities") and used the net proceeds to repay and terminate the Existing Senior Facilities, to call the Subordinated Notes for redemption at a redemption price of 104.5% of the principal amount redeemed, plus accrued interest, and to repay certain other debt. The New Senior Facilities consist of: o A Tranche A Facility providing for initial term loans of $138 million and of [Euro]161 million (equivalent to $158 million at February 22, 2000) to UCAR Finance Inc. ("UCAR Finance"), a direct wholly owned special purpose finance subsidiary of UCAR. The Tranche A Facility amortizes in quarterly installments over six years, commencing June 30, 2000, with installments ranging from [Euro]2 million in 2000 to [Euro]17 million in 2005, with the final installment payable on December 31, 2005. o A Tranche B Facility providing for initial term loans of $350 million to UCAR Finance. The Tranche B Facility amortizes over eight years, commencing June 30, 2000, with nominal quarterly installments during the first six years, and quarterly installments of $41 million in 2006 and 2007, with the final installment payable on December 31, 2007. 130 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (19) SUBSEQUENT EVENTS - (CONTINUED) o A Revolving Facility providing for revolving and swingline loans to, and the issuance of U.S. dollar-denominated letters of credit for the account of, UCAR Finance and certain other subsidiaries in an aggregate principal and stated amount at any time not to exceed $250 million. The Revolving Facility terminates on February 22, 2006. As a condition to each borrowing under the Revolving Facility, the Company is required to represent, among other things, that the aggregate amount of payments (excluding certain imputed interest) and additional reserves created in connection with antitrust, securities and stockholder derivative investigations, lawsuits and claims do not exceed $340 million by more than $130 million (which $130 million is reduced by the amount of certain debt incurred by the Company that is not incurred under the New Senior Facilities). The Company is required to make mandatory prepayments in the amount of: o Either 75% or 50% (depending on the ratio of adjusted net debt to adjusted total EBITDA) of adjusted excess cash flow. The obligation to make these prepayments, if any, arises after the end of each year with respect to adjusted excess cash flow during the prior year. o 100% of the net proceeds of certain asset sales or incurrence of certain indebtedness. o 50% of the net proceeds of the issuance of any equity securities by UCAR The Company may make voluntary prepayments under the New Senior Facilities. There is no penalty or premium due in connection with prepayments (whether voluntary or mandatory). UCAR Finance makes secured and guaranteed intercompany loans of the net proceeds of borrowings under the New Senior Facilities to UCAR Global's subsidiaries. The obligations of UCAR Finance under the New Senior Facilities are secured, with certain exceptions, by first priority security interests in all of these intercompany loans (including the related security interests and guarantees). UCAR has unconditionally and irrevocably guaranteed the obligations of UCAR Finance under the New Senior Facilities. This guarantee is secured, with certain exceptions, by first priority security interests in all of the outstanding capital stock of UCAR Global and UCAR Finance and all of the intercompany debt owed to UCAR. UCAR, UCAR Global and each of UCAR Global's subsidiaries has guaranteed, with certain exceptions, the obligations of UCAR Global's subsidiaries under the intercompany loans, except that the Company's U.S. subsidiaries have not guaranteed obligations of its foreign subsidiaries. 131 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (19) SUBSEQUENT EVENTS -(CONTINUED) The obligations of UCAR Global's subsidiaries under the intercompany loans as well as these guarantees are secured, with certain exceptions, by first priority security interests in substantially all of the Company's assets, except that no more than 65% of the capital stock or other equity interests in its foreign subsidiaries held directly by its U.S. subsidiaries and no other foreign assets secure obligations or guarantees of its U.S. subsidiaries. The interest rates applicable to the Tranche A and Revolving Facilities are, at the Company's option, either leverage Euro LIBOR plus a margin ranging from 1.00% to 2.50% (depending on the leverage ratio) or the alternate base rate plus a margin ranging from 0.00% to 1.50% (depending on the leverage ratio). The interest rate applicable to the Tranche B Facility is, at the Company's option, either Euro LIBOR plus a margin ranging from 2.50% to 2.75% (depending on leverage ratio) or the alternate base rate plus a margin ranging from 1.50% to 2.00%. The alternate base rate is the higher of the prime rate announced by Morgan Guaranty Trust Company of New York or the federal funds effective rate plus 0.50%. UCAR Finance pays a per annum fee ranging from 0.375% to 0.500% (depending on the leverage ratio) on the undrawn portion of the commitments under the Revolving Facility. The Company enters into agreements with financial institutions which are intended to limit, or cap, its exposure to incurrence of additional interest expense due to increases in variable interest rates. Use of these agreements is allowed under the New Senior Facilities. The New Senior Facilities contain a number of significant covenants that, among other things, restrict the Company's ability to sell assets, incur additional indebtedness, repay or refinance other debt or amend other debt instruments, create liens on assets, enter into leases, investments or acquisitions, engage in mergers or consolidations, make capital expenditures, make dividend payments to UCAR, pay intercompany debt owed to UCAR, engage in transactions with affiliates, or pay dividends or make other restricted payments and that otherwise restrict corporate activities. UCAR Global is, however, permitted to pay dividends to UCAR of up to $15 million for the purpose of making an investment in UCAR Graph-Tech and may also distribute the capital stock of UCAR Graph-Tech to UCAR. In addition, the Company is required to comply with specified minimum interest coverage and maximum leverage ratios, which become more restrictive with time. In addition to the failure to pay principal, interest and fees when due, events of default under the New Senior Facilities include: failure to comply with applicable covenants; failure to pay when due, or other defaults permitting acceleration of, other indebtedness exceeding $7.5 million; judgment defaults in excess of $7.5 million to the extent not covered by insurance; certain events of bankruptcy; and certain changes in control. 132 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (19) SUBSEQUENT EVENTS - (CONTINUED) Under the New Senior Facilities, UCAR is permitted to pay dividends on, and repurchase, common stock in an aggregate amount of up to $25 million, plus up to an additional $25 million if certain leverage ratio and excess cash flow requirements are satisfied. The Company's also permitted to repurchase common stock from present or former directors, officers or employees in an aggregate amount of up to the lesser of $5 million per year (with unused amounts permitted to be carried forward) or $25 million on a cumulative basis since February 22, 2000. Payments due in the aggregate on the Tranche A and B Facilities are $8 million in 2000; $28 million in 2001; $68 million in 2002 and 2003; $72 million in 2004 and 2005; and $165 million in 2006 and 2007. LAWSUIT AGAINST FORMER PARENTS On February 23, 2000, UCAR commenced a lawsuit against its former parents, Mitsubishi and Union Carbide. The other defendants are Mitsubishi International Corporation, a U.S. subsidiary of Mitsubishi, and two of the respective representatives of Mitsubishi and Union Carbide who served on UCAR's Board of Directors at the time of the Company's leveraged equity recapitalization in January 1995, one of whom was a member of UCAR's Board of Directors and the Board of Directors of Union Carbide at February 23, 2000. In the lawsuit, UCAR alleges, among other things, that certain payments made to its former parents in connection with the recapitalization were unlawful under the General Corporation Law of the State of Delaware, that its former parents were unjustly enriched by receipts from their investments in UCAR and that its former parents aided and abetted breaches of fiduciary duties owed to us by its former senior management in connection with illegal graphite electrode price fixing activities. UCAR is seeking to recover more than $1.5 billion in damages, including interest. UCAR expect to incur $10 million to $20 million for legal expenses to pursue this lawsuit through trial. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 133 PART III ITEMS 10 TO 13 (INCLUSIVE). The information required by Items 10, 11, 12 and 13 will appear in the UCAR International Inc. Proxy Statement for the Annual Meeting of Stockholders to be held on May 9, 2000, which will be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 and is incorporated by reference in this Report pursuant to General Instruction G(3) of Form 10-K (other than the portions thereof not deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934). In addition, the information set forth below is provided as required by Item 10. EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information with respect to our current executive officers and directors. NAME AGE* POSITION EXECUTIVE OFFICERS Gilbert E. Playford........ 52 Chairman of the Board, Chief Executive Officer and President Petrus J. Barnard.......... 50 Executive Vice President, Global Electrode Supply Chain W. David Cate.............. 53 Executive Vice President, Strategic Alliances and Business Development Corrado F. De Gasperis..... 34 Vice President and Chief Information Officer Karen G. Narwold........... 40 Vice President, General Counsel and Secretary Craig S. Shular............ 47 Executive Vice President, Electrode Sales and Marketing and Chief Financial Officer DIRECTORS R. Eugene Cartledge........ 70 Director Mary B. Cranston........... 52 Director Alec Flamm................. 73 Director John R. Hall............... 67 Director Thomas Marshall............ 71 Director Michael C. Nahl............ 57 Director - -------------------- * As of March 1, 2000 134 EXECUTIVE OFFICERS GILBERT E. PLAYFORD became President and Chief Executive Officer in June 1998 and Chairman of the Board in September 1999. From 1996 until June 1998, Mr. Playford was President, Chief Executive Officer and a director of LionOre Mining International Ltd. Mr. Playford served in various positions, including most recently Vice President, Treasurer and Principal Financial Officer, of Union Carbide from 1972 until 1996. He is a director of LionOre Mining International Ltd. PETRUS J. BARNARD joined our South African subsidiary in 1972. Since then, he has held various management positions in our South African subsidiary and in the Carbon Products Division of Union Carbide in the United States. He became Director of Operations for Europe and South Africa in 1994, General Manager of the Graphite Electrode Business for Europe and South Africa in 1995, Vice President, Electrodes for the Americas in 1997 and as Director, Electrodes for the Americas in 1998. He became Executive Vice President, Global Electrode Supply Chain in February 2000. W. DAVID CATE joined Union Carbide in 1969 and held various manufacturing and management positions in the Carbon Products Division. He became General Manager for Graphite Specialties and Flexible Graphite in 1991, General Manager for North America in 1994, Vice President, Electrodes for Europe and South Africa, in 1997 and Director, Pipeline Management in 1998. He became Executive Vice President, Strategic Alliances and Business Development in February 2000. CORRADO F. DE GASPERIS became Chief Information Officer and Vice President in February 2000. He served as Controller from June 1998 to February 2000. From 1987 through June 1998, he was with KPMG LLP, most recently as a Senior Assurance Manager in the Manufacturing, Retail and Distribution Practice. KPMG had announced his admittance into their partnership as a partner effective July 1, 1998. KAREN G. NARWOLD became General Counsel, Vice President and Secretary in September 1999. She joined our Law Department in July 1990 and served as Assistant General Counsel from January 1997 to September 1998 and Deputy General Counsel from September 1998 to September 1999. She was an associate with Cummings & Lockwood from 1986 to 1990. CRAIG S. SHULAR became Vice President and Chief Financial Officer in January 1999 and Executive Vice President, Electrode Sales and Marketing in February 2000. From 1976 through 1998, he held various finance and auditing positions in various divisions of Union Carbide, including the Carbon Products Division from 1976 to 1979. 135 DIRECTORS R. EUGENE CARTLEDGE became a director in February 1996. From 1986 until his retirement in 1994, he was the Chairman of the Board and Chief Executive Officer of Union Camp Corporation. Mr. Cartledge retired as Chairman of the Board of Savannah Foods & Industries Inc. in December 1997. He is a director of Union Camp Corporation, Chase Brass Industries, Inc., Sun Company, Inc., Delta Air Lines, Inc. and Blount, Inc. Mr. Cartledge is a member of the Organization, Compensation and Pension Committee of UCAR's Board of Directors. MARY B. CRANSTON became a director in January 1999. She is the chairperson of Pillsbury Madison & Sutro, LLP. Ms. Cranston has served on the boards of trustees or directors of several private art and education institutions, and currently serves on the Board of Directors of the San Francisco Chamber of Commerce. ALEC FLAMM became a director in April 1998. From January 1982 to August 1985, Mr. Flamm served as President and Chief Operating Officer of Union Carbide. Mr. Flamm joined Union Carbide in 1949 and held various marketing and management positions. He retired as a Vice Chairman and a director of Union Carbide in March 1986. Mr. Flamm served Union Carbide as Vice Chairman from August 1985 and as a director from 1981. Mr. Flamm is Chairman of the Audit Committee and the Nominating Committee of UCAR's Board of Directors. JOHN R. HALL became a director in November 1995. Since July 1997, he has been the non-employee Chairman of Arch Coal, Inc. He retired as Chairman effective January 31, 1997 and as Chief Executive Officer effective October 1, 1996 of Ashland Inc., positions which he had held since 1981. Mr. Hall served in various engineering and managerial capacities at Ashland Inc. since 1957. Mr. Hall is a director of Banc One Corporation, Canada Life Assurance Company, CSX Corporation, Humana Inc., Reynolds Metals Company, Arch Coal Inc., and USEC Inc. Mr. Hall is Chairman of the Organization, Compensation and Pension Committee of UCAR's Board of Directors. THOMAS MARSHALL became a director in June 1998. He retired in 1995 as Chairman of the Board and Chief Executive Officer of Aristech Chemical Corporation, a spin-off of USX Corp., positions which he had held since 1986. Mr. Marshall had previously served in various positions, including Executive Vice President and Chief Operating Officer - Manufacturing, Fabricating and Chemicals, for the former U.S. Steel Corp. Mr. Marshall is a member of the Audit Committee and the Organization, Compensation and Pension Committee of UCAR's Board of Directors. MICHAEL C. NAHL became a director in January 1999. He is Senior Vice President and Chief Financial Officer of Albany International Corp. He joined Albany International Corp. as Group Vice President, Corporate and was appointed to his present position in 1983. He is a member of the Chase Regional Advisory Board. Mr. Nahl is a member of the Audit Committee and Nominating Committee of UCAR's Board of Directors. 136 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1)Financial Statements See Index to Consolidated Financial Statements at page 66 of this Report. (2) Financial Statement Schedules None. (b) Reports on Form 8-K No Reports on Form 8-K were filed during the year for which this Report is filed. (c) Exhibits The exhibits listed in the following table have been filed as part of this Report. Exhibit Number Description of Exhibit - ------ ---------------------- 2.1(1) - Recapitalization and Stock Purchase and Sale Agreement dated as of November 14, 1994 among Union Carbide Corporation, Mitsubishi Corporation, UCAR International Inc. and UCAR International Acquisition Inc. and Guaranty made by Blackstone Capital Partners II Merchant Banking Fund L.P. and Blackstone Offshore Capital Partners II L.P. 2.2(2) - Amended and Restated Stockholders' Agreement dated as of February 29, 1996 2.3 - [omitted] 2.4 - [omitted] 2.5 - [omitted] 2.6 - [omitted] 2.7 - [omitted] 2.8 - [omitted] 2.9 - [omitted] 2.10 - [omitted] 2.11 - [omitted] 2.12 - [omitted] 2.13 - [omitted] 2.14 - [omitted] 2.15(1) - Exchange Agreement dated as of December 15, 1993 by and among Union Carbide Corporation, Union Carbide Chemicals and Plastics Company Inc., Mitsubishi Corporation and UCAR International Inc. 2.16(1) - Stock Purchase and Sale Agreement dated as of November 9, 1990 among Mitsubishi Corporation, Union Carbide Corporation and UCAR Carbon Company Inc. 137 2.17(1) - Letter Agreement dated January 26, 1995 with respect to termination of the Stockholders' Agreement dated as of November 9, 1990 among Mitsubishi Corporation, Union Carbide Corporation and UCAR Carbon Company Inc. 2.18(1) - Settlement Agreement dated as of November 30, 1993 among Mitsubishi Corporation, Union Carbide Corporation and UCAR Carbon Company Inc. 2.19(1) - Transfer Agreement dated January 1, 1989 between Union Carbide Corporation and UCAR Carbon Company Inc. 2.20(1) - Amendment No. 1 to such Transfer Agreement dated December 31, 1989 2.21(1) - Amendment No. 2 to such Transfer Agreement dated July 2, 1990. 2.22(1) - Amendment No. 3 to such Transfer Agreement dated as of February 25, 1991 2.23(1) - Amended and Restated Realignment Indemnification Agreement dated as of June 4, 1992 among Union Carbide Corporation, Union Carbide Chemicals and Plastics Company Inc., Union Carbide Industrial Gases Inc., UCAR Carbon Company Inc. and Union Carbide Coatings Service Corporation 2.24(1) - Environmental Management Services and Liabilities Allocation Agreement dated as of January 1, 1990 among Union Carbide Corporation, Union Carbide Chemicals and Plastics Company Inc., UCAR Carbon Company Inc., Union Carbide Industrial Gases Inc. and Union Carbide Coatings Service Corporation 2.25(1) - Amendment No. 1 to such Environmental Management Services and Liabilities Allocation Agreement dated as of June 4, 1992 2.26 - [omitted] 2.27 - [omitted] 2.28(4) - Trade Name and Trademark License Agreement dated March 1, 1996 between Union Carbide Corporation and UCAR Carbon Technology Corporation 2.29(1) - Employee Benefit Services and Liabilities Agreement dated January 1, 1990 between Union Carbide Corporation and UCAR Carbon Company Inc. 2.30(1) - Amendment to such Employee Benefit Services and Liabilities Agreement dated January 15, 1991 2.31(1) - Supplemental Agreement to such Employee Benefit Services and Liabilities Agreement dated February 25, 1991 2.32(1) - Letter Agreement dated December 31, 1990 among Union Carbide Chemicals and Plastics Company Inc., UCAR Carbon Company Inc., Union Carbide Grafito, Inc. and Union Carbide Corporation 2.33 - [omitted] 2.34(9) - Share Sale Agreement between Samancor Limited and UCAR Carbon Company Inc. dated April 21, 1997 3.1(3) - Amended and Restated Certificate of Incorporation of UCAR International Inc. 3.1(a)(15) - Certificate of Designations of Series A Junior Participating Preferred Stock 3.2(3) - Amended and Restated By-Laws of UCAR International Inc. 3.2(a)(15) - Amendment to By-Laws of UCAR International Inc. 4.1 - [omitted] 4.2 - [omitted] 138 4.3(15) - Rights Agreement dated as of August 7, 1998 between UCAR International Inc. and The Bank of New York, as Rights Agent 10.1* - Credit Agreement dated as of February 22, 2000 among UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc., the LC Subsidiaries from time to time party hereto, the Lenders from time to time party thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent 10.2* - Guarantee Agreement dated as of February 22, 2000 made by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc. and each Domestic Subsidiary party thereto in favor of Morgan Guaranty Trust Company of New York, as collateral agent for the Secured Parties 10.3* - Security Agreement dated as of February 22, 2000 made by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc. and the subsidiaries of UCAR from time to time party thereto, in favor of Morgan Guaranty Trust Company of New York as collateral agent for the Secured Parties 10.4* - Indemnity, Subrogation And Contribution Agreement dated as of February 22, 2000 among UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc., each of the Domestic Subsidiaries party thereto and Morgan Guaranty Trust Company of New York, as collateral agent for the Secured Parties 10.5* - Pledge Agreement dated as of February 22, 2000 by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc. and the direct and indirect subsidiaries of UCAR that are signatories thereto in favor of Morgan Guaranty Trust Company of New York, as collateral agent for the Secured Parties 10.6* Intellectual Property Security Agreement dated as of February 22, 2000 made by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc. and the subsidiaries of UCAR from time to time party thereto in favor of Morgan Guaranty Trust Company of New York, as collateral agent for the Secured Parties 10.7 - [omitted] 10.8 - [omitted] 10.9 - [omitted] 10.10 - [omitted] 10.10 - [omitted] 10.11 - [omitted] 10.11 - [omitted] 10.12 - [omitted] 10.13 - [omitted] 10.14* - Tax Sharing Agreement dated as of February 16, 2000 among UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc., UCAR Carbon Company Inc., UCAR Holdings II Inc., UCAR Holdings III Inc., Union Carbide Grafito, Inc. and UCAR Composites Inc. 10.15 - [omitted] 10.16 - [omitted] 10.17 - [omitted] 139 10.18 - [omitted] 10.19 - [omitted] 10.20 - [omitted] 10.21(1) - Form of Non-Qualified Stock Option Agreement (Original Version) 10.22(15) - UCAR International Inc. Management Stock Option Plan as amended and restated through September 29, 1998 10.22(a)(15) UCAR International Inc. Management Stock Option Plan effective as of September 29, 1998 (Senior Management Version) 10.23(12) - Employment Agreement dated as of June 22, 1998 between UCAR International Inc. and Gilbert E. Playford 10.24(15) - Forms of Non-Qualified Stock Option Agreement (Standard Option Version and Directors Version) 10.25* - UCAR International Inc. Compensation Deferral Program effective January 1, 2000 10.26 - [omitted] 10.27 - [omitted] 10.28 - [omitted] 10.29 - [omitted] 10.30 - [omitted] 10.31* - UCAR International Inc. Management Incentive Plan amended and restated as of January 1, 1999 10.32 - [omitted] 10.33(15) - UCAR International Inc. Executive Employee Stock Purchase Program (Senior Management Version) 10.34(15) - UCAR International Inc. Executive Employee Loan Program 10.35 - [omitted] 10.36* - UCAR Carbon Company Inc. Equalization Benefit Plan amended and restated as of October 1, 1998 10.37* - First Amendment to Equalization Benefit Plan effective, as to paragraph 1, January 1, 2000 and, as to paragraph 2, October 1, 1998 10.38* - UCAR Carbon Company Inc. Supplemental Retirement Income Plan amended and restated as of July 1, 1998 10.38(a)* - First Amendment to Supplemental Retirement Income Plan effective, as to paragraph 1, January 1, 2000 and, as to paragraph 2, July 1, 1998 10.39* - UCAR Carbon Company Inc. Enhanced Retirement Income Plan amended and restated as of July 1, 1998 10.39(a)* - First Amendment to Enhanced Retirement Income Plan effective, as to paragraph 1, January 1, 2000 and, as to paragraph 2, July 1, 1998 10.40(15) - Form of Severance Compensation Agreement (U.S. Version and International Version) 10.41(3) - UCAR International Inc. Benefits Protection Trust effective as of July 27, 1995 10.41(a)(10)- First Amendment to such Benefits Protection Trust effective as of July 27, 1995 10.42(7) - Second Amendment to such Benefits Protection Trust effective as of January 1, 1996 10.42(a)(14) - Third Amendment to such Benefits Protection Trust effective as of January 1, 1997 10.43(3) - UCAR International Inc. 1995 Equity Incentive Plan effective as of August 15, 1995 10.43(a)(6)- First Amendment to such Equity Incentive Plan dated July 29, 1996 140 10.44 - [omitted] 10.45 - [omitted] 10.46 - [omitted] 10.47 - [omitted] 10.48 - [omitted] 10.49(13) - Plea Agreement between the United States of America and UCAR International Inc. executed April 7, 1998 10.50(16) Stipulation and Agreement of Settlement dated October 13, 1999 among David Jaroslawicz and Robert P. Krass, Robert J. Hart, Peter B. Mancino, William P. Wiemels, Fred C. Wolf, Eugene Cartledge, John R. Hall, Glenn H. Hutchins, Robert D. Kennedy, Howard A. Lipson, Peter G. Peterson, Stephen A. Schwarzman and UCAR International Inc. 10.51(16) Stipulation and Agreement of Settlement dated October 13, 1999 among the Florida State Board of Administration and UCAR International Inc., Peter G. Peterson, Stephen A. Schwarzman, Howard A. Lipson, Glenn H. Hutchins, Robert P. Krass, Robert J. Hart, William P. Wiemels, Fred C. Wolf and Peter B. Mancino. 21.1* - List of subsidiaries of UCAR International Inc. 23.1* - Consent of KPMG LLP 24.1* - Powers of Attorney (included on signature pages) 27.1* - Financial Data Schedule for fiscal 1999 (for SEC use only) - --------------- * Filed herewith. (1) Incorporated by reference to the Registration Statement of UCAR International Inc. and UCAR Global Enterprises Inc. on Form S-1 (File No. 33-84850). (2) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the year ended December 31, 1995. (3) Incorporated by reference to the Registration Statement of the registrant on Form S-1 (File No. 33-94698). (4) Incorporated by reference to the Quarterly Report of the registrant on Form l0-Q for the quarter ended March 31, 1996. (5) Incorporated by reference to the Registration Statement of the registrant on Form S-1 (File No. 333-1090). (6) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended June 30, 1996. (7) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended September 30, 1996. (8) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended March 31, 1997. (9) Incorporated by reference to the Quarterly Report of the registrant on Form l0-Q for the quarter ended September 30, 1997. (10)Incorporated by reference to the Annual Report of the registrant on Form 10-K for the year ended December 31, 1996. (11)Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended June 30,1997. 141 (12)Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended September 30, 1998. (13)Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended March 31, 1998. (14)Incorporated by reference to the Annual Report of the registrant on Form 10-K for the year ended December 31, 1997. (15)Incorporated by reference to the Annual Report of the registrant on Form 10-K for the year ended December 31, 1998. (16)Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended September 30, 1999. SIGNATURE PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. UCAR INTERNATIONAL INC. March 30, 2000 By: /S/ CORRADO F. DE GASPERIS ---------------------------- Corrado F. De Gasperis Title: CHIEF INFORMATION OFFICER (PRINCIPAL ACCOUNTING OFFICER) Know All Men By These Presents, that each individual whose signature appears below hereby constitutes and appoints Gilbert E. Playford, Craig S. Shular, Corrado F. DeGasperis and Karen G. Narwold, and each of them individually, his true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments to this Report together with all schedules and exhibits thereto, (ii) act on, sign and file with the Securities and Exchange Commission any and all exhibits to this Report, (iii) act on, sign and file any and all such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith and (iv) take any and all such actions which may be necessary or appropriate in connection therewith, granting unto such agents, proxies and attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing necessary or appropriate to be done, as fully for all intents and purposes as he might or could do in person, hereby approving, ratifying and confirming all that such agents, proxies and attorneys-in-fact, any of them or any of his or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. 142 Signatures Title Date ---------- ----- ---- /s/ Gilbert E. Playford Chairman of the Board, March 30, 2000 - ---------------------------- Chief Executive Officer Gilbert E. Playford and President (Principal Executive Officer) /s/ Craig S. Shular Vice President, Chief March 30, 2000 - --------------------------- Financial Officer and Craig S. Shular Director, Electrode Sales and Marketing (Principal Financial Officer) /s/ Corrado F. De Gasperis Chief Information Officer March 30, 2000 - --------------------------- (Principal Accounting Officer) Corrado F. De Gasperis /s/ R. Eugene Cartledge Director March 30, 2000 - ---------------------------- R. Eugene Cartledge /s/ Mary B. Cranston Director March 30, 2000 - --------------------------- Mary B. Cranston /s/ Alec Flamm Director March 30, 2000 - --------------------------- Alec Flamm /s/ John R. Hall Director March 30, 2000 - --------------------------- John R. Hall /s/ Thomas Marshall Director March 30, 2000 - ------------------------- Thomas Marshall /s/ Michael C. Nahl Director March 30, 2000 - ------------------------- Michael C. Nahl 143 EXHIBIT INDEX
Exhibit Page Number Description of Exhibit Number - ------- ---------------------- ------ 10.1* - Credit Agreement dated as of February 22, 2000 among UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc., the LC Subsidiaries from time to time party hereto, the Lenders from time to time party thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent 10.2* - Guarantee Agreement dated as of February 22, 2000 made by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc. and each Domestic Subsidiary party thereto in favor of Morgan Guaranty Trust Company of New York, as collateral agent for the Secured Parties 10.3* - Security Agreement dated as of February 22, 2000, made by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc., and the subsidiaries of UCAR from time to time party thereto, in favor of Morgan Guaranty Trust Company of New York as collateral agent for the Secured Parties 10.4* - Indemnity, Subrogation And Contribution Agreement dated as of February 22, 2000 among UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc., each of the Domestic Subsidiaries party thereto, and Morgan Guaranty Trust Company of New York, as collateral agent for the Secured Parties 10.5* - Pledge Agreement dated as of February 22, 2000 by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc. and the direct and indirect subsidiaries of UCAR that are signatories thereto in favor of Morgan Guaranty Trust Company of New York, as collateral agent for the Secured Parties 10.6* Intellectual Property Security Agreement dated as of February 22, 2000 made by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc., and the subsidiaries of UCAR from time to time party thereto in favor of Morgan Guaranty Trust Company of New York, as collateral agent for the Secured Parties 10.14* - Tax Sharing Agreement dated as of February 16, 2000 among UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc., UCAR Carbon Company Inc., UCAR Holdings II Inc., UCAR Holdings III Inc., Union Carbide Grafito, Inc. and UCAR Composites Inc. 10.25* - UCAR International Inc. Compensation Deferral Program effective January 1, 2000 10.31* - UCAR International Inc. Management Incentive Plan amended and restated as of January 1, 1999 10.36* - UCAR Carbon Company Inc. Equalization Benefit Plan amended and restated as of October 1, 1998. 10.37* - Amendment to Equalization Benefit Plan 10.38* - UCAR Carbon Company Inc. Supplemental Retirement Income Plan amended and restated as of July 1, 1998 144 10.38(a)* - First Amendment to Supplemental Retirement Income Plan effective, as to paragraph 1, January 1, 2000 and, as to paragraph 2, July 1, 1998 10.39* - UCAR Carbon Company Inc. Enhanced Retirement Income Plan amended and restated as of January 1, 1999 10.39(a)* - First Amendment to Enhanced Retirement Income Plan effective, as to paragraph 1, January 1, 2000 and, as to paragraph 2, July 1, 1998 21.1* - List of subsidiaries of UCAR International Inc. 23.1* - Consent of KPMG LLP 24.1* - Powers of Attorney (included on signature pages) 27.1* - Financial Data Schedule for fiscal 1999 (for SEC use only)
- --------------- * Filed herewith. 145 EX-10.1 2 CREDIT AGREEMENT CONFORMED COPY CREDIT AGREEMENT dated as of February 22, 2000 among UCAR INTERNATIONAL INC. UCAR GLOBAL ENTERPRISES INC. UCAR FINANCE INC. The LC Subsidiaries Party Hereto The Lenders Party Hereto MORGAN GUARANTY TRUST COMPANY OF NEW YORK as Administrative Agent J.P. MORGAN SECURITIES INC. CREDIT SUISSE FIRST BOSTON as Joint-Lead Arrangers CHASE SECURITIES INC. CREDIT SUISSE FIRST BOSTON as Syndication Agents [CS&M #7061-536] TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS SECTION 1.01. DEFINED TERMS................................................1 SECTION 1.02. CLASSIFICATION OF LOANS AND BORROWINGS......................26 SECTION 1.03. TERMS GENERALLY.............................................26 SECTION 1.04. ACCOUNTING TERMS; GAAP......................................26 SECTION 1.05. EXCHANGE RATES..............................................27 ARTICLE II THE CREDITS SECTION 2.01. COMMITMENTS.................................................27 SECTION 2.02. LOANS AND BORROWINGS........................................27 SECTION 2.03. REQUESTS FOR BORROWINGS.....................................28 SECTION 2.04. REPAYMENT OF BORROWINGS; EVIDENCE OF DEBT...................29 SECTION 2.05. LETTERS OF CREDIT............................................29 SECTION 2.06. FUNDING OF BORROWINGS.......................................33 SECTION 2.07. INTEREST ELECTIONS..........................................33 SECTION 2.08. TERMINATION AND REDUCTION OF COMMITMENTS....................34 SECTION 2.09. AMORTIZATION OF TERM LOANS..................................35 SECTION 2.10. PREPAYMENT OF LOANS.........................................37 SECTION 2.11. FEES........................................................38 SECTION 2.12. INTEREST....................................................39 SECTION 2.13. ALTERNATE RATE OF INTEREST..................................40 SECTION 2.14. INCREASED COSTS.............................................40 SECTION 2.15. BREAK FUNDING PAYMENTS......................................41 SECTION 2.16. TAXES.......................................................42 SECTION 2.17. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SETOFFS..43 SECTION 2.18. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS..............45 SECTION 2.19. SWINGLINE LOANS.............................................45 ARTICLE III INTERCOMPANY LOANS SECTION 3.01. INTERCOMPANY LOANS..........................................46 SECTION 3.02. INTERCOMPANY NOTES..........................................46 SECTION 3.03. MODIFICATION AND PREPAYMENT OF INTERCOMPANY LOANS...........47 SECTION 3.04. DESIGNATION OF INTERCOMPANY BORROWERS.......................48 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. ORGANIZATION; POWERS........................................48 SECTION 4.02. AUTHORIZATION...............................................48 SECTION 4.03. ENFORCEABILITY..............................................49 SECTION 4.04. GOVERNMENTAL APPROVALS......................................49 SECTION 4.05. FINANCIAL STATEMENTS........................................49 SECTION 4.06. NO MATERIAL ADVERSE CHANGE..................................49 SECTION 4.07. TITLE TO PROPERTIES; POSSESSION UNDER LEASES................49 SECTION 4.08. SUBSIDIARIES................................................50 SECTION 4.09. LITIGATION; COMPLIANCE WITH LAWS............................50 SECTION 4.10. AGREEMENTS..................................................50 -i- PAGE SECTION 4.11. FEDERAL RESERVE REGULATIONS.................................51 SECTION 4.12. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT..51 SECTION 4.13. USE OF PROCEEDS.............................................51 SECTION 4.14. TAX RETURNS.................................................51 SECTION 4.15. NO MATERIAL MISSTATEMENTS...................................51 SECTION 4.16. EMPLOYEE BENEFIT PLANS......................................52 SECTION 4.17. ENVIRONMENTAL MATTERS.......................................52 SECTION 4.18. CAPITALIZATION OF UCAR, GLOBAL AND THE BORROWER.............53 SECTION 4.19. SECURITY DOCUMENTS..........................................53 SECTION 4.20. LABOR MATTERS...............................................54 SECTION 4.21. NO FOREIGN ASSETS CONTROL REGULATION VIOLATION..............54 SECTION 4.22. INSURANCE...................................................54 SECTION 4.23. LOCATION OF REAL PROPERTY AND LEASED PREMISES...............54 SECTION 4.24. LITIGATION LIABILITIES......................................55 SECTION 4.25. YEAR 2000...................................................55 SECTION 4.26. UCAR GRAPH-TECH INC.........................................55 ARTICLE V CONDITIONS SECTION 5.01. EFFECTIVE DATE..............................................55 SECTION 5.02. EACH CREDIT EVENT...........................................57 SECTION 5.03. INTERCOMPANY BORROWERS AND LC SUBSIDIARIES..................57 ARTICLE VI AFFIRMATIVE COVENANTS SECTION 6.01. EXISTENCE; BUSINESSES AND PROPERTIES........................58 SECTION 6.02. INSURANCE...................................................59 SECTION 6.03. TAXES; OTHER CLAIMS.........................................60 SECTION 6.04. FINANCIAL STATEMENTS, REPORTS, ETC..........................60 SECTION 6.05. LITIGATION AND OTHER NOTICES................................62 SECTION 6.06. EMPLOYEE BENEFITS...........................................62 SECTION 6.07. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND INSPECTIONS...63 SECTION 6.08. USE OF PROCEEDS.............................................63 SECTION 6.09. COMPLIANCE WITH ENVIRONMENTAL LAWS..........................63 SECTION 6.10. PREPARATION OF ENVIRONMENTAL REPORTS........................63 SECTION 6.11. FURTHER ASSURANCES..........................................63 SECTION 6.12. SIGNIFICANT SUBSIDIARIES....................................63 SECTION 6.13. CERTAIN ACCOUNTING MATTERS..................................64 SECTION 6.14. DIVIDENDS...................................................64 SECTION 6.15. INTEREST/EXCHANGE RATE PROTECTION AGREEMENTS................64 SECTION 6.16. CORPORATE SEPARATENESS......................................64 ARTICLE VII NEGATIVE COVENANTS SECTION 7.01. INDEBTEDNESS; CERTAIN EQUITY SECURITIES.....................64 SECTION 7.02. LIENS; SALES OF CERTAIN ASSETS..............................66 SECTION 7.03. SALE AND LEASE-BACK TRANSACTIONS............................69 SECTION 7.04. INVESTMENTS, LOANS, ADVANCES AND ACQUISITIONS...............69 SECTION 7.05. MERGERS, CONSOLIDATIONS, SALES OF ASSETS AND ACQUISITIONS...70 SECTION 7.06. DIVIDENDS AND DISTRIBUTIONS.................................72 SECTION 7.07. TRANSACTIONS WITH AFFILIATES................................73 SECTION 7.08. BUSINESS OF UCAR, THE BORROWER AND THE SUBSIDIARIES.........74 -ii- PAGE SECTION 7.09. INDEBTEDNESS AND OTHER MATERIAL AGREEMENTS..................74 SECTION 7.10. CAPITAL EXPENDITURES........................................75 SECTION 7.11. INTEREST COVERAGE RATIO.....................................75 SECTION 7.12. LEVERAGE RATIO..............................................75 SECTION 7.13. CAPITAL STOCK OF THE SUBSIDIARIES...........................76 ARTICLE VIII EVENTS OF DEFAULT ARTICLE IX THE AGENTS ARTICLE X MISCELLANEOUS SECTION 10.01. NOTICES....................................................80 SECTION 10.02. WAIVERS; AMENDMENTS........................................81 SECTION 10.03. EXPENSES; INDEMNITY; DAMAGE WAIVER.........................82 SECTION 10.04. SUCCESSORS AND ASSIGNS.....................................83 SECTION 10.05. SURVIVAL...................................................85 SECTION 10.06. COUNTERPARTS; Integration; EFFECTIVENESS...................85 SECTION 10.07. SEVERABILITY...............................................85 SECTION 10.08. RIGHT OF SETOFF............................................86 SECTION 10.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.86 SECTION 10.10. WAIVER OF JURY TRIAL.......................................86 SECTION 10.11. HEADINGS...................................................87 SECTION 10.12. Confidentiality............................................87 SECTION 10.13. INTEREST RATE LIMITATION...................................87 SECTION 10.14. RELEASE OF Liens AND GUARANTEES............................87 Schedule A Investments/Leverage Ratios Exhibits to the Credit Agreement Exhibit A-1 Form of Assignment and Acceptance Exhibit A-2 Form of Second Closing Assignment and Acceptance Exhibit B Form of Domestic Pledge Agreement Exhibit C Form of Guarantee Agreement Exhibit D Form of Indemnity, Subrogation and Contribution Agreement Exhibit E Form of Intercompany Borrower Agreement Exhibit F-1 Form of Intercompany Revolving Note Exhibit F-2 Form of Intercompany Term Note Exhibit G-1 Form of LC Subsidiary Agreement Exhibit G-2 Form of LC Subsidiary Termination Exhibit H Form of Security Agreement Exhibit I Form of Intellectual Property Security Agreement Exhibit J-1 Form of Opinion of Kelley Drye & Warren LLP, counsel for UCAR Exhibit J-2 Form of Opinion of General Counsel of UCAR Exhibit J-3 Form of Opinion of Chief Patent Counsel for UCAR Schedules to the Credit Agreement Schedule 2.01 Lenders and Commitments Schedule 2.05(j) Existing Letters of Credit Schedule 3.01 Intercompany Term Loans to the Intercompany Borrowers Schedule 4.08 Subsidiaries -iii- Schedule 4.09 Litigation Schedule 4.14 Taxes Schedule 4.17 Environmental Matters Schedule 4.18 Capitalization of UCAR, Global and the Borrower Schedule 4.19(d) Recording Offices for Mortgages Schedule 4.20 Labor Matters Schedule 4.23(a) Owned Real Property Schedule 4.23(b) Leased Real Property Schedule 5.01 Local Counsel Schedule 7.01 Existing Indebtedness Schedule 7.02 Existing Liens Schedule 7.04 Investments Schedule 7.07 Transactions Pursuant to Permitted Agreements in Existence on Effective Date Schedule 7.09 Restrictive Agreements -iv- CREDIT AGREEMENT dated as of February 22, 2000, among UCAR INTERNATIONAL INC.; UCAR GLOBAL ENTERPRISES INC.; UCAR FINANCE INC.; the LC SUBSIDIARIES from time to time party hereto; the LENDERS from time to time party hereto; and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent. UCAR, Global, the Borrower and the initial Intercompany Borrowers have requested the Lenders to establish the credit facilities provided for herein under which the Borrower (and, to the extent provided herein, the LC Subsidiaries) may obtain (a) Tranche A Term Loans in Euros or Dollars on the Effective Date in an aggregate principal amount of up to EUR300,000,000, (b) Tranche B Term Loans in Dollars on the Effective Date in an aggregate principal amount of up to $350,000,000 and (c) Revolving Loans and Letters of Credit in Euros and Dollars from time to time in an aggregate principal or stated amount of up to EUR250,000,000 at any time outstanding. The proceeds of such Loans will be advanced to the Intercompany Borrowers and used to refinance certain Indebtedness of Global, the Intercompany Borrowers and the Subsidiaries (including Indebtedness outstanding under the Existing Credit Agreements), to pay fees and expenses in connection with the foregoing and for working capital and other general corporate purposes of UCAR, Global, the Borrower, the Intercompany Borrowers and the Subsidiaries. Such Letters of Credit will be used for general corporate purposes of the respective LC Subsidiaries requesting the same. The Lenders are willing to establish such credit facilities upon the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following terms have the meanings specified below: "ADJUSTED LIBO RATE" shall mean, with respect to any Eurocurrency Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "ADMINISTRATIVE AGENT" shall mean Morgan Guaranty Trust Company of New York, in its capacity as administrative agent for the Lenders hereunder. "ADMINISTRATIVE QUESTIONNAIRE" shall mean an administrative questionnaire in a form supplied by the Administrative Agent. "AFFILIATE" shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified. "AGENTS" shall mean, collectively, the Administrative Agent and the Collateral Agent. -5- "APPLICABLE OFFICE" shall mean (a) with respect to a Loan or Borrowing denominated in Euros or any Letter of Credit, the Delaware office of the Administrative Agent referred to in clause (i) of Section 2.17(a) and (b) with respect to a Loan or Borrowing denominated in Dollars, the Delaware office of the Administrative Agent referred to in clause (ii) of Section 2.17(a) (or, in either case, such other office of the Administrative Agent as shall have been designated by the Administrative Agent in accordance with Section 2.17(a)). "APPLICABLE RATE" shall mean, for any day, (a) with respect to (i) any Revolving Loan or Tranche A Term Loan or (ii) the commitment fees payable hereunder, the applicable rate per annum set forth under the appropriate caption in Table I below or (b) with respect to any Tranche B Term Loan, the applicable rate per annum set forth under the appropriate caption in Table II below, in each case based upon the Leverage Ratio as of the most recent determination date: TABLE I ================================================================================ EUROCURRENCY BASE RATE COMMITMENT FEE LEVERAGE RATIO: SPREAD SPREAD RATE - -------------------------------------------------------------------------------- CATEGORY 1 >2.75 2.50% 1.50% 0.500% - - -------------------------------------------------------------------------------- CATEGORY 2 <2.75 and >2.50 2.25% 1.25% 0.500% - - -------------------------------------------------------------------------------- CATEGORY 3 <2.50 and >2.25 2.00% 1.00% 0.375% - - -------------------------------------------------------------------------------- CATEGORY 4 <2.25 and >2.00 1.75% 0.75% 0.375% - - -------------------------------------------------------------------------------- CATEGORY 5 <2.00 and >1.75 1.50% 0.50% 0.375% - - -------------------------------------------------------------------------------- CATEGORY 6 <1.75 1.00% 0.00% 0.375% ================================================================================ -6- TABLE II ================================================================================ EUROCURRENCY BASE RATE LEVERAGE RATIO: SPREAD SPREAD - -------------------------------------------------------------------------------- CATEGORY 1 >2.75 2.75% 2.00% - - -------------------------------------------------------------------------------- CATEGORY 2 <2.75 and >2.50 2.75% 2.00% - - -------------------------------------------------------------------------------- CATEGORY 3 <2.50 and >2.25 2.50% 1.50% - - -------------------------------------------------------------------------------- CATEGORY 4 <2.25 and >2.00 2.50% 1.50% - - -------------------------------------------------------------------------------- CATEGORY 5 <2.00 and >1.75 2.50% 1.50% - - -------------------------------------------------------------------------------- CATEGORY 6 <1.75 2.50% 1.50% ================================================================================ Except as set forth below, the Leverage Ratio used on any date to determine the Applicable Rate shall be that in effect at the fiscal quarter end next preceding the Financial Statement Delivery Date occurring on or most recently prior to such date; PROVIDED that at any time when any Financial Statement Delivery Date shall have occurred and the financial statements or the certificate required to have been delivered under Section 6.04(a), (b) or (c) by such date have not yet been delivered, the Applicable Rate shall be determined by reference to Category 1 in the applicable Table. Notwithstanding the foregoing, until the Financial Statement Delivery Date immediately following June 30, 2000, the Applicable Rate will for all purposes be determined by reference to Category 1 in the applicable Table. "APPLICABLE REVOLVING PERCENTAGE" shall mean, with respect to any Revolving Lender, the percentage of the total Revolving Commitments represented by such Lender's Revolving Commitment. If the Revolving Commitments have been terminated or expired, the Applicable Revolving Percentages shall be determined based upon the Applicable Revolving Commitments most recently in effect, after giving effect to any assignments. "APPLICABLE TRANCHE A TERM PERCENTAGE" shall mean, with respect to any Tranche A Term Lender, the percentage of the total Tranche A Term Commitments represented by such Lender's Tranche A Term Commitment. "APPLICABLE TRANCHE B TERM PERCENTAGE" shall mean, with respect to any Tranche B Term Lender, the percentage of the total Tranche B Term Commitments represented by such Lender's Tranche B Term Commitment. "ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.04), and accepted by the Administrative Agent, in the form of Exhibit A-1 or any other form approved by the Administrative Agent. "AVAILABLE DISPOSITION PROCEEDS" shall mean, at any time, the aggregate amount at such time of proceeds excluded from Net Proceeds pursuant to the second sentence of the definition of Net Proceeds, net of all such proceeds -7- used since the Effective Date to purchase assets useful in the business of Global and the Subsidiaries. "AVAILABLE REVOLVING COMMITMENT" shall mean, with respect to any Revolving Lender at any time, an amount equal to such Lender's Revolving Commitment at such time minus such Lender's Revolving Exposure at such time. "BASE RATE" shall mean, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus, in the case of this clause (b), 1/2 of 1%. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "BOARD" shall mean the Board of Governors of the Federal Reserve System of the United States of America. "BORROWER" shall mean UCAR Finance Inc., a Delaware corporation and a direct, wholly owned subsidiary of UCAR. "BORROWING" shall mean Loans of the same Type and currency, made, converted or continued on the same date and, in the case of Eurocurrency Loans, as to which a single Interest Period is in effect. "BORROWING MINIMUM" shall mean (a) in the case of a Borrowing denominated in Euros, EUR5,000,000 and (b) in the case of a Borrowing denominated in Dollars, $5,000,000. "BORROWING MULTIPLE" shall mean, in the case of a Borrowing denominated in Euros, EUR1,000,000 and (b) in the case of a Borrowing denominated in Dollars, $1,000,000. "BORROWING REQUEST" shall mean a request by the Borrower for a Revolving Borrowing in accordance with Section 2.03. "BRAZIL" shall mean UCAR Carbon S.A., a Brazilian corporation and the direct or indirect owner of virtually all the business of Global and the Subsidiaries in Brazil. "BUSINESS DAY" shall mean any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; PROVIDED that (a) when used in connection with a Eurocurrency Loan or a Loan denominated in Euros, the term "BUSINESS DAY" shall also exclude any day on which banks are not open for general business in London and (b) when used in connection with a Loan or Letter of Credit denominated in Euros, the term "BUSINESS DAY" shall also exclude any day on which the TARGET payment system is not open for the settlement of payments in Euros. "CAPITAL EXPENDITURES" shall mean, for any period, without duplication, (a) the additions to property, plant and equipment and other capital expenditures of UCAR, Global, the Borrower and the consolidated Subsidiaries that are (or would be) set forth in a consolidated statement of cash flows of UCAR for such period prepared in accordance with GAAP and (b) Capital Lease Obligations incurred by the consolidated Subsidiaries during such period, PROVIDED that Capital Expenditures shall not include expenditures of proceeds of insurance settlements, condemnation awards and other settlements in -8- respect of lost, destroyed, damaged or condemned assets, equipment or other property to the extent such expenditures are made to replace or regain such lost, destroyed, damaged or condemned assets, equipment or other property or otherwise to acquire assets or properties useful in the business of the Subsidiaries within 12 months after the receipt of such proceeds. "CAPITAL LEASE OBLIGATIONS" of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP and, for purposes hereof, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "CAPITAL STOCK" of any person shall mean any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such person, including any preferred stock, any limited or general partnership interest and any limited liability company membership interest, but excluding any debt securities convertible into such equity. "CASH INTEREST EXPENSE" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis for any period, Interest Expense for such period less the sum of (a) pay-in-kind Interest Expense, (b) to the extent included in Interest Expense, imputed interest in respect of Litigation Liabilities, (c) the amortization or write-off of debt discounts, or deferred issuance costs, if any, or fees in respect of Interest/Exchange Rate Protection Agreements and (d) the amortization of fees paid by UCAR, Global, the Borrower or any Subsidiary on or prior to June 30, 2000, in connection with the transactions under this Agreement consummated on the Effective Date. "CERCLA" shall have the meaning given such term in the definition of "Environmental Law". A "CHANGE IN CONTROL" shall be deemed to have occurred if (a) UCAR should fail to own directly, beneficially and of record, free and clear of any and all Liens (other than Liens in favor of the Collateral Agent pursuant to the Domestic Pledge Agreement, the lien of the Department of Justice on the assets of UCAR and any Liens of the EU on the assets of UCAR with respect to antitrust actions against UCAR), 100% of the issued and outstanding capital stock of Global or the Borrower; (b) any person or group (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934 as in effect on the Effective Date), other than members of management of UCAR, Global, the Subsidiaries or the Borrower holding voting stock of UCAR or options to acquire such stock on the Effective Date, shall own beneficially, directly or indirectly, shares representing more than 25% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of UCAR; (c) a majority of the seats (excluding vacant seats) on the board of directors of UCAR shall at any time after the Effective Date be occupied by persons who were neither (i) nominated by a majority of the board of directors of UCAR, nor (ii) appointed by directors so nominated; or (d) a change in control with respect to UCAR, Global or the Borrower (or similar event, however denominated) shall occur under and as defined in any indenture or agreement in respect of Indebtedness in an aggregate outstanding principal amount in excess of $7,500,000 to which UCAR, Global, the Borrower or any Subsidiary is party. "CHANGE IN LAW" shall mean (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any -9- Lender or the Issuing Bank (or, for purposes of Section 2.14(b), by any lending office of such Lender or by such Lender's or the Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "CLASS", when used in reference to (a) any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Tranche A Term Loans, Tranche B Term Loans, Revolving Loans or Swingline Loans, and (b) any Commitment, refers to whether such Commitment is a Tranche A Term Commitment, a Tranche B Term Commitment or a Revolving Commitment. "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL" shall mean any and all "collateral" as defined or described in any Security Document. "COLLATERAL AGENT" shall mean Morgan Guaranty Trust Company of New York, in its capacity as collateral agent for the Secured Parties hereunder. "COLLATERAL AND GUARANTEE REQUIREMENT" shall mean, at any time, that: (a) one or more Pledge Agreements (or supplements thereto) shall have been duly executed by UCAR, Global, the Borrower and each Domestic Subsidiary existing at such time and owning any Capital Stock or Indebtedness (including the Intercompany Loans) of UCAR, Global, the Borrower or any other Subsidiary or other person, shall have been delivered to the Collateral Agent and shall be in full force and effect, and such outstanding Capital Stock and all such Indebtedness owned by or on behalf of each such pledgor shall have been duly and validly pledged under such Pledge Agreement (or to the extent not evidenced by any instrument, under a Security Agreement) to the Collateral Agent for the ratable benefit of the Secured Parties, and certificates or other instruments representing such Capital Stock or Indebtedness (to the extent such Indebtedness is evidenced by instruments), accompanied by stock powers or other instruments of transfer endorsed in blank, shall be in the actual possession of the Collateral Agent; PROVIDED that in the case of a pledge by Global, the Borrower or any Domestic Subsidiary of voting Equity Interests in a Foreign Subsidiary, such pledge may be limited to 65% of such voting Capital Stock of such Foreign Subsidiary if the Collateral Agent shall be advised by UCAR that adverse tax consequences would arise from a pledge of a greater percentage of such voting Equity Interests; (b) one or more Security Agreements (or supplements thereto) shall have been duly executed by UCAR, Global, the Borrower and each Domestic Subsidiary existing at such time, shall have been delivered to the Collateral Agent and shall be in full force and effect (and all consents of third parties required for the effectiveness or enforceability of the Liens created by the Security Agreements shall have been obtained), and each document (including each Uniform Commercial Code financing statement or similar filing and each filing with respect to intellectual property owned by UCAR or any Subsidiary party to any Security Agreement) required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Collateral Agent for the benefit of the Secured Parties a valid, legal and perfected first-priority security interest in and lien on the Collateral subject to the applicable Security Agreement (subject to any Lien expressly -10- permitted by Section 7.02) shall have been so filed, registered or recorded and evidence thereof delivered to the Collateral Agent; (c)(i) each of the Mortgages relating to each of the Mortgaged Properties shall have been duly executed by the parties thereto and delivered to the Collateral Agent and shall be in full force and effect, (ii) each of such Mortgaged Properties shall not be subject to any Lien other than those expressly permitted under Section 7.02, (iii) each of such Mortgages shall have been filed and recorded in the recording office referred to in Section 4.19(d) and, in connection therewith, the Collateral Agent shall have received evidence satisfactory to it of each such filing and recordation and (iv) the Collateral Agent shall have received such other documents, including a policy or policies of title insurance issued by a nationally recognized title insurance company, together with such endorsements, coinsurance and reinsurance as may be requested by the Collateral Agent and the Lenders, insuring the Mortgages as valid first liens on the Mortgaged Properties, free of Liens other than those expressly permitted under Section 7.02, together with such surveys, abstracts, appraisals and legal opinions required to be furnished pursuant to the terms of the Mortgages or as reasonably requested by the Collateral Agent or the Lenders; (d) a Guarantee Agreement referred to in clause (a) of the definition of such term (or a supplement thereto) shall have been executed by UCAR, Global and each Domestic Subsidiary existing from time to time, shall have been delivered to the Collateral Agent and shall be in full force and effect; (e) the Indemnity, Subrogation and Contribution Agreement (or supplements thereto) shall have been executed by UCAR, Global, the Borrower and each other Loan Party, shall have been delivered to the Collateral Agent and shall be in full force and effect; (f) each Foreign Subsidiary shall have taken all actions required to Guarantee and to secure with all its assets (i) its own Intercompany Borrower Obligations, if any, and those of the other Foreign Subsidiaries that are Intercompany Borrowers and (ii) its own Obligations as an LC Subsidiary, if any, and those of the other Foreign Subsidiaries that are LC Subsidiaries; and (g) UCAR, Global, the Borrower and each Subsidiary shall have obtained all consents and approvals required to be obtained by it in connection with the execution and delivery of each Loan Document to which it is party, the incurrence and the performance of its obligations thereunder and the granting by it of the Liens thereunder. Notwithstanding the foregoing, (a) a Subsidiary shall not be required to become a Guarantor under a Guarantee Agreement or pledge or grant any security interest in or Lien on any Collateral under any Pledge Agreement or Security Agreement or Mortgage if UCAR shall have advised the Administrative Agent that it would be a violation of applicable law for such Subsidiary to take such action or if, in the judgment of the Administrative Agent, in consultation with the Borrower, the expense, tax or regulatory consequences or difficulty of taking such action would not, in light of the benefits to accrue to the Lenders, justify taking such action and (b) none of UCAR, Global or any Subsidiary shall be required to pledge the Capital Stock of UCAR Graph-Tech Inc. The Collateral Agent is expressly authorized upon the request of the Borrower to release any Collateral or Guarantee previously delivered in respect of any Obligation that at the time of such request is not required in order for the Collateral and Guarantee Requirement to be satisfied. -11- "COMMITMENT" shall mean a Tranche A Term Commitment, a Tranche B Term Commitment or a Revolving Commitment. "CONTROL" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and "Controlling" and "Controlled" shall have meanings correlative thereto. "CURRENT ASSETS" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis at any date of determination, all assets (other than cash and Permitted Investments or other cash equivalents) which would, in accordance with GAAP, be classified on a consolidated balance sheet of UCAR, Global, the Borrower and the Subsidiaries as current assets at such date of determination. "CURRENT LIABILITIES" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis at any date of determination, all liabilities which would, in accordance with GAAP, be classified on a consolidated balance sheet of UCAR, Global, the Borrower and the Subsidiaries as current liabilities at such date of determination, other than (a) the current portion of long term debt, (b) accruals of Interest Expense (excluding Interest Expense which is due and unpaid) and (c) Revolving Loans classified as current. "DEBT SERVICE" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis for any period, Interest Expense for such period plus scheduled principal amortization of Total Debt for such period (whether or not such payments are made). "DEFAULT" shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default. "DISQUALIFIED STOCK" shall mean any Capital Stock that by its terms (or the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the final maturity of the latest maturing Loan. "DOLLARS" or "$" shall mean the lawful money of the United States of America. "DOMESTIC PLEDGE AGREEMENT" shall mean a Pledge Agreement substantially in the form of Exhibit B between UCAR, Global, the Borrower, each Domestic Subsidiary owning Capital Stock or Indebtedness of Global, the Borrower or any other Subsidiary or other person, each Foreign Subsidiary that shall have become a party thereto in order to satisfy the Collateral and Guarantee Requirement and the Collateral Agent for the benefit of the Secured Parties. "DOMESTIC SUBSIDIARY" shall mean a Subsidiary incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia (but shall exclude Union Carbide Grafito, Inc.). "EBITDA" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis for any period, the consolidated net income of UCAR, Global, the Borrower and the Subsidiaries for -12- such period plus, to the extent deducted in computing such consolidated net income, without duplication, the sum of (a)(i) income tax expense and (ii) withholding tax expense incurred in connection with cross border transactions involving Foreign Subsidiaries, (b) interest expense, (c) depreciation and amortization expense, without duplication, (d) any special charges (other than new charges after the Effective Date in respect of Litigation Liabilities) and any extraordinary or non-recurring losses, (e) other noncash items reducing consolidated net income, (f) noncash exchange, translation or performance losses relating to any Interest/Exchange Rate Protection Agreements or currency or interest rate fluctuations and (g) fees, costs and expenses paid by UCAR, Global, the Borrower or any Subsidiary on or prior to June 30, 2000, in connection with the transactions under this Agreement consummated on the Effective Date, minus, to the extent added in computing such consolidated net income, without duplication, (i) interest income, (ii) extraordinary or non-recurring gains, (iii) other noncash items increasing consolidated net income and (iv) noncash exchange, translation or performance gains relating to any Interest/Exchange Rate Protection Agreements or currency or interest rate fluctuations. "EFFECTIVE DATE" shall mean the date on which the conditions specified in Section 5.01 are satisfied (or waived in accordance with Section 10.02). "EMU LEGISLATION" shall mean the legislative measures of the European Union for the introduction of, changeover to or operation of the Euro in one or more member states. "ENVIRONMENT" shall mean ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, the workplace or as otherwise defined in any Environmental Law. "ENVIRONMENTAL CLAIM" shall mean any written accusation, allegation, notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon: (a) the threat, the existence, or the continuation of the existence of a Release (including sudden or non-sudden, accidental or non-accidental Releases); (b) exposure to any Hazardous Material; (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material; or (d) the violation or alleged violation of any Environmental Law or Environmental Permit. "ENVIRONMENTAL LAW" shall mean any and all applicable present and future treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the treatment, storage, disposal, Release or threatened Release of any Hazardous Material or to human health or safety, including the Hazardous Materials Transportation Act, 49 U.S.C.ss.ss. 1801 et seq., the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.ss.ss. 9601 et seq. ("CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C.ss.ss. 6901, et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C.ss.ss. 1251 et seq., the Clean Air Act of 1970, as amended 42 U.S.C.ss.ss. 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C.ss.ss. 2601 et seq., the -13- Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.ss.ss. 11001 et seq., the National Environmental Policy Act of 1975, 42 U.S.C.ss.ss. 4321 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C.ss.ss. 300(f) et seq., and any similar or implementing state or foreign law, and all amendments or regulations promulgated thereunder. "ENVIRONMENTAL PERMIT" shall mean any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law. "EQUITY PROCEEDS" shall mean, at any time, (a) the aggregate amount at such time of the Net Proceeds received by UCAR since the Effective Date from the issuance or sale by UCAR of any Capital Stock of UCAR (other than sales of Capital Stock of UCAR to directors, officers or employees of UCAR, Global, the Borrower or any Subsidiary in connection with permitted employee compensation and incentive arrangements), net of (b) all such Net Proceeds at such time used since the Effective Date to prepay Indebtedness (other than Revolving Loans), to make any Permitted Subsidiary Investment, any investment in any Unrestricted Subsidiary or any Capital Expenditure or otherwise for any purpose resulting in a deduction to Excess Cash Flow in any fiscal year. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA AFFILIATE" shall mean any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414 of the Code. "EURO" or "EUR" shall mean the single currency of the European Union as constituted by the Treaty on European Union and as referred to in the EMU Legislation. "EURO EQUIVALENT" shall mean, on any date of determination, (a) with respect to any amount in Euros, such amount, and (b) with respect to any amount in Dollars, the equivalent in Euros of such amount, determined by the Administrative Agent pursuant to Section 1.05 using the Exchange Rate with respect to Dollars in effect for such amount under the provisions of such Section. "EUROCURRENCY", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "EVENT OF DEFAULT" shall have the meaning given such term in Article VIII. "EXCESS CASH FLOW" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis for any fiscal year, EBITDA of UCAR on a consolidated basis for such fiscal year, minus, without duplication, (a) Debt Service for such fiscal year, (b) permitted Capital Expenditures by the Subsidiaries on a consolidated basis during such fiscal year which are paid in cash, (c) taxes paid in cash by UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis during such fiscal year, including income tax expense and withholding tax expense incurred in connection with cross border transactions involving Foreign Subsidiaries, (d) an amount equal to any increase in Working Capital of UCAR, Global, the Borrower and the Subsidiaries for such fiscal year, (e) Permitted Acquisitions and investments in Unrestricted Subsidiaries during such fiscal year to the extent paid in cash, (f) cash expenditures made in respect of Interest/Exchange Rate Protection Agreements -14- during such fiscal year, to the extent not reflected in the computation of EBITDA or Interest Expense, (g) permitted Restricted Payments and Litigation Payments paid in cash by UCAR or Global and Litigation Payments paid in cash by the Subsidiaries during such fiscal year and permitted dividends paid by any Subsidiary to any person other than Global or any of the other Subsidiaries during such fiscal year, in each case in accordance with Section 7.06, (h) amounts paid in cash during such fiscal year on account of items that were accounted for as noncash reductions of consolidated net income of UCAR, Global, the Borrower and the Subsidiaries in the current or a prior period, (i) special charges or any extraordinary or non-recurring loss, in either case paid in cash during such fiscal year, (j) to the extent not deducted in the computation of Net Proceeds in respect of any asset disposition or condemnation giving rise thereto, mandatory prepayments of Indebtedness (other than Indebtedness created hereunder or under any other Loan Document), and (k) to the extent included in determining EBITDA, all items which did not result from a cash payment to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis during such fiscal year plus, without duplication, (i) an amount equal to any decrease in Working Capital for such fiscal year, (ii) all proceeds received during such fiscal year of Capital Lease Obligations, purchase money Indebtedness, other Indebtedness to the extent used to finance any Permitted Acquisition, any investment in an Unrestricted Subsidiary or Capital Expenditure (other than Indebtedness under this Agreement or the Existing Agreements to the extent there is no corresponding deduction to Excess Cash Flow above in respect of the use of such Indebtedness) and all proceeds received during such fiscal year from Sale and Lease-Back Transactions, (iii) all amounts referred to in (b) and (e) above to the extent funded with Equity Proceeds or Available Disposition Proceeds, in each case to the extent there is a corresponding deduction to Excess Cash Flow above, (iv) cash payments received in respect of Interest/Exchange Rate Protection Agreements during such fiscal year to the extent not (A) included in the computation of EBITDA or (B) red__ing Interest Expense, (v) any extraordinary or non-recurring gain realized in cash during such fiscal year (except to the extent such gain constitutes Available Disposition Proceeds), (vi) to the extent deducted in the computation of EBITDA, interest income and (vii) to the extent subtracted in determining EBITDA, all items which did not result from a cash payment by UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis during such fiscal year. "EXCHANGE RATE" shall mean on any day, (i) with respect to Dollars, the rate at which Dollars may be exchanged into Euro, as set forth at approximately 12:00 noon, London time, on such day on the Reuters World Currency Page for Dollars, or (ii) with respect to Euros, the rate at which Euros may be exchanged into Dollars, as set forth at approximately 12:00 noon, London time, on such day on the Reuters World Currency Page for Euros. In the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate shall be determined by reference to such other publicly available service for displaying exchange rates as may be agreed upon by the Administrative Agent and the Borrower or, in the absence of such agreement, such Exchange Rate shall instead be the arithmetic average of the spot rates of exchange of the Administrative Agent, at or about 11:00 a.m., London time, on such date for the purchase of Euro or Dollars, as the case may be, for delivery two Business Days later; PROVIDED that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent, after consultation with the Borrower, may use any reasonable method it deems appropriate to determine such rate, and such determination shall be conclusive absent manifest error. "EXCLUDED TAXES" shall mean, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower or any LC Subsidiary hereunder, (a) income or franchise taxes imposed on (or measured by) -15- its net income by the United States of America, or by the jurisdiction under which such recipient is organized or in which its principal office is located, or in which its applicable lending office is located, (b) any branch profit taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction described in clause (a) above and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.18(b)), any withholding tax that is imposed by the United States of America on amounts payable to such Foreign Lender (i) to the extent such tax is in effect and would apply as of the date such Foreign Lender becomes a party to this Agreement or relates to payments received by a new lending office designated by such Foreign Lender and is in effect and would apply at the time such lending office is designated or (ii) that is attributable to such Foreign Lender's failure to comply with Section 2.16(e), except, in the case of clause (i) above, to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower or any LC Subsidiary with respect to such withholding tax pursuant to Section 2.16(a). "EXISTING CREDIT AGREEMENTS" shall mean (a) the Credit Agreement dated as of October 19, 1995, as amended and restated as of March 19, 1997, and November 10, 1998, among UCAR, Global, certain other subsidiaries of Global, the lenders and fronting banks party thereto and The Chase Manhattan Bank, as administrative agent and collateral agent, and (b) the Credit Agreement dated as of November 10, 1998, among UCAR, Global, certain other subsidiaries of Global, the lenders and fronting banks party thereto and The Chase Manhattan Bank, as administrative agent and collateral agent. "EXISTING LETTERS OF CREDIT" shall mean the letters of credit issued under the Existing Credit Agreements and described on Schedule 2.05(j). "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "FINANCIAL OFFICER" of any person shall mean the chief financial officer, principal accounting officer, Treasurer, Assistant Treasurer or Controller of such person. "FINANCIAL STATEMENT DELIVERY DATE" shall mean the 90th day following the end of each fiscal year of UCAR, and the 45th day following the end of each of the first three fiscal quarters in each fiscal year of UCAR. "FOREIGN INTERCOMPANY BORROWER" shall mean any Foreign Subsidiary that is an Intercompany Borrower. "FOREIGN LENDER" shall mean any Lender that is organized under the laws of a jurisdiction other than the United States of America or a political subdivision thereof. "FOREIGN SUBSIDIARY" shall mean any Subsidiary that is not a Domestic Subsidiary. "GAAP" shall mean generally accepted accounting principles in effect from time to time in the United States applied on a consistent basis or, when reference is made to another jurisdiction, generally accepted accounting -16- principles in effect from time to time in such jurisdiction applied on a consistent basis. "GLOBAL" shall mean UCAR Global Enterprises Inc., a Delaware corporation. "GOVERNMENTAL AUTHORITY" shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "GUARANTEE" of or by any person shall mean (a) any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness (whether arising by virtue of partnership arrangements, by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay or otherwise) or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or (iv) entered into for the purpose of assuring in any other manner the holders of such Indebtedness of the payment thereof or to protect such holders against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such person securing any Indebtedness of any other person, whether or not such Indebtedness is assumed by such person; PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for collection or deposit, in either case in the ordinary course of business, or customary and reasonable indemnity obligations in effect on the Effective Date or entered into in connection with any acquisition or disposition of assets permitted under this Agreement. "GUARANTEE AGREEMENT" shall mean (a) a Guarantee Agreement substantially in the form of Exhibit C by UCAR, Global and each Domestic Subsidiary in favor of the Collateral Agent for the benefit of the Secured Parties and (b) in connection with Guarantees of the Intercompany Borrower Obligations provided by any Foreign Subsidiaries, other guarantee agreements or similar agreements giving effect to the Collateral and Guarantee Requirement and satisfactory in form and substance to the Collateral Agent. "GUARANTOR" shall mean UCAR, Global, the Borrower and each Subsidiary at any time that has outstanding at such time a Guarantee under any Guarantee Agreement. "HAZARDOUS MATERIAL" shall mean any material meeting the definition of a "hazardous substance" in CERCLA 42 U.S.C. ss.9601(14) and all explosive or radioactive substances or wastes, toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum, petroleum distillates or fractions or residues, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or materials or equipment containing PCBs in excess of 50 ppm, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law, or that reasonably could form the basis of an Environmental Claim. -17- "INDEBTEDNESS" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid (other than trade payables incurred in the ordinary course of business), (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all payments that such person would have to make in the event of an early termination, on the date Indebtedness of such person is being determined, in respect of outstanding interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements and (j) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. The Indebtedness of any person shall include the Indebtedness of any other entity (including any partnership in which such person is a general partner) to the extent such person is liable therefor as a result of such person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such person is not liable therefor. "INDEMNIFIED TAXES" shall mean Taxes other than Excluded Taxes. "INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT" shall mean an Indemnity, Subrogation and Contribution Agreement substantially in the form of Exhibit D among UCAR, Global, the Borrower, the Guarantors and the Collateral Agent. "INTERCOMPANY BORROWER AGREEMENT" shall mean each agreement substantially in the form of Exhibit E executed and delivered by an Intercompany Borrower pursuant to Section 5.03. "INTERCOMPANY BORROWERS" shall mean UCAR Carbon Company Inc., UCAR Holdings S.A., UCAR S.p.A., UCAR S.A., UCAR Electrodos S.l. and, in respect of Intercompany Loans made with the proceeds of Revolving Borrowings, one or more other Wholly Owned Subsidiaries designated by the Borrower as provided in Section 3.04. "INTERCOMPANY BORROWER OBLIGATIONS" shall mean (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Intercompany Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Loan Parties and the other Subsidiaries in respect of the Intercompany Loans (whether under any Intercompany Note, any Guarantee or any document or instrument in respect of any security interest in respect of any Intercompany Note) and (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Loan Parties and the other Subsidiaries in respect of the Intercompany -18- Loans (whether under any Intercompany Note, any Guarantee or any document or instrument in respect of any security interest in respect of any Intercompany Note). "INTERCOMPANY LOAN" shall mean an Intercompany Term Loan or an Intercompany Revolving Loan. "INTERCOMPANY NOTE" shall mean an Intercompany Term Note or an Intercompany Revolving Note. "INTERCOMPANY REVOLVING LOAN" shall mean a loan made by the Borrower to an Intercompany Borrower in accordance with the provisions of Section 3.01(b). "INTERCOMPANY REVOLVING NOTE" shall mean a promissory note in substantially the form of Exhibit F-1 evidencing one or more Intercompany Revolving Loans. "INTERCOMPANY TERM LOAN" shall mean a loan made by the Borrower to an Intercompany Borrower in accordance with the provisions of Section 3.01(a). "INTERCOMPANY TERM NOTE" shall mean a promissory note in substantially the form of Exhibit F-2 evidencing one or more Intercompany Term Loans. "INTEREST COVERAGE RATIO" shall have the meaning given such term in Section 7.11. "INTEREST ELECTION REQUEST" shall mean a request by the Borrower to convert or continue a Revolving Borrowing or Term Borrowing in accordance with Section 2.07. "INTEREST EXPENSE" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis for any period, the sum of (a) gross interest expense of UCAR, Global, the Borrower and the Subsidiaries for such period on a consolidated basis, including (i) the amortization of debt discounts, (ii) the amortization of all fees (including fees with respect to interest rate protection agreements) payable in connection with the incurrence of Indebtedness to the extent included in interest expense and (iii) the portion of any payments or accruals with respect to Capital Lease Obligations allocable to interest expense and (b) capitalized interest of UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis, minus (c) interest income of UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis. For purposes of the foregoing, (A) gross interest expense shall be determined after giving effect to any net payments made or received by Global, the Borrower and the Subsidiaries with respect to interest rate protection agreements and (B) interest expense of Brazil or any Subsidiary thereof shall be deemed reduced by the aggregate amount of interest income received by Brazil or such Subsidiary from Permitted Investments acquired for the purpose of hedging the Indebtedness giving rise to such interest expense. "INTEREST/EXCHANGE RATE PROTECTION AGREEMENT" shall mean any interest rate or currency hedging agreement or arrangement approved by the Administrative Agent (such approval not to be unreasonably withheld) entered into by the Borrower or a Subsidiary (or entered into by Global prior to the Effective Date) and designed to protect against fluctuations in interest rates or currency exchange rates. "INTEREST PAYMENT DATE" shall mean (a) with respect to any Eurocurrency Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing with an Interest Period of more than three months' duration, each day -19- prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period, (b) with respect to any Base Rate Loan (other than a Swingline Loan), the last day of each March, June, September and December and the date on which such Loan is repaid or converted to a Eurocurrency Loan and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid. "INTEREST PERIOD" shall mean, with respect to any Eurocurrency Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, with the consent of each affected Lender, any other period not in excess of twelve months) thereafter, as the Borrower may elect; provided that the initial Interest Period commencing on the Effective Date will end on the seventh day thereafter; PROVIDED FURTHER that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurocurrency Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day (ii) any Interest Period pertaining to a Eurocurrency Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period and (iii) any Interest Period in respect of a Tranche A Term Borrowing, a Tranche B Term Borrowing or a Revolving Borrowing that would otherwise end after the Tranche A Maturity Date, the Tranche B Maturity Date or the Revolving Maturity Date, respectively, shall instead end on the Tranche A Maturity Date, the Tranche B Maturity Date or the Revolving Maturity Date, as the case may be. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made, and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "ISSUING BANK" shall mean Morgan Guaranty Trust Company of New York, in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.05(i). The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. "LC DISBURSEMENT" shall mean a payment made by the Issuing Bank in respect of a Letter of Credit. "LC EXPOSURE" shall mean, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit denominated in Euros at such time, (b) the aggregate amount of the Euro Equivalents of the undrawn amounts of all outstanding Letters of Credit denominated in Dollars at such time, (c) the aggregate amount of all LC Disbursements denominated in Euros that have not yet been reimbursed by or on behalf of the Borrower or the applicable LC Subsidiary at such time and (d) the aggregate amount of the Euro Equivalents of the amounts of all LC Disbursements denominated in Dollars that have not yet been reimbursed by or on behalf of the Borrower or the applicable LC Subsidiary at such time. The LC Exposure of any Revolving Lender at any time shall be such Lender's Applicable Revolving Percentage of the aggregate LC Exposure. "LC SUBSIDIARY" shall mean, at any time, each Wholly Owned Subsidiary that has been designated as an LC Subsidiary by the Borrower pursuant to Section 2.05(k) and that has not ceased to be an LC Subsidiary as provided in such Section. -20- "LC SUBSIDIARY AGREEMENT" shall mean an LC Subsidiary Agreement substantially in the form of Exhibit G-1. "LC SUBSIDIARY TERMINATION" shall mean an LC Subsidiary Termination substantially in the form of Exhibit G-2. "LENDERS" shall mean the persons listed on Schedule 2.01 and any other person that shall have become a party hereto pursuant to the Second Closing Assignment or an Assignment and Acceptance, other than any such person that shall have ceased to be a party hereto pursuant to an Assignment and Acceptance. Unless the context otherwise requires, the term "Lenders" includes the Swingline Lender. "LETTER OF CREDIT" shall mean any letter of credit issued pursuant to this Agreement on behalf of Lenders holding Revolving Commitments. "LEVERAGE RATIO" shall have the meaning given such term in Section 7.12. "LIBO RATE" shall mean, with respect to any Eurocurrency Borrowing for any Interest Period, the rate per annum determined by the Administrative Agent at approximately 11:00 a.m., London time, on the Quotation Day for such Interest Period by reference to the British Bankers' Association Interest Settlement Rates for deposits in the currency of such Borrowing (as reflected on the applicable Telerate screen), for a period equal to such Interest Period; PROVIDED that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition or with respect to any Interest Period for an initial Borrowing that is seven days, "LIBO Rate" shall mean the average of the rates per annum at which deposits in the currency of such Borrowing are offered for such Interest Period to the principal London offices of the Reference Banks in the London interbank market at approximately 11:00 a.m., London time, on the Quotation Day for such Interest Period; "REFERENCE BANKS" shall mean Credit Suisse First Boston, The Chase Manhattan Bank and ABN AMRO Bank (or any replacement thereof that is a Lender identified by the Administrative Agent in consultation with the Borrower and Lenders). "LIEN" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "LITIGATION LIABILITIES" shall mean liabilities and expenses of UCAR, Global, the Borrower and the Subsidiaries associated with (a) antitrust investigations and related lawsuits, settlements and claims of the type described in UCAR's Annual Report on Form 10-K for the year ended December 31, 1998, and UCAR's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999 (together, the "SEC REPORTS"), (b) shareholder derivative lawsuits and claims of the type described in the SEC Reports and (c) securities lawsuits and claims of the type described in the SEC Reports and any investigations that may arise relating to the subject matter of such securities lawsuits and claims. "LITIGATION PAYMENTS" shall mean payments, credits, discounts, transfers of assets and any other transfers of value made in respect of Litigation Liabilities which are or would be applied against the Litigation Reserves in accordance with GAAP. -21- "LITIGATION RESERVES" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis at any date of determination, all reserves in respect of Litigation Liabilities which are or would be disclosed on a consolidated balance sheet of UCAR and its subsidiaries prepared in accordance with GAAP at such date of determination. "LOAN DOCUMENTS" shall mean this Agreement, the Second Closing Assignment, any promissory note issued under Section 2.04(e), the Intercompany Notes, the Intercompany Borrower Agreements, the Guarantee Agreements, the Indemnity, Subrogation and Contribution Agreement and the Security Documents. "LOAN PARTIES" shall mean UCAR, Global, the Borrower and each Subsidiary that is a Guarantor of all or substantially all the Obligations. "LOANS" shall mean the loans made by the Lenders to the Borrower pursuant to this Agreement. "MATERIAL ADVERSE EFFECT" shall mean (a) a materially adverse effect on the assets, business, properties, financial condition or results of operations of UCAR, Global, the Borrower and the Subsidiaries, taken as a whole, (b) a material impairment of the ability of UCAR, Global, the Borrower or any Subsidiary to perform any of its material obligations under any Loan Document to which it is or will be a party or (c) an impairment of the validity or enforceability of, or a material impairment of the material rights, remedies or benefits available to the Lenders, the Issuing Banks, the Administrative Agent or the Collateral Agent under, any Loan Document. "MOODY'S" shall mean Moody's Investors Service, Inc. "MORTGAGED PROPERTIES" shall mean each parcel of real property and improvements thereto identified on Schedule 4.23(a), and each other parcel of real property and improvements thereto from time to time owned by UCAR, Global, the Borrower or any Domestic Subsidiary. "MORTGAGES" shall mean mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents reasonably satisfactory to the Collateral Agent, delivered pursuant to Section 5.01, 5.03 or 6.11. "MULTIEMPLOYER PLAN" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414) is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "NET DEBT" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis, at any time, (a) Total Debt at such time minus (b) the aggregate amount held at such time by UCAR, Global, the Borrower and the Subsidiary Loan Parties of (i) Permitted Investments of the type described in clauses (a), (b), (c), (e) and (to the extent analogous to such clauses (a), (b), (c) and (e)) (f) of the definition of Permitted Investments that are denominated in Euros or Dollars, mature 30 days or less from the date of determination and are held in jurisdictions from which funds may be freely transferred to the Borrower and (ii) cash denominated in Euros or Dollars that are held in jurisdictions from which funds may be freely transferred to the Borrower. -22- "NET PROCEEDS" shall mean, with respect to any event, (a) the cash proceeds received, but only as and when received, in respect of such event, including (i) any cash received in respect of any non-cash proceeds, (ii) in the case of a casualty, insurance proceeds, and (iii) in the case of a condemnation or similar event, condemnation awards and similar payments, net of (b) the sum of (i) all reasonable fees, commissions and out-of-pocket expenses, costs and charges paid by UCAR, Global, the Borrower and the Subsidiaries to third parties (other than Affiliates) in connection with such event, (ii) in the case of a sale, transfer or other disposition of an asset (including pursuant to a Sale and Lease-Back Transaction or a casualty or a condemnation or similar proceeding), the amount of all payments required to be made by UCAR, Global, the Borrower and the Subsidiaries as a result of such event to repay Indebtedness (other than Loans) secured by such asset or otherwise subject to mandatory prepayment as a result of such event, and (iii) the amount of all taxes paid (or reasonably estimated to be payable) by UCAR, Global, the Borrower and the Subsidiaries, and the amount of any reserves established by UCAR, Global, the Borrower and the Subsidiaries to fund contingent liabilities reasonably estimated to be payable, in each case during the year that such event occurred or the next succeeding year and that are directly attributable to such event (as determined reasonably and in good faith by a Financial Officer of Global). If Global shall deliver a certificate of Global signed by a Responsible Officer of Global to the Administrative Agent promptly following receipt of any Net Proceeds in respect of any Prepayment Event described in clause (a) or (b) of the definition thereof setting forth Global's intention to use any portion of such proceeds to purchase assets useful in the business of Global and the Subsidiaries (including by way of a purchase of Capital Stock of any person holding such assets) within 12 months of such receipt, such portion of such proceeds shall not constitute Net Proceeds except to the extent not so used within such 12-month period; PROVIDED that proceeds may not be so excluded from Net Proceeds (i) if any Default or Event of Default shall exist at the time such notice is delivered or (ii) to the extent that such exclusion would result in the aggregate amount of Available Disposition Proceeds at any time exceeding $50,000,000. "OBLIGATIONS" shall mean (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower or any Subsidiary under this Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of UCAR, Global, the Borrower and the Subsidiaries under this Agreement and the other Loan Documents (including, without limitation, all monetary obligations of the Intercompany Borrowers under the Intercompany Notes and Intercompany Borrower Agreements, but only for as long as the Intercompany Notes and the rights of the Borrower under the Intercompany Borrower Agreements are pledged to the Collateral Agent under one or more Pledge Agreements as security for the Obligations), (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of UCAR, Global, the Borrower and the Subsidiaries under or pursuant to this Agreement and the other Loan Documents, (c) unless otherwise agreed upon in writing by the applicable Lender party thereto, the due and punctual payment and performance of all obligations of UCAR, Global, the Borrower and the Subsidiaries, monetary or otherwise, under each Interest/Exchange Rate Protection Agreement entered into with any counterparty that (i) was a Lender (or an Affiliate thereof) at the time such Interest/Exchange Rate Protection Agreement was entered into or (ii)(A) was a "Lender" (or an Affiliate thereof) -23- as defined in the Existing Credit Agreements at the time such Interest/Exchange Rate Protection Agreement was entered into and (B) was one of the initial Lenders under this Agreement (or an Affiliate thereof) and (d) all obligations of UCAR, Global, the Borrower and the Subsidiaries under the Guarantee Agreements. "OTHER TAXES" shall mean any and all present or future recording, stamp, documentary, excise, transfer, sales, property or similar taxes, charges or levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "PERMITTED ACQUISITION" shall mean any acquisition of all or substantially all the assets of, or any shares or other equity interests in, a person or division or line of business of a person (or any subsequent investment made in a previously acquired Permitted Acquisition) if immediately after giving effect thereto: (a) no Default or Event of Default shall have occurred and be continuing or would result therefrom, (b) all transactions related thereto shall be consummated in accordance with applicable laws, (c) any acquired or newly formed corporation, partnership, association or other business entity shall be a Subsidiary that is owned directly by Global or a domestic Wholly Owned Subsidiary (unless there is a material tax or legal or other economic disadvantage in having Global or a Wholly Owned Subsidiary hold such Capital Stock, in which case such Capital Stock may be held directly by a Foreign Subsidiary) and all actions required to be taken, if any, with respect to such assets or such acquired or newly formed Subsidiary under Section 6.11 shall have been taken, (d) UCAR shall be in compliance, on a pro forma basis after giving effect to such acquisition or formation, with the covenants contained in Sections 7.11 and 7.12 recomputed as at the last day of the most recently ended fiscal quarter of UCAR for which financial statements have been delivered under Section 6.04(a) or (b) as if such acquisition or formation had occurred on the first day of each relevant period for testing such compliance, and Global shall have delivered to the Administrative Agent a certificate of Global signed by a Responsible Officer of Global to such effect, together with all relevant financial information for such subsidiary or assets (including a summary of the financial terms of the acquisition or investment and the material terms of any joint venture arrangements), (e) if the Leverage Ratio as of the last day of the most recent fiscal quarter for which financial statements have been delivered under Section 6.04(a) or (b) is greater than 2.50 to 1.00, (i) the total aggregate amount of the Revolving Commitments then in effect shall exceed the total aggregate amount of the Revolving Exposures then in effect by at least EUR75,000,000 following such acquisition and payment of all related costs and expenses and (ii) Global shall have delivered to the Administrative Agent a certificate of Global signed by a Responsible Officer of Global representing that in Global's good faith judgment, based on such analysis as it shall deem appropriate, it will have liquidity it deems adequate following such acquisition or formation, and (f) any acquired or newly formed Subsidiary shall not be liable for any Indebtedness (except for Indebtedness permitted by Section 7.01). "PERMITTED INVESTMENTS" shall mean: (a) direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof; (b) time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $250,000,000 (or the -24- foreign currency equivalent thereof) and whose long-term debt, or whose parent holding company's long-term debt, is rated A at the time of deposit (or such similar equivalent rating or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act of 1933, as amended)); (c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (a) above entered into with a bank meeting the qualifications described in clause (b) above; (d) commercial paper, maturing not more than 180 days after the date of acquisition, issued by a corporation (other than an Affiliate of Global) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of P-1 (or higher) according to Moody's, or A-1 (or higher) according to S&P; (e) securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least A by S&P or A2 by Moody's; (f) in the case of any Subsidiary organized in a jurisdiction outside the United States: (i) direct obligations of the sovereign nation (or any agency thereof) in which such Subsidiary is organized and is conducting business or in obligations fully and unconditionally guaranteed by such sovereign nation (or any agency thereof); PROVIDED that such obligations have a rating of at least A by S&P or A2 by Moody's (or the equivalent thereof from comparable foreign rating agencies), (ii) investments of the type and maturity described in clauses (a) through (e) above of foreign obligors, which investments or obligors (or the parents of such obligors) have ratings described in such clauses or equivalent ratings from comparable foreign rating agencies or (iii) investments of the type and maturity described in clauses (a) through (e) above of foreign obligors (or the parents of such obligors), which investments or obligors (or the parents of such obligors) are not rated as provided in such clauses or in clause (ii) above but which are, in the reasonable judgment of Global, comparable in investment quality to such investments and obligors (or the parents of such obligors); PROVIDED that the aggregate face amount outstanding at any time of such investments of all foreign Subsidiaries made pursuant to this clause (iii) does not exceed $50,000,000; (g) mutual funds whose investment guidelines restrict such funds' investments to those satisfying the provisions of clauses (a) through (e) above; and (h) time deposit accounts, certificates of deposit and money market deposits in an aggregate face amount not in excess of 1/2 of 1% of Total Assets as of the end of the Borrower's most recently completed fiscal year. "PERMITTED SUBSIDIARY INVESTMENT" shall mean any Permitted Acquisition and any other investment by any Loan Party in, or loan or advance by any Loan Party to, or any Guarantee by any Loan Party of Indebtedness of, any Subsidiary or other person that is not a Loan Party that would be a Permitted Acquisition but for the fact that it is an acquisition of less than all the shares or other equity interests in such Subsidiary or other person. "PERMITTED SUBSIDIARY TRANSFER" shall mean the transfer from any Subsidiary Loan Party to any Subsidiary that is not a Subsidiary Loan Party but at least 90% of the outstanding Capital Stock of which is owned by Global or a Wholly Owned Subsidiary of inventory and equipment in the ordinary course of business consistent with past practice. "PERSON" shall mean any natural person, corporation, limited liability company, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. "PLAN" shall mean any employee pension benefit plan, as defined in Section 3(2) of ERISA (other than a Multiemployer Plan), subject to the provisions of Title IV of ERISA or Section 412 of the Code and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, -25- would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PLEDGE AGREEMENTS" shall mean (a) the Domestic Pledge Agreement and (b) in connection with pledges of Capital Stock in Foreign Subsidiaries, other pledge agreements or similar agreements giving effect to the Collateral and Guarantee Requirement and in form and substance satisfactory to the Collateral Agent. "PREPAYMENT EVENT" shall mean: (a) any sale, transfer or other disposition of any property or asset of UCAR, Global, the Borrower or any Subsidiary, other than (i) dispositions permitted under clause (a) of Section 7.03 or clauses (a), (b), (e) and (h) of Section 7.05 and (ii) other dispositions resulting in aggregate Net Proceeds not exceeding $1,000,000 in the aggregate during any fiscal year of Global; or (b) any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of Global or any Subsidiary, but only to the extent that the Net Proceeds therefrom have not been applied to repair, restore or replace such property or asset within 12 months after such event; or (c) the issuance by UCAR of any Capital Stock (other than Disqualified Stock and other than sales of Capital Stock of UCAR to directors, officers or employees of UCAR, Global, the Borrower or any Subsidiary in connection with permitted employee compensation and incentive arrangements); or (d) the incurrence by UCAR, Global, the Borrower or any Subsidiary of any Indebtedness, other than Indebtedness permitted by Section 7.01, or the issuance by any of them of Disqualified Stock. "PRIME RATE" shall mean the rate of interest per annum publicly announced from time to time by Morgan Guaranty Trust Company of New York as its prime rate in effect at its principal office in New York City. Each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "QUOTATION DAY" shall mean, with respect to any Eurocurrency Borrowing and any Interest Period, the day on which it is market practice in the relevant interbank market for prime banks to give quotations for deposits in the currency of such Borrowing for delivery on the first day of such Interest Period. If such quotations would normally be given by prime banks on more than one day, the Quotation Day will be the last of such days. "RELATED BUSINESS" shall mean any business or business activity conducted by UCAR or its subsidiaries on the date hereof and any business or business activities incidental or related thereto or incidental or related to the procurement, manufacture or sale of products or services manufactured or provided by UCAR or any of its subsidiaries on the date hereof. "RELATED PARTIES" shall mean, with respect to any specified person, such person's Affiliates and the respective directors, officers, employees, agents and advisors of such person and such person's Affiliates. -26- "RELEASE" shall have the meaning given such term in CERCLA, 42 U.S.C.ss.9601(22). "REMEDIAL ACTION" shall mean (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. ss. 9601(24), and (b) all other actions, including studies and investigations, required by any Governmental Authority or voluntarily undertaken to: (i) clean up, remove, treat, abate or in any other way respond to any Hazardous Material in the environment; or (ii) prevent the Release or threat of Release, or minimize the further Release, of any Hazardous Material. "REPORTABLE EVENT" shall mean any reportable event as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414). "REQUIRED LENDERS" shall mean, at any time, Lenders having Loans, Letter of Credit Exposures and unused Commitments (excluding commitments to issue Letters of Credit) representing at least 51% of the sum of all Loans outstanding, Letter of Credit Exposures and unused Commitments (excluding commitments to issue Letters of Credit) at such time. "RESPONSIBLE OFFICER" of any person shall mean any executive officer or Financial Officer of such person and any other officer or similar official thereof responsible for the administration of the obligations of such person in respect of this Agreement. "RESTRICTED PAYMENT" means any dividend or other distribution (whether in cash, securities or other property) with respect to any Capital Stock of UCAR, Global, the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancelation or termination of any Capital Stock of UCAR, Global, the Borrower or any Subsidiary or any option, warrant or other right to acquire any such Capital Stock. "REVOLVING AVAILABILITY PERIOD" shall mean the period from and including the Effective Date to but excluding the earlier of (a) the 10th day prior to the Revolving Maturity Date and (b) the date of termination of the Revolving Commitments. "REVOLVING BORROWING" shall mean a Borrowing comprised of Revolving Loans. "REVOLVING COMMITMENT" shall mean, with respect to each Revolving Lender, the commitment of such Revolving Lender to make Revolving Loans pursuant to Section 2.01(c), to acquire participations in Letters of Credit pursuant to Section 2.05 and to acquire participations in Swingline Loans pursuant to Section 2.19, expressed as an amount representing the maximum aggregate amount of such Revolving Lender's Revolving Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to the Second Closing Assignment or Section 10.04. The initial amount of each Revolving Lender's Revolving Commitment is set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which Revolving Lender shall have assumed its Revolving Commitment, as applicable. The aggregate amount of the Revolving Commitments on the date hereof is EUR250,000,000. "REVOLVING EXPOSURE" shall mean, with respect to any Revolving Lender at any time, the sum at such time, without duplication, of (a) such Lender's Applicable Revolving Percentage of the principal amounts of the outstanding Revolving Loans denominated in Euros, plus (b) such Lender's -27- Applicable Revolving Percentage of the aggregate amount of the Euro Equivalents of the principal amounts of the outstanding Revolving Loans denominated in Dollars, plus (c) the aggregate amount of such Lender's LC Exposure, plus (d) the aggregate amount of the Euro Equivalent of such Lender's Swingline Exposure. "REVOLVING LENDER" mean a Lender with a Revolving Commitment. "REVOLVING LOAN" shall mean a Loan made pursuant to Section 2.01(c). Each Revolving Loan shall be a Eurocurrency Loan or, in the case of a Revolving Loan denominated in Dollars, a Base Rate Loan. "REVOLVING MATURITY DATE" shall mean February 22, 2006. "S&P" shall mean Standard & Poor's. "SALE AND LEASE-BACK TRANSACTION" shall have the meaning given such term in Section 7.03. "SEC REPORTS" shall have the meaning given such term in the definition of "LITIGATION LIABILITIES". "SECURED PARTIES" shall mean the Agents, each Lender, the Issuing Bank and each other person to which any of the Obligations is owed. "SECOND CLOSING ASSIGNMENT" shall mean an assignment and acceptance entered into by UCAR, Global, the Borrower, the Administrative Agent, certain Lenders and the assignees specified therein in the form of Exhibit A-2 with such changes therein as may be approved by the Administrative Agent. "SECURITY AGREEMENTS" shall mean (a) a Security Agreement substantially in the form of Exhibit H between UCAR, Global, the Borrower and the Subsidiaries from time to time party thereto and the Collateral Agent for the benefit of the Secured Parties, (b) an Intellectual Property Security Agreement substantially in the form of Exhibit I between UCAR, Global, the Borrower and the Subsidiaries from time to time party thereto and the Collateral Agent for the benefit of the Secured Partes and (c) in connection with the creation of security interests in the assets of Foreign Subsidiaries, other security agreements or similar agreements giving effect to the Collateral and Guarantee Requirement and satisfactory in form and substance to the Collateral Agent. "SECURITY DOCUMENTS" shall mean the Security Agreements, the Pledge Agreements, the Mortgages and each other security agreement or other instrument executed and delivered in satisfaction of the Collateral and Guarantee Requirement or pursuant to Section 6.11. "SIGNIFICANT SUBSIDIARY" shall mean Global, the Borrower, any Intercompany Borrower, any LC Subsidiary, any Subsidiary owning Capital Stock of an Intercompany Borrower or LC Subsidiary and any other Subsidiary that at the date of any determination (a) accounts for 2.5% or more of the consolidated assets of UCAR, (b) has accounted for 2.5% or more of EBITDA for each of the two consecutive periods of four fiscal quarters immediately preceding the date of determination or (c) has been designated by Global in writing to the Administrative Agent as a Significant Subsidiary and such designation has not subsequently been withdrawn. -28- "STATUTORY RESERVE RATE" shall mean, with respect to any currency, a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve, liquid asset or similar percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by any Governmental Authority of the jurisdiction of such currency or any jurisdiction in which Loans in such currency are made to which banks in such jurisdiction are subject for any category of deposits or liabilities customarily used to fund loans in such currency or by reference to which interest rates applicable to Loans in such currency are determined. Eurocurrency Loans shall be deemed to be subject to such reserve, liquid asset or similar requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under any applicable law, rule or regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "SUBSIDIARY" shall mean, with respect to any person (the "PARENT") at any date of determination, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date of determination, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, at the time any determination is made, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "SUBSIDIARY" shall mean any subsidiary of Global. "SUBSIDIARY LOAN PARTY" shall mean any Loan Party that is a Subsidiary. "SWINGLINE EXPOSURE" means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be its Applicable Revolving Percentage of the total Swingline Exposure at such time. "SWINGLINE LENDER" means Morgan Guaranty Trust Company of New York, in its capacity as lender of Swingline Loans hereunder. "SWINGLINE LOAN" means a Loan made pursuant to Section 2.19. "TAXES" shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "TAX SHARING AGREEMENT" means (a) that certain tax sharing agreement dated February 16, 2000, between Global and UCAR and (b) any other tax allocation agreement between or among UCAR, Global, the Borrower or any of the Subsidiaries with respect to consolidated or combined tax returns including Global, the Borrower or any of the Subsidiaries, but only to the extent that amounts payable from time to time by Global, the Borrower or any such Subsidiary under any such agreement do not exceed the corresponding tax payments that Global, the Borrower or such Subsidiary would have been required to make to any relevant taxing authority had Global, the Borrower or such Subsidiary not joined -29- in such consolidated or combined return, but instead had filed returns including only Global, the Borrower and the Subsidiaries (PROVIDED that any such agreement may provide that, if Global, the Borrower or any such Subsidiary ceases to be a member of the affiliated group of corporations of which UCAR is the common parent for purposes of filing a consolidated federal income tax return (such cessation, a "DECONSOLIDATION EVENT"), then Global, the Borrower or such Subsidiary will indemnify UCAR with respect to any Federal, state or local income, franchise or other tax liability (including any related interest, additions or penalties) imposed on UCAR as the result of an audit or other adjustment with respect to any period prior to such Deconsolidation Event that is attributable to Global, the Borrower, such Subsidiary or any predecessor business thereof (computed as if Global, the Borrower, such Subsidiary or such predecessor business, as the case may be, were a stand-alone entity that filed separate tax returns as an independent corporation), but only to the extent that any such tax liability exceeds any liability for taxes recorded on the books of Global, the Borrower or such Subsidiary with respect to any such period). "TERM LOANS" shall mean Tranche A Term Loans and Tranche B Term Loans. "TOTAL ASSETS" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis at any date of determination, all assets which would, in accordance with GAAP, be classified on a consolidated balance sheet of UCAR, Global, the Borrower and the Subsidiaries as assets at such date of determination. "TOTAL DEBT" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis at any time, all Capital Lease Obligations, Indebtedness for borrowed money, including reimbursement obligations in respect of Letters of Credit, and Indebtedness in respect of the deferred purchase price of property or services of UCAR, Global, the Borrower and the Subsidiaries at such time, PROVIDED that for purposes of determining Total Debt, the aggregate outstanding principal amount of Indebtedness of Brazil and its Subsidiaries at any time shall be deemed reduced by the aggregate amount of Permitted Investments held at such time by Brazil and its Subsidiaries for the purpose of hedging such Indebtedness (but in any case shall not be less than zero). "TRANCHE A TERM BORROWING" shall mean a Borrowing comprised of Tranche A Term Loans. "TRANCHE A TERM COMMITMENT" shall mean, with respect to each Lender, the commitment, if any, of such Lender to make Tranche A Term Loans hereunder on the Effective Date, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to the Second Closing Assignment or Section 10.04. The initial amounts of the Tranche A Term Loans in Euros and Dollars that each Lender is obligated to make pursuant to its Tranche A Term Commitment are set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Tranche A Term Commitment, as applicable. The aggregate amount of the Tranche A Term Commitments on the date hereof is EUR300,000,000. "TRANCHE A TERM LENDER" shall mean a Lender with a Tranche A Term Commitment or an outstanding Tranche A Term Loan. "TRANCHE A TERM LOAN" shall mean a Loan made pursuant to paragraph (a) of Section 2.01. "TRANCHE A TERM MATURITY DATE" shall mean December 31, 2005. "TRANCHE B TERM COMMITMENT" shall mean, with respect to each Lender, the commitment, if any, of such Lender to make Tranche B Term Loans hereunder on the Effective Date, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to the Second Closing Assignment or Section 10.04. The initial amount of each Lender's Tranche B Term Commitment is set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Tranche B Term Commitment, as applicable. The aggregate amount of the Tranche B Term Commitments on the date hereof is $350,000,000. "TRANCHE B TERM LENDER" shall mean a Lender with a Tranche B Term Commitment or an outstanding Tranche B Term Loan. "TRANCHE B TERM MATURITY DATE" shall mean December 31, 2007. -30- "TRANCHE B TERM BORROWING" shall mean a Borrowing comprised of Tranche B Term Loans. "TRANCHE B TERM LOAN" shall mean a Loan made pursuant to paragraph (b) of Section 2.01. "TRANSACTIONS" shall have the meaning given such term in Section 4.02. "TYPE", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Base Rate. "UCAR" shall mean UCAR International Inc., a Delaware corporation. "UNRESTRICTED SUBSIDIARY" shall mean (a) UCAR Graph-Tech Inc. and any subsidiary of UCAR (other than Global or the Borrower or any of their subsidiaries other than UCAR Graph-Tech Inc.) and any other direct or indirect investment by UCAR or any such subsidiary in the Capital Stock of any other person (other than Global, the Borrower or any Subsidiary) so long as (i) none of the Capital Stock or other ownership interests of such subsidiary or other person is owned by Global, the Borrower or any of the Subsidiaries (except that the Capital Stock of UCAR Graph-Tech Inc. may be so owned while UCAR is diligently acting to transfer the ownership of such Capital Stock to UCAR), (ii) UCAR shall have notified the Administrative Agent of its acquisition or creation of such subsidiary or such other investment and its ownership interest therein concurrently with such acquisition, creation or investment and the intended purposes of such subsidiary or investment, (iii) any such subsidiary (unless it is a Foreign Subsidiary) shall have entered into the Tax Sharing Agreement existing at the time of such acquisition or creation (or another tax sharing agreement containing terms which, in the reasonable judgment of the Administrative Agent, are customary in similar circumstances to provide an appropriate allocation of tax liabilities and benefits), (iv) except in the case of UCAR as permitted in the proviso below, none of UCAR, Global, the Borrower and the Subsidiaries shall have any contingent liability in respect of such subsidiary or investment or any obligations thereof and (v) any such subsidiary or investment shall be capitalized solely from the following sources: (A) any investment by any person other than UCAR, Global, the Borrower and the Subsidiaries; (B) Indebtedness issued by such subsidiary or person, or any of its subsidiaries, (other than Indebtedness to UCAR, Global, the Borrower or any Subsidiary) that is nonrecourse to UCAR, Global, the Borrower and the Subsidiaries (except in the case of UCAR as otherwise permitted by the proviso below), or proceeds thereof; (C) Capital Stock of such subsidiary or person, or -31- any other Unrestricted Subsidiary, or proceeds thereof, other than Capital Stock sold to UCAR, the Borrower or any Subsidiary; (D) Equity Proceeds; (E) in the case of UCAR Graph-Tech Inc., investments therein made on or prior to the Effective Date and not in anticipation thereof; and (F) proceeds of investments permitted to be made in Unrestricted Subsidiaries pursuant to Section 7.04; PROVIDED that UCAR may incur a contingent liability or Indebtedness in a specified and limited amount in respect of such a subsidiary or investment if it would at the time of such incurrence be permitted to make an additional investment in such subsidiary or investment in the amount of such incurrence and the amount so incurred shall thereafter constitute an investment in such subsidiary or investment in such amount for purposes of calculating compliance with Section 7.04; and (b) any subsidiary of an Unrestricted Subsidiary. "WHOLLY OWNED SUBSIDIARY" means a Subsidiary of Global (a) at least 99% of the Capital Stock of which (other than directors' qualifying shares) is owned by Global or another Wholly Owned Subsidiary or (b) solely in the case of any Subsidiary included in Brazil or UCAR Grafit OAO, a Russian corporation, at least 97% of the Capital Stock of which (other than directors' qualifying shares) is owned by Global or another Wholly Owned Subsidiary. "WITHDRAWAL LIABILITY" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. "WORKING CAPITAL" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis at any date of determination, Current Assets at such date of determination minus Current Liabilities at such date of determination. SECTION 1.02. CLASSIFICATION OF LOANS AND BORROWINGS. For purposes of this Agreement, Loans may be classified and referred to by Class (E.G., a "Revolving Loan") or by Type (E.G., a "Eurocurrency Loan") or by Class and Type (E.G., a "Eurocurrency Revolving Loan"). Borrowings also may be classified and referred to by Class (E.G., a "Revolving Borrowing") or by Type (E.G., a "Eurocurrency Borrowing") or by Class and Type (E.G., a "Eurocurrency Revolving Borrowing"). SECTION 1.03. TERMS GENERALLY. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any person shall be construed to include such person's successors and assigns, (c) the words "herein", "hereof" and "hereunder" and words of similar import shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. References herein to the taking of any action hereunder of an administrative nature by the Borrower shall be deemed to include references to UCAR or Global taking such action on the Borrower's behalf and the Agents are -32- expressly authorized to accept any such action taken by UCAR or Global as having the same effect as if taken by the Borrower. SECTION 1.04. ACCOUNTING TERMS; GAAP. (a) Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP as in effect from time to time; PROVIDED that if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. (b) All pro forma computations required to be made hereunder giving effect to any acquisition, investment, sale, disposition, merger or similar event shall reflect on a pro forma basis such event and, to the extent applicable, the historical earnings and cash flows associated with the assets acquired or disposed of and any related incurrence or reduction of Indebtedness, but shall not take into account any projected synergies or similar benefits expected to be realized as a result of such event. (c) Except as expressly provided herein, all accounting and financial calculations and determinations hereunder shall be made without consolidating the accounts of Unrestricted Subsidiaries with those of UCAR, Global, the Borrower or any Subsidiary, notwithstanding that such treatment is inconsistent with GAAP. (d) For purposes of determining compliance with Sections 7.01, 7.02, 7.04, 7.06 and 7.10, amounts expended or incurred in currencies other than Dollars shall be translated into Dollars at the exchange rates in effect on the dates of the applicable expenditures or incurrences, as reasonably determined by UCAR. No Default or Event of Default shall arise as a result of limitations set forth in Dollars in Sections 7.01, 7.02, 7.04, 7.06 and 7.10 in respect of amounts permitted to have been expended or incurred in a currency other than Dollars at the time of such expense or incurrence solely as a result of fluctuations in currency values subsequent to the date of such expense or incurrence. SECTION 1.05. EXCHANGE RATES. The Exchange Rate used to determine the Euro Equivalent of any Eurocurrency Loan or Borrowing denominated in Dollars shall, for all purposes of this Agreement, be that in effect as of 11:00 a.m., London time, on the date three Business Days before the first day of the Interest Period at the time in effect for such Loan or Borrowing (or, in the case of a Loan or Borrowing with an Interest Period that shall have been in effect for more than six months, the date corresponding to the first day of such Interest Period in the sixth month following the month in which such Interest Period shall have commenced). The Exchange Rate used to determine the Euro Equivalent of any Base Rate Loan or Borrowing or the stated amount of any Letter of Credit denominated in Dollars shall, for all purposes of this Agreement, be that in effect as of 11:00 a.m., London time, on the date three Business Days before the drawing of such Loan or Borrowing or the issuance of such Letter of Credit (or, in the case of a Loan or Borrowing or Letter of Credit that shall have been outstanding for more than six months, the date corresponding to the date of such drawing or issuance in the sixth month following the month in which such Letter of Credit shall have been issued). -33- ARTICLE II THE CREDITS SECTION 2.01. COMMITMENTS. (a) Subject to the terms and conditions set forth herein, each Tranche A Term Lender agrees to make Tranche A Term Loans to the Borrower on the Effective Date (i) in Euros in a principal amount equal to such Tranche A Term Lender's Applicable Tranche A Percentage of EUR 160,760,000 and (ii) in Dollars in a principal amount equal to such Tranche A Term Lender's Applicable Tranche A Percentage of $136,733,680. (b) Subject to the terms and conditions set forth herein, each Tranche B Term Lender agrees to make a Tranche B Term Loan to the Borrower on the Effective Date in Dollars in a principal amount equal to such Tranche B Term Lender's Applicable Tranche B Percentage of $350,000,000. (c) Subject to the terms and conditions set forth herein, each Revolving Lender agrees to make Revolving Loans to the Borrower from time to time during the Revolving Availability Period in Euros or Dollars in an aggregate principal amount that will not result in such Lender's Revolving Exposure exceeding its Revolving Commitment. SECTION 2.02. LOANS AND BORROWINGS. (a) Each Tranche A Term Loan shall be made as part of a Borrowing consisting of Tranche A Term Loans made by the Tranche A Term Lenders ratably in accordance with their respective Tranche A Term Commitments. Each Tranche B Term Loan shall be made as part of a Borrowing consisting of Tranche B Term Loans made by the Tranche B Term Lenders ratably in accordance with their respective Tranche B Term Commitments. Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Revolving Lenders ratably in accordance with their respective Revolving Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; PROVIDED that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required hereunder. (b) Subject to Section 2.13, (i) each Tranche A Term Borrowing shall be comprised entirely of Eurocurrency Loans or, in the case of a Tranche A Term Borrowing denominated in Dollars, Base Rate Loans as the Borrower may request in accordance herewith, (ii) each Tranche B Term Borrowing shall be comprised entirely of Eurocurrency Loans or Base Rate Loans as the Borrower may request in accordance herewith and (iii) each Revolving Borrowing shall be comprised entirely of Eurocurrency Loans or, in the case of a Revolving Borrowing denominated in Dollars, Base Rate Loans as the Borrower may request in accordance herewith. Each Swingline Loan shall be a Base Rate Loan. Each Lender at its option may make any Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; PROVIDED that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Borrowing, such Borrowing shall be in an aggregate amount that is at least equal to the Borrowing Minimum and an integral multiple of the Borrowing Multiple; PROVIDED that a Revolving Borrowing may be in an aggregate amount that is equal to the aggregate Available Revolving Commitments. Each Swingline Loan shall be in an amount that is an integral multiple of $100,000 and no less than $500,000. Borrowings of more than one Type and Class may be outstanding at the same time; -34- PROVIDED that there shall not at any time be more than a total of (i) twenty Eurocurrency Borrowings outstanding. SECTION 2.03. REQUESTS FOR BORROWINGS. To request a Borrowing, the Borrower shall notify the Administrative Agent at the Applicable Office of such request by telephone (a) in the case of a Eurocurrency Borrowing, not later than 12:00 noon, New York time, (i) three Business Days, in the case of a Dollar denominated Borrowing, or (ii) four Business days, in the case of a Euro denominated Borrowing, before the date of the proposed Borrowing and (b) in the case of a Base Rate Borrowing, not later than 12:00 noon, New York time, one Business Day before the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent at the Applicable Office of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) whether the requested Borrowing is to be a Tranche A Term Borrowing, a Tranche B Term Borrowing or a Revolving Borrowing; (ii) the currency and aggregate principal amount of the requested Borrowing; (iii) the date of the requested Borrowing, which shall be a Business Day; (iv) whether the requested Borrowing is to be a Eurocurrency Borrowing or a Base Rate Borrowing; (v) in the case of a Eurocurrency Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; (vi) the Intercompany Borrower or Intercompany Borrowers to which the proceeds of the requested Borrowing are to be advanced, and the amount to be advanced to each such Intercompany Borrower; and (vii) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.06. If no currency is specified with respect to any requested Revolving Borrowing, then the Borrower shall be deemed to have selected Euros. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be (i) in the case of a Borrowing denominated in Euros, a Eurocurrency Borrowing, and (ii) in the case of a Borrowing denominated in Dollars, a Base Rate Borrowing. If no Interest Period is specified with respect to any requested Eurocurrency Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender that will make a Loan as part of the requested Borrowing of the details thereof and of the amount of the Loan to be made by such Lender as part of the requested Borrowing. SECTION 2.04. REPAYMENT OF BORROWINGS; EVIDENCE OF DEBT. (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent at the Applicable Office for the accounts of the applicable Lenders the then unpaid principal amount of each Term Borrowing as provided in paragraphs -35- (a) and (b) of Section 2.09, (ii) to the Administrative Agent at the Applicable Office for the accounts of the Revolving Lenders, the then unpaid principal amount of each Revolving Borrowing on the Revolving Maturity Date and (iii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Revolving Maturity Date and the 10th day after such Swingline Loan is made; PROVIDED that on each date that a Revolving Borrowing is made, the Borrower shall repay all Swingline Loans that were outstanding on the date such Borrowing was requested. The Borrower will repay the principal amount of each Loan and the accrued interest thereon in the currency of such Loan. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class, Type and currency thereof and, in the case of any Eurocurrency Loan, the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the accounts of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be PRIMA FACIE evidence of the existence and amounts of the obligations recorded therein; PROVIDED that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans of any Class made by it be evidenced by a promissory note. In such event, the Borrower, at its own expense, shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form consistent with this Agreement and reasonably approved by the Administrative Agent. Thereafter, the Loans evidenced by each such promissory note and interest thereon shall at all times (including after assignment pursuant to the Second Closing Assignment or Section 10.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.05. LETTERS OF CREDIT. (a) GENERAL. Subject to the terms and conditions set forth herein, any LC Subsidiary may request the issuance (or the amendment, renewal or extension) of Letters of Credit denominated in Dollars or Euros in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Revolving Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by any LC Subsidiary to, or entered into by any LC Subsidiary with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL, EXTENSION; CERTAIN CONDITIONS. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), an LC Subsidiary shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent, at the Applicable Office, reasonably in -36- advance of the requested date of issuance, amendment, renewal or extension, a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount and currency of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the applicable LC Subsidiary also shall submit a letter of credit application on the Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the applicable LC Subsidiary shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed EUR 25,000,000 and (ii) the aggregate Revolving Exposures will not exceed the aggregate Revolving Commitments. (c) EXPIRATION DATE. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Revolving Maturity Date. (d) PARTICIPATIONS. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Revolving Lender's Applicable Revolving Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, at the Applicable Office, for the account of the Issuing Bank, such Lender's Applicable Revolving Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the applicable LC Subsidiary on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the applicable LC Subsidiary for any reason. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Revolving Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) REIMBURSEMENT. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower or the applicable LC Subsidiary shall reimburse such LC Disbursement by paying to the Administrative Agent at the Applicable Office an amount equal to such LC Disbursement, in the currency in which such LC Disbursement shall have been made, not later than 12:00 noon, New York time, on the date that such LC Disbursement is made, if the applicable LC Subsidiary shall have received notice of such LC Disbursement prior to 10:00 a.m., New York time, on such date, or, if such notice has not been received by the applicable LC Subsidiary prior to such time on such date, then not later than 12:00 noon, New York time, on (A) the Business Day that the applicable LC Subsidiary receives such notice, if such notice is received prior to 10:00 a.m., New York time, on the day of receipt, or (B) the Business Day immediately following the day that the applicable LC Subsidiary receives such notice, if such notice is not received prior to such time on the day of receipt. -37- If the Borrower or the applicable LC Subsidiary fails to make such payment when due, then the Administrative Agent shall notify each Revolving Lender of the applicable LC Disbursement, the payment then due from the applicable LC Subsidiary in respect thereof and such Lender's Applicable Revolving Percentage thereof. Promptly following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent its Applicable Revolving Percentage of the payment then due from the applicable LC Subsidiary in the same manner as provided in Section 2.06 with respect to Loans made by such Revolving Lender (and Section 2.06 shall apply, MUTATIS MUTANDIS, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the applicable Issuing Bank the amounts so received by it from the Revolving Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower or the applicable LC Subsidiary pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Revolving Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Revolving Lenders and the Issuing Bank as their interests may appear. Any payment made by a Revolving Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement shall not constitute a Loan and shall not relieve the Borrower or the applicable LC Subsidiary of its obligation to reimburse such LC Disbursement. (f) OBLIGATIONS ABSOLUTE. The Borrower's or the applicable LC Subsidiary's obligations to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit, this Agreement or any other Loan Document, or any term or provision herein or therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, subject to the proviso in the next sentence, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's or the applicable LC Subsidiary's obligations hereunder. None of the Administrative Agent, the Revolving Lenders or the Issuing Bank, or any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; PROVIDED that the foregoing shall not be construed to excuse the Issuing Bank from liability to any LC Subsidiary to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower and each LC Subsidiary to the extent permitted by applicable law) suffered by the Borrower or any LC Subsidiary that are caused by the Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or wilful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or -38- information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (g) DISBURSEMENT PROCEDURES. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the applicable LC Subsidiary by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; PROVIDED that any failure to give or delay in giving such notice shall not relieve the applicable LC Subsidiary of its obligation to reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement. (h) INTERIM INTEREST. If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower or the applicable LC Subsidiary shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower or the applicable LC Subsidiary reimburses such LC Disbursement, at (i) in the case of any LC Disbursement denominated in Dollars, the rate per annum then applicable to Base Rate Revolving Loans and (ii) in the case of any LC Disbursement denominated in Euros, a rate per annum determined by the Issuing Bank (which determination will be conclusive absent manifest error) to represent its cost of funds plus the Applicable Rate used to determine interest applicable to Eurocurrency Revolving Loans; PROVIDED that, at all times after the Borrower or the applicable LC Subsidiary fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, Section 2.12(d) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the applicable Issuing Bank shall be for the account of such Revolving Lender to the extent of such payment. (i) CASH COLLATERALIZATION. If the Revolving Commitments shall be terminated or if any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Lenders with LC Exposures representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower and the applicable LC Subsidiaries shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Revolving Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; PROVIDED that the obligation to deposit such cash collateral with respect to the LC Exposure shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VIII. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower and the LC Subsidiaries under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the risk and expense of the Borrower and the LC Subsidiaries, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not -39- been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower and the LC Subsidiaries for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of the Borrower and the LC Subsidiaries under this Agreement. If the Borrower and the LC Subsidiaries are required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to them within three Business Days after all Events of Default have been cured or waived. (j) EXISTING LETTERS OF CREDIT. As of the date hereof, Global has outstanding for its account two Existing Letters of Credit under the Existing Credit Agreements. The parties hereto agree that each Existing Letter of Credit shall be deemed for purposes of this Agreement to be a Letter of Credit issued on the Effective Date on the same terms and conditions as each other Letter of Credit and that the issuing bank in respect thereof shall for all purposes hereof have the same rights in respect of each Existing Letter of Credit as the Issuing Bank has in respect of any Letter of Credit. (k) DESIGNATION OF LC SUBSIDIARIES. On or after the Effective Date, the Borrower may designate any Subsidiary as an LC Subsidiary by delivery to the Administrative Agent of an LC Subsidiary Agreement executed by such Subsidiary and the Borrower, and such Subsidiary shall for all purposes of this Agreement be an LC Subsidiary and a party to this Agreement upon such delivery and the satisfaction of the conditions set forth in Section 5.03 with respect to such Subsidiary until the Borrower shall have executed and delivered to the Administrative Agent an LC Subsidiary Termination with respect to such Subsidiary, whereupon such Subsidiary shall cease to be an LC Subsidiary and a party to this Agreement. Notwithstanding the preceding sentence, no LC Subsidiary Termination will become effective as to any LC Subsidiary at a time when any Letter of Credit issued for the account of such LC Subsidiary or any LC Disbursement in respect of any such Letter of Credit shall be outstanding hereunder. As soon as practicable upon receipt of an LC Subsidiary Agreement, the Administrative Agent shall send a copy thereof to each Lender. SECTION 2.06. FUNDING OF BORROWINGS. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds in the applicable currency by 12:00 noon, New York time, to the account of the Administrative Agent at the Applicable Office most recently designated by it for such purpose for Loans of such Class and currency by notice to the applicable Lenders; PROVIDED that Swingline Loans shall be made as provided in Section 2.19. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained by the Administrative Agent (i) in London, in the case of Loans denominated in Euros, or (ii) in New York City, in the case of Loans denominated in Dollars; PROVIDED that Revolving Loans made to finance the reimbursement of an LC Disbursement shall be remitted by the Administrative Agent to the Issuing Bank. (b) Unless the Administrative Agent shall have received at the Applicable Office notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally -40- agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, (x) the rate reasonably determined by the Applicable Agent to be the cost to it of funding such amount (in the case of a Borrowing in Euros) and (y) the Federal Funds Effective Rate (in the case of a Borrowing in Dollars) or (ii) in the case of the Borrower, the interest rate applicable to the subject Loan. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing and the Administrative Agent shall return to the Borrower any amount (including interest) paid by the Borrower to the Administrative Agent pursuant to this paragraph. SECTION 2.07. INTEREST ELECTIONS. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurocurrency Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurocurrency Borrowing, may elect Interest Periods therefor, all as provided in this Section and on terms consistent with the other provisions of this Agreement. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Loans, which may not be converted or continued. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent at the Applicable Office of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent at the Applicable Office of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. Notwithstanding any contrary provision herein, this Section shall not be construed to permit any Borrower to (i) change the currency of any Borrowing, (ii) elect an Interest Period for Eurocurrency Loans that does not comply with Section 2.02(d) or (iii) convert any Borrowing denominated in Euros to a Base Rate Borrowing. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) if the resulting Borrowing is to be denominated in Dollars, whether such Borrowing is to be a Base Rate Borrowing or Eurocurrency Borrowing; and -41- (iv) if the resulting Borrowing is to be a Eurocurrency Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurocurrency Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each applicable Lender holding a Loan to which such request relates of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurocurrency Borrowing prior to the end of the Interest Period applicable thereto, then (i) in the case of a Borrowing denominated in Dollars, such Borrowing shall be converted to a Base Rate Borrowing as of the end of such Interest Period and (ii) in the case of a Borrowing denominated in Euros, such Borrowing shall become due and payable on the last day of such Interest Period. SECTION 2.08. TERMINATION AND REDUCTION OF COMMITMENTS. (a) Unless previously terminated, the (i) Tranche A Term Commitments and Tranche B Term Commitments shall terminate at 5:00 p.m., New York City time, on the Effective Date and (ii) the Revolving Commitments shall terminate on the Revolving Maturity Date; PROVIDED that all the Commitments shall terminate at 5:00 p.m., New York City time, on March 31, 2000, if the Effective Date shall not have occurred prior to such time. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments of any Class; PROVIDED that (i) each reduction of the Commitments of any Class shall be in an amount that is an integral multiple that is a Borrowing Multiple and not less than the Borrowing Minimum and (ii) the Borrower shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Revolving Loans in accordance with Section 2.10, the aggregate Revolving Exposures would exceed the aggregate Revolving Commitments. (c) If any prepayment of Term Borrowings is required pursuant to Section 2.10 but cannot be made because there are no Term Borrowings outstanding or because the amount of the required prepayment exceeds the outstanding amount of Term Borrowings, then, on the date that such prepayment is required, the Revolving Commitments shall be reduced ratably by an aggregate amount equal to the amount of the required prepayment, or the excess of such amount over the outstanding amount of Term Borrowings, as the case may be. (d) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section or any required reduction of the Revolving Commitments under paragraph (c) of this Section, at least five Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the applicable Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; PROVIDED that a notice of termination of the Revolving Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified -42- effective date) if such condition is not satisfied. Any termination or reduction of the Commitments of any Class shall be permanent. Each reduction of the Commitments of any Class shall be made ratably among the applicable Lenders in accordance with their respective Commitments of such Class. SECTION 2.09. AMORTIZATION OF TERM LOANS. (a) The Borrower shall repay the Tranche A Term Borrowings on each of the dates set forth below in an aggregate principal amount sufficient to reduce the aggregate amount of the Euro Equivalents of the outstanding principal amounts of the Tranche A Term Borrowings to the respective amounts set forth opposite such dates (as such amounts shall be reduced from time to time pursuant to paragraph (d) below): DATE AMOUNT June 30, 2000 EUR298,333,333 September 30, 2000 EUR296,666,660 December 31, 2000 EUR295,000,000 March 31, 2001 EUR288,750,000 June 30, 2001 EUR282,500,000 September 30, 2001 EUR276,250,000 December 31, 2001 EUR270,000,000 March 31, 2002 EUR253,750,000 June 30, 2002 EUR237,500,000 September 30, 2002 EUR221,250,000 December 31, 2002 EUR205,000,000 March 31, 2003 EUR188,750,000 June 30, 2003 EUR172,500,000 September 30, 2003 EUR156,250,000 December 31, 2003 EUR140,000,000 March 31, 3004 EUR122,500,000 June 30, 2004 EUR105,000,000 September 30, 2004 EUR 87,500,000 December 31, 2004 EUR 70,000,000 March 31, 2005 EUR 52,500,000 June 30, 2005 EUR 35,000,000 September 30, 2005 EUR 17,500,000 December 31, 2005 0 -43- (b) The Borrower shall repay the Tranche B Term Borrowings on each of the dates set forth below in the aggregate principal amount set forth opposite such date (as such amount shall be reduced from time to time pursuant to paragraph (d) below): DATE AMOUNT June 30, 2000 $ 1,166,667 September 30, 2000 $ 1,166,667 December 31, 2000 $ 1,166,666 March 31, 2001 $ 875,000 June 30, 2001 $ 875,000 September 30, 2001 $ 875,000 December 31, 2001 $ 875,000 March 31, 2002 $ 875,000 June 30, 2002 $ 875,000 September 30, 2002 $ 875,000 December 31, 2002 $ 875,000 March 31, 2003 $ 875,000 June 30, 2003 $ 875,000 September 30, 2003 $ 875,000 December 31, 2003 $ 875,000 March 31, 2004 $ 875,000 June 30, 2004 $ 875,000 September 30, 2004 $ 875,000 December 31, 2004 $ 875,000 March 31, 2005 $ 875,000 June 30, 2005 $ 875,000 September 30, 2005 $ 875,000 December 31, 2005 $ 875,000 March 31, 2006 $41,125,000 June 30, 2006 $41,125,000 September 30, 2006 $41,125,000 December 31, 2006 $41,125,000 March 31, 2007 $41,125,000 -44- June 30, 2007 $41,125,000 September 30, 2007 $41,125,000 December 31, 2007 $41,125,000 (c) To the extent not previously paid, all Tranche A Term Loans shall be due and payable on the Tranche A Term Maturity Date and all Tranche B Term Loans shall be due and payable on the Tranche B Term Maturity Date. (d) Any prepayment of a Term Borrowing of any Class shall be applied (i) first to reduce the scheduled repayments of the Term Borrowings of such Class becoming due prior to the first anniversary of such prepayment in the order of maturity, and (ii) second to reduce the subsequent scheduled repayments of the Term Borrowings of such Class ratably. The applicable amortization schedule set forth in paragraph (a) or (b) above shall be appropriately adjusted by the Administrative Agent to give effect to the application of each prepayment as specified in this paragraph. (e) Prior to any repayment of any Term Borrowings of either Class hereunder, the Borrower shall select the Borrowing or Borrowings of the applicable Class to be repaid and shall notify the Administrative Agent by telephone (confirmed by telecopy) of such selection not later than 12:00 noon, New York City time, three Business Days before the scheduled date of such repayment. Each repayment of a Borrowing shall be applied ratably to the Loans included in the repaid Borrowing. Repayments of Term Borrowings shall be accompanied by accrued interest on the amount repaid. SECTION 2.10. PREPAYMENT OF LOANS. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (f) of this Section. (b) If on any date the aggregate Revolving Exposures exceed the aggregate Revolving Commitments the Borrower shall, not later than the second Business Day following such date, prepay Revolving Loans in an amount sufficient to eliminate such excess (after giving effect to any other prepayment of Loans on or prior to the date of prepayment). (c) In the event and on each occasion that any Net Proceeds are received by or on behalf of UCAR, Global, the Borrower or any Subsidiary in respect of any Prepayment Event, the Borrower shall promptly notify the Administrative Agent and shall, not later than the next Business Day after such Net Proceeds are received, prepay Term Borrowings in an aggregate amount equal to 100% (or, in the case of any event described in clause (c) of the definition of the term Prepayment Event, 50%) of such Net Proceeds; PROVIDED that no prepayment shall be required under this paragraph in respect of a Prepayment Event described in clause (b) or (c) of the definition of such term if at UCAR's fiscal quarter end occurring on or most recently prior to the date on which such prepayment would otherwise have been due and for the four quarter period then ended the Leverage Ratio shall have been lower than 2.00 to 1.00. (d) Following the end of each fiscal year of UCAR, commencing with the fiscal year ending December 31, 2000, the Borrower shall prepay Term Borrowings in an aggregate amount equal to (i) if the Leverage Ratio at the end of and for such fiscal year shall have been equal to or greater than 2.50 to 1.00, 75% of Excess Cash Flow for such fiscal year, or (ii) if the Leverage Ratio at the end of and for such fiscal year shall have been lower than 2.50 to 1.00, 50% of Excess Cash Flow for such fiscal year; PROVIDED that no prepayment -45- shall be required under this paragraph in respect of any fiscal year if at the end of such fiscal year the Leverage Ratio shall have been lower than 2.00 to 1.00. Each prepayment pursuant to this paragraph shall be made on or before the date on which financial statements are delivered pursuant to Section 6.04 with respect to the fiscal year for which Excess Cash Flow is being calculated (and in any event within 90 days after the end of such fiscal year). (e) Prior to any optional or mandatory prepayment of Borrowings hereunder, the Borrower shall select the Borrowing or Borrowings to be prepaid and shall specify such selection in the notice of such prepayment pursuant to paragraph (f) of this Section. In the event of any optional or mandatory prepayment of Term Borrowings made at a time when Term Borrowings of more than one Class remain outstanding, the Borrower shall select Term Borrowings to be prepaid so that the aggregate amount of such prepayment is allocated between the Tranche A Term Borrowings and Tranche B Term Borrowings ratably based on the aggregate Euro Equivalents of the principal amounts of the outstanding Borrowings of each such Class; PROVIDED that any Tranche B Term Lender may elect, by notice to the Administrative Agent by telephone (confirmed by telecopy) at least three Business Days prior to the prepayment date, to decline all or any portion of any prepayment of its Tranche B Term Loans pursuant to paragraph (a) or (c) above, in which case the aggregate amount of the prepayment that would have been applied to prepay Tranche B Term Loans but was so declined shall be applied to prepay Tranche A Term Borrowings and Tranche B Term Loans of Lenders that shall not have declined such prepayment, ratably in accordance with the aggregate Euro Equivalents of the outstanding principal amounts thereof; PROVIDED FURTHER that no Tranche B Lender shall be entitled to make such election to the extent that the portion of the prepayment as to which such election is made exceeds the aggregate outstanding amount of Tranche A Term Loans and Tranche B Term Loans of Lenders that shall not have declined such prepayment (and if the Tranche B Term Lenders shall not be permitted by reason of this further proviso to decline the entire amount of any prepayment, the portion of such prepayment that may be so declined shall be apportioned among the Tranche B Term Lenders that shall have notified the Administrative Agent of their election to decline such prepayment ratably in accordance with the amounts of their respective Tranche B Term Loans). (f) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of a prepayment of a Loan other than a Swingline Loan, at the Applicable Office not later than 11:00 a.m., New York time, five Business Days before the date of prepayment and (ii) in the case of prepayment of a Swingline Loan, at the Applicable Office not later than 12:00 noon, New York time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; PROVIDED that, if a notice of optional prepayment is given in connection with a conditional notice of termination of the Revolving Commitments as contemplated by Section 2.08, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.08. Promptly following receipt of any such notice, the Administrative Agent shall advise the affected Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02, except as necessary to apply fully the required amount of a mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest on the amount prepaid. SECTION 2.11. FEES. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Rate on the daily unused amount of each -46- Commitment of such Lender during the period from and including the date hereof to but excluding the date on which such Commitment terminates. Accrued commitment fees in respect of any Commitment shall be payable in arrears on the last day of March, June, September and December of each year commencing on the first such date to occur after the date hereof, and on the date on which such Commitment terminates. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For purposes of computing commitment fees with respect to Revolving Commitments, a Revolving Commitment of a Lender shall be deemed to be used to the extent of the LC Exposure of such Lender. (b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Revolving Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the Applicable Rate used to determine the interest rate applicable to Eurocurrency Revolving Loans on the daily amount of such Revolving Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the date hereof to but excluding the later of the date on which such Revolving Lender's Revolving Commitment terminates and the date on which such Revolving Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at a rate separately agreed between the Issuing Bank and the Borrower on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the date hereof to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued under this paragraph through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the date hereof; PROVIDED that all such fees shall be payable on the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any LC Exposure (and any such fees remaining unpaid after the Revolving Maturity Date or earlier termination of the Revolving Commitments shall be payable on demand). Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees payable under this paragraph shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the Issuing Bank, in the case of fees payable to it) for distribution, in the case of commitment fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances (absent manifest error). SECTION 2.12. INTEREST. (a) The Loans comprising each Eurocurrency Term Borrowing and each Eurocurrency Revolving Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate. (b) The Loans comprising each Base Rate Borrowing (including each Swingline Loan) shall bear interest at the Base Rate plus the Applicable Rate. -47- (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 1% per annum plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 1% per annum plus the rate applicable to Base Rate Revolving Loans as provided in paragraph (b) above. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the applicable Revolving Commitments; PROVIDED that (i) interest accrued pursuant to paragraph (c) above shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Loan, accrued interest on such Loan shall be payable on the effective date of such conversion. (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Base Rate at times when the Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Adjusted LIBO Rate or Base Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.13. ALTERNATE RATE OF INTEREST. If prior to the commencement of any Interest Period for a Eurocurrency Borrowing denominated in any currency: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by a majority in interest of the affected Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Borrowing Request for a Eurocurrency Revolving Borrowing denominated in such currency (A) if such currency is the Dollar, shall be deemed a request for a Base Rate Borrowing and (B) if such currency is the Euro, shall be ineffective, and (ii) any Interest Election Request that requests the conversion of any Revolving Borrowing denominated in such currency to, or continuation of any Revolving Borrowing denominated in such currency as, a Eurocurrency Borrowing shall be ineffective, and any Eurocurrency Borrowing denominated in such currency that is requested to be continued shall bear interest at such rate or rates as the Administrative Agent and the Borrower shall agree upon to reflect the cost to such Lenders of making or maintaining their Loans (or, in the absence of such agreement, shall be repaid on the last day of the then current Interest Period applicable thereto). SECTION 2.14. INCREASED COSTS. (a) If any Change in Law shall: -48- (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or (ii) impose on any Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurocurrency Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or the Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank for such additional costs incurred or reduction suffered. (b) If any Lender or the Issuing Bank determines that any Change in Law regarding capital requirements has had or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or the Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; PROVIDED that the Borrower shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or the Issuing Bank's intention to claim compensation therefor; PROVIDED FURTHER that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. -49- SECTION 2.15. BREAK FUNDING PAYMENTS. In the event of (a) the payment of any principal of any Eurocurrency Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurocurrency Loan to a Loan of a different Type or Interest Period other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.10(f) and is revoked in accordance therewith) or (d) the assignment of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.18, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurocurrency Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate such Lender would bid were it to bid, at the commencement of such period, for deposits in the applicable currency of a comparable amount and period from other banks in the eurocurrency market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.16. TAXES. (a) Any and all payments by or on account of the Borrower or any LC Subsidiary hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower or any LC Subsidiary shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or such LC Subsidiary shall make such deductions and (iii) the Borrower or such LC Subsidiary shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Loan Parties shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower and each LC Subsidiary shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower or any LC Subsidiary hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority; PROVIDED, that the Administrative Agent, such Lender or the Issuing Bank, as applicable, shall cooperate with the Borrower and any LC Subsidiary, at the Borrower's or such LC Subsidiary's sole cost and expense, in good faith to recover any such -50- Indemnified Taxes or Other Taxes that the Administrative Agent, such Lender or the Issuing Bank, as applicable, and the Borrower or such LC Subsidiary agree were incorrectly or illegally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower or any LC Subsidiary by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower or any LC Subsidiary to a Governmental Authority, the Borrower or such LC Subsidiary shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower or any LC Subsidiary is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower or such LC Subsidiary as will permit such payments to be made without withholding or at a reduced rate; PROVIDED that such Foreign Lender has received written notice from the Borrower or such LC Subsidiary advising it of the availability of such exemption or reduction and containing all applicable documentation. For purposes of any withholding tax imposed by the United States of America in effect as of the date of this Agreement, the documentation referred to in the preceding sentence of this paragraph (e) shall include (and this sentence shall constitute the written notice referred to in such preceding sentence): (i) in the case of a Foreign Lender that is a "bank" under Section 881(c)(3)(A) of the Code, two duly completed copies of either Internal Revenue Service Form W-8ECI or W-8BEN (or applicable successor form, as the case may be), and (ii) in the case of a Foreign Lender that is not a "bank" under Section 881(c)(3)(A) of the Code, (x) a certificate of a duly authorized officer of such Foreign Lender certifying that such Foreign Lender is not (A) a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (B) a "10 percent shareholder" of the Borrower or LC Subsidiary within the meaning of Section 881(c)(3)(B) of the Code or (c) a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code and (y) two duly completed copies of Internal Revenue Service Form W-8BEN (or applicable successor form). (f) If the Administrative Agent, any Lender or the Issuing Bank, as the case may be, determines in its reasonable discretion that it is entitled to receive a refund, credit or other tax benefit in respect of Taxes with respect to which it has received additional amounts from the Borrower or any LC Subsidiary pursuant to paragraph (a) of this Section 2.16 or to which it has been indemnified by the Borrower or any LC Subsidiary pursuant to paragraph (b) or (c) of this Section 2.16, the Administrative Agent, such Lender or the Issuing Bank, as applicable, shall notify the Borrower or such LC Subsidiary, as applicable, and shall, within 45 days (or such shorter period of time as may be prescribed by applicable law for a timely application) after receipt of a request by the Borrower or such LC Subsidiary, apply for such refund, credit or other tax benefit at the Borrower's or LC Subsidiary's expense. The Administrative Agent, such Lender or the Issuing Bank, as applicable, shall in -51- good faith prepare or amend any filings, returns or other documentation required to obtain such refund, credit or other tax benefit and the Borrower or LC Subsidiary, as applicable, shall not have the right to participate therein. If the Administrative Agent, such Lender or the Issuing Bank, as applicable, receives a refund, credit or other tax benefit pursuant to this paragraph (f), the Administrative Agent, such Lender or the Issuing Bank, as applicable, shall promptly pay such amount to the Borrower or LC Subsidiary, as applicable, together with any interest received thereon. SECTION 2.17. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SETOFFS. (a) The Borrower and each LC Subsidiary shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) prior to 12:00 noon, New York time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent to such account as the Administrative Agent shall from time to time specify at its offices at (i) in the case of any amount denominated in Euros, c/o J. P. Morgan Services, Inc., Morgan Christiana Center, 500 Stanton Christiana Road, Newark, Delaware 19713-2107, and (ii) in the case of any amount denominated in Dollars, c/o J. P. Morgan Services, Inc., Morgan Christiana Center, 500 Stanton Christiana Road, Newark, Delaware 19713-2107 or, in either case, at such other address as the Administrative Agent shall from time to time specify in a notice delivered to the Borrower; PROVIDED that payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided herein and payments pursuant to Sections 2.14, 2.15, 2.16, 2.19 and 10.03 shall be made directly to the persons entitled thereto and payments pursuant to other Loan Documents shall be made to the persons specified therein. The Administrative Agent shall distribute any such payments received by it for the account of any other person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder of principal or interest or fees in respect of any Loan or LC Disbursement shall be made in the currency of such Loan or LC Disbursement; all other payments hereunder and under each other Loan Document shall be made in Dollars at the Exchange Rate in effect at such time of payment, if applicable. Any payment required to be made by the Administrative Agent hereunder shall be deemed to have been made by the time required if the Administrative Agent shall, at or before such time, have taken the necessary steps to make such payment in accordance with the regulations or operating procedures of the clearing or settlement system used by the Administrative Agent to make such payment. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on its Term Loans, Revolving Loans or participations in LC Disbursements or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Term Loans, Revolving Loans or participations in LC Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) -52- participations in the Term Loans, Revolving Loans or participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of their respective Term Loans, Revolving Loans or participations in LC Disbursements and Swingline Loans and accrued interest thereon; PROVIDED that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to UCAR, Global, the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each of UCAR, Global, the Borrower and each LC Subsidiary consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against UCAR, Global, the Borrower or such LC Subsidiary rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of UCAR, Global, the Borrower or such LC Subsidiary in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower or an LC Subsidiary prior to the date on which any payment is due to the Administrative Agent for the account of all or certain of the Lenders or the Issuing Bank hereunder that the Borrower or such LC Subsidiary will not make such payment, the Administrative Agent may assume that the Borrower or such LC Subsidiary has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the applicable Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrower or such LC Subsidiary has not in fact made such payment, then each of the applicable Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at a rate determined by the Administrative Agent in accordance with banking industry practices on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it to the Administrative Agent or another Lender under this Agreement, then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by it for the account of such Lender to satisfy such Lender's obligations under this Agreement until all such unsatisfied obligations are fully paid. SECTION 2.18. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS. (a) If any Lender requests compensation under Section 2.14, or if the Borrower or any LC Subsidiary is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. -53- (b) If any Lender requests compensation under Section 2.14, or if any Loan Party is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.04), all its interests, rights and obligations under the Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); PROVIDED that (i) the Borrower shall have received the prior written consent of the Administrative Agent (and, if a Revolving Commitment is being assigned, the Issuing Bank and Swingline Lender), which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee or the Borrower and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.16, such assignment will result in a material reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. SECTION 2.19. SWINGLINE LOANS. (a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans to the Borrower from time to time during the Revolving Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding $20,000,000 or (ii) the aggregate Revolving Exposures exceeding the total Revolving Commitments; PROVIDED that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans. (b) To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request by telephone (confirmed by telecopy), not later than 12:00 noon, New York City time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to the general deposit account of the Borrower with the Swingline Lender by 3:00 p.m., New York City time, on the requested date of such Swingline Loan. (c) The Swingline Lender may by written notice given to the Administrative Agent not later than 10:00 a.m., New York City time, on any Business Day require the Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Lender, specifying in such notice such Lender's Applicable Revolving Percentage of such Swingline Loan or Loans. Each Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender's Applicable Revolving Percentage of such Swingline Loan or Loans. Each Lender acknowledges and agrees that its obligation to acquire -54- participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, MUTATIS MUTANDIS, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof. Notwithstanding the foregoing, a Lender shall not have any obligation to acquire a participation in a Swingline Loan pursuant to this paragraph if an Event of Default shall have occurred and be continuing at the time such Swingline Loan was made and such Lender shall have notified the Swingline Lender in writing, at least one Business Day prior to the time such Swingline Loan was made, that such Event of Default has occurred and that such Lender will not acquire participations in Swingline Loans made while such Event of Default is continuing. ARTICLE IIII NTERCOMPANY LOANS SECTION 3.01. INTERCOMPANY LOANS. (a) The proceeds of the Term Borrowings shall be used by the Borrower, simultaneously with the making of such Borrowings, to make Intercompany Term Loans to the Intercompany Borrowers in the respective amounts set forth in Schedule 3.01. (b) The proceeds of each Revolving Borrowing shall be used by the Borrower, simultaneously with the making of such Borrowing, to make one or more Intercompany Revolving Loans or Intercompany Term Loans to the Intercompany Borrowers and in the amounts specified in the Borrowing Request delivered in connection with such Borrowing under Section 2.03. SECTION 3.02. INTERCOMPANY NOTES. Each Intercompany Term Loan shall be evidenced by an Intercompany Term Note in the form of Exhibit F-2, payable to the order of the Borrower and duly executed by the applicable Intercompany Borrower. Each Intercompany Revolving Loan shall be evidenced by an Intercompany Revolving Note in the form of Exhibit F-1, payable to the order of the Borrower and duly executed by the applicable Intercompany Borrower. Each Intercompany Note will be pledged by the Borrower to the Collateral Agent pursuant to the Domestic Pledge Agreement as security for the Obligations. Notwithstanding the foregoing, Intercompany Term Loans and Intercompany Revolving Loans may be evidenced by notes or other instruments in a form approved by the Administrative Agent, which approval will not be unreasonably -55- withheld, PROVIDED that such notes will contain covenants substantially the same as the covenants set forth in Section 3.03(a). SECTION 3.03. MODIFICATION AND PREPAYMENT OF INTERCOMPANY LOANS. (a) The Borrower covenants and agrees that it will not, without the consent of the Required Lenders, (i) cause or permit the terms of any Intercompany Loan or Intercompany Note or any related document (including any Guarantee or Security Document) to be amended, modified or waived in any respect (except that the Borrower and the applicable Intercompany Borrower may agree to change the rate at which interest accrues on any Intercompany Note and the Administrative Agent may, without the approval of the Required Lenders, approve any other changes that it determines are not adverse to the Lenders), (ii) cancel or compromise any Intercompany Note or contribute any Intercompany Note to the capital of the Intercompany Borrower obligated thereon, (iii) transfer or assign, or create any Lien (other than pursuant to the Domestic Pledge Agreement) on, any Intercompany Loan or Intercompany Note, or (iv) demand or accept any payment under any Intercompany Note (other than payments of interest when and as due and prepayments permitted under paragraph (b) below). (b) The Borrower covenants and agrees that it will not, without the consent of the Required Lenders, cause or permit any Intercompany Loan or Intercompany Note to be prepaid; PROVIDED that: (i) any Intercompany Revolving Loan may be prepaid if the proceeds of such prepayment are simultaneously applied to prepay the related Revolving Borrowing; (ii) the Intercompany Term Loans may be prepaid if (A) the Borrower shall have delivered to the Administrative Agent and each Lender, not fewer than 10 Business Days prior to the date of any such prepayment, a notice setting forth the amounts by which the respective Intercompany Term Loans are to be prepaid and, (x) unless such prepayment is to be made by the Intercompany Borrowers ratably in accordance with the outstanding principal amounts of their respective Intercompany Term Notes, the Administrative Agent or the Required Lenders shall not have objected to such prepayment on the ground that it would result in the assets securing such remaining Intercompany Term Loans having a materially lower realizable value in relation to the outstanding principal amounts thereof than prior to such prepayment or (y) such prepayment is made in connection with a repayment or prepayment of Term Loans, and is in the amount required due to the non-Intercompany Borrowers being unable to declare and pay dividends or to make loans to fund such repayment or prepayment of Term Loans without material tax disadvantages, and in each case (B) the aggregate amount of all prepayments of Intercompany Term Loans of the initial Foreign Intercompany Borrowers (less the amount of additional Intercompany Term Loans made to the initial Foreign Intercompany Borrowers after the Effective Date), expressed as a percentage of the aggregate original principal amount of the Intercompany Term Loans, shall not at any time exceed the percentage of the Term Borrowings repaid or prepaid at any time after the Effective Date pursuant to Section 2.09 or 2.10; and (iii) in the event that Global shall have determined that an Intercompany Borrower will not be able to support the Intercompany Loan outstanding to it due to a deterioration in performance or a plant closure or shutdown, such Intercompany Loan may be prepaid in an amount sufficient to reduce the outstanding amount thereof to the greatest amount that such Intercompany Borrower can reasonably be expected to support in light of such deterioration or plant closure or shutdown if -56- the proceeds of such prepayment are simultaneously advanced to another Intercompany Borrower or used to prepay Term Loans; PROVIDED that the Borrower shall have delivered to the Administrative Agent and each Lender, not fewer than 10 Business Days prior to the date of any such prepayment, a notice setting forth the amount of such prepayment and the facts giving rise thereto, and the Administrative Agent or the Required Lenders shall not have objected to such prepayment. In any case described under clause (ii) or (iii) above in which the Intercompany Loans of a Foreign Subsidiary will be reduced (other than in connection with a ratable reduction of the Intercompany Loans of all Intercompany Borrowers), the Borrower shall deliver together with the notice required under clause (ii) or (iii) above a balance sheet certified on behalf of Global by a Financial Officer of Global for each Foreign Subsidiary the Intercompany Loans of which will be reduced in connection with the proposed prepayments. SECTION 3.04. DESIGNATION OF INTERCOMPANY BORROWERS. The initial Intercompany Borrowers shall be those listed in Schedule 3.01 hereto. On or after the Effective Date, the Borrower may designate any Wholly Owned Subsidiary of Global as an Intercompany Borrower by delivery to the Administrative Agent of an Intercompany Borrower Agreement executed by such Subsidiary and the Borrower, and such Subsidiary shall for all purposes of this Agreement be an Intercompany Borrower upon such delivery and the satisfaction of the conditions set forth in Section 5.03 with respect to such Subsidiary. As soon as practicable upon receipt of an Intercompany Borrower Agreement, the Administrative Agent shall send a copy thereof to each Lender. ARTICLE IV REPRESENTATIONS AND WARRANTIES Each of UCAR, Global and the Borrower represents and warrants to each of the Lenders that: SECTION 4.01. ORGANIZATION; POWERS. Each of UCAR, Global, the Borrower and each of the Subsidiaries (a) is a corporation duly organized, validly existing and in good standing (or, if applicable in a foreign jurisdiction, enjoys the equivalent status under the laws of any jurisdiction of organization outside the United States) under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify could not reasonably be expected to result in a Material Adverse Effect, and (d) has the corporate power and authority to execute, deliver and perform its obligations under each of the Loan Documents and each other agreement or instrument contemplated thereby to which it is or will be a party and, in the case of the Borrower and the LC Subsidiaries, to borrow and otherwise obtain credit hereunder. SECTION 4.02. AUTHORIZATION. The execution, delivery and performance by UCAR, Global, the Borrower and each of the Subsidiaries of each of the Loan Documents to which it is or will be a party (and, in the case of the Borrower and the LC Subsidiaries, the borrowings and other extensions of credit hereunder), the making of the Intercompany Loans, the refinancing of the Existing Credit Agreements and Global's 12% Senior Subordinated Notes due 2005, the satisfaction of the Collateral and Guarantee Requirement and the other transactions contemplated hereby and thereby (collectively, the "TRANSACTIONS") -57- (a) have been duly authorized by all corporate and stockholder action required to be obtained by UCAR, Global, the Borrower and the Subsidiaries and (b) will not (i) violate (A) any provision of any law, statute, rule or regulation or of the certificate or articles of incorporation or other constitutive documents or by-laws of UCAR, Global, the Borrower or any Subsidiary, (B) any applicable order of any court or any rule, regulation or order of any Governmental Authority or (C) any provision of any indenture, certificate of designation for preferred stock, agreement or other instrument to which UCAR, Global, the Borrower or any Subsidiary is a party or by which any of them or any of their property is or may be bound, (ii) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, certificate of designation for preferred stock, agreement or other instrument, where any such conflict, violation, breach or default referred to in clause (i) or (ii) of this Section 4.02, individually or in the aggregate could reasonably be expected to have a Material Adverse Effect, or (iii) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by UCAR, Global, the Borrower or any Subsidiary, other than the Liens created by the Loan Documents. SECTION 4.03. ENFORCEABILITY. This Agreement has been duly executed and delivered by UCAR, Global, the Borrower and each LC Subsidiary which is party hereto and constitutes, and each other Loan Document when executed and delivered by UCAR, Global, the Borrower and each other Loan Party which is party thereto will constitute, a legal, valid and binding obligation of UCAR, Global, the Borrower and such Loan Party enforceable against UCAR, Global, the Borrower and such Loan Party in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally and except as enforceability may be limited by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). SECTION 4.04. GOVERNMENTAL APPROVALS. No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required in connection with the Transactions, except for (a) filings and recording necessary to satisfy the Collateral and Guarantee Requirement, (b) such as have been made or obtained and are in full force and effect and (c) such actions, consents, registrations, filings and approvals the failure to obtain or make which could not reasonably be expected to result in a Material Adverse Effect. SECTION 4.05. FINANCIAL STATEMENTS. UCAR has heretofore furnished to the Lenders its consolidated balance sheets and consolidated statements of operations, cash flows and stockholders' equity as of and for (a) the fiscal year ended December 31, 1998, audited by and accompanied by the opinion of KPMG LLP, independent public accountants and (b) the fiscal periods ended March 31, 1999, June 30, 1999 and September 30, 1999, in each case unaudited but certified on behalf of Global by a Financial Officer of Global. Such financial statements present fairly the consolidated financial condition and results of operations of UCAR and its subsidiaries as of such dates and for such periods. Except as disclosed in the Information Memorandum, none of UCAR, Global, the Borrower and the Subsidiaries has or shall have as of the Effective Date any material Guarantee, contingent liability or liability for taxes, or any material long-term lease or unusual forward or long-term commitment, including any interest rate or foreign currency hedging transaction, which is not reflected in the foregoing statements or the notes thereto. Such financial statements were prepared in accordance with GAAP applied on a consistent basis. -58- SECTION 4.06. NO MATERIAL ADVERSE CHANGE. There has been no material adverse change in the assets, liabilities (including contingent liabilities), business, properties, financial condition or results of operations of UCAR and its subsidiaries, taken as a whole, since December 31, 1998. SECTION 4.07. TITLE TO PROPERTIES; POSSESSION UNDER LEASES. (a) Each of UCAR, Global, the Borrower and the Subsidiaries has good and marketable title to, or valid leasehold interests in, or easements or other limited property interests in, all its respective material properties and assets, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens, other than Liens expressly permitted by Section 7.02. (b) Each of UCAR, Global, the Borrower and the Subsidiaries has complied with all obligations under all material leases to which it is a party, except where the failure to comply would not have a Material Adverse Effect, and all such leases are in full force and effect, except leases in respect of which the failure to be in full force and effect could not reasonably be expected to have a Material Adverse Effect. Each of UCAR, Global, the Borrower and the Subsidiaries enjoys peaceful and undisturbed possession under all such material leases to which it is a party, other than leases which, individually or in the aggregate, are not material to Global, the Borrower and the Subsidiaries, taken as a whole, and in respect of which the failure to enjoy peaceful and undisturbed possession could not reasonably be expected to, individually or in the aggregate, result in a Material Adverse Effect. (c) Each of UCAR, Global, the Borrower and the Subsidiaries owns or has licenses to use, or could obtain ownership of or licenses to use, on terms not materially adverse to it, all patents, trademarks, service marks, trade names, copyrights and rights with respect thereto necessary for the present conduct of its business, without any known conflict with the rights of others, and free from any burdensome restrictions, except where such conflicts and restrictions could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION 4.08. SUBSIDIARIES. (a) Schedule 4.08 sets forth as of the Effective Date the name and jurisdiction of incorporation of each Subsidiary and, as to each such Subsidiary, the percentage of each class of Capital Stock owned by Global or by any Subsidiary. (b) As of the Effective Date, there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than those granted to employees, consultants or directors and directors' qualifying shares) of any nature relating to any Capital Stock of UCAR, Global, the Borrower or any Subsidiary, except under the Loan Documents or as set forth on Schedule 4.08. SECTION 4.09. LITIGATION; COMPLIANCE WITH LAWS. (a) Except as set forth in Schedule 4.09, there are not any material actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of Global, threatened against or affecting UCAR, Global, the Borrower or any Subsidiary or any business, property or rights of any such person (i) which involve any Loan Document or, as of the Effective Date, the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and which, if adversely determined, could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. -59- (b) None of UCAR, Global, the Borrower, the Subsidiaries and their respective material properties or assets is in violation of (nor will the continued operation of their material properties and assets as currently conducted violate) any law, rule or regulation (including any Environmental Law), or is in default with respect to any judgment, writ, injunction or decree of any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect. SECTION 4.10. AGREEMENTS. (a) None of UCAR, Global, the Borrower and the Subsidiaries is a party to any agreement or instrument or subject to any corporate restriction that has resulted or could reasonably be expected to result in a Material Adverse Effect. (b) None of UCAR, Global, the Borrower and the Subsidiaries is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, in either case where such default could reasonably be expected to result in a Material Adverse Effect. Immediately after giving effect to the Transactions, no Default or Event of Default shall have occurred and be continuing. SECTION 4.11. FEDERAL RESERVE REGULATIONS. (a) None of UCAR, Global, the Borrower and the Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock, as defined in Regulation U of the Board from time to time in effect ("MARGIN STOCK"). (b) No part of the proceeds of any Loan or Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, (i) to purchase or carry Margin Stock or to extend credit to others for the purpose of purchasing or carrying Margin Stock or to refund indebtedness originally incurred for such purpose or (ii) for any purpose which entails a violation of, or which is inconsistent with, the provisions of the Regulations of the Board, including Regulation U or X. SECTION 4.12. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT. None of UCAR, Global, the Borrower and the Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 4.13. USE OF PROCEEDS. The Borrower and the LC Subsidiaries have used, and will use, the proceeds of the Loans and have requested, and will request, the issuance of Letters of Credit only for the purposes specified in the preamble to this Agreement. SECTION 4.14. TAX RETURNS. Each of UCAR, Global, the Borrower and the Subsidiaries has timely filed or caused to be timely filed all Federal, and all material state and local, tax returns required to have been filed by it and has paid or caused to be paid all taxes shown thereon to be due and payable by it and all assessments in excess of $2,000,000 in the aggregate, except for taxes or assessments that are being contested in good faith by appropriate proceedings in accordance with Section 6.03 and for which such person has set aside on its books adequate reserves. Each of UCAR, the Borrower and the Subsidiaries has paid in full or made adequate provision (in accordance with GAAP) for the payment of all taxes due with respect to all periods ending on or before the Effective Date, which taxes, if not paid or adequately provided for, could reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 4.14, as of the Effective Date, with respect to each of UCAR, Global, the Borrower and the Subsidiaries, (a) no material claims are being -60- asserted in writing with respect to any taxes, (b) no presently effective waivers or extensions of statutes of limitation with respect to taxes have been given or requested, (c) no tax returns are being examined by, and no written notification of intention to examine has been received from, the Internal Revenue Service or, with respect to any material potential tax liability, any other taxing authority and (d) no currently pending issues have been raised in writing by the Internal Revenue Service or, with respect to any material potential tax liability, any other taxing authority. For purposes hereof, "TAXES" shall mean any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any Governmental Authority. SECTION 4.15. NO MATERIAL MISSTATEMENTS. (a) The written information, reports, financial statements, exhibits and schedules furnished by or on behalf of UCAR, the Borrower or any of the Subsidiaries to the Administrative Agent or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto (including the Confidential Information Memorandum dated January 2000 and the supplement thereto dated February 2000 (the "INFORMATION MEMORANDUM") relating to UCAR and its subsidiaries), when taken as a whole, did not contain, and as they may be amended, supplemented or modified from time to time, will not contain, as of the Effective Date any material misstatement of fact and did not omit, and as they may be amended, supplemented or modified from time to time, will not omit, to state as of the Effective Date any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not materially misleading in their presentation of the refinancing (as described in the Information Memorandum) or of UCAR, Global, the Borrower, and the Subsidiaries, taken as a whole. (b) All financial projections concerning UCAR, Global, the Borrower and the Subsidiaries that are or have been made available to the Administrative Agent or any Lender by UCAR, Global, the Borrower or any Subsidiary, including those contained in the Information Memorandum, unless otherwise disclosed, have been or will be prepared in good faith based upon assumptions believed by UCAR, Global and the Borrower to be reasonable. SECTION 4.16. EMPLOYEE BENEFIT PLANS. Each of UCAR, Global, the Borrower and the ERISA Affiliates is in compliance with the applicable provisions of ERISA and the provisions of the Code relating to ERISA and the regulations and published interpretations thereunder and any similar applicable non-U.S. law, except for such noncompliance which could not reasonably be expected to result in a Material Adverse Effect. No Reportable Event has occurred as to which UCAR, Global, the Borrower or any ERISA Affiliate was required to file a report with the PBGC, other than reports for which the 30 day notice requirement is waived, reports that have been filed and reports the failure of which to file could not reasonably be expected to result in a Material Adverse Effect. As of the Effective Date, the present value of all benefit liabilities under each Plan of UCAR, the Borrower and the ERISA Affiliates (on a termination basis and based on the actual assumptions used by such Plan under Section 412 of the Code) did not, as of the last annual valuation date applicable thereto for which a valuation is available, exceed by more than $7,500,000 the value of the assets of such Plan, and the present value of all benefit liabilities of all underfunded Plans (based on the actual assumptions used by such Plan under Section 412 of the Code) did not, as of the last annual valuation dates applicable thereto for which valuations are available, exceed by more than $15,000,000 the value of the assets of all such underfunded Plans. None of UCAR, Global, the Borrower and the ERISA Affiliates has incurred or could reasonably be expected to incur any Withdrawal Liability that could reasonably be expected to result in a Material Adverse Effect. None of UCAR, Global, the Borrower and the ERISA Affiliates has received any written notification that any Multiemployer Plan is in reorganization or has been terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is -61- reasonably expected to be in reorganization or to be terminated, where such reorganization or termination has resulted or could reasonably be expected to result, through increases in the contributions required to be made to such Plan or otherwise, in a Material Adverse Effect. SECTION 4.17. ENVIRONMENTAL MATTERS. Except as set forth in Schedule 4.17: (a) There has not been a Release or threatened Release of Hazardous Materials at, on, under or around the properties currently owned or currently or formerly operated by UCAR, Global, the Borrower and the Subsidiaries (the "PROPERTIES") in amounts or concentrations which (i) constitute or constituted a violation of Environmental Laws, except as could not reasonably be expected to have a Material Adverse Effect, (ii) would reasonably be expected to give rise to an Environmental Claim which, in any such case or in the aggregate, is reasonably likely to result in a Material Adverse Effect or (iii) could reasonably be expected to impair materially the fair saleable value of any material Property. (b) The Properties and all operations of UCAR, Global, the Borrower and the Subsidiaries are in compliance, and in all prior periods have been in compliance, with all Environmental Laws, and all necessary Environmental Permits have been obtained and are in effect, except to the extent that such non-compliance or failure to obtain any necessary permits, in the aggregate, are not reasonably likely to result in a Material Adverse Effect. (c) None of UCAR, Global, the Borrower and the Subsidiaries has received any written notice of an Environmental Claim in connection with the Properties or the operations of the Borrower or the Subsidiaries or with regard to any person whose liabilities for environmental matters UCAR, Global, the Borrower or the Subsidiaries has retained or assumed, in whole or in part, contractually, by operation of law or otherwise, which, in either such case or in the aggregate, is reasonably likely to result in a Material Adverse Effect. (d) Hazardous Materials have not been transported from the Properties, nor have Hazardous Materials been generated, treated, stored or disposed of at, on, under or around any of the Properties in a manner that could reasonably be expected to give rise to liability of UCAR, the Borrower or any Subsidiary under any Environmental Law, nor have any of UCAR, the Borrower and the Subsidiaries retained or assumed any liability, contractually, by operation of law or otherwise, with respect to the generation, treatment, storage or disposal of Hazardous Materials, which, in each case, individually or in the aggregate, is reasonably likely to result in a Material Adverse Effect. (e) No Lien in favor of any Governmental Authority for (i) any liability under any Environmental Law or (ii) damages arising from or costs incurred by such Governmental Authority in response to a Release or threatened Release of Hazardous Materials into the environment has been recorded with respect to the Properties except for Liens permitted by Section 7.02. (f) During the period from the date of the environmental assessment report prepared by ENVIRON Corporation in connection with the recapitalization of UCAR consummated in 1995 to the Effective Date, no event has occurred or been discovered, no liability has been incurred and no Environmental Claim has been asserted that, had it been in existence at the time such report was issued, would have materially adversely altered the ultimate conclusions contained therein as to the general materiality to the Lenders of environmental -62- liabilities, actual and potential, with respect to the properties, activities and operations covered thereby. SECTION 4.18. CAPITALIZATION OF UCAR, GLOBAL AND THE BORROWER . The authorized Capital Stock, the par value thereof and the amount of such authorized Capital Stock issued and outstanding for each of UCAR, Global and the Borrower as of February 9, 2000, is set forth on Schedule 4.18 (except for changes in the outstanding common stock of UCAR due to exercises under employee stock option or employee stock purchase plans in the ordinary course since February 9, 2000). All outstanding shares of Capital Stock of each of Global and the Borrower are fully paid and nonassessable, are owned beneficially and of record by UCAR and are free and clear of all Liens and encumbrances whatsoever other than the Liens created by the Loan Documents. SECTION 4.19. SECURITY DOCUMENTS. (a) Each Pledge Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in such Pledge Agreement), and when such Collateral is delivered to the Collateral Agent such Pledge Agreement will constitute a fully perfected first priority Lien on and security interest in all right, title and interest of each pledgor thereunder in such Collateral, in each case prior and superior in right to any other person. (b) Each Security Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in such Security Agreement), and when the actions contemplated by such Security Agreement are taken, such Security Agreement will constitute a fully perfected Lien on and security interest in all right, title and interest of the grantors thereunder in such Collateral and, subject to ss. 9-306 of the Uniform Commercial Code, the proceeds thereof, in each case prior and superior in right to any other person, other than with respect to Liens expressly permitted by Section 7.02. (c) When a Security Agreement is filed in the United States Patent and Trademark Office and the United States Copyright Office, and when the other actions contemplated by such Security Agreement are taken, such Security Agreement will constitute a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in the Intellectual Property (as defined in such Security Agreement) and, subject to ss. 9-306 of the Uniform Commercial Code, the proceeds thereof, in each case prior and superior in right to any other person. (d) The Mortgages are effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable Lien on all of the Loan Parties' right, title and interest in and to the Mortgaged Properties and the proceeds thereof, and when the Mortgages are filed in the offices specified on Schedule 4.19(d) (or, in the case of Mortgaged Properties not owned by UCAR or a Subsidiary on the date hereof, the appropriate filing offices in the jurisdictions in which such Mortgaged Properties are located), the Mortgages will constitute fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in the Mortgaged Properties and, subject to ss. 9-306 of the Uniform Commercial Code, the proceeds thereof, in each case prior and superior in right to any other person, other than with respect to the rights of persons pursuant to Liens expressly permitted by Section 7.02. -63- (e) On the Effective Date, after giving effect to the Transactions to occur on the Effective Date, and at all times thereafter, the Collateral and Guarantee Requirement will have been satisfied. SECTION 4.20. LABOR MATTERS. Except as set forth in Schedule 4.20, there are no strikes pending or threatened against UCAR, Global, the Borrower or any Subsidiary which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. The hours worked and payments made to employees of UCAR, Global, the Borrower and the Subsidiaries have not been in violation in any material respect of the Fair Labor Standards Act or any other applicable law dealing with such matters. All material payments due from UCAR, Global, the Borrower or any Subsidiary or for which any claim may be made against UCAR, Global, the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of UCAR, Global, the Borrower or such Subsidiary to the extent required by GAAP. None of the Transactions has given or will give rise to a right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which UCAR, Global, the Borrower or any Subsidiary (or any predecessor) is a party or by which UCAR, Global, the Borrower or any Subsidiary (or any predecessor) is bound, other than collective bargaining agreements which, individually or in the aggregate, are not material to UCAR, Global, the Borrower and the Subsidiaries taken as a whole. SECTION 4.21. NO FOREIGN ASSETS CONTROL REGULATION VIOLATION. None of the Transactions will result in a violation of any of the foreign assets control regulations of the United States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended (including the Foreign Assets Control Regulations, the Transaction Control Regulations, the Cuban Assets Control Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the Nicaraguan Trade Control Regulations, the South African Transactions Regulations, the Libyan Sanctions Regulations, the Soviet Gold Coin Regulations, the Panamanian Transactions Regulations, the Kuwaiti Assets Control Regulations and the Iraqi Sanctions Regulations contained in said Chapter V), or any ruling issued thereunder or any enabling legislation or Presidential Executive Order granting authority therefor, nor will the proceeds of the Loans or the Letters of Credit be used by the Borrower or any LC Subsidiary in a manner that would violate any thereof. SECTION 4.22. INSURANCE. Each of UCAR, Global, the Borrower and the Subsidiaries carries and maintains with respect to its insurable properties insurance (including, to the extent consistent with past practices, self-insurance) with financially sound and reputable insurers of the types, to such extent and against such risks as is customary with companies in the same or similar businesses. SECTION 4.23. LOCATION OF REAL PROPERTY AND LEASED PREMISES. (a) Schedule 4.23(a) lists completely and correctly as of the Effective Date all real property owned by UCAR, Global, the Borrower, each Domestic Subsidiary, each Intercompany Borrower and each other Subsidiary that is required to grant a Mortgage pursuant to the Collateral and Guarantee Requirement and the address thereof. As of the Effective Date, UCAR, Global, the Borrower and the Subsidiaries own in fee all the real property set forth as being owned by them on Schedule 4.23(a). (b) Schedule 4.23(b) lists completely and correctly as of the Effective Date all real property leased by UCAR, Global, the Borrower, each Domestic Subsidiary, each Intercompany Borrower and each other Subsidiary that is required to grant a leasehold mortgage pursuant to the Collateral and -64- Guarantee Requirement and the address thereof. As of the Effective Date, UCAR, Global, the Borrower and the Subsidiaries have valid leases in all the real property set forth as being leased by them on Schedule 4.23(b). SECTION 4.24. LITIGATION LIABILITIES. The sum of the aggregate Litigation Payments made after the Effective Date in excess of the Litigation Reserves in effect on September 30, 1999 (less the amount of charges against such Litigation Reserves prior to the Effective Date), plus the aggregate amount of additional Litigation Reserves in respect of Litigation Liabilities created after September 30, 1999, does not, and is not reasonably expected to, exceed at any time the difference between $130,000,000 and the aggregate amount of Indebtedness outstanding under Section 7.01(a)(xii) at the time of determination. It is understood that all Litigation Payments and Litigation Reserves other than those of the Department of Justice will be calculated on a gross Dollar basis for purposes of determining the accuracy of this representation. SECTION 4.25. YEAR 2000. There has not occurred, and none of UCAR, Global, the Borrower and the Subsidiaries expects that there will occur, any material disruption in the operations or business systems of any of them resulting from the inability of their computer systems or equipment to recognize or properly process dates in or following the year 2000. SECTION 4.26. UCAR GRAPH-TECH INC. As of the Effective Date, the net book value of the assets of UCAR Graph-Tech Inc. is less than $25,000,000. The portion of EBITDA attributable to UCAR Graph-Tech Inc. for the three month period ended December 31, 1999, was less than $2,000,000. ARTICLE V CONDITIONS SECTION 5.01. EFFECTIVE DATE. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.02): (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent, the Collateral Agent, the Lenders and the Issuing Bank and dated the Effective Date) of each of (i) Kelley Drye & Warren LLP, counsel for UCAR, Global and the Borrower, substantially to the effect set forth in the form of Exhibit J-1, (ii) the General Counsel of UCAR, Global and the Borrower, substantially to the effect set forth in the form of Exhibit J-2, (iii) the Chief Patent Counsel of UCAR substantially to the effect set forth in the form of Exhibit J-3, and (iv) local counsel in each jurisdiction listed on Schedule 5.01, in each case in a form reasonably satisfactory to the Administrative Agent, and, in the case of each such opinion required by this paragraph, covering such other matters relating to the -65- Loan Parties, the Loan Documents or the Transactions as the Required Lenders shall reasonably request. Each of UCAR, Global and the Borrower hereby requests such counsel to deliver such opinions. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of each Loan Party and each initial Intercompany Borrower and LC Subsidiary, the authorization of the Transactions and any other legal matters relating to the Loan Parties, the initial Intercompany Borrowers and LC Subsidiaries, the Loan Documents or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of Global, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 5.02. (e) The Collateral and Guarantee Requirement shall have been satisfied and the Administrative Agent shall have received a completed Perfection Certificate dated the Effective Date and signed by an executive officer or Financial Officer of Global, in form and substance reasonably satisfactory to the Administrative Agent, together with all attachments contemplated thereby, including the results of a search of the Uniform Commercial Code (or equivalent) filings made with respect to the Loan Parties and the other Subsidiaries in the jurisdictions contemplated by such Perfection Certificate and copies of the financing statements (or similar documents) disclosed by such search and evidence reasonably satisfactory to the Administrative Agent that the Liens indicated by such financing statements (or similar documents) are permitted by Section 7.02 or have been released. (f) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses (including fees, charges and disbursements of counsel) required to be reimbursed or paid by any Loan Party hereunder or under any other Loan Document. (g) The Lenders shall have received a reasonably satisfactory pro forma consolidated balance sheet of UCAR as of September 30, 1999, reflecting all pro forma adjustments as if the Transactions had been consummated on such date, together with a certificate of Global signed by a Financial Officer of Global to the effect that such balance sheet fairly presents the pro forma consolidated financial position of UCAR and its subsidiaries in accordance with GAAP, and such pro forma consolidated balance sheet shall be consistent in all material respects with the forecasts and other information previously provided to the Lenders. (h) All requisite material Governmental Authorities and material third parties shall have been approved or consented to the Transactions and the other transactions contemplated hereby to the extent required and all applicable appeal periods shall have expired. (i) Global's 12% Senior Subordinated Notes due 2005 shall have been repaid, or irrevocable action shall have been taken to effect the repayment thereof, in full, funds shall simultaneously with the initial Borrowing have been set aside with the trustee therefor to effect such repayment, and the indenture in respect thereof shall have no further -66- force and effect (except in connection with such repayment), in each case on terms and conditions satisfactory to the Administrative Agent. (j) The Existing Credit Agreements shall have been or shall simultaneously with the initial Borrowing be repaid in full, all agreements and instruments evidencing or governing the Indebtedness and other obligations thereunder, and all lending or other commitments thereunder, shall have been terminated and all Liens securing such Indebtedness and other obligations shall have been released, and the Administrative Agent shall have received such evidence as it shall have requested as to the foregoing. (k) Each of the conditions set forth in Section 5.03 shall be satisfied with respect to each Intercompany Borrower and LC Subsidiary as of the Effective Date. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.02) at or prior to 3:00 p.m., New York City time, on March 31, 2000. SECTION 5.02. EACH CREDIT EVENT. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to receipt of the request therefor in accordance herewith and to the satisfaction of the following conditions: (a) The representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct in all material respects on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, except to the extent such representations and warranties expressly relate to an earlier date. (b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default or Event of Default shall have occurred and be continuing. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit (other than those in which a Revolving Loan is being continued or converted without any increase in the aggregate principal amount thereof or a Letter of Credit is being extended or renewed) shall be deemed to constitute a representation and warranty by UCAR, Global and the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. SECTION 5.03. INTERCOMPANY BORROWERS AND LC SUBSIDIARIES. The designation of any Subsidiary as an Intercompany Borrower or LC Subsidiary and the obligations of the Lenders to make any Loan the proceeds of which are to be advanced to an Intercompany Borrower and of the Issuing Bank to issue any Letter of Credit for the account of an LC Subsidiary shall not become effective until each of the following conditions is satisfied with respect to such Intercompany Borrower or LC Subsidiary (or waived in accordance with Section 10.02): (a) The Administrative Agent (or its counsel) shall have received (i) in the case of an Intercompany Borrower, a counterpart of an Intercompany Borrower Agreement signed on behalf of the Borrower and -67- such Intercompany Borrower or (ii) in the case of an LC Subsidiary, an LC Subsidiary Agreement signed on behalf of the Borrower and such LC Subsidiary, or in either case written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of such Intercompany Borrower Agreement or LC Subsidiary Agreement, as applicable) that such party has signed a counterpart of such Intercompany Borrower Agreement or LC Subsidiary Agreement, as applicable. (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent, the Collateral Agent, the Lenders and the Issuing Bank) of counsel satisfactory to the Administrative Agent in form reasonably satisfactory to the Administrative Agent and covering such matters as the Administrative Agent shall reasonably request in connection with such Intercompany Borrower or LC Subsidiary and the satisfaction of the Collateral and Guarantee Requirement in respect thereof. Each of UCAR, Global and the Borrower hereby requests such counsel to deliver such opinions. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of such Intercompany Borrower or LC Subsidiary, the authorization of the Transactions to which it will be party and any other legal matters relating thereto, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the date such Subsidiary is intended to become an Intercompany Borrower or LC Subsidiary and signed by the President, a Vice President or a Financial Officer of Global, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 5.02. (e) The Collateral and Guarantee Requirement shall have been satisfied with respect to such Intercompany Borrower or LC Subsidiary. All requisite material Governmental Authorities and material third parties shall have been approved or consented to such Subsidiary becoming and acting as an Intercompany Borrower or LC Subsidiary and the Transactions to which it will be party. (f) The Administrative Agent shall have received a balance sheet certified on behalf of Global by a Financial Officer of Global for such Intercompany Borrower or LC Subsidiary as of the fiscal quarter end next preceding the Financial Statement Delivery Date occurring on or most recently prior to the date of determination. ARTICLE VI AFFIRMATIVE COVENANTS Each of UCAR, Global and the Borrower covenants and agrees with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all fees and all other expenses or amounts payable under any Loan Document have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, each of UCAR, Global and the Borrower will, and will cause each of the Subsidiaries to: -68- SECTION 6.01. EXISTENCE; BUSINESSES AND PROPERTIES. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 7.05 and except for the liquidation or dissolution of Subsidiaries if the assets of such persons to the extent they exceed estimated liabilities are acquired by Global or a Wholly Owned Subsidiary in such liquidation or dissolution; PROVIDED that Subsidiaries that are Loan Parties or Guarantors may not be liquidated or dissolved into Subsidiaries that are not Loan Parties or Guarantors, respectively, and Domestic Subsidiaries may not be liquidated or dissolved into Foreign Subsidiaries. (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; comply in all material respects with all applicable laws, rules, regulations (including any Environmental Law) and orders of any Governmental Authority, whether now in effect or hereafter enacted; and at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith, if any, may be properly conducted at all times (in each case except as expressly permitted by this Agreement). SECTION 6.02. INSURANCE. (a) Keep its insurable properties insured at all times by financially sound and reputable insurers in such amounts as shall be customary for similar businesses and maintain such other insurance (including, to the extent consistent with past practices, self-insurance), of such types, to such extent and against such risks, as is customary with companies in the same or similar businesses. (b) Cause all such property and casualty insurance policies with respect to the Mortgaged Properties to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent, which endorsement shall provide that, from and after the Effective Date, if the insurance carrier shall have received written notice from the Administrative Agent or the Collateral Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Loan Parties under such policies directly to the Collateral Agent; cause all such policies to provide that none of the applicable Loan Party, the Administrative Agent, the Collateral Agent or any other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Administrative Agent or the Collateral Agent may reasonably (in light of a Default or a material development in respect of the insured Mortgaged Property) require from time to time to protect their interests; deliver original or certified copies of all such policies (or certificates in respect thereof satisfactory to the Collateral Agent) to the Collateral Agent; cause each such policy to provide that it shall not be canceled, modified or not renewed (i) by reason of nonpayment of premium upon less than 10 days' prior written notice thereof by the insurer to the Administrative Agent and the Collateral Agent or (ii) for any other reason upon less than 30 days' prior written notice thereof by the insurer to the Administrative Agent and the Collateral Agent; deliver to the Administrative Agent and the Collateral Agent, prior to the cancelation, modification or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Administrative Agent and the Collateral Agent), or an insurance certificate with respect thereto, together with evidence reasonably satisfactory to the Administrative Agent and the Collateral Agent of payment of the premium therefor. -69- (c) If at any time the area in which any of the Premises (as defined in the Mortgages) is located is designated (i) a "flood hazard area" in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency), obtain flood insurance in such reasonable total amount as the Administrative Agent, the Collateral Agent or the Required Lenders may from time to time reasonably require, and otherwise comply with the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as it may be amended from time to time, or (ii) a "Zone 1" area (as so designated in the National Ocean and Earthquake Risk Map), obtain earthquake insurance in such reasonable total amount as the Administrative Agent, the Collateral Agent or the Required Lenders may from time to time reasonably require. (d) With respect to each Mortgaged Property, carry and maintain comprehensive general liability insurance and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than $1,000,000, naming the Collateral Agent as an additional insured, on forms reasonably satisfactory to the Collateral Agent. (e) Notify the Administrative Agent and the Collateral Agent promptly whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 6.02 is taken out by UCAR, Global, the Borrower or any Subsidiary; and promptly deliver to the Administrative Agent and the Collateral Agent a duplicate original copy or certified copy of such policy or policies, or an insurance certificate with respect thereto. (f) In connection with the covenants set forth in this Section 6.02, it is understood and agreed that: (i) none of the Administrative Agent, the Collateral Agent, the Lenders, the Issuing Banks and their respective agents and employees shall be liable for any loss or damage insured by the insurance policies required to be maintained under this Section 6.02, it being understood that (A) the Loan Parties shall look solely to their insurance companies or parties other than the aforesaid parties for the recovery of such loss or damage and (B) such insurance companies shall have no rights of subrogation against the Administrative Agent, the Collateral Agent, the Lenders, the Issuing Banks or their agents or employees. If, however, the insurance policies do not provide for waiver of subrogation rights against such parties, as required above, then each of UCAR, Global and the Borrower hereby agrees, to the extent permitted by law, to waive, and to cause each Subsidiary to waive, its right of recovery, if any, against the Administrative Agent, the Collateral Agent, the Lenders, the Issuing Banks and their agents and employees; and (ii) the designation of any form, type or amount of insurance coverage by the Administrative Agent, the Collateral Agent or the Required Lenders under this Section 6.02 shall in no event be deemed a representation, warranty or advice by the Administrative Agent, the Collateral Agent or the Lenders that such insurance is adequate for the purposes of the business of UCAR, Global, the Borrower and the Subsidiaries or the protection of their properties. SECTION 6.03. TAXES; OTHER CLAIMS. Pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same -70- shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might give rise to a Lien upon such properties or any part thereof; PROVIDED, HOWEVER, that such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim so long as (a) the validity or amount thereof shall be contested in good faith by appropriate proceedings and UCAR, Global, the Borrower or the affected Subsidiary, as applicable, shall have set aside on its books adequate reserves with respect thereto, or (b) the amount of such taxes, assessments, charges, levies and claims and interest and penalties thereon does not exceed $1,000,000 in the aggregate. SECTION 6.04. FINANCIAL STATEMENTS, REPORTS, ETC. Furnish to the Administrative Agent and each Lender: (a) within 90 days after the end of each fiscal year, a consolidated balance sheet and related consolidated statements of operations, cash flows and stockholders' equity showing the consolidated financial condition of UCAR, Global, the Borrower and the Subsidiaries as of the close of such fiscal year and the consolidated results of their operations during such year, all audited by KPMG LLP or other independent public accountants of recognized national standing reasonably acceptable to the Administrative Agent (which consent shall not be unreasonably withheld) and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial condition and results of operations of UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis in accordance with GAAP; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, a consolidated balance sheet and related consolidated statements of operations, cash flows and stockholders' equity showing the consolidated financial condition of UCAR, Global, the Borrower and the Subsidiaries as of the close of such fiscal quarter and the consolidated results of their operations during such fiscal quarter and the then-elapsed portion of the fiscal year, all certified by one of its Financial Officers on behalf of Global as fairly presenting the financial condition and results of operations of UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis in accordance with GAAP (except for the absence of footnotes), subject to normal year-end audit adjustments; (c) concurrently with any delivery of financial statements under paragraph (a) or (b) above, (i) a certificate of such accountants or of Global signed by one of its Financial Officers opining on or certifying such statements (which certificate, when furnished by such accountants, may be limited to accounting matters and disclaim responsibility for legal interpretations) (A) certifying that no Event of Default or Default has occurred or, if an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (B) setting forth computations in detail reasonably satisfactory to the Administrative Agent demonstrating compliance with the covenants contained in Sections 7.10, 7.11 and 7.12 (it being understood that the information required by this clause (B) may be provided in a certificate of Global signed by one of its Financial Officers instead of from such accountants) and (ii) a certificate on behalf of Global signed by a Financial Officer certifying the outstanding principal -71- amount and current rate of interest of each Intercompany Note as of such fiscal quarter or fiscal year end, as the case may be; PROVIDED, HOWEVER, that in the event the Euro Equivalent of the outstanding principal amount of any Intercompany Note shall increase by EUR25,000,000 or more at any time between the dates on which certificates are, or are to be, delivered under this paragraph, the Borrower will give prompt notice to the Administrative Agent of such increase; (d) promptly after the same become publicly available, copies of all periodic and other publicly available reports, proxy statements and, to the extent requested by the Administrative Agent, other publicly available materials filed by UCAR, Global, the Borrower or any Subsidiary with the Securities and Exchange Commission, or any governmental authority succeeding to any or all the functions of said Commission, or with any national securities exchange, or distributed to its shareholders generally, as the case may be; (e) if, as a result of any change in accounting principles and policies from those as in effect on the date of this Agreement, the consolidated financial statements of UCAR, Global, the Borrower and the Subsidiaries delivered pursuant to paragraph (a) or (b) above will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such paragraphs had no such change in accounting principles and policies been made, then, together with the first delivery of financial statements pursuant to paragraph (a) and (b) above following such change, a schedule prepared by Global signed by one of its Financial Officers reconciling such changes to what the financial statements would have been without such changes; (f) within 90 days after the beginning of each fiscal year, a copy of an operating and capital expenditure budget for such fiscal year; (g) promptly following the creation of or the initial acquisition of any equity interest in any Subsidiary, a certificate of Global signed by a Responsible Officer of Global identifying such new Subsidiary and the ownership interest of Global and the Subsidiaries therein; (h) simultaneously with the delivery of any financial statements pursuant to paragraph (a) or (b) above, a balance sheet and related statements of operations, cash flows and stockholder's equity for the applicable period for each Unrestricted Subsidiary and for each minority interest in respect of which the Loan Parties shall, directly or indirectly, have an aggregate outstanding investment in excess of $1,000,000; (i) promptly, a copy of all final reports submitted in connection with any material interim or material special audit made by independent accountants of the books of UCAR, Global, the Borrower or any Subsidiary; and (j) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of UCAR, Global, the Borrower or any Subsidiary or compliance with the terms of any Loan Document, or such consolidating financial statements, or such financial statements showing the results of operations of any Unrestricted Subsidiary, as in each case the Administrative Agent or any Lender, acting through the Administrative Agent, may reasonably request. SECTION 6.05. LITIGATION AND OTHER NOTICES. Furnish to the Administrative Agent and each Lender written notice of the following promptly after any Responsible Officer of Global obtains actual knowledge thereof: -72- (a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) proposed to be taken with respect thereto; (b) the filing or commencement of, or any written threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against UCAR, Global, the Borrower or any Subsidiary in respect of which there is a reasonable possibility of an adverse determination and which, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; and (c) any other development specific to UCAR, Global, the Borrower or any Subsidiary that is not a matter of general public knowledge and that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect. SECTION 6.06. EMPLOYEE BENEFITS. (a) Comply in all material respects with the applicable provisions of ERISA and the provisions of the Code relating to ERISA and any applicable similar non-U.S. law and (b) furnish to the Administrative Agent (i) as soon as possible after, and in any event within 30 days after any Responsible Officer of UCAR, Global, the Borrower or any ERISA Affiliate knows or has reason to know that, any Reportable Event has occurred, a statement of Global signed by one of its Financial Officers setting forth details as to such Reportable Event and the action proposed to be taken with respect thereto, together with a copy of the notice, if any, of such Reportable Event given to the PBGC, (ii) promptly after any such Responsible Officer learns of receipt thereof, a copy of any notice that the Borrower or any ERISA Affiliate may receive from the PBGC relating to the intention of the PBGC to terminate any Plan or Plans (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414) or to appoint a trustee to administer any such Plan, (iii) within 30 days after the due date for filing with the PBGC pursuant to Section 412(n) of the Code a notice of failure to make a required installment or other payment with respect to a Plan, a statement of Global signed by one of its Financial Officers setting forth details as to such failure and the action proposed to be taken with respect thereto, together with a copy of any such notice given to the PBGC and (iv) promptly after any such Responsible Officer learns thereof and in any event within 30 days after receipt thereof by UCAR, Global, the Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by UCAR, Global, the Borrower or any ERISA Affiliate concerning (A) the imposition of Withdrawal Liability or (B) a determination that a Multiemployer Plan is, or is expected to be, terminated or in reorganization, in each case within the meaning of Title IV of ERISA; PROVIDED that in the case of each of clauses (i) through (iv) above, notice to the Administrative Agent shall only be required if such event or condition, together with all other events or conditions referred to in clauses (i) through (iv) above, could reasonably be expected to result in liability of UCAR, Global, the Borrower or any Subsidiary in an aggregate amount exceeding $7,500,000. SECTION 6.07. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND INSPECTIONS. Maintain all financial records in accordance with GAAP and permit any persons designated by the Administrative Agent or any Lender to visit and inspect the financial records and the properties of UCAR, Global, the Borrower or any Subsidiary at reasonable times, upon reasonable prior notice to UCAR, and as often as reasonably requested, and to make extracts from and copies of such financial records, and to discuss the affairs, finances and condition of the Borrower or any Subsidiary with the officers thereof and independent accountants therefor (in each case, subject to reasonable requirements of confidentiality, including requirements imposed by law or by contract). -73- SECTION 6.08. USE OF PROCEEDS. Use the proceeds of the Loans and request the issuance of Letters of Credit only for the purposes set forth in the preamble to this Agreement. SECTION 6.09. COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause all lessees and other persons occupying its Properties to comply, with all Environmental Laws and Environmental Permits applicable to its and their respective operations and Properties; obtain and renew all Environmental Permits necessary for its and their respective operations and Properties; and conduct any Remedial Action in accordance with Environmental Laws, except, in each case with respect to this Section 6.09, to the extent the failure to do so, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. SECTION 6.10. PREPARATION OF ENVIRONMENTAL REPORTS. If a Default caused by reason of a breach, or facts that constitute a breach, of Section 4.17 or 6.09 shall have occurred and be continuing, at the request of the Required Lenders through the Administrative Agent, provide to Lenders within 90 days after such request, at the expense of Global, an environmental site assessment report for the Properties which are the subject of such Default prepared by an environmental consulting firm reasonably acceptable to the Administrative Agent, indicating the presence or absence of Hazardous Materials and the estimated cost of any Remedial Action required under any applicable Environmental Law in connection with such Properties. SECTION 6.11. FURTHER ASSURANCES. Execute any and all further documents, financing statements, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements) that may be required under applicable law or that the Collateral Agent may reasonably request, (a) in order to effectuate the transactions contemplated by the Loan Documents, (b) in order to cause the Collateral and Guarantee Requirement to be satisfied at all times and (c) in order to grant, preserve, protect and perfect the validity and first priority (subject to Liens permitted by Section 7.02) of the security interests created or intended to be created by the Security Documents. All such security interests and Liens will be created under the Security Documents and other instruments and documents in form and substance reasonably satisfactory to the Collateral Agent, and UCAR, Global, the Borrower and the Subsidiaries shall deliver or cause to be delivered to the Administrative Agent all such instruments and documents (including legal opinions and lien searches) as the Collateral Agent or the Required Lenders shall reasonably request to evidence compliance with this Section 6.11. UCAR, Global and the Borrower agree to provide, and to cause each Subsidiary to provide, such evidence as the Collateral Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. SECTION 6.12. SIGNIFICANT SUBSIDIARIES. Cause Significant Subsidiaries at all times to (a) account for 85% or more of the consolidated assets of Global and (b) have accounted for 85% or more of EBITDA for each of the two consecutive periods of four fiscal quarters immediately preceding the date of determination, after giving effect to the designation of any Significant Subsidiary on any date as of which compliance with this Section 6.12 is being determined. SECTION 6.13. CERTAIN ACCOUNTING MATTERS. (a) In the case of each of UCAR, Global, the Borrower and the Subsidiaries, cause its respective fiscal year to end on December 31. (b) Cause its independent public accountants to be KPMG LLP or any other independent public accountant of recognized national standing reasonably acceptable to the Administrative Agent. SECTION 6.14. DIVIDENDS. In the case of Global, permit its Subsidiaries to pay dividends and cause such dividends to be paid to the extent required to pay the monetary Obligations, subject to restrictions permitted by Section 7.09(c) and to prohibitions imposed by applicable requirements of law. SECTION 6.15. INTEREST/EXCHANGE RATE PROTECTION AGREEMENTS. Maintain in effect one or more Interest/Exchange Rate Protection Agreements with any of the Lenders or other financial institutions reasonably satisfactory to the Administrative Agent, the effect of which shall be to limit the interest payable in connection with 40% of the aggregate principal amount of the Term Borrowings projected in good faith to be outstanding at all times to a maximum rate and on terms and conditions comparable to those set forth in the Interest/Exchange Rate Protection Agreements in effect on the Effective Date or otherwise reasonably acceptable, taking into account current market conditions, to the Administrative Agent, and deliver evidence of the execution and delivery thereof to the Administrative Agent. SECTION 6.16. CORPORATE SEPARATENESS. Cause the management, business and affairs of each of the Unrestricted Subsidiaries to be conducted in such a manner that each Unrestricted Subsidiary will be perceived as a legal entity separate and distinct from UCAR, Global, the Borrower and the Subsidiaries. ARTICLE VII NEGATIVE COVENANTS Each of UCAR, Global and the Borrower covenants and agrees with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all fees and all other expenses or amounts payable under any Loan Document have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, none of UCAR, Global and the Borrower will, or will cause or permit any of the Subsidiaries to: SECTION 7.01. INDEBTEDNESS; CERTAIN EQUITY SECURITIES. (a) In the case of the Borrower and the Subsidiaries, incur, create, assume or permit to exist any Indebtedness, except: (i) Indebtedness existing on the Effective Date and set forth in Schedule 7.01, and (other than in the case of intercompany Indebtedness among UCAR, Global and other Loan Parties) extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof; (ii) Indebtedness created under the Loan Documents (including the Intercompany Notes); (iii) Indebtedness pursuant to Interest/Exchange Rate Protection Agreements entered into in order to fix the effective rate of interest, or to hedge against currency fluctuations, on the Loans and other Indebtedness or to hedge against currency fluctuations with respect to purchases and sales of goods in the ordinary course; PROVIDED, in each case, that such transactions shall be entered into to limit risks arising in the business of the Borrower and the Subsidiaries and not for the purpose of speculation; -75- (iv) Indebtedness of any Subsidiary owed to (including obligations in respect of letters of credit for the benefit of) any person providing worker's compensation, health, disability or other employee benefits or property, casualty or liability insurance to any Subsidiary, pursuant to reimbursement or indemnification obligations to such person; (v) Indebtedness of Global, the Borrower or any Subsidiary to any Subsidiary, the Borrower or Global, PROVIDED that (A) Indebtedness of any Subsidiary that is not a Loan Party to the Borrower or to any Subsidiary Loan Party shall be subject to Section 7.04(j) (other than loans made to UCAR's Canadian subsidiary in amounts in the aggregate not in excess of the remaining reserve for plant closure costs established on UCAR's accounts and reflected on its audited December 31, 1998 financial statements) and shall be evidenced by promissory notes that are pledged under the Domestic Pledge Agreement and (B) Indebtedness of Global, the Borrower or any Subsidiary Loan Party to any Subsidiary that is not a Loan Party shall be subordinated to the Obligations on terms satisfactory to the Administrative Agent; (vi) Indebtedness of a Subsidiary which represents the assumption by such Subsidiary of Indebtedness of another Subsidiary in connection with the permitted merger of such other Subsidiary with or into such Subsidiary or the permitted purchase of all or substantially all the assets of such other Subsidiary; (vii) Indebtedness of any Subsidiary in respect of performance bonds, bid bonds, appeal bonds, surety bonds and similar obligations and trade-related letters of credit, in each case provided in the ordinary course of business, including those incurred to secure health, safety and environmental obligations in the ordinary course of business, and any extension, renewal or refinancing thereof to the extent not provided to secure the repayment of other Indebtedness and to the extent that the amount of refinancing Indebtedness is not greater than the amount of Indebtedness being refinanced; (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; PROVIDED that such Indebtedness is extinguished within five Business Days of its incurrence; (ix) Indebtedness of a Subsidiary acquired after the date hereof (or of a special purpose subsidiary formed after the date hereof to acquire the assets and assume the Indebtedness of a business unit) and Indebtedness of a person merged or consolidated with or into a Subsidiary after the date hereof, which Indebtedness in each case exists at the time of such acquisition, formation, merger, consolidation or conversion into a Subsidiary and is not created in contemplation of such event and where such acquisition, formation, merger or consolidation is permitted by this Agreement, PROVIDED that the aggregate principal amount of Indebtedness under this paragraph (ix) shall not exceed $25,000,000 for all Subsidiaries at any time outstanding; (x) Capital Lease Obligations, mortgage financings and purchase money Indebtedness incurred by any Subsidiary prior to or within 270 days after a Capital Expenditure permitted under Section 7.10 in order to finance such Capital Expenditure, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased weighted average life thereof; -76- (xi) Capital Lease Obligations incurred by any Subsidiary in respect of any Sale and Leaseback Transaction that is permitted under Section 7.03; (xii) other Indebtedness of the Subsidiaries in an aggregate principal amount at any time outstanding that, when taken together at the time of the incurrence, creation or assumption of such Indebtedness with the sum of the aggregate Litigation Payments made after the Effective Date in excess of the Litigation Reserves in effect on September 30, 1999 (less the amount of charges against such Litigation Reserves prior to the Effective Date), plus the aggregate amount of additional Litigation Reserves in respect of the Litigation Liabilities created after September 30, 1999, is not in excess of $130,000,000, PROVIDED that (A) no more than $20,000,000 of such Indebtedness may be secured, (B) no more than $15,000,000 of such Indebtedness may be Indebtedness of Subsidiaries that are not Loan Parties and (C) for purposes of determining compliance herewith, the aggregate principal amount of Indebtedness of Brazil and its Subsidiaries at any time shall be deemed reduced by the aggregate amount of Permitted Investments held at such time by Brazil and its Subsidiaries for the purpose of hedging such Indebtedness; and (xiii) all premium (if any), interest (including post-petition interest), fees, expenses, indemnities, charges and additional or contingent interest on obligations described in clauses (i) through (xii) above. (b) In the case of UCAR and Global, incur, create, assume or permit to exist any Indebtedness other than Indebtedness existing on the Effective Date and set forth on Schedule 7.01, Indebtedness created under the Loan Documents, Indebtedness permitted by Section 7.01(a)(v) and Indebtedness of UCAR consisting of contingent liabilities or Indebtedness of the type referred to in the proviso contained in the definition of "Unrestricted Subsidiary." In addition, UCAR may elect to receive any Restricted Payment permitted to be made to it under Section 7.06 by incurring intercompany Indebtedness to Global. (c) Incur, create, assume or permit to exist any preferred Capital Stock, unless the Net Proceeds thereof are applied in accordance with Section 2.10(c). SECTION 7.02. LIENS; SALES OF CERTAIN ASSETS. Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person, including any Subsidiary) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, or sell or transfer income or revenues (including any accounts receivable) or any right in respect thereof, except: (a) Liens on property or assets of UCAR, Global and the Subsidiaries existing on the Effective Date and set forth in Schedule 7.02; PROVIDED that such Liens shall secure only those obligations which they secure on the Effective Date (and extensions, renewals and refinancings of such obligations permitted by Section 7.01(a)(i)) and shall not subsequently apply to any other property or assets of UCAR, Global, the Borrower or any Subsidiary (other than investments in Unrestricted Subsidiaries); (b) any Lien created under the Loan Documents; (c) any Lien existing on any property or asset of any Subsidiary prior to the acquisition thereof by such Subsidiary; -77- PROVIDED that (i) such Lien is not created in contemplation of or in connection with such acquisition and (ii) such Lien does not apply to any other property or asset of UCAR, Global, the Borrower or any Subsidiary; (d) any Lien on any property or asset of a Subsidiary securing Indebtedness permitted by Section 7.01(a)(ix); PROVIDED that such Lien does not apply to any other property or assets of UCAR, Global, the Borrower or any Subsidiary not securing such Indebtedness at the date of acquisition of such property or asset (other than after acquired property of such Subsidiary subjected to a Lien securing Indebtedness incurred prior to such date and permitted hereunder which contains a requirement for the pledging of after acquired property); (e) Liens for taxes, assessments or other governmental charges or levies not yet delinquent, or which are for less than $1,000,000 in the aggregate, or which are being contested in compliance with Section 6.03 or for property taxes on property that UCAR, Global, the Borrower or the affected Subsidiary has determined to abandon if the sole recourse for such tax, assessment, charge, levy or claim is to such property; (f) carriers', warehousemen's, mechanic's, materialmen's, repairmen's or other like Liens arising in the ordinary course of business and securing obligations that are not yet due and payable or that are being contested in good faith by appropriate proceedings and in respect of which, if applicable, UCAR, Global, the Borrower or the relevant Subsidiary shall have set aside on its books reserves in accordance with GAAP; (g) pledges and deposits made in the ordinary course of business in compliance with the Federal Employers Liability Act or any other worker's compensation, unemployment insurance and other social security laws or regulations and deposits securing liability to insurance carriers under insurance or self-insurance arrangements in respect of such obligations; (h) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business, including those incurred to secure health, safety and environmental obligations in the ordinary course of business or in connection with an appeal of litigation disclosed on Schedule 4.09; (i) zoning restrictions, easements, trackage rights, leases (other than Capital Lease Obligations), licenses, special assessments, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of UCAR, Global, the Borrower or any of the Subsidiaries; (j) purchase money security interests in real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed) by any Subsidiary (including the interests of vendors and lessors under conditional sale and title retention agreements); PROVIDED that (i) such security interests secure Indebtedness or Sale and Lease-Back Transactions permitted by Section 7.01, (ii) such security interests are incurred, and the Indebtedness secured thereby is created, within 270 days after such acquisition (or construction), (iii) the Indebtedness secured thereby does not exceed 100% of the cost (including capitalized interest on construction -78- financing) of such real property, improvements or equipment at the time of such acquisition (or construction), (iv) such expenditures are permitted by this Agreement and (v) such security interests do not apply to any other property or assets of the Borrower or any Subsidiary (other than to accessions to such real property, improvements or equipment and provided that individual financings of equipment provided by a single lender may be cross-collateralized to other financings of equipment provided solely by such lender); (k) Liens securing reimbursement obligations in respect of trade-related letters of credit permitted under Section 7.01 and covering the goods (or the documents of title in respect of such goods) financed by such letters of credit; (l) Liens arising out of capitalized or operating lease transactions permitted under Section 7.03, so long as such Liens (i) attach only to the property sold in such transaction and any accessions thereto and (ii) do not interfere with the business of UCAR, Global, the Borrower or any Subsidiary in any material respect; (m) Liens consisting of interests of lessors under capital leases permitted by Section 7.01; (n) Liens securing judgments for the payment of money in an aggregate amount not in excess of $7,500,000 (except to the extent covered by insurance as to which the insurer has acknowledged in writing its obligation to cover), unless such judgments shall remain undischarged for a period of more than 30 consecutive days during which execution shall not be effectively stayed, and Liens securing payment of EU antitrust fines, to the extent payment of such fines are deferred pursuant to an agreement with an EU authority or relevant court; (o) any Lien arising by operation of law pursuant to Section 107(1) of CERCLA or pursuant to analogous state or foreign law, for costs or damages which are not yet due (by virtue of a written demand for payment by a Governmental Authority) or which are being contested in compliance with the standard set forth in Section 6.03(a), or on property that a Subsidiary has determined to abandon if the sole recourse for such costs or damages is to such property, PROVIDED that the liability of UCAR, Global, the Borrower and the Subsidiaries with respect to the matter giving rise to all such Liens shall not, in the reasonable estimate of Global (in light of all attendant circumstances, including the likelihood of contribution by third parties), exceed $7,500,000; (p) any leases or subleases to other persons of properties or assets owned or leased by a Subsidiary; (q) Liens which are contractual rights of set-off (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness or (ii) pertaining to pooled deposit and/or sweep accounts of Global, the Borrower and/or any Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of Global, the Borrower and the Subsidiaries; (r) other Liens with respect to property or assets not constituting collateral for the Obligations with an aggregate fair market value of not more than $20,000,000 at any time; -79- (s) any Lien arising as a result of a transaction permitted under Section 7.05(h) or (i) or under Section 7.13; (t) the sale of accounts receivable in connection with collection in the ordinary course of business and Liens which might arise as a result of the sale or other disposition of accounts receivable pursuant to Section 7.05(h); and (u) the replacement, extension or renewal of any Lien permitted by clause (c), (d) or (j) above; PROVIDED that such replacement, extension or renewal Lien shall not cover any property other than the property that was subject to such Lien prior to such replacement, extension or renewal; and PROVIDED FURTHER that the Indebtedness and other obligations secured by such replacement, extension or renewal Lien are permitted by this Agreement. Notwithstanding the foregoing, none of UCAR, Global and the Borrower will create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person, including any Subsidiary) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, or sell or transfer any income or revenues (including any account receivable) or any right in respect thereof, except any Lien created under the Loan Documents and involuntary Liens of the type described in paragraphs (a), (e), (n), (o), (q) or (s) above and Liens on any property or assets of an Unrestricted Subsidiary. SECTION 7.03. SALE AND LEASE-BACK TRANSACTIONS. Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred (a "SALE AND LEASE-BACK TRANSACTION"), other than any Sale and Lease-Back Transaction which involves a sale by a Subsidiary solely for cash consideration on terms not less favorable than would prevail in an arm's-length transaction and which (a) results in a Capital Lease Obligation or an operating lease, in either case entered into to finance a Capital Expenditure permitted by Section 7.10 consisting of the initial acquisition by such Subsidiary of the property sold or transferred in such Sale and Lease-Back Transaction, PROVIDED that such Sale and Lease-Back Transaction occurs within 270 days after such acquisition or (b) results in a Capital Lease Obligation or an operating lease entered into for any other purpose. SECTION 7.04. INVESTMENTS, LOANS, ADVANCES AND ACQUISITIONS. Purchase, hold or acquire any Capital Stock, evidences of Indebtedness or other securities of (including any option, warrant or other right to acquire any of the foregoing), make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other person constituting a business unit, except: (a) investments (i) existing on the Effective Date in the capital stock of the Subsidiaries; (ii) by UCAR in the capital stock of Global and the Borrower; (iii) by Global or any Subsidiary in any Loan Party (so long as such person shall remain a Loan Party after giving effect to such investment); and (iv) by any Subsidiary that is not a Loan Party in any Wholly Owned Subsidiary that is not a Loan Party (so long as such Subsidiary shall remain a Wholly Owned Subsidiary after giving effect to such investment); -80- (b) Permitted Investments and investments that were Permitted Investments when made; (c) investments arising out of the receipt by Global or any Subsidiary of noncash consideration for the sale of assets permitted under Section 7.05 provided that such consideration (if the stated amount or value thereof is in excess of $1,000,000) is pledged upon receipt pursuant to the Pledge Agreements to the extent required thereby; (d) the Intercompany Loans and intercompany loans to Global, the Borrower or Subsidiary Loan Parties that comply with Section 7.01; (e) (i) loans and advances to employees of UCAR, Global, the Borrower or the Subsidiaries not to exceed $6,000,000 in the aggregate at any time outstanding (excluding up to $1,000,000 in loans existing on the Effective Date to former employees) and (ii) advances of payroll payments and expenses to employees in the ordinary course of business; (f) (i) accounts receivable arising and trade credit granted in the ordinary course of business and any securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss and (ii) prepayments and other credits to suppliers made in the ordinary course of business consistent with the past practices of UCAR, Global and the Subsidiaries; (g) Interest/Exchange Rate Protection Agreements permitted pursuant to Section 7.01(a)(iii); (h) investments, other than investments listed in paragraphs (a) through (g) of this Section, existing on the Effective Date and set forth on Schedule 7.04; (i) investments resulting from pledges and deposits referred to in Section 7.02(g) or (h); and (j) (i) investments constituting Permitted Acquisitions made with Available Disposition Proceeds and (ii) investments constituting Permitted Subsidiary Investments or investments in Unrestricted Subsidiaries made after the Effective Date (A) with Equity Proceeds or (B) in respect of which the aggregate amount of consideration (whether cash or property, as valued at the time each such investment is made) does not exceed (net of any return representing return of capital of (but not return on) any such investment) at any time the amount set forth on Schedule A for the Leverage Ratio that is in effect at such time (it being agreed that any such investment permitted when made shall not cease to be permitted as a result of the applicable Leverage Ratio subsequently changing), PROVIDED that (x) the aggregate amount of the consideration (whether cash or property, as valued at the time each such investment is made) for all investments made in Unrestricted Subsidiaries (other than investments made therein with Equity Proceeds after the Effective Date) shall not exceed (net of return of capital of (but not return on) any such investment) $50,000,000 at any time (it being understood that investments referred to in clause (E) of the definition of "Unrestricted Subsidiary" shall not be included in determining compliance with such limitation and that no investment shall be deemed made solely as a result of the transfer of ownership of the Capital Stock of UCAR Graph-Tech Inc. to UCAR), and (A) no more than $15,000,000 of such amount at any time may be invested in UCAR -81- Graph-Tech Inc. and (B) no more than $25,000,000 of such amount at any time may be invested in Unrestricted Subsidiaries not engaged primarily in Related Businesses, and (y) the aggregate amount of the consideration (whether cash or property, as valued at the time each such investment is made) for all Permitted Subsidiary Investments made in persons in which at the time of determination Global owns, directly or indirectly, less than 90% of the outstanding Capital Stock (other than investments made therein with Equity Proceeds) after the Effective Date shall not exceed (net of return of capital of (but not return on) any such investment) $125,000,000 at any time, of which no more than $30,000,000 at any time may be invested in persons that are not Subsidiaries. Notwithstanding the foregoing, under no circumstances shall any Foreign Subsidiary own any of the Capital Stock of any Domestic Subsidiary. SECTION 7.05. MERGERS, CONSOLIDATIONS, SALES OF ASSETS AND ACQUISITIONS. Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets (whether now owned or hereafter acquired), other than assets of UCAR constituting an Unrestricted Subsidiary, or any Capital Stock of Global, the Borrower or any Subsidiary, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or any substantial part of the assets of any other person, except that this Section shall not prohibit: (a) the purchase and sale of inventory in the ordinary course of business by any Subsidiary or the acquisition of any asset of any person in the ordinary course of business or any purchase or sale of Permitted Investments in the ordinary course of business; (b) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing, the merger of any Subsidiary into or with any other Wholly Owned Subsidiary in a transaction in which the surviving entity is a Wholly Owned Subsidiary (which shall be a domestic Subsidiary if the non-surviving person shall be a Domestic Subsidiary and a Guarantor if the non-surviving person shall be a Guarantor), and no person other than Global or a Wholly Owned Subsidiary receives any consideration; (c) Sale and Lease-Back Transactions permitted by Section 7.03; (d) investments permitted by Section 7.04; (e) subject to Section 7.07, sales, leases or transfers (i) from Global or any Subsidiary to Global or to a domestic Wholly Owned Subsidiary, (ii) from any Foreign Subsidiary to any Foreign Wholly Owned Subsidiary or to Global; (iii) constituting Permitted Subsidiary Transfers; or (iv) constituting Permitted Subsidiary Investments (subject to the limitations set forth in Section 7.04(j)); (f) sales, leases or other dispositions of equipment or real property of the Subsidiaries determined by the Board of Directors or senior management of Global to be no longer useful or necessary in the operation of the business of Global and the Subsidiaries; PROVIDED that (x) the Net Proceeds thereof shall be applied in accordance with Section 2.10(c) and (y) the fair market value of assets sold, leased or otherwise disposed of in any one year shall not exceed $4,000,000 in the aggregate; -82- (g) sales, leases or other dispositions of inventory of the Subsidiaries determined by the Board of Directors or senior management of Global to be no longer useful or necessary in the operation of the business of Global and the Subsidiaries; PROVIDED that the Net Proceeds thereof shall be applied in accordance with Section 2.10(c); (h) sales or other dispositions of accounts receivable of Subsidiaries in connection with factoring arrangements so long as the aggregate face amount at any time outstanding of receivables subject to such arrangements does not exceed (i) $70,000,000 in the aggregate or (ii) $10,000,000 for receivables of Domestic Subsidiaries; (i) sales or other dispositions by Global or any Subsidiary of assets (other than receivables, except to the extent disposed of incidentally in connection with an asset disposition otherwise permitted hereby), including Capital Stock of Subsidiaries, for consideration in an aggregate amount not exceeding $300,000,000; PROVIDED that (i) each such disposition shall be for a consideration determined in good faith by the Board of Directors or senior management of Global to be at least equal to the fair market value (if any) of the asset sold; (ii) the aggregate amount of all noncash consideration included in the proceeds of any such disposition may not exceed 25% of the fair market value of such proceeds, PROVIDED HOWEVER, that obligations of the type referred to in paragraphs (a) or (e) of the definition of "Permitted Investments" shall be deemed not to be noncash proceeds if such obligations are promptly sold for cash and the proceeds of such sale are included in the calculation of Net Proceeds from such sale; (iii) no Default or Event of Default shall have occurred and be continuing immediately prior to or after such disposition; and (iv) no such disposition shall be made unless UCAR shall be in compliance, on a pro forma basis of the giving effect to such disposition, with the covenants contained in Sections 7.11 and 7.12 recomputed as at the last day of the most recently ended fiscal quarter of UCAR for which financial statements have been delivered under Section 5.04(a) or (b) as if such disposition had taken place on the first day of each relevant period for testing such compliance, and, in the case of any such disposition for consideration in excess of $50,000,000, Global shall have delivered to the Administrative Agent a certificate of Global signed by a Responsible Officer of Global to such effect. Notwithstanding any other provision herein, no Mortgaged Property (other than the Mortgaged Property a portion of which is currently leased to UCAR Graph-Tech Inc.) may be sold, transferred, leased or otherwise disposed of at any time unless the Net Proceeds thereof shall be applied immediately to the prepayment of Obligations in accordance with Section 2.10(c) or within 10 Business Days to the acquisition of property having a value equivalent to or greater than the value of such Mortgaged Property and such newly acquired property is thereupon either made a Mortgaged Property subject to a Mortgage on terms reasonably satisfactory to the Collateral Agent or constitutes an addition to a Mortgaged Property and is subject to the Mortgage on such Mortgaged Property (or, if not so applied within 10 Business Days, deposited in a cash collateral account with the Collateral Agent on terms satisfactory to the Collateral Agent); and no sale may be made of the Capital Stock of (x) Global, the Borrower, any LC Subsidiary, UCAR Carbon Company Inc. or UCAR Holdings II Inc. or (y) any other Subsidiary, except in connection with the sale of all the outstanding Capital Stock of such Subsidiary that is held by Global or any other Subsidiary. Notwithstanding any other provision herein, subject to Section 7.06(f), Global or any Subsidiary may sell or otherwise transfer to UCAR Graph-Tech Inc. the Mortgaged Property a portion of which is currently leased to UCAR Graph-Tech Inc.; -83- (j) the sale or other disposition of (i) facilities owned on the Effective Date in Berlin, Germany and Welland, Canada and (ii) real property and the related closed facilities in Sheffield, England; and (k) the sale or other disposition of all or any part of the Capital Stock of UCAR Graph-Tech Inc., PROVIDED that (i) all the Net Proceeds received by UCAR in respect thereof (which Net Proceeds shall include any repayment of intercompany indebtedness made in connection with such sale or disposition) shall be applied immediately to the prepayment of Obligations in accordance with Section 2.10(c) and (ii) in the case of a spin off of such Capital Stock to the shareholders of UCAR, all intercompany Indebtedness owed to UCAR shall have been repaid in full and the amount of such repayment shall be deemed to be Net Proceeds and shall be applied immediately to the prepayment of Obligations in accordance with Section 2.10(c) (and not reinvested). SECTION 7.06. DIVIDENDS AND DISTRIBUTIONS. Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that: (a) any Subsidiary may make any Restricted Payments to Global or to any Wholly Owned Subsidiary Loan Party (or, in the case of non-Wholly Owned Subsidiaries, to Global or any Subsidiary and to each other owner of Capital Stock of such Subsidiary on a pro rata basis (or more favorable basis from the perspective of Global or such Subsidiary) based on their relative ownership interests); (b) Global may make any Restricted Payments to UCAR in respect of overhead, tax liabilities, legal, accounting and other professional fees and expenses and any fees and expenses associated with registration statements filed with the Securities and Exchange Commission and ongoing public reporting requirements, in each case to the extent actually incurred by UCAR in connection with the business of maintaining its status as a public company or its ownership of the Capital Stock of Global, the Borrower and the Unrestricted Subsidiaries; (c) so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, UCAR, Global and the Subsidiaries may make other Restricted Payments so long as, after giving effect thereto, the aggregate amount of Restricted Payments made under this paragraph (c) in any fiscal year shall not exceed the sum of (i) $25,000,000 and (ii) the lesser of (A) the portion of Excess Cash Flow for the immediately preceding year that is not required to be applied to prepay Loans and (B) (x) $10,000,000, if the Leverage Ratio as of the last day of the most recent fiscal quarter of UCAR for which financial statements have been delivered under Section 6.04(a) or (b) is greater than or equal to 2.50 to 1.00, or (y) $25,000,000, if such Leverage Ratio is less than 2.50 to 1.00; (d) UCAR or Global may make Restricted Payments to purchase or redeem shares of Capital Stock (or rights, options or warrants in respect of such shares) of UCAR (including related stock appreciation rights or similar securities) held by present or former directors, officers or employees of UCAR, Global or any Subsidiary or by any Plan upon such person's death, disability, retirement or termination of employment or under the terms of any such Plan or any other agreement under which such shares of stock or related rights were issued; PROVIDED that the aggregate amount of such purchases or redemptions (or dividends or distributions to UCAR) under this paragraph (d) shall not -84- exceed $5,000,000 per calendar year which, if not used in any year, may be carried forward to any subsequent calendar year; PROVIDED, HOWEVER, that the aggregate amount of such purchases or redemptions (or dividends or distributions to UCAR) that may be made pursuant to this paragraph (d) shall not exceed $25,000,000; (e) Global may otherwise make Restricted Payments to UCAR in order to fund Litigation Payments; PROVIDED that the amount of Restricted Payments made under this paragraph (e) plus the amount of payments in respect of intercompany Indebtedness owed to UCAR made pursuant to Section 7.09(a) to fund Litigation Payments, shall not at any time exceed the Litigation Reserves in effect on September 30, 1999 (less the amount of charges against such Litigation Reserves prior to the Effective Date), and the amount available for additional Litigation Liabilities at such time under Section 7.01(a)(xii) (calculated in the manner described in Section 4.24); (f) Global may otherwise make Restricted Payments to UCAR in an aggregate amount not to exceed $15,000,000 for the sole and exclusive purpose of making investments in UCAR Graph-Tech Inc., PROVIDED that each such investment shall be made in the form of intercompany Indebtedness evidenced by promissory notes in form satisfactory to the Collateral Agent that are pledged under the Domestic Pledge Agreement; and (g) the Capital Stock of UCAR Graph-Tech Inc. may initially be distributed (and UCAR shall diligently act to effect such distribution) to UCAR, and may subsequently be distributed, subject to Section 7.05(k), to the stockholders of UCAR. SECTION 7.07. TRANSACTIONS WITH AFFILIATES. (a) Sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transaction with, any of its Affiliates or any known direct or indirect holder of 10% or more of any class of capital stock of UCAR, unless such transaction is (i) otherwise permitted under this Agreement and (ii) upon terms no less favorable to UCAR, Global, the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's-length transaction with a person which was not an Affiliate, PROVIDED that the foregoing restriction shall not apply to the indemnification of directors of UCAR, Global, the Borrower and the Subsidiaries in accordance with customary practice. (b) The foregoing paragraph (a) shall not prohibit, to the extent otherwise permitted under this Agreement, (i) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements or stock option, ownership or purchase plans approved by the Board of Directors of UCAR, (ii) loans or advances to employees of UCAR, Global, the Borrower or any Subsidiary in accordance with Section 7.04(e), (iii) transactions among UCAR, Global, the Borrower and Wholly Owned Subsidiaries and transactions among Wholly Owned Subsidiaries otherwise permitted by this Agreement, (iv) Permitted Subsidiary Transfers, (v) the payment of fees and indemnities to directors, officers and employees of UCAR, Global, the Borrower and the Subsidiaries in the ordinary course of business, (vi) transactions pursuant to permitted agreements in existence on the Effective Date and set forth on Schedule 7.07, (vii) payments pursuant to the Tax Sharing Agreement, (viii) any employment agreements entered into by UCAR, Global or any of the Subsidiaries in the ordinary course of business and any payments, awards or grants pursuant thereto, (ix) dividends and repurchases permitted under Section 7.06, and (x) any purchase by UCAR of Capital Stock of Global or the Borrower or any contribution by UCAR to the equity capital of Global or the Borrower. -85- SECTION 7.08. BUSINESS OF UCAR, THE BORROWER AND THE SUBSIDIARIES. (a) In the case of Global and the Subsidiaries (taken as a whole), cease to engage primarily in the business of manufacturing graphite and carbon electrodes; (b) in the case of UCAR, engage at any time in any business or business activity other than (i) the ownership of all the outstanding Capital Stock of Global and the Borrower together with activities directly related thereto, (ii) the ownership of Unrestricted Subsidiaries together with activities directly related thereto, (iii) performance of its obligations under the Loan Documents, under intercompany Indebtedness and under Indebtedness incurred in accordance with Section 7.01(b) and (iv) actions required by law to maintain its status as a corporation and as a public company, and (c) in the case of the Borrower, own any Capital Stock of any person or engage at any time in any business activity other than (i) performance of its obligations under the Loan Documents, (ii) ownership of the Intercompany Notes and (iii) activities required by law to maintain its status as a corporation. SECTION 7.09. INDEBTEDNESS AND OTHER MATERIAL AGREEMENTS. (a) Directly or indirectly, make any payment, retirement, repurchase or redemption on account of the principal of intercompany Indebtedness owed to UCAR or directly or indirectly prepay or defease any such Indebtedness, except that Global may make payments in respect of intercompany Indebtedness owed to UCAR in order to fund Litigation Payments; PROVIDED that the amount of payments that may be made to UCAR pursuant to this sentence, plus the amount of Restricted Payments made to UCAR pursuant to Section 7.06(e), shall not exceed the amount set forth in Section 7.06(e). (b) Amend or modify in any manner adverse to the Lenders, or grant any waiver or release under or terminate in any manner (if such action shall be adverse to the Lenders), the certificate of incorporation or by-laws of Global, the Borrower or any Subsidiary. (c) Permit Global or any Subsidiary to enter into any agreement or instrument which by its terms restricts the payment of dividends or the making of cash advances by Global or such Subsidiary to the Borrower or any Subsidiary that is a direct or indirect parent of such Subsidiary other than those in effect on the Effective Date and set forth on Schedule 7.09 (or replacements of such agreements on terms no less favorable to the Lenders), and those arising under any Loan Document. SECTION 7.10. CAPITAL EXPENDITURES. Permit the aggregate amount of Capital Expenditures made by the Subsidiaries (other than to the extent funded with Available Disposition Proceeds) in any fiscal year to exceed the aggregate amount set forth below: YEAR AMOUNT 2000 $80,000,000 2001 80,000,000 2002 80,000,000 2003 80,000,000 2004 80,000,000 2005 80,000,000 2006 81,000,000 2007 84,000,000 PROVIDED, HOWEVER, that (a) Global may in any fiscal year, upon written notice to the Administrative Agent, increase the amount of Capital Expenditures permitted to be made pursuant to this Section by an amount up to $10,000,000 by reducing the amount of Capital Expenditures permitted to be made pursuant to -86- this Section in the next succeeding fiscal year by the amount of such increase, and (b) to the extent that Capital Expenditures made in any fiscal year were less than the amount set forth above for such fiscal year less any reduction made for such fiscal year pursuant to clause (a), such unused amount may be carried forward to the next succeeding fiscal year; PROVIDED that not more that $20,000,000 may be carried forward from any fiscal year. SECTION 7.11. INTEREST COVERAGE RATIO. Permit the ratio (the "INTEREST COVERAGE RATIO") for any four fiscal quarter period ended during any period set forth below of (a) EBITDA of UCAR, Global, the Borrower and the Subsidiaries to (b) Cash Interest Expense to be less than the ratio set forth below for such period: - ----------------------- ---------------------------------- --------------------- From and Including: To and Including: Ratio: - ----------------------- ---------------------------------- --------------------- Effective Date September 30, 2000 2.50 : 1.00 - ----------------------- ---------------------------------- --------------------- October 1, 2000 September 30, 2001 2.50 : 1.00 - ----------------------- ---------------------------------- --------------------- October 1, 2001 September 30, 2002 2.75 : 1.00 - ----------------------- ---------------------------------- --------------------- October 1, 2002 September 30, 2003 3.00 : 1.00 - ----------------------- ---------------------------------- --------------------- October 1, 2003 September 30, 2004 3.25 : 1.00 - ----------------------- ---------------------------------- --------------------- October 1, 2004 September 30, 2005 3.50 : 1.00 - ----------------------- ---------------------------------- --------------------- October 1, 2005 September 30, 2006 3.50 : 1.00 - ----------------------- ---------------------------------- --------------------- October 1, 2006 September 30, 2007 3.50 : 1.00 - ----------------------- ---------------------------------- --------------------- October 1, 2007 Tranche B Maturity Date 3.50 : 1.00 - ----------------------- ---------------------------------- --------------------- SECTION 7.12. LEVERAGE RATIO. Permit the ratio (the "LEVERAGE RATIO") of (a) Net Debt as of the last day of any fiscal quarter, which last day occurs in any period set forth below, to (b) EBITDA for the four quarter period ended as of such day to be in excess of the ratio set forth below for such period: - ------------------------- ---------------------------------- ------------------- From and Including: To and Including: Ratio: - ------------------------- ---------------------------------- ------------------- Effective Date September 30, 2000 4.25 : 1.00 - ------------------------- ---------------------------------- ------------------- October 1, 2000 September 30, 2001 4.00 : 1.00 - ------------------------- ---------------------------------- ------------------- October 1, 2001 September 30, 2002 4.00 : 1.00 - ------------------------- ---------------------------------- ------------------- October 1, 2002 September 30, 2003 3.75 : 1.00 - ------------------------- ---------------------------------- ------------------- October 1, 2003 September 30, 2004 3.75 : 1.00 - ------------------------- ---------------------------------- ------------------- October 1, 2004 September 30, 2005 3.50 : 1.00 - ------------------------- ---------------------------------- ------------------- October 1, 2005 September 30, 2006 3.50 : 1.00 - ------------------------- ---------------------------------- ------------------- October 1, 2006 September 30, 2007 3.50 : 1.00 - ------------------------- ---------------------------------- ------------------- October 1, 2007 Tranche B Maturity Date 3.50 : 1.00 - ------------------------- ---------------------------------- ------------------- -87- SECTION 7.13. CAPITAL STOCK OF THE SUBSIDIARIES. Sell, transfer, lease or otherwise dispose of, or make subject to any subscription, option, warrant, call, right or other agreement or commitment of any nature, the Capital Stock of any Subsidiary, other than (a) pursuant to the Loan Documents or pursuant to a transaction permitted pursuant to Section 7.05 and subject to Section 2.10(c), (b) sales, transfers and other dispositions of the Capital Stock of UCAR Graph-Tech Inc. as contemplated by Section 7.05(k), (c) in connection with transactions of the type described in Section 7.07(b)(i) and (d) directors' qualifying shares. ARTICLE VIII EVENTS OF DEFAULT If any of the following events ("EVENTS OF DEFAULT") shall occur: (a) the Borrower or any LC Subsidiary shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower or any LC Subsidiary shall fail to pay any interest on any Loan or any reimbursement obligation in respect of any LC Disbursement, any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five Business Days; (c) any representation or warranty made or deemed made by or on behalf of UCAR, Global, the Borrower or any Subsidiary in or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) UCAR, Global or the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Article III, in Section 6.01 (with respect to the existence of UCAR, Global or the Borrower), 6.05 or 6.08 or in Article VII; (e) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of the Required Lenders); (f) UCAR, Global, the Borrower, any LC Subsidiary, any Intercompany Borrower or any Significant Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Indebtedness (other than Indebtedness under any Loan Document) having an aggregate principal or notional amount in excess of $7,500,000 (such Indebtedness of any such person being called, "MATERIAL INDEBTEDNESS"), when and as the same shall become due and payable; -88- (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; PROVIDED that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of a voluntary sale or transfer of the property or assets securing such Indebtedness that is permitted under the Loan Documents; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in or with a court or other Governmental Authority of competent jurisdiction seeking (i) liquidation, reorganization or other relief in respect of UCAR, Global, the Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for UCAR, Global, the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) UCAR, Global, the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for UCAR, Global, the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) UCAR, Global, the Borrower or any Significant Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $7,500,000 (except to the extent covered by insurance as to which the insurer has acknowledged in writing its obligation to pay such judgment or judgments) shall be rendered against UCAR, Global, the Borrower, any LC Subsidiary, any Intercompany Borrower, any Significant Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of UCAR, Global, the Borrower, any LC Subsidiary, any Intercompany Borrower or any Significant Subsidiary to enforce any such judgment; (l) a Reportable Event or Reportable Events, or a failure to make a required installment or other payment (within the meaning of Section 412(n)(1) of the Code), shall have occurred with respect to any Plan, (ii) a trustee shall be appointed by a United States district court to administer any Plan, (iii) the PBGC shall institute proceedings (including giving notice of intent thereof) to terminate -89- any Plan, (iv) the Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan and the Borrower or such ERISA Affiliate does not have reasonable grounds for contesting such Withdrawal Liability or is not contesting such Withdrawal Liability in a timely and appropriate manner, (v) the Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, (vi) the Borrower or any ERISA Affiliate shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (vii) any other similar event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vii) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; (m) any Lien purported to be created under any Security Document shall cease to be, or shall be asserted by any Loan Party or Subsidiary not to be, a valid and perfected Lien on any Collateral, with the priority required by the applicable Security Document, or any Guarantee purported to be created under any Loan Document shall cease to be, or shall be asserted by any Loan Party not to be, in full force and effect except (i) as a result of the sale or other disposition of the applicable Collateral in a transaction permitted under the Loan Documents or (ii) as a result of the Administrative Agent's failure to maintain possession of any stock certificates, promissory notes or other instruments delivered to it under any Security Document; or (n) a Change in Control shall occur; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE IX THE AGENTS Each of the Lenders and the Issuing Bank hereby irrevocably appoints each of the Administrative Agent and the Collateral Agent as its agent and authorizes each Agent to take such actions on its behalf and to exercise -90- such powers as are delegated to the Agents by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. Any bank serving as Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with UCAR, Global, the Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent hereunder. The Agents shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Agents shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Agents shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Agents are required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02), and (c) except as expressly set forth in the Loan Documents, the Agents shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to UCAR, Global, the Borrower or any of the Subsidiaries that is communicated to or obtained by any bank serving as Agent or any of its Affiliates in any capacity. The Agents shall not be liable for any action taken or not taken by them with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02) or in the absence of their own gross negligence or wilful misconduct. The Agents shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Agents by UCAR, Global, the Borrower or a Lender, and the Agents shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article V or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Agents. The Agents shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by them to be genuine and to have been signed or sent by the proper person. The Agents also may rely upon any statement made to them orally or by telephone and believed by them to be made by the proper person, and shall not incur any liability for relying thereon. The Agents may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by them, and shall not be liable for any action taken or not taken by them in accordance with the advice of any such counsel, accountants or experts. The Agents may perform any and all their duties and exercise their rights and powers by or through any one or more sub-agents appointed by them. The Agents and any such sub-agent may perform any and all their duties and exercise their rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of each Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent. -91- Subject to the appointment and acceptance of a successor to an Agent as provided in this paragraph, such Agent may resign at any time by notifying the Lenders, the Issuing Bank and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the resigning Agent gives notice of its resignation, then the resigning Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Agent hereunder by a predecessor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the resigning Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After any Agent's resignation hereunder, the provisions of this Article and Section 10.03 shall continue in effect for the benefit of such resigning Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent. Each Lender acknowledges that it has, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or related agreement or any document furnished hereunder or thereunder. ARTICLE X MISCELLANEOUS SECTION 10.01. NOTICES. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to UCAR, Global or the Borrower, to it at [3102 West End Avenue, Suite 1100, Nashville, TN 37203, Attention of President (Telecopy No. (615) 760-7651); (b) if to the Administrative Agent, to Morgan Guaranty Trust Company of New York, c/o J. P. Morgan Services, Inc., Morgan Christiana Center, 500 Stanton Christiana Road, Newark, DE 19713-2107, Attention of Andrew Lipsett (Telecopy No. (302) 634-4061); (c) if to the Swingline Lender, to it at Morgan Guaranty Trust Company of New York, c/o J. P. Morgan Services, Inc., Morgan Christiana Center, 500 Stanton Christiana Road, Newark, DE 19713-2107, Attention of Andrew Lipsett (Telecopy No. (302) 634-4061); -92- (d) if to the Issuing Bank, to it at Morgan Guaranty Trust Company of New York, c/o J. P. Morgan Services, Inc., Morgan Christiana Center, 500 Stanton Christiana Road, Newark, DE 19713-2107, Attention of Andrew Lipsett (Telecopy No. (302) 634-4061); and (e) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 10.02. WAIVERS; AMENDMENTS. (a) No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by UCAR, Global, the Borrower and the Required Lenders or, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent and the Loan Party or Loan Parties that are parties thereto, in each case (other than in the case of any Security Document relating solely to the Obligations or Intercompany Borrower Obligations of a Foreign Subsidiary) with the consent of the Required Lenders; PROVIDED that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the maturity of any Loan, or any scheduled date of payment of the principal amount of any Term Loan under Section 2.09, or the required date of reimbursement of any LC Disbursement, or any date for the payment of any interest or fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.17(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this Section or the percentage set forth in the definition of "REQUIRED LENDERS" or any other provision of any Loan Document specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights -93- thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender (or each Lender of such Class, as the case may be), (vi) release UCAR, Global or any Subsidiary Loan Party from its Guarantee under any Guarantee Agreement (except as expressly provided in such Guarantee Agreement or in this Agreement), or limit its liability in respect of such Guarantee, without the written consent of each Lender, (vii) release all or substantially all the Collateral from the Liens of the Security Documents, without the written consent of each Lender, (viii) change any provisions of any Loan Document in a manner that by its terms adversely affects the rights in respect of payments due of Lenders holding Loans of any Class differently than those of Lenders holding Loans of any other Class, without the written consent of Lenders holding a majority in interest of the outstanding Loans and unused Commitments of each affected Class or (ix) change the rights of the Tranche B Lenders to decline mandatory prepayments as provided in Section 2.10 without the written consent of Tranche B Lenders holding a majority of the outstanding Tranche B Loans; PROVIDED FURTHER that (A) no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender without the prior written consent of the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender, as the case may be, and (B) any waiver, amendment or modification of this Agreement that by its terms affects the rights or duties under this Agreement of the Revolving Lenders (but not the Tranche A Lenders and Tranche B Lenders), the Tranche A Lenders (but not the Revolving Lenders and Tranche B Lenders) or the Tranche B Lenders (but not the Revolving Lenders and Tranche A Lenders) may be effected by an agreement or agreements in writing entered into by UCAR, Global, the Borrower and requisite percentage in interest of the affected Class of Lenders that would be required to consent thereto under this Section if such Class of Lenders were the only Class of Lenders hereunder at the time. Notwithstanding the foregoing, any provision of this Agreement may be amended by an agreement in writing entered into by UCAR, Global, the Borrower, the Required Lenders and the Administrative Agent (and, if their rights or obligations are affected thereby, the Issuing Bank and the Swingline Lender) if (i) by the terms of such agreement the Commitment of each Lender not consenting to the amendment provided for therein shall terminate upon the effectiveness of such amendment and (ii) at the time such amendment becomes effective, each Lender not consenting thereto receives payment in full of the principal of and interest accrued on each Loan made by it and all other amounts owing to it or accrued for its account under this Agreement. SECTION 10.03. EXPENSES; INDEMNITY; DAMAGE WAIVER. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Agents and their Affiliates, including the reasonable fees, charges and disbursements of counsel for the Agents, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Loan Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender, including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender, in connection with the enforcement or protection of its rights -94- in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) The Borrower shall indemnify the Administrative Agent, the Collateral Agent, the Issuing Bank and each Lender, and each Related Party of any of the foregoing persons (each such person being called an "INDEMNITEE") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any other agreement or instrument contemplated hereby, the performance by the parties to the Loan Documents of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan, Letter of Credit, Intercompany Loan or the use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any Mortgaged Property or any other property currently or formerly owned or operated by UCAR, Global, the Borrower or any of the Subsidiaries, or any Environmental Claim related in any way to Global, the Borrower or any of the Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; PROVIDED that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender, as the case may be, such Lender's pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; PROVIDED that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender in its capacity as such. For purposes hereof, a Lender's "pro rata share" shall be determined based upon its share of the sum of the total Revolving Exposures, outstanding Term Loans and unused Commitments at the time. (d) To the extent permitted by applicable law, neither UCAR, Global nor the Borrower shall assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan, Intercompany Loan or Letter of Credit or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable not later than 10 days after written demand therefor. -95- SECTION 10.04. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that none of UCAR, Global and the Borrower may assign or otherwise transfer any of its rights or obligations hereunder (or under any Guarantee Agreement) without the prior written consent of each Lender (and any attempted assignment or transfer by any of them without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); PROVIDED in connection with each such assignment other than assignments effected under the Second Closing Assignment that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower and the Administrative Agent (and, in the case of an assignment of all or a portion of a Revolving Commitment or any Lender's obligations in respect of its LC Exposure or Swingline Exposure, the Issuing Bank and the Swingline Lender) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment or Loans, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than EUR2,500,000, or $2,500,000, as applicable, or in the case of an assignment of Tranche B Loans, $1,000,000, unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, except that this clause (iii) shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender's rights and obligations in respect of one Class of Commitments or Loans, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 (or in the case of an assignment relating solely to Tranche B Loans, $2,500), and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and PROVIDED FURTHER that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VIII has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16 -96- and 10.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in Delaware a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "REGISTER"). The entries in the Register shall be conclusive, and UCAR, Global, the Borrower, the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Collateral Agent, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower, the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender, sell participations to one or more banks or other entities (a "PARTICIPANT") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); PROVIDED that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) UCAR, Global, the Borrower, the Agents, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents; PROVIDED that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 10.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.17(c) as though it were a Lender. -97- (f) A Participant shall not be entitled to receive any greater payment under Section 2.14 or 2.16 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.16(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; PROVIDED that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 10.05. SURVIVAL. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 10.03 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. SECTION 10.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Agents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 5.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. -98- SECTION 10.07. SEVERABILITY. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 10.08. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of any Loan Party against any of and all the obligations of the Borrower and the LC Subsidiaries now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 10.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) Each of UCAR, Global and the Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against UCAR, Global, the Borrower or its properties in the courts of any jurisdiction. (c) Each of UCAR, Global and the Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01. Nothing in this Agreement or any other Loan Document will affect -99- the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 10.11. HEADINGS. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 10.12. CONFIDENTIALITY. Each of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of any Loan Party or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than UCAR, Global or the Borrower. For the purposes of this Section, "INFORMATION" means all information received from UCAR, Global or the Borrower relating to UCAR, Global or the Borrower or its business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by UCAR, Global or the Borrower; PROVIDED that, in the case of information received from UCAR, Global or the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation -100- to do so if such person has exercised the same degree of care to maintain the confidentiality of such Information as such person would accord to its own confidential information. SECTION 10.13. INTEREST RATE LIMITATION. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "CHARGES"), shall exceed the maximum lawful rate (the "MAXIMUM RATE") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 10.14. RELEASE OF LIENS AND GUARANTEES. In the event that any Loan Party or other Subsidiary disposes of any asset in a transaction not prohibited by Section 7.05, the Agents are hereby directed and authorized to take such action and execute such documents as the Borrower may reasonably request, at the Borrower's sole expense, to release any Lien on such asset created by any Loan Document and, if the asset disposed of is all the Capital Stock of any Guarantor that is owned by the Loan Parties and the Subsidiaries, to release any Guarantee of such Guarantor under any Guarantee Agreement. Any representation, warranty or covenant contained in any Loan Document relating to any such Capital Stock, assets, property or Subsidiary shall no longer be deemed to be made once such Capital Stock, assets or property is disposed of as described above. In addition, the Administrative Agent and the Collateral Agent agree to take such actions as are reasonably requested by the Borrower and at the Borrower's expense to terminate the Liens and security interests created by the Loan Documents when all the Obligations have been paid in full and all Letters of Credit and Commitments have been terminated or have expired. -101- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. UCAR INTERNATIONAL INC., by /S/ NANCY M. FALLS -------------------------------- Name: Nancy M. Falls Title: Treasurer UCAR GLOBAL ENTERPRISES INC., by /S/ NANCY M. FALLS -------------------------------- Name: Nancy M. Falls Title: Treasurer UCAR FINANCE INC., by /S/ NANCY M. FALLS -------------------------------- Name: Nancy M. Falls Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK, individually and as Administrative Agent, Collateral Agent, Issuing Bank and Swingline Lender, by /S/ DEBORAH DESANTIS -------------------------------- Name: Deborah DeSantis Title: Vice President THE CHASE MANHATTAN BANK, individually and as Syndication Agent, by /S/ JAMES H. RAMAGE ---------------------------------- Name: James H. Ramage Title: Managing Director -102- CREDIT SUISSE FIRST BOSTON, individually and as Syndication Agent, by /S/ JOEL GLODOWSKI --------------------------------- Name: Joel Glodowski Title: Managing Director by /S/ KATHLEEN D. O'BRIEN --------------------------------- Name: Kathleen D. O'Brien Title: Director -103- Witnesses: 1. /S/ CHERYLYN BRANDT 2. /S/ CHIANN BAO ------------------------------ ---------------------------------------- Name: Cherylyn Brandt Name: Chiann Bao Identity Card No.: Identity Card No.: CPF/MF No.: CPF/MF No.: -104- SCHEDULE A - ------------------------------------- ------------------------------------------ LEVERAGE RATIO AMOUNT - ------------------------------------- ------------------------------------------ greater than or equal to 2.75:1.0 $75,000,000 - ------------------------------------- ------------------------------------------ greater than or equal to 2.5:1.0 $75,000,000 and less than 2.75:1.0 - ------------------------------------- ------------------------------------------ greater than or equal to 2.0:1.0 $100,000,000 and less than 2.5:1.0 - ------------------------------------- ------------------------------------------ less than 2.0:1.0 $125,000,000 - ------------------------------------- ------------------------------------------ The amount set forth below the caption "Amount" in the table above for any date shall be determined by reference to the Leverage Ratio as of the last day of the fiscal quarter most recently ended as of such date and for the period (the "MEASURED PERIOD") referred to in Section 7.12 for which such last day is the measuring date (and computed as provided in Section 7.12 with respect to each such Measured Period), and any change shall become effective upon the delivery to the Administrative Agent of a certificate of Global signed by a Responsible Officer of Global (which officer's certificate may be delivered prior to delivery of the relevant financial statements) with respect to the financial statements to be delivered pursuant to Section 6.04 for the most recently ended fiscal quarter (a) setting forth in reasonable detail the calculation of the Leverage Ratio for such Measured Period and at the end of such fiscal quarter and (b) stating that the signer has reviewed the terms of this Agreement and the other Loan Documents and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and condition of UCAR, Global, the Borrower and the Subsidiaries during such Measured Period, and that the signer does not have knowledge of the existence as at the date of such officer's certificate of any Event of Default or Default. It is understood that such officer's certificate shall be permitted to be delivered prior to, but in no event later than, the time of the actual delivery of the financial statements required to be delivered pursuant to Section 6.04. Notwithstanding the foregoing, at any time during which the Borrower has failed to deliver the compliance certificate required under Section 6.04(c) with respect to a fiscal quarter following the date the delivery thereof is due, the Leverage Ratio shall be deemed, solely for the purposes of this Schedule A, to be greater than 2.75:1.0, until such time as Global shall deliver such compliance certificate. -105- EX-10.2 3 GUARANTEE AGREEMENT CONFORMED COPY GUARANTEE AGREEMENT GUARANTEE AGREEMENT, dated as of February 22, 2000, made by UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("GLOBAL"), UCAR FINANCE INC., a Delaware corporation (the "BORROWER"), and each Domestic Subsidiary (UCAR, Global, the Borrower and each Domestic Subsidiary collectively referred to as the "GUARANTORS"), in favor of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as collateral agent for the Secured Parties (such term and each other capitalized term used but not defined herein having the meaning given it in Article I of the Credit Agreement dated as of February 22, 2000, among UCAR, Global, the Borrower, the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT")). W I T N E S S E T H: WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans and the Issuing Bank has agreed to issue Letters of Credit, upon the terms and subject to the conditions set forth therein; WHEREAS, UCAR directly or indirectly owns all of the issued and outstanding stock of the Borrower, Global and each Domestic Subsidiary; WHEREAS, the proceeds of the Loans and the availability of the Letters of Credit will be used to enable the Borrower to make Intercompany Loans to some of the other Guarantors in connection with the operation of their respective businesses; WHEREAS, the Borrower and the other Guarantors are engaged in related businesses, and each Guarantor will derive substantial direct and indirect benefit from the making of the Loans and the availability of the Letters of Credit; and WHEREAS, it is a condition precedent to the obligations of the Lenders to make the Loans and the Issuing Bank to issue the Letters of Credit that the Guarantors shall have executed and delivered this Guarantee to the Collateral Agent for the ratable benefit of the Secured Parties. 2 NOW, THEREFORE, in consideration of the premises and to induce the Secured Parties to enter into the Credit Agreement and to induce the Lenders to make their respective Loans and the Issuing Bank and to issue Letters of Credit, each of the Guarantors hereby agrees with the Collateral Agent, for the ratable benefit of the Secured Parties, as follows: 1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given in the Credit Agreement. (b) "GUARANTEE": this Guarantee Agreement, as the same may be amended, supplemented or otherwise modified from time to time. (c) "OBLIGATIONS": (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made under the Credit Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of UCAR, Global, the Borrower and the Subsidiaries under the Credit Agreement and the other Loan Documents (including, without limitation, all monetary obligations of the Intercompany Borrowers under the Intercompany Notes and Intercompany Borrower Agreements, but only for so long as the Intercompany Notes and the rights of the Borrower under the Intercompany Borrower Agreements are pledged to the Collateral Agent under one or more Pledge Agreements as security for the other Obligations), (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Loan Parties under or pursuant to the Credit Agreement and the other Loan Documents, (c) unless otherwise agreed upon in writing by the applicable Lender party thereto, the due and punctual payment and performance of all obligations of the Borrower and the Subsidiaries, monetary or otherwise, under each Interest/Exchange Rate Protection Agreement entered into with any counterparty that (i) was a Lender (or an Affiliate thereof) at the time such Interest/Exchange Rate Protection Agreement was entered into or (ii) (A) was a "Lender" (or an Affiliate thereof) as defined in the Existing Credit Agreements at the time such Interest/Exchange Rate Protection Agreement was entered into and (B) was one of the initial Lenders under the Credit Agreement (or an Affiliate thereof) and (d) all obligations of the Guarantors under the Guarantee Agreements; (d) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Guarantee shall refer to this Guarantee 3 as a whole and not to any particular provision of this Guarantee, and section references are to this Guarantee unless otherwise specified. The words "include", "includes" and "including" shall be deemed to be followed by the phrase, "without limitation". (e) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. GUARANTEE. (a) Subject to the provisions of Section 2(b), each Guarantor hereby, jointly and severally, unconditionally and irrevocably, as a primary obligor and not merely as a surety, guarantees to the Collateral Agent, for the ratable benefit of the Secured Parties and their respective successors, endorsees, transferees and assigns, the due, punctual and complete payment and performance by the other Loan Parties and the LC Subsidiaries, when and as due, whether at the stated maturity, by acceleration, upon one or more dates set for prepayment, or otherwise of the Obligations. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable Federal and state laws relating to the insolvency of debtors (giving effect to the right of contribution set forth in Section 3 and in the Indemnity, Subrogation and Contribution Agreement). (c) Each Guarantor further agrees to pay any and all reasonable expenses (including all reasonable fees and disbursements of counsel) which may be paid or incurred by any Secured Party in enforcing, or obtaining advice of counsel in respect of, any rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or collecting against, such Guarantor under this Guarantee. This Guarantee shall remain in full force and effect until the Obligations are paid in full, no Letters of Credit are outstanding and the Commitments are terminated, notwithstanding that from time to time prior thereto while the Commitments are in effect any Loan Party or any LC Subsidiary may be free from any Obligations. (d) Each Guarantor agrees that the Obligations may at any time and from time to time exceed the maximum amount of the liability of such Guarantor hereunder without impairing this Guarantee or affecting the rights and remedies of the Collateral Agent or any Secured Party hereunder. (e) Each Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to the Collateral Agent for the benefit of any Secured Party on account of its liability hereunder, it will notify the Collateral Agent in writing that such payment is made under this Guarantee for such purpose, provided that the failure of such Guarantor to provide such notice shall not preclude the application of such payment to the complete or partial satisfaction of such Guarantor's obligations hereunder following such Guarantor's notice to the Collateral Agent of such payment. 4 3. RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to the extent that any Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall have the rights with respect to such amounts set forth in the Indemnity, Subrogation and Contribution Agreement. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 4 hereof. The provisions of this Section shall in no respect limit the obligations and liabilities of any Guarantor to the Secured Parties, and each Guarantor shall (subject to Section 2(b)) remain liable to the Secured Parties for the full amount guaranteed by such Guarantor hereunder. 4. NO SUBROGATION. Notwithstanding any payment or payments made by any of the Guarantors hereunder or any setoff or application of funds of any of the Guarantors by any Secured Party, no Guarantor shall be entitled to be subrogated to any of the rights of any Secured Party against any Credit Party or any other Guarantor or any collateral security or guarantee or right of offset held by any Secured Party for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from any Credit Party or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Secured Parties by any Credit Party on account of the Obligations are paid in full, no Letters of Credit are outstanding and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, Letters of Credit are outstanding and the Commitments shall not have been terminated, such amount shall be held by such Guarantor in trust for the Secured Parties, segregated from other funds of such Guarantor, and shall forthwith upon receipt by such Guarantor be turned over to the Collateral Agent in the exact form received by such Guarantor (duly endorsed by such Guarantor to the Collateral Agent, if required), to be applied against the Obligations, whether matured or unmatured, at such time and in such order as the Collateral Agent may determine. 5. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF RIGHTS. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Obligations made by any Secured Party may be rescinded by such party and any of the Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by any Secured Party, and the Credit Agreement, any other Loan Document, any Interest/Exchange Rate Protection Agreement and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Collateral Agent (or the Required Lenders, as the case may be) or the relevant Secured Party (in the case of any such Interest/Exchange Rate Protection Agreement) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by any Secured Party for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. No Secured Party shall have any 5 obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Guarantee or any property subject thereto. When making any demand hereunder against any of the Guarantors, any Secured Party may, but shall be under no obligation to, make a similar demand on any Credit Party or any other Guarantor or guarantor, and any failure by any Secured Party to make any such demand or to collect any payments from any Credit Party or any such other Guarantor or guarantor or any release of any Credit Party or such other Guarantor or guarantor shall not relieve any of the Guarantors in respect of which a demand or collection is not made or any of the Guarantors not so released of their several obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of any Secured Party against any of the Guarantors. 6. SECURITY. Each of the Guarantors authorizes each of the other Secured Parties, in accordance with the terms and subject to the conditions set forth in the Security Documents to which such Guarantor is a party, to (a) take and hold security for the payment of this guarantee or the Obligations and exchange, enforce, waive and release any such security, (b) apply such security and direct the order or manner of sale thereof as they in their sole discretion determine and (c) release or substitute any one or more endorsees, other guarantors or other obligors. 7. GUARANTEE ABSOLUTE AND UNCONDITIONAL. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by any Secured Party upon this Guarantee or acceptance of this Guarantee; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Guarantee; and all dealings between any Credit Party and any of the Guarantors, on the one hand, and any of the Secured Parties, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon this Guarantee. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon any Credit Party or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that this Guarantee shall be construed as a continuing, absolute and unconditional guarantee of payment, and not of collection, and without regard to (a) the validity, regularity or enforceability of the Credit Agreement, any other Loan Document, any Interest/Exchange Rate Protection Agreement, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by any Secured Party, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any Credit Party against any Secured Party, or (c) any other circumstance whatsoever (with or without notice to or knowledge of any Secured Party, any Credit Party or such Guarantor) which may or might in any manner or to any extent vary the risk of the Guarantor or otherwise constitutes, or might be construed to constitute, an equitable or legal discharge of any Credit Party for the Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any other instance. When pursuing its rights and remedies hereunder 6 against any Guarantor, any Secured Party may, but shall be under no obligation to, pursue such rights and remedies as it may have against any Credit Party or any other person (including any other Guarantor) or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by any Secured Party to pursue such other rights or remedies or to collect any payments from any Credit Party or any such other person (including any other Guarantor) or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of any Credit Party or any such other person (including any other Guarantor) or any such collateral security, guarantee or right of offset, shall not relieve such Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of any Secured Party against such Guarantor. This Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon each Guarantor and the successors and assigns thereof, and shall inure to the benefit of each Secured Party, and its successors, indorsees, transferees and assigns, until all the Obligations and the obligations of the Guarantor under this Guarantee shall have been satisfied by payment in full, no Letters of Credit shall be outstanding and the Commitments shall have been terminated, notwithstanding that from time to time while the Commitments are in effect during the term of the Credit Agreement any Credit Party may be free from any Obligations. 8. REINSTATEMENT. This Guarantee shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by any Secured Party for any reason whatsoever, including, without limitation, upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Credit Party or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Credit Party or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 9. PAYMENTS. Each Guarantor hereby guarantees that payments hereunder will be paid to the Collateral Agent without setoff or counterclaim in Dollars at the office of the Collateral Agent c/o J.P. Morgan Services, Inc., Morgan Christiana Center, 500 Stanton Christiana Road, Newark, DE 19713-2107. 10. INFORMATION. Each of the Guarantors assumes all responsibility for being and keeping itself informed of the Credit Parties' financial condition and assets and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, and agrees that none of the Secured Parties will have any duty to advise any of the Guarantors of information known to it or any of them regarding such circumstances or risks. 7 11. REPRESENTATIONS AND WARRANTIES. Each Guarantor represents and warrants to and with each Secured Party that all representations and warranties in the Loan Documents that relate to such Guarantor are true and correct in all material respects. 12. COVENANTS. Each of the Guarantors covenants and agrees with the Secured Parties that, from and after the date of this Guarantee until the earlier to occur of (i) the date upon which the Obligations are paid in full, no Letters of Credit are outstanding and the Commitments are terminated and (ii) the date that such Guarantor is released from its guarantee hereunder in accordance with Section 15, unless the Required Lenders shall otherwise consent in writing, it will comply with each covenant set forth in Articles VI and VII of the Credit Agreement to the extent that it relates to such Guarantor. 13. AUTHORITY OF COLLATERAL AGENT. Each Guarantor acknowledges that the rights and responsibilities of the Collateral Agent under this Guarantee with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guarantee shall, as between the Collateral Agent and the other Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and each Guarantor, the Collateral Agent shall be conclusively presumed to be acting as agent for the other Secured Parties with full and valid authority so to act or refrain from acting. 14. NOTICES. All notices, requests and demands to or upon any Secured Party or any Guarantor under this Guarantee shall be given or made in accordance with Section 10.01 of the Credit Agreement and addressed as follows: (a) if to any Secured Party, UCAR, Global or the Borrower, at its address or transmission number for notices provided in Section 10.01 of the Credit Agreement; and (b) if to any other Guarantor, at its address or transmission number for notices set forth on Schedule I hereto. The Collateral Agent, each Secured Party and each Guarantor may change its address and transmission numbers for notices by notice in the manner provided in this Section. 15. RELEASE. Each Guarantor (other than UCAR, Global and the Borrower) shall be released from its guarantee hereunder in the event that all of the capital stock of such Guarantor shall be sold, transferred or otherwise disposed of, in accordance with the terms of the Credit Agreement, by Global or any other person that shall own such stock, to a person that is not UCAR, Global, the Borrower or a Subsidiary. 8 16. COUNTERPARTS. This Guarantee may be executed by one or more of the Guarantors in any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the counterparts of this Guarantee signed by all the Guarantors shall be lodged with the Collateral Agent. 17. SEVERABILITY. Any provision of this Guarantee or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the prohibited or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the prohibited or unenforceable provisions. 18. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing under the Credit Agreement, each Secured Party is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Secured Party to or for the credit or the account of any Guarantor against any of and all the obligations of such Guarantor now or hereafter existing under this Guarantee irrespective of whether or not such Secured Party shall have made any demand under this Guarantee and although such obligations may be unmatured. The rights of each Secured Party under this Section 18 are in addition to other rights and remedies (including other rights of setoff) and such Secured Party may have. 19. INTEGRATION. This Guarantee represents the agreement of each Guarantor with respect to the subject matter hereof and there are no promises or representations by any Guarantor or any Secured Party relative to the subject matter hereof not reflected herein. 20. AMENDMENTS IN WRITING; NO WAIVER, CUMULATIVE Remedies. None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except by a written instrument executed by each Guarantor and the Collateral Agent, provided that any provision of this Guarantee may be waived by the Required Lenders pursuant to a letter or agreement executed by the Collateral Agent or by telecopy transmission from the Collateral Agent. (b) No Secured Party shall by any act (except by a written instrument pursuant to Section 20(a) hereof) or delay be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of any Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, 9 power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by any Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Secured Party would otherwise have on any future occasion. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 21. SECTION HEADINGS. The section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 22. SUCCESSORS AND ASSIGNS. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of each Guarantor and each Secured Party and their successors and assigns; PROVIDED that this Guarantee may not be assigned by any Guarantor without the prior written consent of the Collateral Agent. 23. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 24. SUBMISSION TO JURISDICTION; WAIVERS. Each Guarantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Guarantee and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Guarantor at its address set forth in Section 14 or at such other address of which the Collateral Agent shall have been notified pursuant thereto; 10 (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 25. ADDITIONAL GUARANTORS. Pursuant to Section 6.11 of the Credit Agreement, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into this Agreement as a Guarantor upon becoming a Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the Collateral Agent and such Domestic Subsidiary of an instrument in the form of Annex 1, such Domestic Subsidiary shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor hereunder. The execution and delivery of any such instrument shall not require the consent of any Guarantor hereunder. The rights and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor as a party to this Guarantee. 26. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 26. 11 IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered by its duly authorized officer as of the day and year first above written. EACH OF THE GUARANTORS LISTED ON SCHEDULE I HERETO by /S/ NANCY M. FALLS --------------------------------- Name: Nancy M. Falls Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK by /S/ DEBORAH DESANTIS --------------------------------- Name: Deborah DeSantis Title: Vice President WITNESSES: 1. ____________________________ 2. ___________________________ Name: Name: Drivers License No.: ___________ Drivers License No.: __________ Social Security No.: ____________ Social Security No.: __________ State of New York ) ) ss.: New York County of New York ) On this the day of February, 2000, before me, __________________________, the undersigned officer, personally appeared ______________________________ and _______________________, known to me to be the persons whose names are subscribed to the within instrument and each acknowledged that he(she) executed the same for the purposes therein contained. IN WITNESS WHEREOF I hereunto set my hand. ---------------------------- Notary Public My Commission expires ____________________. SCHEDULE I TO GUARANTEE AGREEMENT GUARANTORS UCAR International Inc. UCAR Global Enterprises Inc. UCAR Finance Inc. UCAR Carbon Company Inc. UCAR Holdings II Inc. UCAR Holdings III Inc. UCAR International Trading Inc. UCAR Composites Inc. [Addresses and telecopy numbers for notices] SUPPLEMENT NO. dated as of [], to the Guarantee Agreement dated as of February 2, 2000 (the "GUARANTEE AGREEMENT"), among each of the Guarantors (such term and each other capitalized term used but not defined having the meaning given it in the Guarantee Agreement, and if not defined therein, having the meaning given it in Article I of the Credit Agreement) party thereto (together with the Borrower, the "GUARANTORS") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as collateral agent (the "COLLATERAL AGENT") for the Secured Parties. A. Reference is made to the Credit Agreement dated as of February 22, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among UCAR International Inc., a Delaware corporation ("UCAR"), UCAR Global Enterprises Inc., a Delaware corporation ("GLOBAL"), UCAR Finance Inc., a Delaware corporation (the "BORROWER"), the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank. B. The Guarantors have entered into the Guarantee Agreement in order to induce the Lenders to make Loans and induce the Issuing Bank to issue Letters of Credit pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Pursuant to Section 6.11 of the Credit Agreement, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into the Guarantee Agreement as a Guarantor upon becoming a Domestic Subsidiary. Section 25 of the Guarantee Agreement provides that additional Domestic Subsidiaries may become Guarantors under the Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "NEW GUARANTOR") is a Domestic Subsidiary and is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Guarantor under the Guarantee Agreement in order to induce the Lenders to make additional Loans and the Issuing Bank to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Collateral Agent and the New Guarantor agree as follows: SECTION 1. In accordance with Section 25 of the Subsidiary Guarantee Agreement, the New Guarantor by its signature below becomes a Guarantor under the Guarantee Agreement with the same force and effect as if originally named therein as a Guarantor and the New Guarantor hereby 2 agrees to all the terms and provisions of the Guarantee Agreement applicable to it as a Guarantor thereunder. Each reference to a "GUARANTOR" and a "DOMESTIC SUBSIDIARY" in the Guarantee Agreement shall be deemed to include the New Guarantor. The Guarantee Agreement is hereby incorporated herein by reference. SECTION 2. The New Guarantor represents and warrants to the Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to the effects of applicable bankruptcy, insolvency or similar laws effecting creditors' rights generally and equitable principles of general applicability. SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Guarantor and the Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Subsidiary Guarantee Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in the Credit Agreement. All communications and notices hereunder to the New Guarantor shall be given to it at the address set forth under its signature, with a copy to the Borrower. 3 IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly executed this Supplement to the Subsidiary Guarantee Agreement as of the day and year first above written. [NAME OF NEW GUARANTOR], by Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, Collateral Agent, by Name: Title: EX-10.3 4 SECURITY AGREEMENT CONFORMED COPY SECURITY AGREEMENT SECURITY AGREEMENT, dated as of February 22, 2000, made by UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("GLOBAL"), UCAR FINANCE INC., a Delaware corporation (the "BORROWER"), and the subsidiaries of UCAR from time to time party hereto (the "SUBSIDIARY GRANTORS", and together with UCAR, Global and the Borrower, the "GRANTORS") in favor of MORGAN GUARANTY TRUST COMPANY OF NEW YORK as collateral agent for the Secured Parties (such term and each other capitalized term used but not otherwise defined herein having the meaning given it in Article I of the Credit Agreement dated as of February 22, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among UCAR, Global, the Borrower, the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank). W I T N E S S E T H: WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans to the Borrower and the Issuing Bank has agreed to issue Letters of Credit for the accounts of the LC Subsidiaries upon the terms and subject to the conditions set forth therein; and WHEREAS, it is a condition precedent to the obligations of the Lenders to make the Loans and the Issuing Bank to issue the Letters of Credit that the Grantors guarantee payment and performance of the obligations under the Credit Agreement and the other Loan Documents; WHEREAS, in satisfaction of such condition, the Grantors have entered into certain Guarantee Agreements for the benefit of the Secured Parties; WHEREAS, it is a further condition precedent to the obligations of the Lenders to make the Loans and the Issuing Bank to issue the Letters of Credit that the Grantors shall have executed and delivered this Security Agreement; NOW, THEREFORE, in consideration of the premises and to induce the Secured Parties to enter into the Credit Agreement and to induce the Lenders to make their respective Loans and the Issuing Bank to issue Letters of Credit, each of the Grantors hereby agrees with the Collateral Agent, for the ratable benefit of the Secured Parties, as follows: 1. DEFINED TERMS. 1.1 DEFINITIONS. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given in the Credit Agreement, and the following terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are used herein as so defined: Chattel Paper, Farm Products and Instruments. (b) The following terms shall have the following meanings: "ACCOUNT DEBTOR": any Person who may become obligated to any Grantor under, with respect to or on account of an Account. "ACCOUNTS": with respect to each Grantor, any and all right, title and interest of such Grantor to payment for goods and services sold or leased, including any such right evidenced by chattel paper, whether due or to become due, whether or not it has been earned or performed, and whether now or hereafter acquired or arising in the future, including, without limitation, accounts receivable from Affiliates of such person. "ACCOUNTS RECEIVABLE": with respect to each Grantor, all right, title and interest of such Grantor to Accounts and all of its right, title and interest in any returned goods, together with all rights, titles, securities and guarantees with respect thereto, including any rights to stoppage in transit, replevin, reclamation and resales, and all related security interests, liens and pledges, whether voluntary or involuntary in each case whether due or to become due, whether now or hereafter arising in the future. "AGREEMENT": this Security Agreement, as the same may be amended, modified or otherwise supplemented from time to time. "CODE": the Uniform Commercial Code as from time to time in effect in the State of New York. "COLLATERAL": the meaning assigned to such term in Section 2 of this Agreement. "COLLATERAL ACCOUNT": any collateral account established by the Collateral Agent as provided in Section 5.3 or Section 7.2. 3 "COMMODITY ACCOUNT": an account maintained by a Commodity Intermediary in which a Commodity Contract is carried out for a Commodity Customer. "COMMODITY CONTRACT": a commodity futures contract, an option on a commodity futures contract, a commodity option or any other contract that, in each case, is (a) traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to the federal commodities laws or (b) traded on a foreign commodity board of trade, exchange or market, and is carried on the books of a Commodity Intermediary for a Commodity Customer. "COMMODITY CUSTOMER": a Person for whom a Commodity Intermediary carries a Commodity Contract on its books. "COMMODITY INTERMEDIARY": (a) a Person who is registered as a futures commission merchant under the federal commodities laws or (b) a Person who in the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated as a contract market pursuant to federal commodities laws. "CONTRACTS": with respect to each Grantor, all rights of such Grantor under contracts and agreements to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (a) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of such Grantor to damages arising out of, or for, breach or default in respect thereof and (c) all rights of such Grantor to exercise all remedies thereunder, in each case to the extent the grant by such Grantor of a security interest pursuant to this Agreement in its rights under such contract or agreement is permitted without the consent of any other person, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from such other person (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents); PROVIDED that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any Account or any money or other amounts due or to become due under any such contract or agreement to the extent provided in Section 9-318 of the Code as in effect on the date hereof. 4 "DOCUMENTS": with respect to each Grantor, all Instruments, files, records, ledger sheets, and documents covering or relating to any of the Collateral. "ENTITLEMENT HOLDER": a Person identified in the records of a Securities Intermediary as the Person having a Security Entitlement against the Securities Intermediary. If a Person acquires a Security Entitlement by virtue of Section 8-501(b)(2) or (3) of the Uniform Commercial Code, such Person is the Entitlement Holder. "EQUIPMENT": with respect to each Grantor, all equipment, furniture and furnishings, tools, accessories, parts and supplies of every kind and description, wherever located, now or hereafter existing, and all improvements, accessions or appurtenances thereto, including Fixtures, and all other tangible personal property whether or not similar to any of the foregoing items which are now or hereafter acquired by such Grantor (it being understood that "Equipment" does not include Vehicles). "FINANCIAL ASSET": (a) a Security, (b) an obligation of a Person or a share, participation or other interest in a Person or in property or an enterprise of a Person, which is, or is of a type, dealt with in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment or (c) any property that is held by a Securities Intermediary for another Person in a Securities Account if the Securities Intermediary has expressly agreed with the other Person that the property is to be treated as a Financial Asset under Article 8 of the Uniform Commercial Code. As the context requires, the term Financial Asset shall mean either the interest itself or the means by which a Person's claim to it is evidenced, including a certificated or uncertificated Security, a certificate representing a Security or a Security Entitlement. "FIXTURES": with respect to each Grantor, all items that would otherwise constitute items of Collateral, whether now owned or hereafter acquired, that become so related to particular real estate that an interest in them arises under any real estate law applicable thereto. "GENERAL INTANGIBLES": with respect to each Grantor, the meaning assigned to such term in the Uniform Commercial Code in effect in the State of New York on the date hereof to the extent, in the case of any General Intangibles arising under any contract or agreement, that the grant by such Grantor of a security interest pursuant to this Agreement in its rights under such contract or agreement is permitted without the consent of any other person, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from such other person (it being understood that the foregoing shall not be deemed 5 to obligate such Grantor to obtain such consents); PROVIDED that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any Account or General Intangible or any money or other amounts due or to become due under any such contract or agreement to the extent provided in Section 9-318 of the Code as in effect on the date hereof; PROVIDED, FURTHER, that "General Intangibles" shall not include any of the items referred to in Section 2(h). "INDEMNITEES": the Secured Parties and their respective officers, directors, trustees, affiliates and controlling persons. "INVENTORY": all goods of any Grantor, whether now owned or hereafter acquired, held for sale or lease, or furnished or to be furnished by any Grantor under contracts of service, or consumed in any Grantor's business, including raw materials, intermediates, work in process, packaging materials, finished goods, semi-finished inventory, scrap inventory, manufacturing supplies and spare parts, and all such goods that have been returned to or repossessed by or on behalf of any Grantor. "INVESTMENT PROPERTY": all Securities (whether certificated or uncertificated), Financial Assets, Security Entitlements, Securities Accounts, Commodity Contracts and Commodity Accounts of any Grantor, whether now owned or hereafter acquired by any Grantor. "OBLIGATIONS": with respect to each Grantor, all obligations of UCAR and its subsidiaries (including, without limitation, Global, the Borrower, each LC Subsidiary and such Grantor) in respect of (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made under the Credit Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of UCAR, Global, the Borrower and the Subsidiaries under the Credit Agreement and the other Loan Documents (including, without limitation, all monetary 6 obligations of the Intercompany Borrowers under the Intercompany Notes and Intercompany Borrower Agreements, but only for so long as the Intercompany Notes and the rights of the Borrower under the Intercompany Borrower Agreements are pledged to the Collateral Agent under one or more Pledge Agreements as security for the Obligations), (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Loan Parties under or pursuant to the Credit Agreement and the other Loan Documents, (c) unless otherwise agreed upon in writing by the applicable Lender party thereto, the due and punctual payment and performance of all obligations of the Borrower and the Subsidiaries, monetary or otherwise, under each Interest/Exchange Rate Protection Agreement entered into with any counterparty that (i) was a Lender (or an Affiliate thereof) at the time such Interest/Exchange Rate Protection Agreement was entered into or (ii) (A) was a "Lender" (or an Affiliate thereof) as defined in the Existing Credit Agreements at the time such Interest/Exchange Rate Protection Agreement was entered into and (B) was one of the initial Lenders under the Credit Agreement (or an Affiliate thereof) and (d) all obligations of the Guarantors under the Guarantee Agreements; "PERFECTION CERTIFICATE": a certificate substantially in the form of Annex I hereto, completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by a Financial Officer and the chief legal officer of each of UCAR and the Borrower on behalf of UCAR and the Borrower. "PROCEEDS": with respect to each Grantor, any consideration received from the sale, exchange or other disposition of any asset or property which constitutes Collateral owned by it, any value received as a consequence of the possession of any such Collateral and any payment received from any insurer or other person or entity as a result of the destruction, loss, theft, damage or other involuntary conversion of whatever nature of any asset or property which constitutes such Collateral, and shall include, without limitation, (a) all cash and negotiable instruments received or held on behalf of the Collateral Agent pursuant to Section 5.3 and (b) any claim of such Grantor against a third party for (and the right to sue and recover for and the rights to damages or profits due or accrued arising out of or in connection with) any and all amounts from time to time paid or payable under or in connection with any of the Collateral. "SECURITIES": any obligations of an issuer or any shares, participations or other interests in an issuer or in property or an enterprise of an issuer which (a) are represented by a certificate representing a security in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer, (b) are one of a class or series or by its terms is 7 divisible into a class or series of shares, participations, interests or obligations and (c)(i) are, or are of a type, dealt with or traded on securities exchanges or securities markets or (ii) are a medium for investment and by their terms expressly provide that they are a security governed by Article 8 of the Uniform Commercial Code. "SECURITIES ACCOUNT": an account to which a Financial Asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise rights that comprise the Financial Asset. "SECURITIES ENTITLEMENTS": the rights and property interests of an Entitlement Holder with respect to a Financial Asset. "SECURITIES INTERMEDIARY": (a) a clearing corporation or (b) a Person, including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity. "VEHICLES": all cars, trucks, trailers and other motor vehicles covered by a certificate of title law of any state. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 8 2. GRANT OF SECURITY INTEREST. As security for the payment or performance, as the case may be, in full of the Obligations, each Grantor hereby bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates and transfers to the Collateral Agent, its successors and assigns, for the ratable benefit of the Secured Parties, and hereby grants to the Collateral Agent, its successors and assigns, for the ratable benefit of the Secured Parties, a security interest (the "SECURITY INTEREST") in, all of such Grantor's right, title and interest in, to and under the all of the following property now owned or at any time hereafter acquired by such Grantor, subject to Permitted Liens (as defined below) (collectively, with respect to each Grantor, the "COLLATERAL"): (a) all Accounts Receivable; (b) all Contracts; (c) all Documents; (d) all Equipment; (e) all General Intangibles; (f) all Instruments; (g) all Inventory; (h) all Investment Property; (i) all books and records pertaining to the Collateral; and (j) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. Notwithstanding anything contained in this Agreement or any Loan Document to the contrary, "Collateral" shall not include any property of the type specified in Sections 2(b), (d) (to the extent such Equipment constitutes Fixtures), (e), (f) and (g) if the granting of a Lien by such Grantor hereunder would violate the terms of, or otherwise constitute a default under, any document or instrument to which any Loan Party is a party (other than those documents or instruments between or among the Loan Parties and/or their Affiliates only) relating to the ownership of, or pertaining to any rights or interests held in such property; PROVIDED that the terms to be violated or default that would result in the event of the granting of the Lien hereunder are typical or customary in connection with the document or instrument to which they relate. 9 Such security interests are granted as security only and shall not subject any Secured Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Collateral. 3. REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents and warrants, as to itself and the Collateral in which the security interest is created by it hereunder, that: 3.1. TITLE AND AUTHORITY. Each Grantor has good and valid rights in and title to the Collateral with respect to which it has purported to grant a Security Interest hereunder and has full power and authority to grant to the Collateral Agent the Security Interest in such Collateral pursuant hereto and to execute, deliver and perform its obligations in accordance with the terms of this Agreement, without the consent or approval of any other person other than any consent or approval which has been obtained subject to Liens permitted pursuant to Section 7.02 of the Credit Agreement (including any such Lien expressly permitted pursuant to such Section 7.02 in respect of which a release in a form acceptable to the Collateral Agent has been delivered to the Collateral Agent) (the "PERMITTED LIENS"). 3.2 FILINGS. The Perfection Certificate has been duly prepared, completed and executed and the information set forth therein is correct and complete in all material respects. Fully executed Uniform Commercial Code financing statements or other appropriate filings, recordings or registrations containing a description of the Collateral have been delivered to the Collateral Agent for filing in each governmental, municipal or other office specified in Schedule 6 to the Perfection Certificate, which are all the filings, recordings and registrations that are necessary to publish notice of and protect the validity of and to establish a legal, valid and perfected security interest in favor of the Collateral Agent (for the ratable benefit of the Secured Parties) in respect of all Collateral in which the Security Interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of continuation statements. 3.3. VALIDITY OF SECURITY INTEREST. The Security Interest constitutes (a) a legal and valid security interest in all the Collateral securing the payment and performance of the Obligations and (b) subject to the filings described in Section 3.2 above, a perfected security interest in all Collateral in which a security interest may be perfected by filing, recording or registering a financing statement or analogous document in the United States (or any political subdivision thereof) and its territories and possessions pursuant 10 to the Uniform Commercial Code or other applicable law in such jurisdictions. The Security Interest is and shall be prior to any other Lien on any of the Collateral, other than Permitted Liens. 3.4. ABSENCE OF OTHER LIENS. The Collateral is owned by the Grantors free and clear of any Lien except for Permitted Liens. The Grantor has not filed or consented to the filing of (a) any financing statement or analogous document under the Uniform Commercial Code or any other applicable laws covering any Collateral or (b) any assignment in which any Grantor assigns any Collateral or any security agreement or similar instrument covering any Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agreement or similar instrument is still in effect, except, in each case, for Permitted Liens. 4. COVENANTS. Each Grantor covenants and agrees with the Secured Parties that, from and after the date of this Agreement until this Agreement is terminated and the security interests created hereby are released: 4.1 DELIVERY OF INSTRUMENTS AND CHATTEL PAPER. If an Event of Default shall have occurred and be continuing and if any amount payable under or in connection with any of the Collateral owned by such Grantor shall be or become evidenced by any promissory note, other instrument or chattel paper, upon the request of the Collateral Agent, such promissory note, instrument or Chattel Paper shall be immediately delivered to the Collateral Agent, duly indorsed in a manner reasonably satisfactory to the Collateral Agent, to be held as Collateral pursuant to this Agreement. 4.2 MAINTENANCE OF INSURANCE. Such Grantor shall maintain insurance policies in accordance with the requirements of Section 6.02 of the Credit Agreement. 4.3 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION. (a) Such Grantor shall cause all filings and other actions listed in SCHEDULE 6 to the Perfection Certificate to be taken. Such Grantor shall maintain the security interests created by this Agreement as first perfected security interests subject only to Permitted Liens and shall defend such security interests against all claims and demands of all persons whomsoever (other than those pursuant to Permitted Liens). (b) At any time and from time to time, upon the written request of the Collateral Agent, and at the sole expense of such Grantor, such Grantor shall promptly and duly execute and deliver such further instruments and documents and take such further action as the Collateral Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the 11 Uniform Commercial Code in effect in any jurisdiction with respect to the security interests created hereby. 4.4 CHANGES IN LOCATIONS, NAME, ETC. Such Grantor shall not, except (x) upon prior written notice to the Collateral Agent and delivery to the Collateral Agent of a written supplement to the Perfection Certificate (duly executed by a Financial Officer and the chief legal officer of each of UCAR and the Borrower on behalf of UCAR and the Borrower) showing the additional location or locations at which Collateral shall be maintained, and (y) if filings under the UCC or otherwise have been made which maintain in favor of the Collateral Agent a valid, legal and perfected security interest in such Collateral subject to no liens, other than Permitted Liens, (a) permit any of the Inventory or Equipment owned by it to be kept at a location other than those listed in the Perfection Certificate, except for Inventory and Equipment in transit between locations described in this paragraph (a) or transferred to a foreign Subsidiary in a transaction permitted by the Credit Agreement; (b) change the location of its chief executive office and chief place of business from that specified in Perfection Certificate; or (c) change its (i) corporate name or any trade name used to identify it in its conduct of business or in the ownership of its properties, (ii) identity or (iii) corporate structure to such an extent that any financing statement filed in favor of the Collateral Agent in connection with this Agreement would become seriously misleading. 4.5 FURTHER IDENTIFICATION OF COLLATERAL. Such Grantor shall furnish to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral owned by it and such other reports in connection with such Collateral as the Collateral Agent may reasonably request, all in reasonable detail. 4.6 NOTICES. Such Grantor shall advise the Collateral Agent promptly, in reasonable detail, at its address set forth in Section 10.01 of the Credit Agreement of: (a) any Lien (other than security interests created hereby or Permitted Liens) on any material portion of the Collateral; and (b) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the security interests created hereby or on the aggregate value of (i) the Collateral owned by it and (ii) all other Collateral (as such term is defined in the other 12 Security Documents) of the Borrower and its U.S. Subsidiaries taken as a whole. 4.8 COLLATERAL AGENT'S LIABILITIES AND EXPENSES; INDEMNIFICATION. (a) Notwithstanding anything to the contrary provided herein, the Collateral Agent assumes no liabilities with respect to any claims regarding each Grantor's ownership (or purported ownership) of, or rights or obligations (or purported rights or obligations) arising from, the Collateral or any use (or actual or alleged misuse) whether arising out of any past, current or future event, circumstance, act or omission or otherwise, or any claim, suit, loss, damage, expense or liability of any kind or nature arising out of or in connection with the Collateral or the production, marketing, delivery, sale or provision of goods or services under or in connection with any of the Collateral. All of such liabilities shall, as between the Collateral Agent and the Grantors, be borne exclusively by the Grantors. (b) Each Grantor hereby agrees to pay all expenses of the Collateral Agent and to indemnify the Collateral Agent with respect to any and all losses, claims, damages, liabilities and related expenses in respect of this Agreement or the Collateral in each case to the extent the Borrower is required to do so pursuant to Section 10.03 of the Credit Agreement. (c) Any amounts payable by a Grantor as provided hereunder shall be additional Obligations of it secured hereby and by the other Security Documents. Without prejudice to the survival of any other agreements contained herein, all indemnification and reimbursement obligations contained herein shall survive the payment in full of the principal and interest under the Credit Agreement, the expiration of the Letters of Credit and the termination of the Commitments or this Agreement. 4.9 USE AND DISPOSITION OF COLLATERAL. A Grantor shall not (i) make or permit to be made an assignment, pledge or hypothecation of the Collateral owned by it, and shall grant no other security interest in such Collateral (other than pursuant hereto or except for any Permitted Liens) or (ii) make or permit to be made any transfer of such Collateral, and shall remain at all times in possession thereof other than transfers to the Collateral Agent pursuant to the provisions hereof; notwithstanding the foregoing, such Grantor may use and dispose of such Collateral in any lawful manner not in violation of the provisions of this Agreement, the Credit Agreement or any other Loan Document to which it is a party, unless the Collateral Agent shall, after an Event of Default shall have occurred and during the continuance thereof, notify such Grantor not to sell, convey, lease, assign, transfer or otherwise dispose of any such Collateral other than Inventory in the ordinary course of business, Permitted Foreign Transfers and other than any other transfers between the 13 Borrower or a Wholly Owned Subsidiary that is a Grantor and a Borrower or a Wholly Owned Subsidiary that is a Grantor. 5. PROVISIONS RELATING TO ACCOUNTS. 5.1 GRANTORS REMAIN LIABLE UNDER ACCOUNTS. Anything herein to the contrary notwithstanding, a Grantor shall remain liable under each of the Accounts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account. No Secured Party shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Collateral Agent or any Secured Party of any payment relating to such Account pursuant hereto, nor shall any Secured Party be obligated in any manner to perform any of the obligations of a Grantor under or pursuant to any Account (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto), to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 5.2 ANALYSIS OF ACCOUNTS. The Collateral Agent shall have the right upon the occurrence and during the continuance of an Event of Default to make test verifications of the Accounts in any manner and through any medium that it considers reasonably advisable, and each Grantor shall furnish all such assistance and information as the Collateral Agent may reasonably require in connection with such test verifications. At any time and from time to time upon the occurrence and during the continuance of an Event of Default, upon the Collateral Agent's reasonable request and at the expense of each Grantor, each Grantor shall cause independent public accountants or others reasonably satisfactory to the Collateral Agent to furnish to the Collateral Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts. Upon the occurrence and during the continuance of an Event of Default, the Collateral Agent in its own name or in the name of others may communicate with account debtors on the Accounts to verify with them to the Collateral Agent's reasonable satisfaction the existence, amount and terms of any Accounts. 5.3 COLLECTIONS ON ACCOUNTS. (a) The Collateral Agent hereby authorizes each Grantor to collect the Accounts, and the Collateral Agent may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Collateral Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Accounts, when collected by a Grantor during the continuance of 14 such an Event of Default, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Collateral Agent if required, in a Collateral Account maintained under the sole dominion and control of and on terms and conditions reasonably satisfactory to the Collateral Agent, subject to withdrawal by the Collateral Agent as provided in Section 7.3, and (ii) until so turned over, shall be held by such Grantor in trust for the Secured Parties, segregated from other funds of such Grantor. (b) At the Collateral Agent's reasonable request after the occurrence and during the continuance of an Event of Default, each Grantor shall deliver to the Collateral Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Accounts, including, without limitation, all original orders, invoices and shipping receipts. 5.4 REPRESENTATIONS AND WARRANTIES. (a) As of the date hereof, the place where each Grantor keeps its records concerning the Accounts is at the location listed in Section 2(b) of the Perfection Certificate. (b) As of the date hereof, the amounts owing with respect to Accounts of obligors which are Governmental Authorities do not constitute more than 15% of the average aggregate amount owing on the Accounts owing to UCAR and any Subsidiaries, taken as a whole, during the most recently ended period of twelve consecutive calendar months. 5.5 COVENANTS. (a) The amount represented by each Grantor to the Secured Parties from time to time as owing by each account debtor or by all account debtors in respect of the Accounts shall at such time be in all material respects the correct amount actually owing by such account debtor or debtors thereunder. (b) Upon the occurrence and during the continuance of an Event of Default, a Grantor shall not grant any extension of the time of payment of any of the Accounts Receivable, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any person liable for the payment thereof, or allow any credit or discount whatsoever thereon other than extensions, credits, discounts, compromises or settlements granted or made in the ordinary course of business if the Collateral Agent shall have instructed the Grantors not to grant or make any such extension, credit, discount, compromise, or settlement under any circumstances during the continuance of such Event of Default. 15 (c) Unless a Grantor shall deliver prior written notice, identifying the change of location for its books and records, such Grantor shall not remove its books and records from the location specified in Section 5.4(a). 6. PROVISIONS RELATING TO CONTRACTS. 6.1 GRANTORS REMAIN LIABLE UNDER CONTRACTS. Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each Contract to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with and pursuant to the terms and provisions of such Contract. No Secured Party shall have any obligation or liability under any Contract by reason of or arising out of this Agreement or the receipt by any such Secured Party of any payment relating to such Contract pursuant hereto, nor shall any Secured Party be obligated in any manner to perform any of the obligations of a Grantor under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 6.2 COMMUNICATION WITH CONTRACTING PARTIES. Upon the occurrence and during the continuance of an Event of Default, the Collateral Agent in its own name or in the name of others may communicate with parties to the Contracts to verify with them to the Collateral Agent's satisfaction the existence, amount and terms of any Contracts. 7. REMEDIES. 7.1 NOTICE TO ACCOUNT DEBTORS AND CONTRACT PARTIES. Upon the request of the Collateral Agent at any time after the occurrence and during the continuance of an Event of Default, a Grantor shall notify account debtors on the Accounts and parties to the Contracts that the Accounts and the Contracts have been assigned to the Collateral Agent for the ratable benefit of the Secured Parties and that payments in respect thereof during the continuance of such an Event of Default shall be made directly to the Collateral Agent. 7.2 PROCEEDS TO BE TURNED OVER TO COLLATERAL AGENT. In addition to the rights of the Collateral Agent and the Secured Parties specified in Section 5.3 with respect to payments of Accounts, if an Event of Default shall occur and be continuing, all Proceeds received by a Grantor consisting of cash, checks and other near-cash items shall upon the Collateral Agent's request be held by such Grantor in trust for the Secured Parties, segregated from other funds of such Grantor, and shall, upon the Collateral Agent's request (it being understood 16 that the exercise of remedies by the Secured Parties in connection with an Event of Default under Sections VIII(h) and VIII(i) of the Credit Agreement shall be deemed to constitute a request by the Collateral Agent for the purposes of this sentence) forthwith upon receipt by such Grantor, be turned over to the Collateral Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the Collateral Agent, if required) and held by the Collateral Agent in a Collateral Account maintained under the sole dominion and control of the Collateral Agent and on terms and conditions reasonably satisfactory to the Collateral Agent. All Proceeds while held by the Collateral Agent in a Collateral Account (or by such Grantor in trust for the Collateral Agent and the Secured Parties) shall subject to Section 7.3 continue to be held as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 7.3. 7.3 APPLICATION OF PROCEEDS. If an Event of Default shall have occurred and be continuing, and the Collateral Agent shall have requested a Grantor to take any action set forth in Section 5.3(a) or 7.2 or the Collateral Agent shall have taken any action pursuant to Section 7.4, the Collateral Agent shall apply the proceeds as follows: FIRST, to the payment of all costs and expenses incurred by the Administrative Agent or the Collateral Agent (in its capacity as such hereunder or under any other Loan Document) in connection with such collection or sale or otherwise in connection with this Agreement or any of the Obligations, including all reasonable court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent hereunder or under any other Loan Document on behalf of any Grantor and any other costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Loan Document; SECOND, to the payment of all amounts of the Obligations owed to the Secured Parties in respect of Loans made by them and outstanding and amounts owing in respect of any LC Disbursement or Letter of Credit or under any Interest/Exchange Rate Protection Agreement, pro rata as among the Secured Parties in accordance with the amount of such Obligations owed to them; THIRD, to the payment and discharge in full of the Obligations (other than those referred to above), pro rata as among the Secured Parties in accordance with the amount of such Obligations owed to them; and FOURTH, after payment in full of all Obligations, to the applicable Grantor, or its successors or assigns, or to whomsoever may be lawfully 17 entitled to receive the same or as a court of competent jurisdiction may direct, any Collateral then remaining. 7.4 CODE REMEDIES. If an Event of Default shall have occurred and be continuing, the Collateral Agent, on behalf of the Secured Parties may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, the Collateral Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon a Grantor or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of any Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Any Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of (to the extent permitted by law) any right or equity of redemption in a Grantor, which right or equity is hereby, to the extent permitted by law, waived or released. Each Grantor further agrees, at the Collateral Agent's request, to assemble the Collateral and make it available to the Collateral Agent at places which the Collateral Agent shall reasonably select, whether at such Grantor's premises or elsewhere. The Collateral Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses incurred therein or incidental to the care or safekeeping of any of such Collateral or reasonably relating to such Collateral or the rights of the Collateral Agent and the Secured Parties hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in accordance with Section 7.3, and only after such application and after the payment by the Collateral Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Code, need the Collateral Agent account for the surplus, if any, to such Grantor. If any notice of a proposed sale or other disposition of such Collateral shall be required by law, such notice shall be in writing and deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Collateral Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Collateral by the Collateral Agent (including 18 pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof. 7.5 WAIVER; DEFICIENCY. Each Grantor waives and agrees not to assert any rights or privileges it may acquire under Section 9-112 of the Code. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay (i) in the case of each of UCAR and Global, its Obligations or those of the Borrower (including as guarantor) and (ii) in the case of each other Grantor, the Obligations and the reasonable fees and disbursements of any attorneys employed by any Secured Party to collect such deficiency. 8. COLLATERAL AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT; COLLATERAL AGENT'S PERFORMANCE OF GRANTORS' OBLIGATIONS. 8.1 POWERS. Each Grantor hereby irrevocably constitutes and appoints the Collateral Agent and any officer or agent thereof, with full power of substitution, during the continuance of an Event of Default, as its true and lawful attorney-in-fact, with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name from time to time in the Collateral Agent's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, such Grantor hereby gives the Collateral Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do the following upon the occurrence and during the continuance of an Event of Default: (a) in the name of such Grantor or its own name, or otherwise, to take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account, Instrument, General Intangible or Contract or with respect to any other Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of collecting any and all such moneys due under any Account, Instrument, General Intangible or Contract or with respect to any other Collateral whenever payable; 19 (b) to pay or discharge taxes and Liens levied or placed on or threatened against the Collateral (other than Permitted Liens), to effect any repairs or any insurance called for by the terms of this Agreement and to pay all or any part of the premiums therefor and the costs thereof, (c) to execute, in connection with any sale provided for in Section 7.4 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and (d)(i) to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Collateral Agent or as the Collateral Agent shall direct; (ii) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (iii) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (iv) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (v) to defend any suit, action or proceeding brought against any Grantor with respect to any Collateral; (vi) to settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, to give such discharges or releases as the Collateral Agent may deem appropriate; and (vii) generally, to use, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Collateral Agent were the absolute owner thereof for all purposes, and to do, at the Collateral Agent's option and at the expense of such Grantor, at any time, or from time to time, all acts and things which the Collateral Agent reasonably deems necessary to protect, preserve or realize upon such Collateral and the Collateral Agent's and the Secured Parties' security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do. 8.2 PERFORMANCE BY COLLATERAL AGENT OF GRANTOR'S OBLIGATIONS. If any Grantor fails to perform or comply with any of its agreements contained herein, the Collateral Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. 8.3 GRANTOR'S REIMBURSEMENT OBLIGATION. The expenses of the Collateral Agent reasonably incurred in connection with actions undertaken as provided in this Section 8, together with interest thereon at a rate per annum 19 equal to the default rate of interest set forth in Section 2.12 of the Credit Agreement, from the date payment is demanded by the Collateral Agent to the date reimbursed by a Grantor, shall be payable by the Borrower to the Collateral Agent on demand. 8.4 RATIFICATION; POWER COUPLED WITH AN INTEREST. Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 9. DUTY OF COLLATERAL AGENT. The Collateral Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as the Collateral Agent deals with similar property for its own account. No Secured Party nor any of its respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of a Grantor or any other person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Secured Parties hereunder are solely to protect the Secured Parties' interests in the Collateral and shall not impose any duty upon any Secured Party to exercise any such powers. The Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 10. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the Code, each Grantor authorizes the Collateral Agent to file financing statements with respect to the Collateral without the signature of such Grantor in such form and in such filing offices as the Collateral Agent reasonably determines appropriate to perfect the security interests of the Collateral Agent under this Agreement. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. 11. AUTHORITY OF COLLATERAL AGENT. Each Grantor acknowledges that the rights and responsibilities of the Collateral Agent under this Agreement with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Collateral Agent and the other Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them but, 21 as between the Collateral Agent and the Grantors, the Collateral Agent shall be conclusively presumed to be acting as agent for the other Secured Parties with full and valid authority so to act or refrain from acting. 12. NOTICES. All notices, requests and demands to or upon the Secured Parties or the Grantors under this Agreement shall be given or made in accordance with Section 10.01 of the Credit Agreement and addressed as follows: (a) if to any Secured Party, UCAR, Global or the Borrower, in accordance with Section 10.01 of the Credit Agreement; (b) if to any other Grantor, at its address set forth under its signature below. 13. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent hereunder, the security interest and all obligations of the Grantors hereunder shall be absolute and unconditional. 14. SURVIVAL OF AGREEMENT. All covenants, agreements, representations and warranties made by any Grantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Secured Parties and shall survive the making by the Lenders of the Loans, the execution and delivery to the Lenders of the Loan Documents and the issuance of any Letters of Credit, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or L/C Disbursement, or any Fee or any other amount payable under or in respect of this Agreement or any other Loan Document is outstanding and unpaid and so long as any Letter of Credit is outstanding and so long as the Commitments have not been terminated. 15. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER 22 INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 15. 16. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Grantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Loan Party or any Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Grantor or any Secured Party or its properties in the courts of any jurisdiction. (b) Each Grantor and each Secured Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 17. RELEASE. (a) This Agreement and the security interest created hereunder shall terminate when all Obligations have been fully and indefeasibly paid and when the Secured Parties have no further Commitments under the Credit Agreement and no Letters of Credit are outstanding, at which time the Collateral Agent shall execute and deliver to each Grantor, or to such person or persons as such Grantor shall reasonably designate, all Uniform Commercial Code termination statements and similar documents prepared by such Grantor at its expense which such Grantor shall reasonably request to evidence such termination. Any 23 execution and delivery of termination statements or documents pursuant to this Section 17(a) shall be without recourse to or warranty by the Collateral Agent. (b) A Subsidiary Grantor shall automatically be released from its obligations hereunder and the Security Interest in the Collateral of such Subsidiary Grantor shall be automatically released in the event that all the Capital Stock of such Subsidiary Grantor shall be sold, transferred or otherwise disposed of to a person that is not an Affiliate of UCAR in a transaction permitted pursuant to Section 7.05 of the Credit Agreement. Any Collateral granted hereunder shall be released (automatically and without further action on the part of the Collateral Agent) upon the sale, transfer or other disposition of such Collateral to a transferee who is not a "Grantor" hereunder, to the extent that such sale, transfer or other disposition is permitted under the Credit Agreement. 18. 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 unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties hereunder shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 19. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. 19.1 AMENDMENTS IN WRITING. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Grantors and the Collateral Agent; PROVIDED that any provision of this Agreement may be waived by the Required Lenders pursuant to a letter or agreement executed by the Collateral Agent or by telecopy transmission from the Collateral Agent. 19.2 NO WAIVER BY COURSE OF CONDUCT. No Secured Party shall by any act (except by a written instrument pursuant to Section 19.1 hereof) or delay be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of any Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by any Secured Party of any 24 right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Secured Party would otherwise have on any future occasion. 20. REMEDIES CUMULATIVE. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 21. SECTION HEADINGS. The section and Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 22. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of each Grantor and the Secured Parties and their successors and assigns; PROVIDED that this Agreement may not be assigned by any Grantor without the prior written consent of the Collateral Agent. 23. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 24. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. 25. ADDITIONAL GRANTORS. Pursuant to Section 6.11 of the Credit Agreement, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into this Agreement as a Grantor upon becoming a Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the Collateral Agent and such Domestic Subsidiary of an instrument in the form of Exhibit A-1, such Domestic Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor hereunder. The execution and delivery of any such instrument shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement. 25 IN WITNESS WHEREOF, the undersigned has caused this Security Agreement to be duly executed and delivered as of the date first above written. UCAR INTERNATIONAL INC. by /S/ NANCY M. FALLS ---------------------------------------- Name: Nancy M. Falls Title: Treasurer UCAR GLOBAL ENTERPRISES INC. by /S/ NANCY M. FALLS ----------------------------------------- Name: Nancy M. Falls Title: Treasurer UCAR FINANCE INC. by /S/ NANCY M. FALLS ----------------------------------------- Name: Nancy M. Falls Title: Treasurer EACH OF THE SUBSIDIARY GRANTORS LISTED ON SCHEDULE I HERETO by /S/ NANCY M. FALLS ----------------------------------------- Name: Nancy M. Falls Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent by /S/ DEBORAH DESANTIS ---------------------------------------- Name: Deborah DeSantis Title: Vice President SCHEDULE I TO THE SECURITY AGREEMENT SUBSIDIARY GRANTORS UCAR Carbon Company Inc. UCAR Holdings II Inc. UCAR Holdings III Inc. UCAR International Trading Inc. UCAR Composites Inc. EXHIBIT A-1 TO SECURITY AGREEMENT SUPPLEMENT NO. dated as of [], to the Security Agreement dated as of February 22, 2000 (the "SECURITY AGREEMENT"), made by UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("GLOBAL"), UCAR FINANCE INC., a Delaware corporation (the "BORROWER"), and the subsidiaries of UCAR from time to time party thereto (the "SUBSIDIARY GRANTORS", and together with UCAR and the Borrower, the "GRANTORS") in favor of MORGAN GUARANTY TRUST COMPANY OF NEW YORK as collateral agent for the Secured Parties (such term and each other capitalized term used but not defined herein having the meaning given it in Article I of the Credit Agreement). A. Reference is made to the Credit Agreement dated as of February 22, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among UCAR, Global, the Borrower, the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank. B. The Grantors have entered into the Security Agreement in order to induce the Lenders to make Loans and the Issuing Bank to issue Letters of Credit pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Pursuant to Section 6.11 of the Credit Agreement, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into the Security Agreement as a Grantor upon becoming a Domestic Subsidiary. Section 25 of the Security Agreement provides that additional Domestic Subsidiaries may become Grantors under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "NEW GRANTOR") is a U.S. Subsidiary and is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Grantor under the Security Agreement in order to induce the Lenders to make additional Loans and the Issuing Bank to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Collateral Agent and the New Grantor agree as follows: 2 SECTION 1. In accordance with Section 25 of the Security Agreement, the New Grantor by its signature below becomes a Grantor under the Security Agreement with the same force and effect as if originally named therein as a Grantor and the New Grantor hereby agrees to all the terms and provisions of the Security Agreement applicable to it as a Grantor thereunder. Each reference to a "Grantor" in the Security Agreement shall be deemed to include the New Grantor. The Security Agreement is hereby incorporated herein by reference. SECTION 2. The New Grantor represents and warrants to the Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to the effects of applicable bankruptcy, insolvency or similar laws effecting creditors' rights generally and equitable principles of general applicability. SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Grantor and the Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Security Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in the Credit Agreement. All communications and notices hereunder to the New Grantor shall be given to it at the address set forth under its signature, with a copy to the Borrower. 3 IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written. [NAME OF NEW GRANTOR], by Name: Title: Address: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent, by Name: Title: ANNEX I to the SECURITY AGREEMENT PERFECTION CERTIFICATE Reference is made to (a) the Credit Agreement dated as of February 22, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among UCAR International Inc., a Delaware corporation ("UCAR"), UCAR Global Enterprises Inc., a Delaware corporation ("GLOBAL"), UCAR Finance Inc., a Delaware corporation (the "BORROWER"), the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank, and (b) the Security Agreement dated as of the date hereof (the "SECURITY AGREEMENT"), among UCAR, Global, the Borrower, the subsidiary grantors from time to time party thereto and the Collateral Agent. Each capitalized term used but not defined herein shall have the meaning assigned thereto in the Security Agreement, or, if not defined therein, in the Credit Agreement. The undersigned, a Financial Officer and the chief legal officer, respectively, of each of UCAR and the Borrower, hereby certify to the Collateral Agent and each other Secured Party as follows: 1. NAMES. (a) The exact corporate name of each Grantor, as such name appears in its respective certificate of incorporation, is as follows: (b) Set forth below is each other corporate name each Grantor has had in the past five years, together with the date of the relevant change: (c) Except as set forth in Schedule 1 hereto, no Grantor has changed its identity or corporate structure in any way within the past five years. Changes in identity or corporate structure would include mergers, consolidations and acquisitions, as well as any change in the form, nature or jurisdiction of corporate organization. If any such change has occurred, include in Schedule 1 the information required by Sections 1 and 2 of this certificate as to each acquiree or constituent party to a merger or consolidation. (d) The following is a list of all other names (including trade names or similar appellations) used by each Grantor or any of its divisions or other business units in connection with the conduct of its business or the ownership of its properties at any time during the past five years: (e) Set forth below is the Federal Taxpayer Identification Number of each Grantor: 2. CURRENT LOCATIONS. (a) The chief executive office of each Grantor is located at the address set forth opposite its name below: GRANTOR MAILING ADDRESS COUNTY STATE (b) Set forth below opposite the name of each Grantor are all locations where such Grantor maintains any books or records relating to any Accounts Receivable (with each location at which chattel paper, if any, is kept being indicated by an "*"): GRANTOR ADDRESS COUNTY STATE (c) Set forth below opposite the name of each Grantor are all the places of business of such Grantor not identified in paragraph (a) or (b) above: Grantor ADDRESS COUNTY STATE (d) Set forth below opposite the name of each Grantor are all the locations where such Grantor maintains any Collateral not identified above: GRANTOR ADDRESS COUNTY STATE (e) Set forth below opposite the name of each Grantor are the names and addresses of all persons other than such Grantor that have possession of any of the Collateral of such Grantor: GRANTOR NAME ADDRESS COUNTY STATE 3. UNUSUAL TRANSACTIONS. All Accounts Receivable have been originated by the Grantors and all Inventory has been acquired by the Grantors in the ordinary course of business. 6 4. FILE SEARCH REPORTS. Attached hereto as Schedule 4(A) are true copies of file search reports from the Uniform Commercial Code filing offices where filings described in Section 3.19 of the Credit Agreement are to be made. Attached hereto as Schedule 4(B) is a true copy of each financing statement or other filing identified in such file search reports. 5. UCC FILINGS. Duly signed financing statements on Form UCC-1 in substantially the form of Schedule 5 hereto have been prepared for filing in the Uniform Commercial Code filing office in each jurisdiction where a Grantor has Collateral as identified in Section 2 hereof. 6. SCHEDULE OF FILINGS. Attached hereto as Schedule 6 is a schedule setting forth, with respect to the filings described in Section 5 above, each filing and the filing office in which such filing is to be made. 7. FILING FEES. All fees and taxes payable in connection with the filings described in Section 5 above, other than nominal filing fees, have been paid. 8. STOCK OWNERSHIP. Attached hereto as Schedule 8 is a true and correct list of all the duly authorized, issued and outstanding equity interests of the Borrower and each Subsidiary and the record and beneficial owners of such equity interests. Also set forth on Schedule 8 is each equity investment of the Borrower, Holdings and each Subsidiary that represents 50% or less of the equity of the entity in which such investment was made. 9. NOTES. Attached hereto as Schedule 9 is a true and correct list of all notes held by Holdings, the Borrower and each Subsidiary and all intercompany notes between the Borrower, Holdings and each Subsidiary and between each Subsidiary and each other such Subsidiary. 10. ADVANCES. Attached hereto as Schedule 10 is (a) a true and correct list of all advances made by UCAR and any subsidiary of UCAR to UCAR or any subsidiary of UCAR, which advances will be on and after the date hereof evidenced by one or more intercompany notes pledged to the Collateral Agent under one or more Pledge Agreements, and (b) a true and correct list of all unpaid intercompany transfers of goods sold and delivered by or to UCAR or any Subsidiary. 7 11. MORTGAGE FILINGS. Attached hereto as Schedule 11 is a schedule setting forth, with respect to each Mortgaged Property, (i) the exact corporate name of the corporation that owns such property as such name appears in its certificate of incorporation, (ii) if different from the name identified pursuant to clause (i), the exact name of the current record owner of such property reflected in the records of the filing office for such property identified pursuant to the following clause and (iii) the filing office in which a Mortgage with respect to such property must be filed or recorded in order for the Collateral Agent to obtain a perfected security interest therein. 8 IN WITNESS WHEREOF, the undersigned have duly executed this certificate on this [ ] day of [ ]. UCAR INTERNATIONAL INC., by: ----------------------------------------- Name: Title: [Financial Officer] by: ----------------------------------------- Name: Title: [Chief Legal Officer] UCAR FINANCE INC., by: ----------------------------------------- Name: Title: [Financial Officer] by: ----------------------------------------- Name: Title: [Chief Legal Officer] SCHEDULE 1 to the PERFECTION CERTIFICATE CHANGES IN CORPORATE STRUCTURE AND IDENTITY SCHEDULE 4(A) to the PERFECTION CERTIFICATE FILE SEARCH REPORTS Attached hereto. SCHEDULE 4(B) to the PERFECTION CERTIFICATE EXISTING FINANCING STATEMENTS AND LIENS Attached hereto. SCHEDULE 5 to the PERFECTION CERTIFICATE FORM OF FINANCING STATEMENT Attached hereto. ANNEX I to UCC Financing Statement (a) The following types or items of property, whether now owned or at any time hereafter acquired by the Debtor named in the Financing Statement to which this Annex I is attached (the "DEBTOR") or in which the Debtor now has or at any time in the future may acquire any right, title or interest, are covered by the Financing Statement to which this Annex I is attached (collectively, the "COLLATERAL"): all rights of the Debtor in Accounts Receivable, Additional Collateral, Collateral Accounts, Contracts, Documents, Equipment, Fixtures, General Intangibles, Intellectual Property, Investment Property, Inventory, Pledged Securities, all books and records pertaining to the foregoing and all Proceeds of any and all of the foregoing. (b) The following terms shall have the following meanings: "ACCOUNTS": any and all right, title and interest of the Debtor to payment for goods and services sold or leased, including any such right evidenced by chattel paper, whether due or to become due, whether or not it has been earned or performed, and whether now or hereafter acquired or arising in the future, including, without limitation, accounts receivable from affiliates of the Debtor. "ACCOUNTS RECEIVABLE": all right, title and interest of the Debtor to Accounts and all of its right, title and interest in any returned goods, together with all rights, titles, securities and guarantees with respect thereto, including any rights to stoppage in transit, replevin, reclamation and resales, and all related security interests, liens and pledges, whether voluntary or involuntary in each case whether due or become due, whether now existing or hereafter arising in the future. "ADDITIONAL COLLATERAL": all rights of the Debtor under any guarantees, security agreements or other instruments or documents guaranteeing or securing certain intercompany notes pledged pursuant to, and more particularly described in, the Pledge Agreement (as the same may be amended, supplemented or otherwise modified from time to time, the "PLEDGE AGREEMENT") dated as of February 22, 2000, made by the Debtor and certain other parties for the benefit of the Secured Parties. "COLLATERAL ACCOUNT": any collateral account established by the Secured Party named in the Financing Statement to which this Annex I is attached (the "SECURED Party") as provided (i) in Section 5.3 or Section 7.2 of the Security Agreement (as the same may be amended, supplemented or otherwise modified from time to time, the "SECURITY AGREEMENT") dated as of February 22, 2000, made by the Debtor and certain other parties for the benefit of the Secured Parties or (ii) in Section 8(a) or Section 15 of the Pledge Agreement. "COMMODITY ACCOUNT": an account maintained by a Commodity Intermediary in which a Commodity Contract is carried out for a Commodity Customer. "COMMODITY CONTRACT": a commodity futures contract, an option on a commodity futures contract, a commodity option or any other contract that, in each case, is (a) traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to the federal commodities laws or (b) traded on a foreign commodity board of trade, exchange or market, and is carried on the books of a Commodity Intermediary for a Commodity Customer. "COMMODITY CUSTOMER" : a Person for whom a Commodity Intermediary carries a Commodity Contract on its books. "COMMODITY INTERMEDIARY" : (a) a Person who is registered as a futures commission merchant under the federal commodities laws or (b) a Person who in the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated as a contract market pursuant to federal commodities laws. "CONTRACTS": all rights of the Debtor under contracts and agreements to which the Debtor is a party or under which the Debtor has any right, title or interest or to which the Debtor or any property of the Debtor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (a) all rights of the Debtor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of the Debtor to damages arising out of, or for, breach or default in respect thereof and (c) all rights of the Debtor to exercise all remedies thereunder, in each case to the extent the grant by the Debtor of a security interest in its rights under such contract or agreement is permitted without the consent of any other person, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from such other person (it being understood that the foregoing shall not be deemed to obligate the Debtor to obtain such consents); PROVIDED, that the foregoing limitation shall not affect, limit, restrict or impair the grant by the Debtor of a security interest in any Account or any money or other amounts due or to become due under any such contract or agreement to the extent provided in Section 9-318 of the Uniform Commercial Code of the State of New York as in effect on February 22, 2000. 3 "COPYRIGHTS": all of the following now or hereafter owned by the Debtor: (a) all copyright rights in any work subject to the copyright laws of the United States or any other country, whether as author, assignee, transferee or otherwise, and (b) all registrations and applications for registration of any such copyright in the United States or any other country, including registrations, recordings, supplemental registrations and pending applications for registration in the United States Copyright Office. "COPYRIGHT LICENSE": any written agreement, now or hereafter in effect, granting any right to any third party under any Copyright now or hereafter owned by the Debtor or which the Debtor otherwise has the right to license, or granting any right to the Debtor under any Copyright now or hereafter owned by any third party, and all rights of the Debtor under any such agreement. "DOCUMENTS": all Instruments, files, records, ledger sheets, and documents covering or relating to any of the Accounts, Equipment, General Intangibles, Inventory and Proceeds. "ENTITLEMENT HOLDER": a Person identified in the records of a Securities Intermediary as the Person having a Security Entitlement against the Securities Intermediary. If a Person acquires a Security Entitlement by virtue of Section 8-501(b)(2) or (3) of the Uniform Commercial Code, such Person is the Entitlement Holder. "EQUIPMENT": all equipment, furniture and furnishings, tools, accessories, parts and supplies of every kind and description, wherever located, now or hereafter existing, and all improvements, accessions or appurtenances thereto, including Fixtures, and all other tangible personal property whether or not similar to any of the foregoing items which are now or hereafter acquired by the Debtor (it being understood that "Equipment" does not include cars, trucks, trailers and other motor vehicles covered by a certificate of title law of any state). "FINANCIAL ASSET": (a) a Security, (b) an obligation of a Person or a share, participation or other interest in a Person or in property or an enterprise of a Person, which is, or is of a type, dealt with in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment or (c) any property that is held by a Securities Intermediary for another Person in a Securities Account if the Securities Intermediary has expressly agreed with the other Person that the property is to be treated as a Financial Asset under Article 8 of the Uniform Commercial Code. As the context requires, the term Financial Asset shall mean either the interest itself or the means by 4 which a Person's claim to it is evidenced, including a certificated or uncertificated Security, a certificate representing a Security or a Security Entitlement. "FIXTURES": all items that would otherwise constitute items of Collateral, whether now owned or hereafter acquired, that become so related to particular real estate that an interest in them arises under any real estate law applicable thereto. "GENERAL INTANGIBLES": as defined in the Uniform Commercial Code of the State of New York in effect on February 22, 2000, including, all intangible, intellectual or other similar property of the Debtor of any kind or nature now owned or hereafter acquired by the Debtor, including inventions, designs, Patents, Copyrights, Licenses, Trademarks, trade secrets, confidential or proprietary technical and business information, know-how, show-how or other data or information, software and databases and all embodiments or fixations thereof and related documentation, registrations, franchises, and all other intellectual or other similar property rights not otherwise described above, to the extent, in the case of any General Intangibles arising under any contract or agreement, that the grant by the Debtor of a security interest in its rights under such contract or agreement is not prohibited without the consent of any other person, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from all such other persons (it being understood that the foregoing shall not be deemed to obligate the Debtor to obtain such consents), PROVIDED, that the foregoing limitation shall not affect, limit, restrict or impair the grant by the Debtor of a security interest in any Account or General Intangible or any money or other amounts due or to become due under any such contract or agreement to the extent provided in Section 9-318 of the Uniform Commercial Code of the State of New York as in effect on April 22, 1998, and provided, FURTHER, that "General Intangibles" shall not include any of the books and records pertaining to the Collateral except to the extent that the grant of a security interest in General Intangibles owed by affiliates not incorporated or otherwise organized in the United States of America would result in material adverse tax or legal consequences to the Debtor. "INSTRUMENTS": as defined in the Uniform Commercial Code of the State of New York as in effect on February 22, 2000. "INTELLECTUAL PROPERTY": all of the following, whether now owned or hereafter acquired by Debtor: (a) Patents, including all granted Patents, recordings and pending applications, (b) Trademarks, including all registered Trademarks, registrations, recordings, and pending applications, (c) Copyrights, including all registered Copyrights, registrations, recordings, supplemental registrations and pending 5 applications, (d) Licenses, (e) General Intangibles and (f) all products and Proceeds (including insurance proceeds) of, and additions, improvements and accessions to, and books and records describing or used in connection with, any and all of the property described above. "INVENTORY": all right, title and interest of the Debtor in and to goods intended for sale or lease by such person, or consumed in such person's business (including, without limitation, all operating parts and supplies), together with all raw materials and finished goods, whether now owned or hereafter acquired or arising. "INVESTMENT PROPERTY": all Securities (whether certificated or uncertificated), Financial Assets, Security Entitlements, Securities Accounts, Commodity Contracts and Commodity Accounts of any Debtor, whether now owned or hereafter acquired by any Debtor. "LICENSE": any Patent License, Trademark License, Copyright License or other similar license or sublicense as to which the Debtor is a party (other than those license or sublicense agreements which by their terms prohibit assignment or a grant of a security interest by the Debtor as licensee thereunder). "PATENT LICENSE": any written agreement, now or hereafter in effect, granting to any third party any right to make, use or sell any invention on which a Patent, now or hereafter owned by the Debtor or which the Debtor otherwise has the right to license, is in existence, or granting to the Debtor any right to make, use or sell any invention on which a Patent, now or hereafter owned by any third party, is in existence, and all rights of the Debtor under any such agreement. "PATENTS": all the following now or hereafter owned by the Debtor: (a) all letters patent of the United States or any other country, including patents, design patents or utility models, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and pending applications in the United States Patent and Trademark Office or any similar offices in any other country, and (b) all reissues, continuations, divisions, continuations-in-part, renewals or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein. "PLEDGED NOTES": all the promissory notes evidencing any debt of any nature whatsoever that may be issued or granted by any issuer to the 6 Debtor while the Pledge Agreement is in effect that are required to be pledged under the Pledge Agreement. "PLEDGED SECURITIES": the Pledged Stock and the Pledged Notes. "PLEDGED STOCK": all the stock certificates, options or rights of any nature whatsoever that may be issued or granted by any issuer to the Debtor while the Pledge Agreement is in effect that are required to be pledged under the Pledge Agreement. "PROCEEDS": any consideration received from the sale, exchange or other disposition of any asset or property which constitutes Collateral, any value received as a consequence of the possession of any Collateral and any payment received from any insurer or other person or entity as a result of the destruction, loss, theft, damage or other involuntary conversion of whatever nature of any asset or property which constitutes Collateral, and shall include, without limitation, (a) all cash and negotiable instruments received or held on behalf of the Secured Party, (b) any claim of the Debtor against a third party for (and the right to sue and recover for and the rights to damages or profits due or accrued arising out of or in connection with) (i) past, present or future infringement of any Patent now or hereafter owned by the Debtor or licensed under a Patent License, (ii) past, present or future infringement or dilution of any Trademark now or hereafter owned by the Debtor or licensed under a Trademark License or injury to the goodwill associated with or symbolized by any Trademark now or hereafter owned by the Debtor, (iii) past, present or future breach of any License, (iv) past, present or future infringement of any Copyright now or hereafter owned by the Debtor or licensed under a Copyright License and (v) any and all amounts from time to time paid or payable under or in connection with any of the Collateral and (c) all "proceeds" (as such term is defined in Section 9-306(1) of the Uniform Commercial Code in effect in the State of New York on February 22, 2000) of the Pledged Securities and any Additional Collateral and all dividends or other income from the Pledged Securities, collections thereon or distributions with respect thereto. "SECURED PARTIES": the collateral agent, each lender, the issuing bank and each other person to which any obligation is owed under the Credit Agreement, the Pledge Agreement, the Security Agreement and any and all other agreements and instruments executed or delivered in connection with the credit facilities extended under the Credit Agreement. 7 "SECURITY INTEREST": any interest in any type of asset including without limitation personal property, real property, intellectual property, goods, equipment, contract rights and rights of payment that has been created, granted, pledged or conveyed under the laws of any jurisdiction and that secures the payment or performance of an obligation. "SECURITIES" : any obligations of an issuer or any shares, participations or other interests in an issuer or in property or an enterprise of an issuer which (a) are represented by a certificate representing a security in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer, (b) are one of a class or series or by its terms is divisible into a class or series of shares, participations, interests or obligations and (c)(i) are, or are of a type, dealt with or traded on securities exchanges or securities markets or (ii) are a medium for investment and by their terms expressly provide that they are a security governed by Article 8 of the Uniform Commercial Code. "SECURITIES ACCOUNT": an account to which a Financial Asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise rights that comprise the Financial Asset. "SECURITY ENTITLEMENTS": the rights and property interests of an Entitlement Holder with respect to a Financial Asset. "SECURITIES INTERMEDIARY": (a) a clearing corporation or (b) a Person, including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity. "TRADEMARK LICENSE": any written agreement, now or hereafter in effect, granting to any third party any right to use any Trademark now or hereafter owned by the Debtor or that the Debtor otherwise has the right to license, or granting to the Debtor any right to use any Trademark now or hereafter owned by any third party, and all rights of the Debtor under any such agreement. 8 "TRADEMARKS": all of the following now or hereafter owned by the Debtor: (a) all trademarks, service marks, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, and all designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all registration and recording applications filed in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office, any State of the United States or any similar offices in any other country or any political subdivision thereof, and all extensions or renewals thereof, and (b) all goodwill associated therewith or symbolized thereby, and (c) all other assets, rights and interests that uniquely reflect or embody such goodwill. EX-10.4 5 INDEMNITY, SUBROGATION & CONTRIBUTION AGMT. CONFORMED COPY INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated as of February 22, 2000, among UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("GLOBAL"), UCAR FINANCE INC., a Delaware corporation, as borrower (the "BORROWER"), each of the Domestic Subsidiaries party hereto (such Domestic Subsidiaries and Global collectively, the "SUBSIDIARY GUARANTORS"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as collateral agent for the Secured Parties (such term and each other capitalized term used but not defined herein having the meaning given it in Article I of the Credit Agreement). Reference is made to Credit Agreement dated as of February 22, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among UCAR, Global, the Borrower, the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank. The Lenders and the Issuing Bank, respectively, have agreed to make Loans and to issue Letters of Credit pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Each of the Subsidiary Guarantors has agreed to guarantee, among other things, all the obligations of the Borrower and the LC Subsidiaries under the Credit Agreement. The obligations of the Lenders to make the Loans and of the Issuing Bank to issue the Letters of Credit under the Credit Agreement are conditioned upon, among other things, the execution and delivery by the Subsidiary Guarantors of an indemnity, subrogation and contribution agreement in the form hereof (the "AGREEMENT") to support the due and punctual payment of, with respect to each Subsidiary Guarantor, its obligations as obligor or guarantor in respect of (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower or any Subsidiary under the Credit Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such 2 proceeding), of UCAR, Global, the Borrower and the Subsidiaries (including, without limitation, all monetary obligations of the Intercompany Borrowers under the Intercompany Notes and Intercompany Borrower Agreements, but only for so long as the Intercompany Notes and the rights of the Borrower under the Intercompany Borrower Agreements are pledged to the Collateral Agent under one or more Pledge Agreements as security for the Obligations), (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Loan Parties under or pursuant to the Credit Agreement and the other Loan Documents, (c) unless otherwise agreed upon in writing by the applicable Lender party thereto, the due and punctual payment and performance of all obligations of the Borrower and the Subsidiaries, monetary or otherwise, under each Interest/Exchange Rate Protection Agreement entered into with any counterparty that (i) was a Lender (or an Affiliate thereof) at the time such Interest/Exchange Rate Protection Agreement was entered into or (ii) (A) was a "Lender" (or an Affiliate thereof) as defined in the Existing Credit Agreements at the time such Interest/Exchange Rate Protection Agreement was entered into and (B) was one of the initial lenders under the Credit Agreement (or an Affiliate thereof) and (d) all obligations of UCAR and Global under the Guarantee Agreements (all of the foregoing obligations collectively, the "OBLIGATIONS"). Accordingly, UCAR and the Borrower, each Subsidiary Guarantor and the Collateral Agent agree as follows: SECTION 1. INDEMNITY AND SUBROGATION. In addition to all such rights of indemnity and subrogation as the Subsidiary Guarantors may have under applicable law (but subject to Section 3), UCAR and the Borrower agree that (a) in the event a payment shall be made by any Subsidiary Guarantor under the Guarantee Agreement, UCAR and the Borrower shall indemnify such Subsidiary Guarantor for the full amount of such payment and such Subsidiary Guarantor shall be subrogated to the rights of the person to whom such payment shall have been made to the extent of such payment and (b) in the event any assets of any Subsidiary Guarantor shall be sold pursuant to any applicable security agreement or similar instrument or agreement to satisfy a claim of any Secured Party, UCAR and the Borrower shall indemnify such Subsidiary Guarantor in an amount equal to the greater of the book value or the fair market value of the assets so sold. SECTION 2. CONTRIBUTION AND SUBROGATION. Each Subsidiary Guarantor agrees (subject to Section 3) that in the event a payment shall be made by any Subsidiary Guarantor under the Guarantee Agreement or assets of any Subsidiary Guarantor shall be sold pursuant to any applicable security agreement or similar instrument or agreement to satisfy a claim of any Secured Party, and such Subsidiary Guarantor (the "CLAIMING SUBSIDIARY GUARANTOR") shall not have been indemnified by UCAR or the Borrower as provided in Section 1, each other Subsidiary Guarantor (a "CONTRIBUTING SUBSIDIARY GUARANTOR") shall indemnify the Claiming Subsidiary Guarantor in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as the case may be, multiplied by a fraction of which the numerator shall be the net worth of the Contributing Subsidiary Guarantor on the date hereof and the denominator shall be the aggregate 3 net worth of all the Subsidiary Guarantors on the date hereof (or, in the case of any Subsidiary Guarantor becoming a party hereto pursuant to Section 16, the date of the Supplement hereto executed and delivered by such Subsidiary Guarantor). Any Contributing Subsidiary Guarantor making any payment to a Claiming Subsidiary Guarantor pursuant to this Section 2 shall be subrogated to the rights of such Claiming Subsidiary Guarantor under Section 1 to the extent of such payment. SECTION 3. SUBORDINATION. Notwithstanding any provision of this Agreement to the contrary, all rights of the Subsidiary Guarantors under Sections 1 and 2 and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full of the Obligations. No failure on the part of UCAR, the Borrower or any Subsidiary Guarantor to make the payments required by Sections 1 and 2 (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of any other Subsidiary Guarantor with respect to any Guarantee, and each Subsidiary Guarantor shall remain liable for the full amount of the Obligations that such Subsidiary Guarantor has otherwise guaranteed. SECTION 4. TERMINATION. This Agreement shall terminate when all the Obligations have been indefeasibly paid in full, no Letters of Credit are outstanding and the Secured Parties have no further Commitments under the Credit Agreement. SECTION 5. CONTINUED EFFECTIVENESS. UCAR, the Borrower and each Subsidiary Guarantor further agree that this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by any Secured Party or any Subsidiary Guarantor upon the bankruptcy or reorganization of UCAR, the Borrower, any Subsidiary Guarantor or otherwise. SECTION 6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 7. WAIVERS; AMENDMENT. (a) No failure or delay of the Collateral Agent, any Secured Party, or any Guarantor in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or discontinuance of steps to enforce such a right or power preclude any other or further exercise thereof or the exercise of any other right or power. The rights and the remedies of the Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Agreement or consent to any departure by any Subsidiary Guarantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on 4 any Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor to any other or further notice or demand in similar or other circumstances. (b) Except for the operation of Section 16 of this Agreement, neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Subsidiary Guarantors and the Collateral Agent, with the prior written consent of the Required Lenders. SECTION 8. NOTICES. All communications and notices hereunder shall be in writing and given as provided in the Credit Agreement, except those to any Subsidiary Guarantor that is not an LC Subsidiary, which shall be directed to the address set forth under its signature below. SECTION 9. BINDING AGREEMENT; ASSIGNMENTS. This Agreement shall become effective as to each of UCAR, the Borrower or any Subsidiary Guarantor when a counterpart hereof executed on behalf of UCAR, the Borrower or such Subsidiary Guarantor shall have been delivered to the Collateral Agent and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon each of UCAR, the Borrower or such Subsidiary Guarantor and the Collateral Agent and their respective successors and permitted assigns, and shall inure to the benefit of such Subsidiary Guarantor and the Secured Parties, and their respective successors and permitted assigns, except that no Subsidiary Guarantor shall have the right to assign its rights hereunder or any interest herein (and any such attempted assignment shall be void), except as expressly contemplated by this Agreement or the other Loan Documents. SECTION 10. SUCCESSORS AND ASSIGNS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party, and all covenants, promises and agreements by or on behalf of each of UCAR, the Borrower or any Subsidiary Guarantor or the Collateral Agent that are contained in this Agreement shall bind and inure to the benefit of their respective successors and permitted assigns. SECTION 11. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants, agreements, representations and warranties made by each of UCAR, the Borrower and each Subsidiary Guarantor herein and in any certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Secured Parties and each Subsidiary Guarantor and shall survive the making by the Lenders of the Loans, the execution and delivery to the Lenders of the Loan Documents and the issuance by the Issuing Bank of Letters of Credit, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or LC Disbursement or any Fee or any other amount payable under, or in respect of, this Agreement or under any of the other Loan Documents is outstanding and unpaid and so long as any Letter of Credit is outstanding and so long as the Commitments have not been terminated. 5 (b) In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 12. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. SECTION 13. RULES OF INTERPRETATION. The rules of interpretation specified in Section 1.03 of the Credit Agreement shall be applicable to this Agreement. SECTION 14. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each of UCAR, the Borrower and each Subsidiary Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment related to any such action or proceeding, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Loan Party or any Secured Party may otherwise have to bring any action or proceeding relating to this Agreement against UCAR, the Borrower or any Subsidiary Guarantor or any Secured Party or their properties in the courts of any jurisdiction. (b) Each of UCAR, the Borrower, each Subsidiary Guarantor and each Secured Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 8. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 6 SECTION 15. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 15. SECTION 16. ADDITIONAL SUBSIDIARY GUARANTORS. Pursuant to Section 6.11 of the Credit Agreement, each Domestic Subsidiary that was not in existence or not a Subsidiary on the date thereof is required to enter into this Agreement as a Subsidiary Guarantor upon becoming a Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the Collateral Agent and a Domestic Subsidiary of an instrument in the form of Annex 1, such Domestic Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and effect as if originally named as a Subsidiary Guarantor hereunder. The execution and delivery of any such instrument shall not require the consent of any Subsidiary Guarantor hereunder. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Agreement. SECTION 17. HEADINGS. Article and Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpretive, this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first appearing above. UCAR INTERNATIONAL INC. by /S/ NANCY M. FALLS ------------------------------- Name: Nancy M. Falls Title: Treasurer 7 UCAR GLOBAL ENTERPRISES INC. by /S/ NANCY M. FALLS -------------------------------- Name: Nancy M. Falls Title: Treasurer UCAR FINANCE INC. by /S/ NANCY M. FALLS --------------------------------- Name: Nancy M. Falls Title: Treasurer EACH OF THE SUBSIDIARY GUARANTORS LISTED ON SCHEDULE I HERETO by /S/ NANCY M. FALLS --------------------------------- Name: Nancy M. Falls Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent by /S/ DEBORAH DESANTIS --------------------------------- Name: Deborah DeSantis Title: Vice President SCHEDULE I TO INDEMNITY SUBROGATION AND CONTRIBUTION AGREEMENT SUBSIDIARY GUARANTORS UCAR Carbon Company Inc. UCAR Holdings II Inc. UCAR Holdings III Inc. UCAR International Trading Inc. UCAR Composites Inc. ANNEX I TO INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT SUPPLEMENT NO. dated as of [ ], to the Indemnity, Subrogation and Contribution Agreement dated February 22, 2000 (the "INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT"), among UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR FINANCE INC., a Delaware corporation (the "BORROWER"), each of the Subsidiary Guarantors (each capitalized term used but not defined having the meaning given it in the Indemnity, Subrogation and Contribution Agreement or the Credit Agreement) party thereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent for the Secured Parties. A. Reference is made to Credit Agreement dated as of February 22, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among UCAR, UCAR Global Enterprises Inc., a Delaware corporation ("GLOBAL"), the Borrower, the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank. B. Certain Subsidiary Guarantors have entered into the Indemnity, Subrogation and Contribution Agreement in order to induce the Lenders to make Loans and the Issuing Bank to issue Letters of Credit pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Pursuant to Section 6.11 of the Credit Agreement, promptly after its creation or acquisition, each additional Domestic Subsidiary is required to become a party to the Indemnity, Subrogation and Contribution Agreement as a Subsidiary Guarantor. Section 16 of the Indemnity, Subrogation and Contribution Agreement provides that additional Domestic Subsidiaries may become Subsidiary Guarantors under the Indemnity, Subrogation and Contribution Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "NEW SUBSIDIARY GUARANTOR") is a Domestic. Subsidiary and is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Guarantor under the Indemnity, Subrogation and Contribution Agreement in order to induce the Lenders to make additional Loans and the Fronting Banks to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Collateral Agent and the New Subsidiary Guarantor agree as follows: SECTION 1. In accordance with Section 16 of the Indemnity, Subrogation and Contribution Agreement, the New Subsidiary Guarantor by its signature below becomes a Subsidiary Guarantor under 2 the Indemnity, Subrogation and Contribution Agreement with the same force and effect as if originally named therein as a Subsidiary Guarantor and the New Subsidiary Guarantor hereby agrees to all the terms and provisions of the Indemnity, Subrogation and Contribution Agreement applicable to it as a Subsidiary Guarantor thereunder. Each reference to a "Subsidiary Guarantor" in the Indemnity, Subrogation and Contribution Agreement shall be deemed to include the New Subsidiary Guarantor. The Indemnity, Subrogation and Contribution Agreement is hereby incorporated herein by reference. SECTION 2. The New Subsidiary Guarantor represents and warrants to the Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to the effects of applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and equitable principles of general applicability. SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Subsidiary Guarantor and the Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Indemnity, Subrogation and Contribution Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. If any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Indemnity, Subrogation and Contribution Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in the Credit Agreement. All communications and notices hereunder to the New Subsidiary Guarantor shall be given to it at the address set forth under its signature, with a copy to the Borrower. 3 IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Collateral Agent have duly executed this Supplement to the Indemnity, Subrogation and Contribution Agreement as of the day and year first above written. [NAME OF NEW SUBSIDIARY GUARANTOR], by Name: Title: Address: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent, by Name: Title: EX-10.5 6 PLEDGE AGREEMENT CONFORMED COPY DOMESTIC PLEDGE AGREEMENT PLEDGE AGREEMENT dated as of February 22, 2000, by UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("GLOBAL"), UCAR FINANCE INC., a Delaware corporation (the "BORROWER"), the direct and indirect subsidiaries of UCAR that are signatories hereto (together with UCAR, Global and the Borrower, the "PLEDGORS"), in favor of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as collateral agent for the Secured Parties (as defined in Section 1 of this Pledge Agreement; each other capitalized term used but not defined herein having the meaning given it in Article I of the Credit Agreement dated as of February 22, 2000, among UCAR, Global, the Borrower, the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT")). W I T N E S S E T H : WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make Loans and the Issuing Bank has agreed to issue Letters of Credit, upon the terms and subject to the conditions set forth therein; and WHEREAS, it is a condition precedent to the obligations of the Lenders to make the Loans and of the Issuing Bank to issue the Letters of Credit that the Pledgors shall have executed and delivered this Pledge Agreement. NOW, THEREFORE, in consideration of the premises and to induce the Secured Parties to enter into the Credit Agreement and to induce the Lenders to make their respective Loans and the Issuing Bank to issue Letters of Credit, each of the Pledgors hereby agrees with the Collateral Agent, for the ratable benefit of the Secured Parties, as follows: 2 1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings assigned to them in the Credit Agreement. (b) The following terms shall have the following meanings: "ADDITIONAL COLLATERAL" shall mean all rights of any Pledgor under any Guarantees, security agreements or other instruments or documents guaranteeing or securing any Intercompany Notes or other Collateral. "CODE" shall mean the Uniform Commercial Code from time to time in effect in the State of New York. "COLLATERAL" shall mean the Pledged Securities, the Additional Collateral and all Proceeds thereof. "COLLATERAL ACCOUNT": any account established to hold money Proceeds, maintained under the sole dominion and control of and on terms and conditions reasonably satisfactory to the Collateral Agent, subject to withdrawal by the Collateral Agent for the account of the Secured Parties and the Pledgors, as provided in Section 8(a) and Section 15. "ISSUERS" shall mean the companies identified on SCHEDULE I attached hereto as the issuers of the Pledged Securities and each issuer of any securities included in the Additional Collateral. "OBLIGATIONS": shall mean (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower or any Subsidiary under the Credit Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of UCAR, Global, the Borrower and the Subsidiaries under the Credit Agreement and the other Loan Documents (including, without limitation, all monetary obligations of the Intercompany Borrowers under the Intercompany Notes and Intercompany Borrower Agreements, but only for so long as the Intercompany Notes and the 3 rights of the Borrower under the Intercompany Borrower Agreements are pledged to the Collateral Agent under this Agreement as security for the Obligations), (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of UCAR, Global, the Borrower and the Subsidiaries under or pursuant to the Credit Agreement and the other Loan Documents, (c) unless otherwise agreed upon in writing by the applicable Lender party thereto, the due and punctual payment and performance of all obligations of the UCAR, Global, the Borrower and the Subsidiaries, monetary or otherwise, under each Interest/Exchange Rate Protection Agreement entered into with any counterparty that (i) was a Lender (or an Affiliate thereof) at the time such Interest/Exchange Rate Protection Agreement was entered into or (ii) (A) was a "Lender" (or an Affiliate thereof) as defined in the Existing Credit Agreements at the time such Interest/Exchange Rate Protection Agreement was entered into and (B) was one of the initial Lenders under the Credit Agreement (or an Affiliate thereof) and (d) all obligations of the UCAR, Global, the Borrower and the Subsidiaries under the Guarantee Agreements; "PLEDGED NOTES" shall mean (a) the Intercompany Notes and other notes listed on SCHEDULE I hereto and (b) all Intercompany Notes and other instruments evidencing Indebtedness of UCAR, Global, the Borrower, any Subsidiary or any other person that shall be owned at any time or from time to time by any Pledgor. "PLEDGED STOCK" shall mean all shares of Capital Stock listed on SCHEDULE I hereto or hereafter acquired by any Pledgor, together with all certificates from time to time evidencing such Capital Stock. "PLEDGED SECURITIES" shall mean the Pledged Notes and the Pledged Stock. "PROCEEDS" shall mean all "proceeds" (as such term is defined in Section 9-306(1) of the Uniform Commercial Code in effect in the State of New York on the date hereof) of any Collateral and, in any event, shall include all interest, payments, prepayments, collections, dividends or other distributions or other income on the Pledged Stock or the Pledged Notes. "SECURED PARTIES" shall mean the Agents, each Lender, the Issuing Bank and each other person to which any of the Obligations is owed. In the case of Obligations owed to the Borrower by Foreign Subsidiaries, the term "Secured Parties" includes the Borrower and all references herein to the "ratable benefit of the Secured Parties" includes the Borrower to the extent necessary to effect the Foreign Subsidiary Pledgors' pledges of Collateral to the Borrower and the Borrower's assignment of such pledges contained in Section 2(b). "SECURITIES ACT": the Securities Act of 1933, as amended. 4 (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section references are to this Agreement unless otherwise specified. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. PLEDGE; GRANT OF SECURITY INTEREST; ASSIGNMENT OF SECURITY INTERESTS. (a) Each Pledgor hereby pledges, charges and delivers to the Collateral Agent, for the ratable benefit of the Secured Parties, and hereby grants to the Collateral Agent, for the ratable benefit of the Secured Parties, a first priority security interest in, all the Collateral now or at any time hereafter owned by such Pledgor as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration, upon one or more dates of prepayment or otherwise) of (i) in the case of each Pledgor that is not a Foreign Subsidiary, all of the Obligations, and (ii) in the case of each Pledgor that is a Foreign Subsidiary, its own obligations (A) under the Intercompany Notes and the Intercompany Borrower Agreements, (B) in respect of Letters of Credit and (C) as a Guarantor of the obligations of other Foreign Subsidiaries under the Guarantee Agreements. Each Pledgor will (i) cause any shares of Capital Stock of the Borrower, Global or any Subsidiary required to be pledged hereunder to be evidenced by duly executed certificates that are pledged and delivered to the Collateral Agent pursuant to the terms hereof and (ii) cause any Pledged Notes to be delivered to the Collateral Agent pursuant to the terms hereof. (b) Without limiting the grant set forth in paragraph (a) above, the Borrower hereby assigns, pledges, and transfers to the Collateral Agent for the ratable benefit of the Secured Parties, as security for the Obligations, all the Intercompany Notes and all its rights thereunder and under the related Intercompany Borrower Agreements and any Guarantee Agreements guaranteeing or Security Documents securing the Intercompany Notes or any of them. The Borrower agrees that, until the Commitments under the Credit Agreement have been terminated and the principal of and interest on each Loan, all fees referred to in the Credit Agreement and all other expenses or amounts payable under any Loan Document have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, the Collateral Agent will have the right, to the exclusion of the Borrower, to exercise all rights of the Borrower, and to make all demands (except that the Borrower shall be entitled to make a demand for payment to effect any prepayment that it is entitled to make under Section 3.03(b)(ii) of the Credit Agreement) and give all notices to be made or given by the Borrower, under the Intercompany Notes, the Intercompany Borrower Agreements and such Guarantee Agreements and Security Documents (and the Borrower agrees that any such demand or notice made or given by the Borrower in violation of the provisions of this paragraph shall be of no force or effect). Without limiting the foregoing, 5 the Borrower agrees that at any time after the occurrence and during the continuance of an Event of Default, the Collateral Agent may demand payment of the principal of and interest accrued on each Intercompany Note. 3. STOCK POWERS AND INSTRUMENTS OF TRANSFER. Concurrently with the delivery to the Collateral Agent of each certificate representing one or more shares of Pledged Stock and each Pledged Note, the applicable Pledgor shall deliver an undated stock power or instrument of transfer covering such certificate or such Pledged Note, duly executed in blank by such Pledgor with, if the Collateral Agent so requests, signature guaranteed. 4. REPRESENTATIONS AND WARRANTIES. Each Pledgor represents and warrants, as to itself and the Collateral pledged by it hereunder, that: (a) The shares of Pledged Stock listed on SCHEDULE 1 constitute the portion of the issued and outstanding shares of all classes of the Capital Stock of the applicable Issuer set forth on Schedule I and the Pledged Notes evidence the obligations of the applicable Issuer to the applicable Pledgor in aggregate principal amounts as set forth on Schedule I. (b) All the shares of the Pledged Stock have been duly and validly issued and are fully paid and nonassessable. (c) Subject to Section 21(b), each Pledgor is the legal, record and beneficial owner of the Pledged Securities and of the Additional Collateral, free of any and all Liens (other than Liens permitted by Section 7.02 of the Credit Agreement) or options in favor of, or claims of, any other person, except the security interest created by this Agreement. (d) All Capital Stock or other ownership interests in the Domestic Subsidiaries will at all times constitute certificated securities for purposes of Articles 8 and 9 of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions. (e) This Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral and, when the Pledged Stock, Pledged Notes or Additional Collateral shall be delivered to the Collateral Agent (or, as applicable in the case of Capital Stock of foreign Subsidiaries, the requisite filings or registrations are made), this Agreement will constitute a duly perfected first priority Lien on, and security interest in, all right, title and interest of the Pledgors thereunder in such Pledged Stock, Pledged Notes or Additional Collateral, in each case prior and superior in rights to any other person, subject to the agreements listed in Schedule 4.08 of the Credit Agreement. 6 5. COVENANTS. Each Pledgor, as to itself and the Collateral pledged by it hereunder, covenants and agrees with the Secured Parties that, from and after the date of this Agreement until this Agreement is terminated and the security interest created hereby is released, subject to Section 21(b): (a) Any sums paid upon or in respect of the Pledged Stock, Pledged Notes or Additional Collateral upon the liquidation or dissolution (other than any liquidation or dissolution permitted by Section 6.01(a) of the Credit Agreement) of any Issuer shall, upon and during the continuance of an Event of Default, upon the written request of the Collateral Agent, be paid over to the Collateral Agent to be held and applied by it hereunder as provided in Section 8(a) and Section 15, and in case any distribution of capital shall be made on or in respect of the Pledged Stock or Additional Collateral or any property shall be distributed upon or with respect to the Pledged Stock, Pledged Notes or Additional Collateral pursuant to the recapitalization or reclassification of capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, upon and during continuance of an Event of Default, upon the written request of the Collateral Agent, be delivered to the Collateral Agent to be held and applied by it hereunder as provided in Section 8(a) and Section 15. If any sums of money or property so paid or distributed in respect of the Pledged Stock, Pledged Notes or Additional Collateral shall be received by such Pledgor, such Pledgor shall, upon and during the continuance of an Event of Default, upon the written request of the Collateral Agent, until such money or property is paid or delivered to the Collateral Agent, hold such money or property in trust for the Secured Parties, segregated from other funds of such Pledgor, for application in accordance with Section 8(a) and Section 15. (b) Without the prior written consent of the Collateral Agent, such Pledgor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any stock or other equity securities of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of any Issuer, except to the extent the same are permitted to be issued under the Credit Agreement, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral owned by it, except as not prohibited under the terms of the Credit Agreement, (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any person with respect to, any of such Collateral, or any interest therein, except as not prohibited under the terms of the Credit Agreement and for the security interest created by this Agreement or (iv) enter into any agreement or undertaking restricting the right or ability of such Pledgor or the Collateral Agent to sell, assign or transfer any of such Collateral, except as not prohibited under the terms of the Credit Agreement. 7 (c) Such Pledgor shall maintain the security interest created by it under this Agreement as a first priority, perfected security interest and shall defend such security interest against claims and demands of all persons whomsoever. At any time and from time to time, upon the written request of the Collateral Agent, and at the sole expense of such Pledgor, such Pledgor shall promptly and duly execute and deliver such further instruments and documents and take such further actions as the Collateral Agent may reasonably request for the purposes of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted. If any amount payable under or in connection with any of the Collateral owned by such Pledgor shall be or become evidenced by any promissory note, other instrument or chattel paper, such note, instrument or chattel paper shall, if so requested by the Collateral Agent, be immediately delivered to the Collateral Agent duly endorsed in a manner reasonably satisfactory to the Collateral Agent, to be held as Collateral pursuant to this Agreement, provided that the use of the Proceeds of such Collateral shall nonetheless be governed by Sections 6 and 7. 6. CASH DIVIDENDS; VOTING RIGHTS; PROCEEDS. (a) Unless an Event of Default shall have occurred and be continuing and the Collateral Agent shall have given notice to the Pledgors of the Collateral Agent's intent to exercise its corresponding rights pursuant to Section 7 below, the Pledgors shall be permitted to receive, retain and use all cash dividends paid in accordance with the terms and conditions of the Credit Agreement in respect of the Pledged Stock and, if applicable, Additional Collateral and to exercise all voting and corporate rights with respect to the Pledged Stock and, if applicable, Additional Collateral, PROVIDED, HOWEVER, that no vote shall be cast or corporate right exercised or other action taken (regardless of whether an Event of Default has occurred and is continuing) which would materially and adversely affect the rights of the Collateral Agent or the Secured Parties or their ability to exercise same or result in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document. (b) Unless an Event of Default shall have occurred and be continuing and the Collateral Agent shall have given notice to the Pledgors of the Collateral Agent's intent to exercise its corresponding rights pursuant to Section 7 below, the Pledgors shall be permitted to receive, retain and use all other Proceeds (in addition to cash dividends as provided under Section 6(a) above) from the Collateral. 7. RIGHTS OF THE SECURED PARTIES AND THE COLLATERAL Agent. If an Event of Default shall occur and be continuing and the Collateral Agent shall give notice of its intent to exercise such rights to the Pledgors, (i) the Collateral Agent shall have the right to receive any and all Proceeds paid in respect of the Pledged Securities or Additional Collateral and any and all Proceeds of Proceeds and make application thereof to the Obligations in the manner provided in Section 8(a) and Section 15 and (ii) all shares of the Pledged Stock and, if applicable, Additional Collateral shall be registered in the name of the Collateral Agent or its nominee, and the Collateral Agent or its nominee may thereafter exercise (1) all voting, corporate and other rights pertaining 8 to such shares of the Pledged Stock and to such Additional Collateral at any meeting of shareholders of any Issuer or otherwise and (2) any and all rights of, conversion, exchange, subscription and any other rights, privileges or options pertaining to such shares of the Pledged Stock and to such Additional Collateral as if it were the absolute owner thereof (including the right to exchange at its discretion any and all the Pledged Stock and, if applicable, Additional Collateral upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by a Pledgor or the Collateral Agent of any right, privilege or option pertaining to such shares of the Pledged Stock and to such Additional Collateral, and in connection therewith, the right to deposit and deliver any and all the Pledged Stock and, if applicable, Additional Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Collateral Agent may reasonably determine), all without liability except to account for property actually received by it, but the Collateral Agent shall have no duty to any Pledgor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. All Proceeds that are received by any Pledgor contrary to the provisions of this Section 7 shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other property or funds of such Pledgor and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement). Any and all money and other property paid over to or received by the Collateral Agent pursuant to the provisions of this Section 7 shall be retained by the Collateral Agent in a Collateral Account to be established by the Collateral Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 8(a) and Section 15. After all Events of Default under the Credit Agreement have been cured or waived, the Collateral Agent shall, within five Business Days after all such Events of Default have been cured or waived, repay to each Pledgor all cash dividends, interest or principal that such Pledgor would otherwise be permitted to retain pursuant to the terms of Section 6 above, but only to the extent such Proceeds remain in such Collateral Account. 8. REMEDIES. (a) If an Event of Default shall have occurred and be continuing the Collateral Agent shall apply all or any part of the Proceeds held in any Collateral Account in accordance with Section 15. (b) If an Event of Default shall have occurred and be continuing, the Collateral Agent, on behalf of the Secured Parties, may exercise, in addition to all other rights and remedies granted in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, the Collateral Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice, required by law referred to below) to or upon the Pledgors or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase or otherwise dispose of and deliver the Collateral or any part thereof (or 9 contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market, at any exchange, broker's board or office of the Collateral Agent or any Secured Party or elsewhere upon such terms and conditions as it may reasonably deem advisable and at such prices as it may reasonably deem best, for cash or on credit or for future delivery without assumption of any risk. The Collateral Agent or any Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of (to the extent permitted by law) any right or equity of redemption in a Pledgor which right or equity is, to the extent permitted by law, hereby waived or released. The Collateral Agent shall apply any Proceeds from time to time held by it and the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses incurred in respect thereof or incidental to the care or safekeeping of any of the Collateral or reasonably relating to the Collateral or the any or the rights of the Collateral Agent and the Secured Parties hereunder, including reasonable attorney's fees and disbursements of counsel to the Collateral Agent, to the payment in whole or in part of the Obligations, in the order set forth in Section 15. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be in writing and deemed reasonable and proper if given at least 10 days before such sale or other disposition. UCAR and the other Pledgors shall remain liable for any deficiency if the proceeds of any sale or other disposition of Collateral are insufficient to pay (i) in the case of each Pledgor other than UCAR, its Obligations and the reasonable fees and disbursements of any attorneys employed by the Collateral Agent or any Secured Party to collect such deficiency in its Obligations and (ii) in the case of UCAR, its and the Borrower's Obligations and pro rata shares of such fees and disbursements. 9. REGISTRATION RIGHTS; PRIVATE SALES. (a) If the Collateral Agent shall determine to exercise its right to sell any or all of the Pledged Stock pursuant to Section 8 hereof, and if in the opinion of the Collateral Agent it is necessary or advisable to have the Pledged Stock, or that portion thereof to be sold, registered under the provisions of the Securities Act, the Pledgor who owns such Pledged Stock will cause the Issuer thereof to (i) execute and deliver, and cause the directors and officers of such Issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the reasonable opinion of the Collateral Agent, necessary or advisable to register the Pledged Stock, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for a period expiring on the earlier of (A) one year from the date of the first public offering of the Pledged Stock and (B) such time that all of the Pledged Stock, or that portion thereof to be sold, is sold and (iii) to make all amendments thereto and/or to the related prospectus which, in the reasonable opinion of the Collateral Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto. The Pledgor who owns such Pledged Stock agrees to cause such Issuer to comply with the provisions of the securities or "Blue Sky" laws of any and all jurisdictions which the Collateral Agent shall 10 reasonably designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. Each Pledgor jointly and severally agrees to (x) indemnify, defend and hold harmless Collateral Agent and the other Indemnitees from and against all losses, liabilities, expenses, costs (including the reasonable fees and expenses of legal counsel to the Collateral Agent) and claims (including the costs of investigation) that they may incur insofar as any such loss, liability, expense, cost or claim arises out of or is based upon any alleged untrue statement of a material fact contained in any prospectus, offering circular or similar document (or any amendment or supplement thereto), or arises out of or is based upon any alleged omission to state a material fact required to be stated therein or necessary to make the statements in any writing thereof not misleading, except insofar as the same may have been caused by any untrue statement or omission based upon information furnished in writing to any Pledgor or the Issuer of such Pledged Stock by the Collateral Agent or any other Secured Party expressly for use therein, and (y) enter into an indemnification agreement with any underwriter of or placement agent for any Pledged Stock, on its standard form, to substantially the same effect. The Pledgors will jointly and severally bear all costs and expenses of carrying out their obligations under this Section 9. (b) The Pledgors recognize that the Collateral Agent may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Collateral Agent shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree do so. (c) Each Pledgor further agrees to use its best efforts to do or cause to be done all such other acts as may be reasonably necessary to make such sale or sales of all or any portion of the Pledged Stock or Additional Collateral owned by it pursuant to this Section valid and binding and in compliance with any and all other applicable requirements of the laws of any jurisdiction. Each Pledgor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to the Collateral Agent and the Secured Parties, that the Collateral Agent and the Secured Parties have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in the Section shall be specifically enforceable against such Pledgor. 11 10. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUER. Each Pledgor hereby authorizes and instructs each Issuer that has issued Pledged Stock pledged by such Pledgor pursuant to Section 2 hereof to comply with any instruction received by it from the Collateral Agent in writing that (a) states that an Event of Default has occurred and (b) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Pledgor, and agrees that each such Issuer shall be fully protected in so complying. 11. COLLATERAL AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT. (a) Each Pledgor hereby irrevocably constitutes, and appoints the Collateral Agent and any officer or agent of the Collateral Agent, with full irrevocable power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Pledgor and in the name of such Pledgor or in the Collateral Agent's own name, from time to time in the Collateral Agent's discretion upon and during the continuance of an Event of Default, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, including without limitation, any financing statements, endorsements, assignments or other instruments of transfer. (b) Each Pledgor hereby ratifies all that said attorneys shall lawfully do or cause to be done pursuant to the power of attorney granted in Section 11(a). All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 12. DUTY OF COLLATERAL AGENT. The Collateral Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as the Collateral Agent deals with similar securities and property for its own account, PROVIDED that investments shall be made at the option and sole discretion of the Collateral Agent and PROVIDED FURTHER that the Collateral Agent shall use reasonable efforts to make such investments. Neither the Collateral Agent, any Secured Party nor any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Pledgors or any other person or to take any other action whatsoever with regard to the Collateral or any part thereof. 13. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the Code, each Pledgor authorizes the Collateral Agent to file financing statements with respect to the Collateral owned by it without the signature of such Pledgor in such form and in such filing offices as the Collateral Agent reasonably determines appropriate to perfect the security interests of the Collateral Agent under this Agreement. A carbon, 12 photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. 14. AUTHORITY OF COLLATERAL AGENT. Each Pledgor acknowledges that the rights and responsibilities of the Collateral Agent under this Agreement with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out this Agreement shall, as between the Collateral Agent and the Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and such Pledgor, the Collateral Agent shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting. 15. APPLICATION OF PROCEEDS. The proceeds of any sale of Collateral pursuant to Section 8(b), as well as any Collateral consisting of cash under Section 8(a), shall be applied by the Collateral Agent as follows: FIRST, to the payment of the reasonable costs and expenses of the Collateral Agent as set forth in Section 8(b); SECOND, to the payment of all amounts of the Obligations owed to the Secured Parties in respect of Loans made by them and outstanding and amounts owing in respect of any LC Disbursement or Letter of Credit or under any Interest/Exchange Rate Protection Agreements, pro rata as among the Secured Parties in accordance with the amount of such Obligations owed them; THIRD, to the payment and discharge in full of the Obligations (other than those referred to above), pro rata as among the Secured Parties in accordance with the amount of such Obligations owed to them; and FOURTH, after payment in full of all Obligations, to the applicable Pledgor, or the successors or assigns thereof, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, any Collateral then remaining. The Collateral Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof. 13 16. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent hereunder, the security interests granted hereunder and all obligations of the Pledgors hereunder shall be absolute and unconditional. 17. SURVIVAL OF AGREEMENT. All covenants, agreements, representations and warranties made by any Pledgor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Secured Parties and shall survive the making by the Lenders of the Loans, the execution and delivery to the Lenders of the Loan Documents and the issuance by the Issuing Bank of the Letters of Credit, regardless of any investigation made by the Secured Parties, or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or L/C Disbursement, or any Fee or any other amount payable under or in respect of this Agreement or any other Loan Document is outstanding and unpaid and so long as the Commitments have not been terminated. 18. COLLATERAL AGENT'S LIABILITIES AND EXPENSES; INDEMNIFICATION. (a) Notwithstanding anything to the contrary provided herein, the Collateral Agent assumes no liabilities with respect to any claims regarding each Pledgor's ownership (or purported ownership) of, or rights or obligations (or purported rights or obligations) arising from, the Collateral or any use (or actual or alleged misuse) whether arising out of any past, current or future event, circumstance, act or omission or otherwise, or any claim, suit, loss, damage, expense or liability of any kind or nature arising out of or in connection with the Collateral. All of such liabilities shall, as between the Collateral Agent and the Pledgors, be borne exclusively by the Pledgors. (b) Each Pledgor hereby agrees to pay all reasonable expenses of the Collateral Agent and to indemnify the Collateral Agent with respect to any and all losses, claims, damages, liabilities and related expenses in respect of this Agreement or the Collateral in each case to the extent the Borrower is required to do so pursuant to Section 10.03 of the Credit Agreement. (c) Any amounts payable by a Pledgor as provided hereunder shall be additional Obligations of it secured hereby and by its other Security Documents. Without prejudice to the survival of any other agreements contained herein, all indemnification and reimbursement obligations contained herein shall survive the payment in full of the principal and interest under the Credit Agreement, the expiration of the Letters of Credit and the termination of the Commitments or this Agreement. 19. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER 14 LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 19. 20. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Pledgor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Loan Party or any Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Pledgor or any Secured Party or its properties in the courts of any jurisdiction. (b) Each Pledgor and each Secured Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 22 hereof. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 21. TERMINATION AND RELEASE. (a) This Agreement and the security interest created hereunder shall terminate when all the Obligations have been fully and indefeasibly paid and when the Secured Parties have no further Commitments and no Letters of Credit are outstanding, at which time the Collateral Agent shall reassign and deliver to each Pledgor, or to such person or persons as each Pledgor shall reasonably designate, against receipt, such of the Collateral owned by 15 such Pledgor as shall have not been sold or otherwise applied by the Collateral Agent pursuant to the terms hereof and shall still be held by it hereunder, together with appropriate instructions of reassignment and release. Any such reassignment shall be without recourse to or any warranty by the Collateral Agent and at the expense of such Pledgor. (b) All Collateral sold, transferred or otherwise disposed of, in accordance with the terms of the Credit Agreement (including pursuant to a waiver or amendment of the terms thereof), shall be sold, transferred or otherwise disposed of free and clear of the Lien and the security interest created hereunder. In connection with the foregoing, (i) the Collateral Agent shall execute and deliver to each Pledgor with respect to the Collateral owned by such Pledgor, or to such person or persons as such Pledgor shall reasonably designate, against receipt, such Collateral sold, transferred or otherwise disposed together with appropriate instructions of reassignment and release, (ii) any representation, warranty or covenant contained herein relating to the Collateral shall no longer be deemed to be made with respect to such sold, transferred or otherwise disposed Collateral and (iii) all schedules hereto shall be amended to delete the name of the Issuer. Any such reassignment shall be without recourse or to any warranty by the Collateral Agent and at the expense of such Pledgor. 22. NOTICES. All notices, requests and demands to or upon the Secured Parties or the Pledgors under this Agreement shall be given or made in accordance with Section 10.01 of the Credit Agreement and addressed as follows: (a) if to any Secured Party, UCAR Global or the Borrower, at its address for notices provided in Section 10.01 of the Credit Agreement; (b) if to any Subsidiary, at its address set forth on Schedule II hereof. 23. 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 of enforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 24. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE Remedies. (a) None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Pledgors and the Collateral Agent, PROVIDED that any provision of this Agreement may be waived by the Required Secured Parties pursuant to a letter or agreement executed by the Collateral Agent or by telecopy transmission from the Collateral Agent. 15 (b) Neither the Collateral Agent nor any Secured Party shall by any act (except by a written instrument pursuant in Section 24(a) hereof) or delay be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of any Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise of any other right, power or privilege. A waiver by any Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Secured Party would otherwise have on any future occasion. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 25. SECTION HEADINGS. The section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 26. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the successors and assigns of the Pledgors and shall inure to the benefit of the Pledgors, the Collateral Agent and the Secured Parties and their successors and assigns, PROVIDED that this Agreement may not be assigned by the Pledgors without the prior written consent of the Collateral Agent and the Secured Parties. 27. COUNTERPARTS. This Agreement may be executed in two or more original counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. 28. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 17 IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly executed and delivered as of the date first above written. UCAR INTERNATIONAL INC. by /S/ NANCY M. FALLS ------------------------------------- Name: Nancy M. Falls Title: Treasurer UCAR GLOBAL ENTERPRISES INC. by /S/ NANCY M. FALLS --------------------------------------- Name: Nancy M. Falls Title: Treasurer UCAR FINANCE INC. by /S/ NANCY M. FALLS --------------------------------------- Name: Nancy M. Falls Title: Treasurer EACH OF THE PLEDGOR SUBSIDIARIES LISTED ON SCHEDULE II HERETO by /S/ NANCY M. FALLS --------------------------------------- Name: Nancy M. Falls Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent, by /S/ DEBORAH DESANTIS --------------------------------------- Name: Deborah DeSantis Title: Vice President WITNESSES: 1. /S/ CHERYLYN BRANDT 2. /S/ CHIANN BAO -------------------------- ------------------------ Name:Cherylyn Brandt Name: Chiann Bao Drivers License No.: ___________ Drivers License No.: __________ Social Security No.: ____________ Social Security No.: __________ 18 State of New York ) ) ss.: New York County of New York ) On this the day of February, 2000, before me, __________________________, the undersigned officer, personally appeared ______________________________ and _______________________, known to me to be the persons whose names are subscribed to the within instrument and each acknowledged that he(she) executed the same for the purposes therein contained. IN WITNESS WHEREOF I hereunto set my hand. ---------------------------- Notary Public My Commission expires ____________________.
SCHEDULE I TO PLEDGE AGREEMENT ============================================================================================ PLEDGED STOCK ------------- PERCENTAGE PLEDGOR* ISSUER* PLEDGED STOCK PLEDGED ------- ------ ------------- ---------- - -------------------------------------------------------------------------------------------- UCAR International Inc. UCAR Global Enterprises 100 Shares 100% Inc. (Certificate No. U0001) - -------------------------------------------------------------------------------------------- UCAR International Inc. UCAR Finance Inc. 100 Shares 100% (Certificate No. 1) - -------------------------------------------------------------------------------------------- UCAR Global Enterprises Inc. UCAR Carbon S.A.(Brazil) No Certificates 65% - -------------------------------------------------------------------------------------------- UCAR Global Enterprises Inc. UCAR Carbon Company Inc. 500 Shares 100% (Certificate No. 2) - -------------------------------------------------------------------------------------------- UCAR Global Enterprises Inc. UCAR Holdings II Inc. 100 Shares 100% (Certificate No. 2) - -------------------------------------------------------------------------------------------- UCAR Global Enterprises Inc. UCAR S.A. (Switzerland) 113,750 Shares 65% (Certificate No. 5) - -------------------------------------------------------------------------------------------- UCAR Global Enterprises Inc. UCAR Holding GmbH (Austria) No Certificates 65% - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. Unicarbon Comercial Ltda. No Certificates 65% (Brazil) - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. UCAR Limited (UK) 5,249,999 Shares 65% (Certificate No. 9) - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. Union Carbide Grafito, Inc. 25,000 preferred Shares 100% (Certificate No. 26) 200 common Shares (Certificate No. 2) - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. UCAR Carbon Foreign Sales 1 Share 65% Corporation (Certificate No. 2) - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. UCAR Composites Inc. 800 Shares 100% (Certificate No. A3) - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. UCAR International Trading 100 Shares 100% Inc. (Certificate No. 1) - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. EMSA (Pty.) Ltd. (South 4,062,500 Shares 65% Africa) (Certificate No. 36) - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. Carbographite Limited 2,600 Shares 65% (South Africa) (Certificate No. 42) - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. UCAR Mexicana S.A. de C.V. 269,828,025 Shares 65% (Mexico) (Certificate Nos. 1 and 5) - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. UCAR S.p.A. (Italy) No Certificates 65% - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. UCAR Electrodos S.L. 1 Share .1% (Spain) - -------------------------------------------------------------------------------------------- UCAR Carbon Company Inc. UCAR Carbon Mexicana, S.A. 27,231 Shares .1% de C.V. (Mexico) (Certificate Nos. 1,3,4 - -------------------------------------------------------------------------------------------- UCAR Holdings II Inc. UCAR Inc. (Canada) 650 Shares 65% (Certificate No. 3) - -------------------------------------------------------------------------------------------- UCAR Holdings II Inc. UCAR Electrodos S.L. No Certificates 65% (Spain) - -------------------------------------------------------------------------------------------- UCAR Holdings II Inc. UCAR Holdings S.A. (France) No Certificates 65% - -------------------------------------------------------------------------------------------- UCAR Holdings II Inc. UCAR Holdings III Inc. 100 Shares 100% (Certificate No. 2) - -------------------------------------------------------------------------------------------- UCAR Holdings II Inc. UCAR SNC (France) 1 Share .1% No Certificates - -------------------------------------------------------------------------------------------- UCAR S.A. (Switzerland) UCAR Holding GmbH (Austria) No Certificates 33.33% - -------------------------------------------------------------------------------------------- UCAR Carbon S.A. (Brazil) UCAR Pordutos de Carbono No Certificates 99.97% S.A. (Brazil) - -------------------------------------------------------------------------------------------- 2 ================================================================================================ PLEDGED STOCK ------------- PERCENTAGE PLEDGOR* ISSUER* PLEDGED STOCK PLEDGED ------- ------ ------------- ---------- - ------------------------------------------------------------------------------------------------- UCAR Carbon S.A.(Brazil) Unicarbon Comercial Ltda. No Certificates 2.33% (Brazil) - ------------------------------------------------------------------------------------------------- UCAR Mexicana, S.A. de C.V. UCAR Carbon Mexicana, S.A. 5,944,099 Shares 99.84% (Mexico) de C.V. (Mexico) (Certificates 27, 28 and 29) -- certificates to be provided or reissued - -------------------------------------------------------------------------------------------------- UCAR S.p.A. (Italy) UCAR Energia S.r.l. (Italy) No Certificates 100% - -------------------------------------------------------------------------------------------------- UCAR Holdings S.A. (France) UCAR SNC (France) No Certificates 100%
PLEDGED NOTES ------------- ================================================================================ INTERCOMPANY NOTES ------------------ - -------------------------------------------------------------------------------- PLEDGOR* ISSUER* PRINCIPAL AMOUNT -------- ------ ---------------- - -------------------------------------------------------------------------------- UCAR Finance Inc. UCAR Carbon Company Inc. $700,000,000 - -------------------------------------------------------------------------------- UCAR Finance Inc. UCAR S.A. $84,650,000 - -------------------------------------------------------------------------------- UCAR Finance Inc. UCAR Electrodos, S.L. 17,110,000 - -------------------------------------------------------------------------------- UCAR Finance Inc. UCAR S.p.A. 16,750,000 - -------------------------------------------------------------------------------- UCAR Finance Inc. UCAR Holdings S.A. 126,900,000 - -------------------------------------------------------------------------------- ================================================================================ OTHER NOTES ----------- - -------------------------------------------------------------------------------- PLEDGOR* ISSUER* PRINCIPAL AMOUNT ------- ------ ---------------- - -------------------------------------------------------------------------------- UCAR International Inc. UCAR Carbon Company Inc. $325,000,000 - -------------------------------------------------------------------------------- UCAR Global Enterprises Inc. UCAR International Inc. $511,600,000 - -------------------------------------------------------------------------------- UCAR Global Enterprises Inc. UCAR Inc. (Canada) $ 60,000,000 - -------------------------------------------------------------------------------- UCAR Carbon Company Inc. UCAR Global Enterprises Inc. $600,000,000 - -------------------------------------------------------------------------------- UCAR Carbon Mexicana, S.A. UCAR Global Enterprises Inc. $ 30,000,000 de C.V. (Mexico) - -------------------------------------------------------------------------------- UCAR Holdings, S.A. (France) UCAR Carbon Company Inc. $100,000,000 - -------------------------------------------------------------------------------- UCAR S.p.A. (Italy) UCAR Carbon Company Inc. $40,000,000,000 Italian Lire - -------------------------------------------------------------------------------- UCAR Electrodos S.L. (Spain) UCAR Carbon Company Inc. 7,000,000,000 Spanish Pesetas - -------------------------------------------------------------------------------- UCAR Limited (U.K.) UCAR Carbon Company Inc. 30,000,000 British Pounds - -------------------------------------------------------------------------------- EMSA (Pty.) Ltd. UCAR Carbon Company Inc. 300,000,000 (South Africa) South African Rand - -------------------------------------------------------------------------------- UCAR S.A. (Switzerland) UCAR Global Enterprises Inc. $300,000,000 - -------------------------------------------------------------------------------- UCAR Carbon Mexicana S.A. de UCAR Global Enterprises Inc. $ 50,000,000 C.V. - -------------------------------------------------------------------------------- * Jurisdictions of incorporation of non-United States entities are identified in parentheses following the names of such entities. SCHEDULE II PLEDGOR SUBSIDIARIES* UCAR Carbon Company Inc. UCAR Holdings II Inc. UCAR S.A. (Switzerland) UCAR Carbon S.A. (Brazil) UCAR Mexicana, S.A. de C.V. (Mexico) UCAR S.p.A. (Italy) UCAR Holdings S.A. (France) UCAR Inc. (Canada) UCAR SNC (France) UCAR Electrodos S.L. (Spain) UCAR Limited (UK) EMSA (Pty.) Ltd. (South Africa) * Jurisdictions of incorporation of non-United States entities are identified in parentheses following the names of such entities. 2 ACKNOWLEDGMENT AND CONSENT Each of the undersigned hereby acknowledges receipt of a copy of the Pledge Agreement dated as of February 22, 2000 (the "PLEDGE AGREEMENT"), by UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("Global"), the subsidiaries of UCAR that are signatories thereto (together with UCAR GLOBAL and the Borrower, the "PLEDGORS"), in favor of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as collateral agent for the Secured Parties (such term and each other capitalized term used but not defined herein having the meaning given it in Article I of the Credit Agreement dated as of February 22, 2000, among UCAR, Global, the Borrower, the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"). 1. Each of the undersigned will be bound by the terms of the Pledge Agreement and will comply with such terms insofar as such terms are applicable to the undersigned. 2. Each of the undersigned will notify the Collateral Agent promptly in writing of the occurrence of any of the events described in subsection 5(a) of the Pledge Agreement. 3. The terms of subsection 9(c) of the Pledge Agreement shall apply to it, MUTATIS MUTANDIS, with respect to all actions that may be required of it under or pursuant to or arising out of Section 9 of the Pledge Agreement. EACH OF THE ISSUERS OF PLEDGED SECURITIES LISTED ON SCHEDULE I TO THE PLEDGE AGREEMENT (OTHER THAN UCAR S.A. (SWITZERLAND)) By /S/ MICHELLE F. RIDER -------------------------------- Name: Michelle F. Rider Title: Attorney-In-Fact EXHIBIT B TO PLEDGE AGREEMENT ACKNOWLEDGMENT AND CONSENT BY UCAR S.A. TO DOMESTIC PLEDGE AGREEMENT UCAR S.A. of Route Pallatex 17, CH-1163 Etoy, Switzerland ("UCAR S.A."), hereby acknowledges receipt of a copy of the Domestic Pledge Agreement dated as of February 22, 2000 (the "PLEDGE Agreement"), by UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("Global"), the subsidiaries of UCAR that are signatories thereto (together with UCAR GLOBAL and the Borrower, the "PLEDGORS"), in favor of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as collateral agent for the Secured Parties (such term and each other capitalized term used but not defined herein having the meaning given it in Article I of the Credit Agreement dated as of February 22, 2000, among UCAR, Global, the Borrower, the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"). 1. Subject to section 4 below, UCAR S.A. will be bound by the terms of the Pledge Agreement and will comply with such terms insofar as such terms are applicable to the undersigned. 2. UCAR S.A. will notify the Collateral Agent promptly in writing of the occurrence of any of the events described in subsection 5(a) of the Pledge Agreement. 3. The terms of subsection 9(c) of the Pledge Agreement shall apply to it, MUTATIS MUTANDIS, with respect to all actions that may be required of it under or pursuant to or arising out of Section 9 of the Pledge Agreement. 4. In relation to obligations of a Foreign Subsidiary (other than UCAR S.A. or any of its subsidiaries), UCAR S.A. shall (a) only be liable to the Collateral Agent and the Secured Parties to the extent and in the maximum amount of the profits available for the distribution of dividends (being the balance sheet profits and any reserves made for this purpose, all in accordance with art. 675(2) of the Swiss Code of Obligations) at any given time; (b)(i) deduct from any such payments Swiss Anticipatory Tax (withholding tax) at the rate of 35 percent (or such other rate as in force from time to time) and subject to any applicable double taxation treaty; (ii) pay such deduction to the Swiss Federal Tax Administration; and (iii) give evidence to the respective Secured Party of such deduction in accordance with Section 2.16 of the Credit Agreement; and (c) not gross-up pursuant to Section 2.16 of the Credit Agreement. Any 2 and all indemnities and guarantees contained in the Loan Documents shall be construed in a manner consistent with this paragraph. UCAR S.A. By /S/ NANCY M. FALLS -------------------------------- Name: Nancy M. Falls Title: Treasurer Date: February 21, 2000 ACKNOWLEDGED AND AGREED BY: THE COLLATERAL AGENT Morgan Guaranty Trust Company of New York By /S/ DEBORAH DESANTIS -------------------- Name: Deborah DeSantis Title: Vice President Date: February 18, 2000 EX-10.6 7 INTELLECTUAL PROPERTY SECURITY AGMT. CONFORMED COPY INTELLECTUAL PROPERTY SECURITY AGREEMENT INTELLECTUAL PROPERTY SECURITY AGREEMENT dated as of February 22, 2000, made by UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("GLOBAL"), UCAR FINANCE INC., a Delaware corporation (the "BORROWER"), and the subsidiaries of UCAR from time to time party hereto (the "SUBSIDIARY GRANTORS", and together with UCAR, Global and the Borrower, the "Grantors") in favor of MORGAN GUARANTY TRUST COMPANY OF NEW YORK as collateral agent for the Secured Parties (such term and each other capitalized term used but not defined herein having the meaning given it in Article I of the Credit Agreement). Reference is made to the Credit Agreement dated as of February 22, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among UCAR, Global, the Borrower, the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank. The Lenders and the Issuing Banks, respectively, have agreed to make Loans and to issue Letters of Credit pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. The obligations of the Lenders to make Loans and of the Fronting Banks to issue Letters of Credit under the Credit Agreement are conditioned upon, among other things, the execution and delivery by the Grantors of an intellectual property security agreement in the form hereof to secure the due and punctual payment of, with respect to each Grantor, its obligations as obligor or guarantor in respect of (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made under the Credit Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of UCAR, Global, the Borrower and the Subsidiaries under the Credit Agreement and the other Loan Documents (including, without limitation, all monetary obligations of the Intercompany Borrowers under the Intercompany Notes and Intercompany Borrower Agreements, but only for so long as the Intercompany Notes and the rights of the Borrower under the Intercompany Borrower Agreements are pledged to the Collateral Agent under one or more Pledge Agreements as security for the Obligations), (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Loan Parties under or pursuant to the Credit Agreement and the other Loan Documents, (c) unless otherwise agreed upon in writing by the applicable Lender party thereto, the due and punctual payment and performance of all obligations 2 of the Borrower and the Subsidiaries, monetary or otherwise, under each Interest/Exchange Rate Protection Agreement entered into with any counterparty that (i) was a Lender (or an Affiliate thereof) at the time such Interest/Exchange Rate Protection Agreement was entered into or (ii) (A) was a "Lender" (or an Affiliate thereof) as defined in the Existing Credit Agreements at the time such Interest/Exchange Rate Protection Agreement was entered into and (B) was one of the intital Lenders under the Credit Agreement (or an Affiliate thereof) and (d) all obligations of the Guarantors under the Guarantee Agreements; (all the foregoing obligations collectively, the "OBLIGATIONS"). Accordingly, the Grantors and the Collateral Agent, on behalf of itself and each other Secured Party (and each of their successors and assigns), hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. DEFINITION OF TERMS USED HEREIN. All capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. SECTION 1.02. DEFINITION OF CERTAIN TERMS USED HEREIN. As used herein, the following terms shall have the following meanings: "AGREEMENT" shall mean this Intellectual Property Security Agreement. "COLLATERAL" shall mean, with respect to each Grantor, all of the following, whether now owned or hereafter acquired by such Grantor: (a) Patents, including all granted Patents, recordings and pending applications, including those listed on Schedule I attached hereto, (b) Trademarks, including all registered Trademarks, registrations, recordings, and pending applications, including those listed on Schedule II attached hereto, (c) Copyrights, including all registered Copyrights, registrations, recordings, supplemental registrations and pending applications, including those listed on Schedule III attached hereto, (d) Licenses, including those listed on Schedule IV hereto, (e) General Intangibles, and (f) all products and Proceeds (including insurance proceeds) of, and additions, improvements and accessions to, and books and records describing or used in connection with, any and all of the property described above. "COPYRIGHTS" shall mean, with respect to each Grantor, all of the following now or hereafter owned by such Grantor: (i) all copyright rights in any work subject to the copyright laws of the United States or any other country, whether as author, assignee, transferee or otherwise, and (ii) all registrations and applications for registration of any such copyright in the United States or any other country, including registrations, recordings, supplemental registrations and pending applications for registration in the United States Copyright Office. "COPYRIGHT LICENSE" shall mean, with respect to each Grantor, any written agreement, now or hereafter in effect, granting any right to any third party under any Copyright now or hereafter owned by such Grantor or which such Grantor otherwise has the right to license, or granting any right to such Grantor under 3 any Copyright now or hereafter owned by any third party, and all rights of such Grantor under any such agreement. "GENERAL INTANGIBLES" shall mean, with respect to each Grantor, all intangible, intellectual or other similar property of such Grantor of any kind or nature now owned or hereafter acquired by such Grantor, including inventions, designs, Patents, Copyrights, Licenses, Trademarks, trade secrets, confidential or proprietary technical and business information, know-how, show-how or other data or information, software and databases and all embodiments or fixations thereof and related documentation, registrations, franchises, and all other intellectual or other similar property rights not otherwise described above. "INDEMNITEE" shall mean the Collateral Agent, the Secured Parties and their respective officers, directors, trustees, affiliates and controlling persons. "LICENSE" shall mean, with respect to each Grantor, any Patent License, Trademark License, Copyright License or other license or sublicense as to which such Grantor is a party (other than those license agreements which by their terms prohibit assignment or a grant of a security interest by such Grantor as licensee thereunder). "PATENT LICENSE" shall mean, with respect to each Grantor, any written agreement, now or hereafter in effect, granting to any third party any right to make, use or sell any invention on which a Patent, now or hereafter owned by such Grantor or which such Grantor otherwise has the right to license, is in existence, or granting to such Grantor any right to make, use or sell any invention on which a Patent, now or hereafter owned by any third party, is in existence, and all rights of such Grantor under any such agreement. "PATENTS" shall mean, with respect to each Grantor, all the following now or hereafter owned by such Grantor: (a) all letters patent of the United States or any other country, including patents, design patents or utility models, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and pending applications in the United States Patent and Trademark Office or any similar offices in any other country, and (b) all reissues, continuations, divisions, continuations-in-part, renewals or extensions thereof, and the inventions disclosed or claimed therein. "PROCEEDS" shall mean, with respect to each Grantor, any consideration received from the sale, exchange, license, lease or other disposition of any asset or property that constitutes Collateral owned by such Grantor, any value received as a consequence of the possession of any such Collateral and any payment received from any insurer or other person or entity as a result of the destruction, loss, theft or other involuntary conversion of whatever nature of any asset or property that constitutes such Collateral, any claim of such Grantor against third parties for (and the right to sue and recover for and the rights to damages or profits due or accrued arising out of or in connection with) (a) past, present or future infringement of any Patent now or hereafter owned by such Grantor or licensed under a Patent License, (b) past, present or future infringement or dilution of any Trademark now or hereafter owned by such Grantor or licensed under a Trademark License or injury to the goodwill associated with or symbolized by any Trademark now or hereafter owned by such Grantor, (c) past, present or future breach of any License, (d) past, present or 4 future infringement of any Copyright now or hereafter owned by such Grantor or licensed under a Copyright License, and (e) any and all other amounts from time to time paid or payable under or in connection with any of such Collateral. "TRADEMARK LICENSE" shall mean, with respect to each Grantor, any written agreement, now or hereafter in effect, granting to any third party any right to use any Trademark now or hereafter owned by such Grantor or that such Grantor otherwise has the right to license, or granting to such Grantor any right to use any Trademark now or hereafter owned by any third party, and all rights of such Grantor under any such agreement. "TRADEMARKS" shall mean, with respect to each Grantor, all of the following now or hereafter owned by such Grantor: (a) all trademarks, service marks, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, and all designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all registration and recording applications filed in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office, any State of the United States or any similar offices in any other country or any political subdivision thereof, and all extensions or renewals thereof, and (b) all goodwill associated therewith or symbolized thereby, and (c) all other assets, rights and interests that uniquely reflect or embody such goodwill. SECTION 1.03. RULES OF INTERPRETATION. The rules of interpretation specified in Section 1.03 of the Credit Agreement shall be applicable to this Agreement. ARTICLE II SECURITY INTEREST SECTION 2.01. SECURITY INTEREST. As security for the payment or performance, as the case may be, of the Obligations, each Grantor hereby creates, mortgages, pledges, hypothecates and transfers to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, and hereby grants to the Collateral Agent, its successors and assigns, for the ratable benefit of the Secured Parties, a continuing first priority security interest in all such Grantors' right, title and interest in, to and under the Collateral subject to liens permitted under Section 7.02 of the Credit Agreement (the "SECURITY INTEREST"). Without limiting the foregoing, the Collateral Agent is hereby authorized to file one or more financing statements, continuation statements, filings with the United States Patent and Trademark Office or United States Copyright Office (or similar office in any other country), or any other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the Security Interest granted by such Grantor, without the signature of such Grantor, naming such Grantor as debtor and the Collateral Agent as secured party. Notwithstanding any other provision of this Agreement to the contrary, the Collateral shall not include any License which by its terms or the terms governing it prohibits assignment thereof or the grant of a security interest 5 therein; PROVIDED that such term or terms are typical or customary in connection with the document or instrument to which they relate. Each Grantor agrees at all times to keep accurate and complete, in all material respects, accounting records with respect to the Collateral and, on and after the occurrence and during the continuance of a Default, a record of all payments and Proceeds received in respect thereof. SECTION 2.02. FURTHER ASSURANCES. Each Grantor agrees, at its own cost and expense, to promptly execute, acknowledge, deliver and cause to be duly filed all such further instruments and documents and take all such actions as the Collateral Agent may from time to time reasonably request for the better assuring, preserving and perfecting of the Security Interest and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement, the granting of the Security Interest created hereby, the filing of any financing statements or other documents (including filings with the United States Patent and Trademark Office and the United States Copyright Office or similar offices in any other country) in connection herewith, and the execution and delivery of any document required to supplement this Agreement with respect to any Patents, Trademarks and/or Copyrights applied for, acquired, registered (or for which registration applications are filed) or issued after the date hereof. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note or other instrument, upon the request of the Collateral Agent, such note or instrument shall (to the extent not previously pledged and delivered pursuant to the Pledge Agreements) be immediately pledged and delivered to the Collateral Agent, duly endorsed in a manner satisfactory to the Collateral Agent. Each Grantor agrees promptly to notify the Collateral Agent if any material portion of the Collateral is canceled or overturned, opposed, misappropriated, injured, infringed, lost (other than due to expiration of any issued Patent) or, if applicable, diluted. SECTION 2.03. INSPECTION AND VERIFICATION. Without limiting the scope of Section 6.07 of the Credit Agreement, the Collateral Agent and such representatives as the Collateral Agent may reasonably designate shall have the right to inspect, at any reasonable times or times, any of the Collateral, all records related thereto (and to make extracts and copies from such records) and the premises upon which any of the Collateral is located, to discuss any Grantor's affairs with the officers of such Grantor and its independent accountants and to verify under reasonable procedures the validity, amount, quality, quantity, value, conditions, and status of or any other matter relating to such Collateral, including, in the case of Collateral in the possession of any third party (with, except after an Event of Default shall have occurred and during the continuance thereof, the consent of such Grantor, which consent shall not be unreasonably withheld), by contacting such person possessing such Collateral for the purpose of making such a verification. The Collateral Agent shall have the absolute right to share any information it gains from such inspection or verification with any or all of the Secured Parties. SECTION 2.04. TAXES; ENCUMBRANCES. At its option, the Collateral Agent may discharge past due taxes, assessments, charges, fees, liens, security interests or other encumbrances at any time levied or placed on any of the Collateral and not permitted under this Agreement or other Loan Documents, and may pay for the maintenance and preservation of any of the Collateral to the extent any Grantor fails to do so to the extent required by this Agreement or the other Loan Documents, and such Grantor agrees to reimburse the Collateral Agent on demand for any payment made or any expense incurred by the Collateral Agent pursuant to 6 the foregoing authorization; PROVIDED, HOWEVER, that nothing in this Section 2.04 shall be interpreted as excusing any Grantor from the performance of, or imposing any obligation on the Collateral Agent or any other Secured Party to cure or perform, any covenants or other promises of any Grantor with respect to taxes, assessments, charges, fees, liens, security interests or other encumbrances and maintenance as set forth herein or in the other Loan Documents. SECTION 2.05. NO ASSUMPTION OF LIABILITY. The Security Interest is granted as security only and shall not subject any Secured Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of any of the Collateral. ARTICLE III REPRESENTATIONS AND WARRANTIES REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants, as to itself and the Collateral in which the Security Interest is created by it hereunder, that: SECTION 3.01. VALIDITY OF PATENTS, TRADEMARKS AND COPYRIGHTS. Each of the Patents, Trademarks and Copyrights is subsisting and has not been adjudged invalid or unenforceable, in whole or in part, except as could not reasonably be expected to have a Material Adverse Effect. SECTION 3.02. TITLE AND AUTHORITY. Each Grantor has rights in and good title to the Collateral shown on the schedules hereto as being owned by it and has full corporate power and authority to grant to the Collateral Agent (for the benefit of the Secured Parties) the Security Interest in the Collateral pursuant hereto and to execute, deliver and perform its obligations in accordance with the terms of this Agreement, without the consent or approval of any other person other than any consent or approval that has been obtained, except, in each case, as could not reasonably be expected to have a Material Adverse Effect. SECTION 3.03. FILINGS. (a) Fully executed financing statements containing a description of the Collateral shall promptly following the Closing Date be filed of record in every governmental, municipal or other office in every jurisdiction located within the United States and its respective territories and possessions or such other analogous documents in other countries as are necessary to publish notice of and protect the validity of and to establish a valid and perfected security interest in favor of the Collateral Agent (for the benefit of the Secured Parties) in respect of the Collateral in which a security interest may be perfected by filing a financing statement or analogous document in the United States and its political subdivisions, territories and possessions pursuant to the Uniform Commercial Code or other applicable law in such jurisdictions or pursuant to applicable law in other countries, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of continuation statements or other documents of similar effect, except as contemplated by paragraph (b) below and filings with respect to after-acquired Collateral, with respect to which all necessary actions will be promptly taken subsequent to the acquisition of such after-acquired Collateral. 7 (b) Each Grantor shall ensure and warrants that fully executed security agreements in the form hereof and containing a description of the Collateral shall have been received and recorded within three months after the execution of this Agreement with respect to United States Patents and United States registered Trademarks (and Trademarks for which United States registration applications are pending) and within one month after the execution of this Agreement with respect to United States registered Copyrights by the United States Patent and Trademark Office and the United States Copyright Office pursuant to 35 U.S.C. ss. 261, 15 U.S.C. ss. 1060 or 17 U.S.C. ss. 205 and the regulations thereunder, as applicable, and otherwise as may be required pursuant to the laws of any other country or any political subdivision thereof, to protect the validity and first priority of and to perfect a valid first priority security interest (subject only to Liens permitted by Section 7.02 of the Credit Agreement) in favor of the Collateral Agent (for the benefit of the Secured Parties) in respect of the Collateral in which a security interest may be perfected by filing in the United States and its political subdivisions, territories and possessions, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of continuation statements (other than such actions as are necessary to perfect the Collateral Agent's first priority security interest with respect to any Collateral (or registration or application for registration thereof) acquired or developed after the date hereof). SECTION 3.04. VALIDITY OF SECURITY INTERESTS. This Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral, and, when financing statements in appropriate form are filed in the offices specified on Schedule VI hereto and this Agreement is filed in the United States Patent and Trademark Office and the United States Copyright Office, this Agreement will constitute a duly perfected Lien on, and security interest in, all right, title and interest of the Grantors in such Collateral and, to the extent contemplated therein and subject to ss. 9-306 of the UCC, the proceeds thereof, in each case prior and superior in right to any other person (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect a lien on registered trademarks, trademark applications and copyrights acquired by the Grantors after the date hereof), other than with respect to the rights of persons pursuant to Liens expressly permitted by Section 7.02 of the Credit Agreement. SECTION 3.05. INFORMATION REGARDING NAMES AND LOCATIONS. Each Grantor has disclosed in writing to the Collateral Agent on Schedule IV any material trade names used to identify it in its business or in the ownership of its properties during the past five years. SECTION 3.06. ABSENCE OF OTHER LIENS. The Collateral is owned by the Grantors free and clear of any Lien of any nature whatsoever (except for Liens expressly permitted by Section 7.02 of the Credit Agreement or hereby and any liens of licenses listed on Schedule V). Other than as contemplated hereby and by the other Loan Documents, and except as permitted therein, the Grantors have not filed (a) any financing statement or analogous document under the Uniform Commercial Code, (b) any assignment in which any Grantor assigns the Collateral, any security agreement or any similar instrument covering any Collateral with the United States Patent and Trademark Office, the United States Copyright Office or any similar office in any other country or political subdivision thereof and (c) any assignment in which any Grantor assigns the Collateral or any security agreement or similar instrument covering any Collateral with any foreign governmental, municipal or other office. 8 ARTICLE IV COVENANTS SECTION 4.01. COVENANTS REGARDING PATENT, TRADEMARK AND COPYRIGHT COLLATERAL. (a) Each Grantor (either itself or through licensees) will, for each Patent, not do any act, or omit to do any act, whereby any Patent that is material to the conduct of the Grantors' businesses, taken as a whole, may become invalidated or dedicated to the public, and shall continue to mark, to the extent consistent with past practices and good business judgment, any products covered by a material Patent with the relevant patent number as necessary and sufficient to establish and preserve such Grantor's material rights under applicable patent laws. (b) Each Grantor (either itself or through its licensees or its sublicensees) will, for each Trademark material to the conduct of the Grantors' businesses, taken as a whole, to the extent consistent with past practices and good business judgment, (i) maintain such Trademark in full force free from any material claim of abandonment or invalidity for nonuse, (ii) maintain the quality of products and services offered under such Trademark to the extent that the failure to do so would result in a Material Adverse Effect, (iii) display such Trademark with notice of federal or foreign registration to the extent necessary and sufficient to establish and preserve such Grantor's material rights under applicable law and (iv) not knowingly use or knowingly permit the use of such Trademark in violation of any material third-party rights. (c) Each Grantor (either itself or through licensees) will, for each work covered by a material Copyright, to the extent consistent with past practices and good business judgment, continue to publish, reproduce, display, adopt and distribute the work with appropriate copyright notice as necessary and sufficient to establish and preserve such Grantor's material rights under applicable copyright laws. (d) Each Grantor shall notify the Collateral Agent immediately if it knows or has reason to know that any Patent, Trademark or Copyright material to the conduct of the Grantors' businesses, taken as a whole, may become abandoned, lost or dedicated to the public, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, United States Copyright Office or any court or similar office of any country) regarding such Grantor's ownership of any such Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same. (e) In no event shall any Grantor, either itself or through any agent, employee, licensee or designee, file an application for any Patent, Trademark or Copyright (or for the registration of any Trademark or Copyright) with the United States Patent and Trademark Office, United States Copyright Office or any office or agency in any political subdivision of the United States or in any other country or any political subdivision thereof, unless it promptly informs the Collateral Agent, and, upon request of the Collateral Agent, executes and delivers any and all agreements, instruments, documents and papers as the Collateral Agent may reasonably request to evidence (and, in the case of applications for Trademarks with the United States Patent and Trademark Office, perfect) the Collateral Agent's security interest in such Patent, Trademark or 9 Copyright of such Grantor and the goodwill and general intangibles of such Grantor relating thereto or represented thereby, and such Grantor hereby appoints the Collateral Agent as its attorney-in-fact to execute and file such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power, being coupled with an interest, is irrevocable until the Obligations are paid in full. (f) Each Grantor will take all necessary steps that are consistent with the practice in any proceeding before the United States Patent and Trademark Office, United States Copyright Office or any office or agency in any political subdivision of the United States or in any other country or any political subdivision thereof, to maintain and pursue each material application (and to obtain the relevant grant or registration) relating to the Patents, Trademarks and/or Copyrights which are material to the Grantors' businesses, taken as a whole, to maintain each issued Patent and each registration of the Trademarks and Copyrights that is material to the conduct of the Grantors' businesses, taken as a whole, including timely filings of applications for renewal, affidavits of use, affidavits of incontestability and payment of maintenance fees, and, if consistent with good business judgment, to initiate opposition, interference and cancelation proceedings against third parties. (g) In the event that any Collateral consisting of a Patent, Trademark or Copyright material to the conduct of the Grantors' businesses, taken as a whole, is believed by the Grantor that has created the Security Interest in such Collateral pursuant hereto to have been infringed, misappropriated or diluted by a third party in any material respect, such Grantor shall notify the Collateral Agent promptly after it learns thereof and shall, if consistent with good business judgment, promptly sue for infringement, misappropriation, or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and take such other actions as are appropriate under the circumstances to protect such Collateral. SECTION 4.02. PROTECTION OF SECURITY. Each Grantor shall, at its own cost and expense, take any and all reasonable actions necessary to defend title to the Collateral against all persons, to properly maintain, protect and preserve the Collateral and to defend the Security Interest of the Collateral Agent in the Collateral and the priority thereof against any Lien not permitted under the Credit Agreement in each case, except as otherwise permitted by the Credit Agreement or this Agreement. SECTION 4.03. CONTINUING OBLIGATIONS OF THE GRANTORS. Each Grantor shall remain liable to observe and perform all the conditions and obligations to be observed and performed by it under each License, contract, agreement, interest or obligation relating to the Collateral, all in accordance with the terms and conditions thereof, to the extent consistent with good business practice. Without limiting the foregoing, the Collateral Agent shall have no obligation or liability under any License by reason of or arising out of this Agreement or the granting or the assignment to the Collateral Agent of the Security Interest or the receipt by the Collateral Agent of any payment related to any License pursuant hereto, nor shall the Collateral Agent be required or obligated in any manner to perform or fulfill any of the obligations of any Grantor under or pursuant to any License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any License, or to present or file any claim, or to take any action to collect or enforce any performance of the payment of any amounts that may have been assigned to it or to which it may be entitled at any time or times. 10 SECTION 4.04. USE AND DISPOSITION OF COLLATERAL. A Grantor shall not (i) make or permit to be made an assignment, pledge or hypothecation of the Collateral, and shall grant no other security interest in the Collateral (other than pursuant hereto or except for any Permitted Liens) or (ii) make or permit to be made any transfer of the Collateral, and shall remain at all times in possession thereof other than transfers to the Collateral Agent pursuant to the provisions hereof; notwithstanding the foregoing, a Grantor may use and dispose of the Collateral in any lawful manner permitted by the provisions of this Agreement, the Credit Agreement or any other Loan Document, unless the Collateral Agent shall, after an Event of Default shall have occurred and during the continuance thereof, notify the Borrower not to sell, convey, lease, assign, transfer or otherwise dispose of any Collateral except with respect to any transfer between the Borrower or a Wholly Owned Subsidiary that is a Grantor and the Borrower or a Wholly Owned Subsidiary that is a Grantor. SECTION 4.05. LOCATIONS OF COLLATERAL; PLACE OF BUSINESS. (a) Each Grantor agrees, at such time or times as the Collateral Agent may reasonably request, promptly to prepare and deliver to the Collateral Agent a duly certified schedule or schedules in form reasonably satisfactory to the Collateral Agent, showing the identity, amount and location (to the extent practicable) of any and all Collateral. (b) Each Grantor agrees not to change, or permit to be changed, the location of its chief executive office or chief place of business or the name or names used to identify it in its business or in the ownership of its properties unless all filings under the Uniform Commercial Code or under other applicable laws that are required to be made with respect to the Collateral have been made and the Collateral Agent has a valid, legal and perfected first priority security interest in the Collateral, subject to no liens, other than Liens permitted by Section 7.02 of the Credit Agreement and any liens or licenses listed on Schedule V, and prior notice thereof has been given to the Collateral Agent along with copies of all such filings to be made. SECTION 4.06. FUTURE RIGHTS. (a) If, before the time that all Obligations shall have been paid in full, no Letters of Credit are outstanding and the Secured Parties no longer have Commitments under the Credit Agreement, any Grantor shall obtain rights to any material asset or item that may be considered Collateral, the provisions of Section 2.01 shall automatically apply thereto and each Grantor shall give to the Collateral Agent prompt notice thereof in writing. (b) With respect to any such material asset or item that may be considered Collateral as set forth in paragraph (a) above, each Grantor shall follow the procedures set forth in Section 3.03, as applicable, to ensure that the Collateral Agent's valid first priority security interest therein is perfected (subject only to Liens permitted by Section 7.02 of the Credit Agreement). SECTION 4.07 ASSIGNMENT OF LICENSES. Upon and during the continuance of an Event of Default and at the reasonable request of the Collateral Agent, each Grantor shall use its reasonable efforts to obtain all requisite consents or approvals by the licensor of each Copyright License, Patent License or Trademark License to effect the assignment of all of the Grantors' rights, title and interest thereunder to the Collateral Agent or its designee. SECTION 4.08. COLLATERAL AGENT'S LIABILITIES AND EXPENSES; INDEMNIFICATION. (a) Notwithstanding anything to the contrary provided herein, the Collateral Agent assumes no liabilities with respect to any claims regarding each Grantor's ownership (or purported ownership) of, or rights or obligations (or purported 11 rights or obligations) arising from, the Collateral or any use (or actual or alleged misuse), license or sublicense thereof by any Grantor or any licensee of such Grantor, whether arising out of any past, current or future event, circumstance, act or omission or otherwise, or any claim, suit, loss, damage, expense or liability of any kind or nature arising out of or in connection with the Collateral or the production, marketing, delivery, sale or provision of goods or services under or in connection with any of the Collateral. As between the Secured Parties and the Grantors, all of such liabilities shall be borne exclusively by the Grantors. (b) Each Grantor hereby agrees to pay all expenses of the Collateral Agent and to indemnify the Collateral Agent with respect to any and all losses, claims, damages, liabilities and related expenses in respect of this Agreement or the Collateral in each case to the extent the Borrower is required to do so pursuant to Section 10.03 of the Credit Agreement. (c) Any amounts payable as provided hereunder shall be additional Obligations secured hereby and by the other Security Documents. Without prejudice to the survival of any other agreements contained herein, all indemnification and reimbursement obligations contained herein shall survive the payment in full of the principal and interest under the Credit Agreement, the expiration of the Letters of Credit and the termination of the Commitments or this Agreement. ARTICLE V REMEDIES SECTION 5.01. POWER OF ATTORNEY. Upon the occurrence and during the continuance of any Event of Default, subject to prior written notice to the Borrower, the Collateral Agent shall have the right, as the true and lawful attorney-in-fact of the Grantors, with power of substitution for the Grantors and in the Grantors' names, the Collateral Agent's name or otherwise, for the use and benefit of the Secured Parties (a) upon prior notice from the Collateral Agent, to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Collateral; (c) to sign the name of any Grantor on any invoice relating to any of the Collateral; (d) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Collateral or to enforce any rights in respect of any Collateral; (e) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to or pertaining to all or any of the Collateral; (f) to license or, to the extent permitted by any applicable law, sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any of the Collateral throughout the world for such term or terms, on such conditions, and in such manner, as the Collateral Agent shall determine (other than in violation of any then existing licensing arrangements to the extent that waivers or other adequate provision cannot be secured therefor); and (g) generally to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Collateral, and to do all other acts and things necessary to carry out the purposes of this Agreement, as fully and completely as though the Collateral Agent were the absolute owner of the Collateral for all purposes; provided, HOWEVER, that except as provided for by law or the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions, 12 nothing herein contained shall be construed as requiring or obligating the Collateral Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby, and no action taken by the Collateral Agent or omitted to be taken with respect to the Collateral or any part thereof shall give rise to any defense, counterclaim or offset in favor of any Grantor or to any claim or action against the Collateral Agent. It is understood and agreed that the appointment of the Collateral Agent as the attorney-in-fact of the Grantors for the purposes set forth above in this Section 5.01 is coupled with an interest and is irrevocable. The provisions of this Section 5.01 shall in no event relieve the Grantors of any of their obligations hereunder or under the Credit Agreement or any other Loan Document with respect to the Collateral or any part thereof or impose any obligation on the Collateral Agent or the Secured Parties to proceed in any particular manner with respect to the Collateral or any part thereof, or in any way limit the exercise by the Collateral Agent or any Secured Party of any other or further right that it may have on the date of this Agreement or hereafter, whether hereunder or by law or by the Security Agreement, or otherwise. SECTION 5.02. OTHER REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of an Event of Default, each Grantor expressly agrees that, subject to prior written notice to the Borrower, the Collateral Agent on demand shall have the right to take any or all of the following actions at the same or different times: with or without legal process and with or without previous notice or demand for performance, to take possession of all tangible manifestations or embodiments of the Collateral and documentation relating thereto and all business records, documents, files, prints and labels with respect to the Collateral, and without liability for trespass to enter any premises where such tangible manifestations or embodiments, business records, documents, files, prints and labels with respect to the Collateral may be located for the purpose of taking possession of or removing such tangible manifestations or embodiments, business records, documents, files, prints and labels with respect to the Collateral, and, generally, to exercise any and all rights afforded to a secured party under the Uniform Commercial Code or other law applicable to any part of the Collateral. Subject to and without limiting the generality of the foregoing, each Grantor agrees that the Collateral Agent shall have the right, subject to the mandatory requirements of applicable law, to sell or otherwise dispose of all or any part of the Collateral, at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate. The Collateral Agent shall be authorized at any such sale (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or sale thereof where the failure to obtain such a representation and agreement could result in a violation of any applicable securities laws, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal that such Grantor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Collateral Agent shall give the Grantors at least 10 days' written notice (which each Grantor agrees is reasonable notice within the meaning of Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions) of the Collateral Agent's 13 intention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice to the Grantors. At any public sale made pursuant to this Section 5.02, the Collateral Agent or any Secured Party may bid for or purchase, free from any right of redemption, stay, valuation or appraisal on the part of any Grantor (all said rights being also hereby waived and released to the extent permitted by law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to the Collateral Agent or any Secured Party from any Grantor as a credit against the purchase price, and the Collateral Agent or any Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to such Grantor therefor. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. SECTION 5.03. APPLICATION OF PROCEEDS OF SALE. The proceeds of any sale of Collateral, as well as any Collateral consisting of cash, shall be applied by the Collateral Agent as follows: FIRST, to the payment of all costs and expenses incurred by the Administrative Agent or the Collateral Agent (in its capacity as such hereunder or under any other Loan Document) in connection with such collection or sale or otherwise in connection with this Agreement or any of the Obligations, including all reasonable court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent hereunder or under any other Loan Document on behalf of any Grantor and any other costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Loan Document; SECOND, to the payment of all amounts of the Obligations owed to the Secured Parties in respect of Loans made by them and outstanding and amounts owing in respect of any LC Disbursement or Letter of Credit or under any Interest/Exchange Rate Protection Agreement, pro rata as among the Secured Parties in accordance with the amount of such Obligations owed them; 14 THIRD, to the payment and discharge in full of the Obligations (other than those referred to above), pro rata as among the Secured Parties in accordance with the amount of such Obligations owed to them; and FOURTH, after payment in full of all Obligations, to the applicable Grantor, or its successor or assign thereof, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, any Collateral then remaining. The Collateral Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof. SECTION 5.04. GRANT OF LICENSE TO USE PATENT, TRADEMARK AND COPYRIGHT COLLATERAL. For the purpose of enabling the Collateral Agent to exercise rights and remedies under Article V hereof at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Collateral Agent an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sublicense any of the Collateral now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored. The use of such license by the Collateral Agent shall be exercised, at the option of the Collateral Agent for any purpose appropriate in connection with the exercise of remedies hereunder, only upon the occurrence and during the continuance of an Event of Default; PROVIDED that any license, sublicense or other transaction entered into by the Collateral Agent in accordance herewith shall be binding upon such Grantor notwithstanding any subsequent cure of an Event of Default. The Collateral Agent agrees to apply the net proceeds received from any license as provided in Section 5.03 hereof. ARTICLE VI MISCELLANEOUS SECTION 6.01. THE COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Except as otherwise provided herein, each Grantor hereby appoints the Collateral Agent the attorney-in-fact of such Grantor, effective upon the occurrence and during the continuance of an Event of Default, for the purposes of carrying out the provisions of this Agreement, taking any action and executing any instrument that the Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes hereof, and doing all other acts that such Grantor is obligated to do hereunder. Such appointment is in each case irrevocable and coupled with an interest. Each Grantor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof in accordance with this Agreement. SECTION 6.02. NOTICES. Notices and other communications provided for herein shall be in writing and given (i) in the case of communications and notices to UCAR, Global, the Borrower or any Secured Party, as provided in the Credit 15 Agreement and (ii) in the case of communications and notices to any other Grantor, as provided in the Subsidiary Guarantee Agreement. SECTION 6.03. SUCCESSORS AND ASSIGNS. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party, and the terms "Lender", "Issuing Bank" and "Secured Party" shall include each permitted successor and assignee of any Lender, Issuing Bank or Secured Party permitted under Section 10.04 of the Credit Agreement and all covenants, promises and agreements by or on behalf of the Grantors or the Collateral Agent or that are contained in this Agreement shall bind and inure to the benefit of their respective permitted successors and permitted assigns referred to above. (b) No Grantor shall assign or delegate any of its rights and duties hereunder. (c) The covenants, promises and agreements by the Grantors shall inure to the benefit of each Secured Party and each assignee of any Secured Party permitted under Section 10.04 of the Credit Agreement. SECTION 6.04. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT FEDERAL LAW OR LAWS OF ANOTHER STATE OR FOREIGN JURISDICTION MAY APPLY TO PATENTS, TRADEMARKS, COPYRIGHTS, OTHER COLLATERAL OR REMEDIES. SECTION 6.05. WAIVERS; AMENDMENT. (a) No failure or delay of the Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other right or power. The rights and remedies of the Collateral Agent hereunder and of other Secured Parties under the Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Agreement or any other Loan Document or consent to any departure by any Grantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Grantor in any case shall entitle such Grantor to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into between any Grantor and the Collateral Agent, with the prior written consent of the Required Secured Parties; PROVIDED, HOWEVER, that except as provided herein or in the other Loan Documents, no such agreement shall amend, modify, waive or otherwise affect the rights or duties of the Collateral Agent hereunder without the prior written consent of the Collateral Agent. SECTION 6.06. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent hereunder, the security interests granted hereunder and all obligations of the Grantors hereunder shall be absolute and unconditional. 16 SECTION 6.07. SURVIVAL OF AGREEMENT. All covenants, agreements, representations and warranties made by any Grantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Secured Parties and shall survive the making by the Lenders of the Loans, the execution and delivery to the Lenders of the Loan Documents and the issuance by the Fronting Banks of the Letters of Credit regardless of any investigation made by the Secured Parties or on their behalf and shall continue in full force and effect so long as the principal of or any accrued interest on any Loan or L/C Disbursement or any Fee or any other amount payable under or in respect of this Agreement or any other Loan Document is outstanding and unpaid and so long as the Commitments have not been terminated. SECTION 6.08. BINDING EFFECT; ASSIGNMENTS. This Agreement shall become effective as to any Grantor when a counterpart hereof executed on behalf of such Grantor shall have been delivered to the Collateral Agent, and thereafter shall be binding upon such Grantor and its respective successors and assigns, and shall inure to the benefit of such Grantor and the Secured Parties and their respective successors and assigns, except that no Grantor shall have the right to assign its rights hereunder or any interest herein (and any such attempted assignment shall be void) except as expressly contemplated by this Agreement or the other Loan Documents. SECTION 6.09. TERMINATION; RELEASE. (a) This Agreement and the security interests granted hereby shall terminate when all the Obligations have been indefeasibly paid in full, the Commitments have been terminated and no Letters of Credit are outstanding. (b) Upon any sale by any Grantor of any Collateral that is permitted under the Credit Agreement or upon the effectiveness of any written consent to the release of the Security Interest in any Collateral pursuant to Section 10.02 of the Credit Agreement, the Security Interest in such Collateral shall be automatically released. (c) In connection with any termination or release pursuant to paragraphs (a) and (b), the Collateral Agent shall execute and deliver to each Grantor, at such Grantor's expense, all Uniform Commercial Code termination statements, documents in order to terminate any United States Patent and Trademark Office filings and similar documents that such Grantor shall reasonably request to evidence such termination or release. Any execution and delivery of termination statements or documents pursuant to this Section 6.09 shall be without recourse to or warranty by the Collateral Agent. SECTION 6.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER 17 INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.10. SECTION 6.11. SEVERABILITY. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 6.12. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Grantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Loan Party or Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Grantor or any Secured Party or its properties in the courts of any jurisdiction. (b) Each Grantor and each Secured Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 6.02. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 6.13. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together shall constitute but one instrument, and shall become effective as provided in Section 6.08. SECTION 6.14. HEADINGS. Article and Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. 18 SECTION 6.15. ADDITIONAL GRANTORS. Pursuant to Section 6.11 of the Credit Agreement, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into this Agreement as a Grantor upon becoming a Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the Collateral Agent and such Domestic Subsidiary of an instrument in the form of Annex 1, such Domestic Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor hereunder. The execution and delivery of any such instrument shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. UCAR INTERNATIONAL INC. by /S/ NANCY M. FALLS -------------------------------- Name: Nancy M. Falls Title: Treasurer UCAR GLOBAL ENTERPRISES INC. by /S/ NANCY M. FALLS -------------------------------- Name: Nancy M. Falls Title: Treasurer UCAR FINANCE INC. by /S/ NANCY M. FALLS -------------------------------- Name: Nancy M. Falls Title: Treasurer 19 EACH OF THE SUBSIDIARY GRANTORS LISTED ON SCHEDULE VII HERETO by /S/ NANCY M. FALLS -------------------------------- Name: Nancy M. Falls Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent by /S/ DEBORAH DESANTIS -------------------------------- Name: Deborah DeSantis Title: Vice President SCHEDULE I TO INTELLECTUAL PROPERTY SECURITY AGREEMENT PATENTS OWNED BY [NAME OF GRANTOR] [Make a separate Schedule IV for each Grantor and if no patents owned so state. List in numerical order by Patent No./Patent Application No.] U.S. PATENT REGISTRATIONS ISSUE DATE PATENT NUMBERS ---------- -------------- U.S. PATENT APPLICATIONS FILING DATE PATENT APPLICATION NO. ----------- ---------------------- NON-U.S. PATENT REGISTRATIONS [List in alphabetical order by country/numerical order by Patent No.] COUNTRY ISSUE DATE PATENT NO. ------- ------------ ---------- NON-U.S. PATENT APPLICATIONS [List in alphabetical order by country/numerical order by Application No.] COUNTRY FILING DATE PATENT APPLICATION NO. ------- ----------- ---------------------- SCHEDULE II, page 1 of 2 TO INTELLECTUAL PROPERTY SECURITY AGREEMENT TRADEMARK/TRADE NAMES OWNED BY [NAME OF GRANTOR] [Make a separate Schedule V for each Grantor and if no trademark/trade names owned so state. List in numerical order by trademark registration/application no.] U.S. TRADEMARK REGISTRATIONS MARK REG. DATE REG. NO. ---- --------- -------- U.S. TRADEMARK APPLICATIONS MARK FILING DATE APPLICATION NO. ---- ----------- --------------- STATE TRADEMARK REGISTRATIONS [List in alphabetical order by State/numerical order by trademark no.] STATE MARK REG. DATE REG. NO. ----- ---- --------- -------- STATE TRADEMARK APPLICATIONS [List in alphabetical order by State/numerical order by trademark no.] STATE MARK FILING DATE APPLICATION NO. ----- ---- ----------- --------------- NON-U.S. TRADEMARK REGISTRATIONS [List in alphabetical order by country/numerical order by trademark no.] COUNTRY MARK REG. DATE REG. NO. ------- ---- --------- -------- SCHEDULE II, page 2 of 2 TO INTELLECTUAL PROPERTY SECURITY AGREEMENT NON-U.S. TRADEMARK APPLICATIONS [List in alphabetical order by country/numerical order by application no.] COUNTRY MARK APPLICATION DATE APPLICATION NO. ------- ---- ---------------- --------------- TRADE NAMES COUNTRY(S) WHERE USED TRADE NAMES --------------------- ----------- SCHEDULE III TO INTELLECTUAL PROPERTY SECURITY AGREEMENT COPYRIGHTS OWNED BY [NAME OF GRANTOR] [Make a separate Schedule II for each Grantor and if no copyrights owned so state.] U.S. COPYRIGHT REGISTRATIONS [List in numerical order by Registration No.] TITLE DATE PUB. AUTHOR REG. NO. ----- --------- ------ -------- PENDING U.S. COPYRIGHT APPLICATIONS FOR REGISTRATION [List in chronological order by date published.] TITLE DATE PUB. AUTHOR CLASS DATE FILED ----- --------- ------ ----- ---------- NON-U.S. COPYRIGHT REGISTRATIONS [List in alphabetical order by country/numerical order by Registration No.] COUNTRY TITLE DATE PUB. AUTHOR REG. NO. ------- ----- --------- ------- -------- NON-U.S. PENDING COPYRIGHT APPLICATIONS FOR REGISTRATION [List in alphabetical order by country/chronological order by date published.] COUNTRY TITLE DATE PUB. AUTHOR CLASS DATE FILED ------- ----- --------- ------ ---------------- SCHEDULE IV, page 1 of 6 TO INTELLECTUAL PROPERTY SECURITY AGREEMENT LICENSES [Make a separate Schedule III for each Grantor, and if not a licensor/licensee in a license/sublicense so state.] PART I LICENSES/SUBLICENSES OF [NAME OF GRANTOR] AS LICENSOR ON DATE HEREOF A. COPYRIGHTS U.S. COPYRIGHT REGISTRATIONS [List in numerical order by Registration No.] DATE OF LICENSEE NAME LICENSE/ REG. AND ADDRESS SUBLICENSE TITLE DATE PUB. AUTHOR NO. ----------- ---------- ----- --------- ------- --- PENDING U.S. COPYRIGHT APPLICATIONS FOR REGISTRATION [List in chronological order by date published.] DATE OF LICENSEE NAME LICENSE/ DATE AND ADDRESS SUBLICENSE TITLE DATE PUB. AUTHOR FILED ----------- ---------- ----- --------- ------- ----- NON-U.S. COPY REGISTRATIONS [List in alphabetical order by country/numerical order by Registration No.] DATE OF LICENSEE NAME LICENSE/ DATE REG. COUNTRY AND ADDRESS SUBLICENSE TITLE PUB. AUTHOR NO. ------- ----------- ----------- ----- ----- ------- --- NON-U.S. PENDING COPYRIGHT APPLICATIONS FOR REGISTRATION [List in alphabetical order by country/chronological order by date published.] DATE OF LICENSEE NAME LICENSE/ DATE DATE COUNTRY AND ADDRESS SUBLICENSE TITLE PUB. AUTHOR CLASS FILED ------- ----------- ----------- ----- ----- ------- ----------- SCHEDULE IV, page 2 of 6 TO INTELLECTUAL PROPERTY SECURITY AGREEMENT B. PATENTS [List first in numerical order by U.S. patent nos. followed by U.S. patent application nos. in numerical order, followed in alphabetical order by country, its non-U.S. patent nos. in numerical order, followed by its non-U.S. application nos. in numerical order.] U.S. PATENTS LICENSEE NAME DATE OF LICENSE/ PATENT AND ADDRESS SUBLICENSE ISSUE DATE PATENT NO. ----------- ---------- ---------- ---------- U.S. PATENT APPLICATIONS LICENSEE NAME DATE OF LICENSE/ DATE APPLICATION AND ADDRESS SUBLICENSE APPL. FILED NO. ----------- ---------- ----------- --- NON-U.S. PATENTS DATE OF LICENSEE NAME LICENSE/ PATENT NON-U.S. COUNTRY AND ADDRESS SUBLICENSE ISSUE DATE PATENT NO. ------- ----------- ---------- ---------- ---------- NON-U.S. PATENT APPLICATIONS DATE OF LICENSEE NAME LICENSE/ DATE APPLICATION COUNTRY AND ADDRESS SUBLICENSE APPL. NO. ------- ----------- ---------- ----- ----------- SUBLICENSE FILED SCHEDULE IV, page 3 of 6 TO INTELLECTUAL PROPERTY SECURITY AGREEMENT C. TRADEMARKS [List first in numerical order by U.S. patent nos. followed by U.S. patent application nos. in numerical order, followed in alphabetical order by country, its non-U.S. patent nos. in numerical order, followed by its non-U.S. application nos. in numerical order.] U.S. TRADEMARKS DATE OF LICENSEE NAME LICENSE/ AND ADDRESS SUBLICENSE U.S. MARK REG. DATE REG. NO. ----------- ---------- --------- --------- -------- U.S. TRADEMARK APPLICATIONS DATE OF LICENSEE NAME LICENSE/ APPLICATION AND ADDRESS SUBLICENSE U.S. MARK DATE FILED NO. ----------- ---------- --------- ---------- --- NON-U.S. TRADEMARKS DATE OF LICENSEE NAME LICENSE/ NON-U.S. COUNTRY AND ADDRESS SUBLICENSE MARK REG. DATE REG. NO. ------- ----------- ---------- ---- --------- -------- NON-U.S. TRADEMARK APPLICATIONS DATE OF LICENSEE NAME LICENSE/ NON-U.S. APPLICATION COUNTRY AND ADDRESS SUBLICENSE MARK DATE FILED NO. ------- ----------- ---------- ------- ---------- --- D. OTHERS DATE OF LICENSE/ LICENSE NAME AND ADDRESS SUBLICENSE SUBJECT MATTER ------------------------ ---------- -------------- SCHEDULE IV, page 4 of 6 TO INTELLECTUAL PROPERTY SECURITY AGREEMENT PART 2 LICENSES/SUBLICENSES OF [NAME OF GRANTOR] AS LICENSEE ON DATE HEREOF A. COPYRIGHTS U.S. COPYRIGHTS [List in numerical order by Registration No.] DATE OF LICENSEE NAME LICENSE/ DATE REG. AND ADDRESS SUBLICENSE TITLE PUB. AUTHOR NO. ----------- ---------- ----- ---- ------- --- PENDING U.S. COPYRIGHT APPLICATIONS FOR REGISTRATION [List in chronological order by date published.] DATE OF LICENSEE NAME LICENSE/ DATE DATE AND ADDRESS SUBLICENSE TITLE PUB. AUTHOR CLASS FILED ----------- ----------- ----- ---- ------- ----- ----- NON-U.S. COPYRIGHTS [List in alphabetical order by country/numerical order by Registration No.] DATE OF LICENSEE NAME LICENSE/ DATE REG. COUNTRY AND ADDRESS SUBLICENSE TITLE PUB. AUTHOR NO. ------- ----------- ----------- ----- ---- ------- --- NON-U.S. PENDING COPYRIGHT APPLICATIONS FOR REGISTRATION [List in alphabetical order by country/chronological order by date published.] DATE OF LICENSEE NAME LICENSE/ DATE DATE COUNTRY AND ADDRESS SUBLICENSE TITLE PUB. AUTHOR CLASS FILED ------- ----------- ----------- ----- ---- ------- ----- ----- SCHEDULE IV, page 5 of 6 TO INTELLECTUAL PROPERTY SECURITY AGREEMENT B. PATENTS [List first in numerical order by U.S. patent nos. followed by U.S. patent application nos. in numerical order, followed in alphabetical order by country, its non-U.S. patent nos. in numerical order, followed by its non-U.S. application nos. in numerical order.] U.S. PATENTS LICENSEE NAME DATE OF LICENSE/ PATENT AND ADDRESS SUBLICENSE ISSUE DATE PATENT NO. ----------- ---------- ---------- ---------- U.S. PATENT APPLICATIONS LICENSEE NAME DATE OF LICENSE/ DATE AND ADDRESS SUBLICENSE APPL. FILED APPLICATION NO. ----------- ---------- ----------- --------------- NON-U.S. PATENTS DATE OF LICENSEE NAME LICENSE/ PATENT NON-U.S. COUNTRY AND ADDRESS SUBLICENSE ISSUE DATE PATENT NO. ------- ----------- ---------- ---------- ---------- NON-U.S. PATENT APPLICATIONS DATE OF LICENSEE NAME LICENSE/ DATE APPLICATION COUNTRY AND ADDRESS SUBLICENSE APPL. FILED NO. ------- ----------- ---------- ----------- --- SCHEDULE IV, page 6 of 6 TO INTELLECTUAL PROPERTY SECURITY AGREEMENT C. TRADEMARKS [List first in numerical order by U.S. trademark nos. followed by U.S. trademark application nos. in numerical order, followed in alphabetical order by country, its non-U.S. trademark nos. in numerical order, followed by its non-U.S. application nos. in numerical order.] U.S. TRADEMARKS DATE OF LICENSEE NAME LICENSE/ AND ADDRESS SUBLICENSE U.S. MARK REG. DATE REG. NO. ----------- ---------- --------- --------- -------- U.S. TRADEMARK APPLICATIONS DATE OF LICENSEE NAME LICENSE/ APPLICATION AND ADDRESS SUBLICENSE U.S. MARK DATE FILED NO. ----------- ---------- --------- ---------- --- NON-U.S. TRADEMARKS DATE OF LICENSEE NAME LICENSE/ NON-U.S. COUNTRY AND ADDRESS SUBLICENSE MARK REG. DATE REG. NO. ------- ----------- ---------- ---- ------------------ NON-U.S. TRADEMARK APPLICATIONS DATE OF Licensee Name LICENSE/ Non-U.S. Application COUNTRY AND ADDRESS SUBLICENSE MARK DATE FILED NO. ------- ----------- ---------- ---- ---------- --- D. OTHERS DATE OF LICENSE/ LICENSE NAME AND ADDRESS SUBLICENSE SUBJECT MATTER ------------------------ ---------- -------------- SCHEDULE V TO INTELLECTUAL PROPERTY SECURITY AGREEMENT LIENS ON [None) SCHEDULE VI TO INTELLECTUAL PROPERTY SECURITY AGREEMENT Offices Where Financing Statements Need to be Filed [See Perfection Certificate] SCHEDULE VII TO INTELLECTUAL PROPERTY SECURITY AGREEMENT SUBSIDIARY GRANTORS UCAR Carbon Company Inc. UCAR Holdings II Inc. UCAR Holdings III Inc. UCAR International Trading Inc. UCAR Composites Inc. EXHIBIT A-1 TO INTELLECTUAL PROPERTY SECURITY AGREEMENT SUPPLEMENT NO. dated as of [], to the Intellectual Property Security Agreement dated as of February 22, 2000 (the "INTELLECTUAL PROPERTY SECURITY AGREEMENT"), made by UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("GLOBAL"), UCAR FINANCE INC., a Delaware corporation (the "BORROWER"), and the subsidiaries of UCAR from time to time party thereto (the "SUBSIDIARY GRANTORS", and together with UCAR, Global and the Borrower, the "GRANTORS") in favor of MORGAN GUARANTY TRUST COMPANY OF NEW YORK as collateral agent for the Secured Parties (such term and each other capitalized term used but not defined herein having the meaning given it in Article I of the Credit Agreement). A. Reference is made to Credit Agreement dated as of February 22, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among UCAR, Global, the Borrower, the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and Morgan Guaranty Trust Company of New York, as Administrative Agent, Collateral Agent and Issuing Bank. B. The Borrower and the Domestic Subsidiaries have entered into the Intellectual Property Security Agreement in order to induce the Lenders to make Loans and the Issuing Banks to issue Letters of Credit pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Pursuant to Section 6.11 of the Credit Agreement, each Domestic Subsidiary that was not in existence or not a Domestic Subsidiary on the date thereof is required to enter into the Intellectual Property Security Agreement as a Grantor upon becoming a Domestic Subsidiary. Section 6.15 of the Intellectual Property Security Agreement provides that additional Domestic Subsidiaries may become Grantors under the Intellectual Property Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned (the "NEW GRANTOR") is a Domestic Subsidiary and is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Grantor under the Intellectual Property Security Agreement in order to induce the Lenders to make additional Loans and the Issuing Bank to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Collateral Agent and the New Grantor agree as follows: SECTION 1. In accordance with Section 6.15 of the Intellectual Property Security Agreement, the New Grantor by its signature below becomes a Grantor under the Intellectual Property Security Agreement with the same force and effect as if originally named therein as a Grantor and the New Grantor hereby agrees to all the terms and provisions of the Intellectual Property Security Agreement applicable to it as a Grantor thereunder. Each reference to a "GRANTOR" in the Intellectual Property Security Agreement shall be deemed to include the New Grantor. The Intellectual Property Security Agreement is hereby incorporated herein by reference. SECTION 2. The New Grantor represents and warrants to the Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, subject to the effects of applicable bankruptcy, insolvency or similar laws effecting creditors' rights generally and equitable principles of general applicability. SECTION 3. This Supplement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Grantor and the Collateral Agent. SECTION 4. Except as expressly supplemented hereby, the Intellectual Property Security Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Intellectual Property Security Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in the Credit Agreement. All communications and notices hereunder to the New Grantor shall be given to it at the address set forth under its signature, with a copy to the Borrower. IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly executed this Supplement to the Intellectual Property Security Agreement as of the day and year first above written. [NAME OF NEW GRANTOR], by Name: Title: Address: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent, by Name: Title: EX-10.14 8 TAX SHARING AGMT. TAX SHARING AGREEMENT AGREEMENT made as of February 16, 2000 among UCAR International Inc. ("UCAR"), and its subsidiaries UCAR Global Enterprises Inc. ("Issuer"), UCAR Finance Inc. ("Finance Co."), UCAR Carbon Company Inc. ("Carbon"), UCAR Holdings II Inc. ("Holdings II "), UCAR Holdings III ("Holdings III"), Union Carbide Grafito, Inc. ("Grafito"), and UCAR Composites Inc. ("Composites") (collectively, the "subsidiaries"). WHEREAS, UCAR owns all of the issued and outstanding shares of capital stock of the Issuer and Finance Co., the only class of stock that the Issuer and Finance Co. is authorized to issue; the Issuer owns all of the issued and outstanding shares of capital stock of Carbon and of Holdings II, the only classes of stock that Carbon and Holdings II are authorized to issue; Carbon owns all of the issued and outstanding share of capital stock of Grafito and Composites, the only classes of stock that Grafito and Composites are authorized to issue; Holdings II owns all of the issued and outstanding share of capital stock of Holdings III, the only class of stock that Holdings III is authorized to issue; the companies have become members of an affiliated group within the meaning of section 1504(a) of the Internal Revenue Code of which UCAR is the common parent corporation (the "Affiliated Group"); and UCAR proposes to include the subsidiaries in filing a consolidated federal income tax return for the calendar year 1999 and thereafter; and, WHEREAS, UCAR and the subsidiaries desire to establish a method for allocating the consolidated tax liability of the Affiliated Group among its members and for reimbursing UCAR for the payment of such tax liability; NOW, THEREFORE, UCAR and the subsidiaries agree as follows: 1. CONSOLIDATED RETURN ELECTION. If at any time and from time to time UCAR so elects, UCAR and the subsidiaries will join in the filing of a consolidated federal income tax return for the calendar year of 1999 and for any subsequent taxable period for which the Affiliated Group is required or permitted to file such a return. UCAR and the subsidiaries agree to file such consents, elections, and other documents and take such other action as may be necessary or appropriate to carry out the purpose of this Section 1. Any period for which the subsidiaries are included in a consolidated federal income tax return filed by UCAR is referred to in this Agreement as a "UCAR Consolidated Return Year." 2. SUBSIDIARIES' LIABILITY TO UCAR FOR UCAR CONSOLIDATED RETURN YEARS. Within 120 days after the end of each UCAR Consolidated Return Year, the subsidiaries shall pay to UCAR the amount (if any) of federal income taxes for which the subsidiaries would have been liable for that year, computed as though the subsidiaries each had filed a separate return for such Consolidated Return Year and for all other Consolidated Return Years. 3. INTERIM ESTIMATED PAYMENTS. Prior to the end of any UCAR Consolidated Return Year, the subsidiaries shall advance to UCAR (within a reasonable period after request by UCAR) amounts necessary to reimburse UCAR for that portion of any estimated federal income tax payments attributable to the inclusion of the companies in the Affiliated Group. Any amounts so paid in any year shall operate to reduce the amount payable to UCAR following the end of such year pursuant to Section 2, above, and any negative balance resulting from such reduction shall promptly be refunded by UCAR to the subsidiaries. 4. TAX ADJUSTMENTS. In the event of any adjustment of the tax returns of UCAR and the subsidiaries as filed (by reason of an amended return, claim for refund, or an audit by the Internal Revenue Service), the liability of UCAR and the subsidiaries under Section 2 and 3 shall be redetermined to give effect to any such adjustment as if it has been made as part of the original computation of tax liability, and payments between UCAR and the subsidiaries shall be made within 120 days after any such payments are made or refunds are received, or, in the case of contested proceedings, within 120 days after a final determination of the contest. If any subsidiary ceases to be a member of the Affiliated Group (a "Deconsolidation Event"), then that subsidiary will indemnify UCAR with respect to any federal, state or local income, franchise or other tax liability (including any related interest, additions or penalties) imposed on UCAR as a result of an audit or other adjustment with respect to any period prior to such Deconsolidation Event that is attributable to UCAR or to the subsidiary or any predecessor business thereof (computed as though the subsidiaries each had filed a separate return for such Consolidated Return Year), but only to the extent that any such tax liability exceeds any liability for taxes recorded on the books of UCAR or a subsidiary with respect to any such period. 5. UCAR AND NEW SUBSIDIARIES If at any time UCAR acquires or creates one or more corporations that are includable corporations of the Affiliated Group, they shall be subject to this Agreement and all references to UCAR herein shall thereafter interpreted to refer to CUAR and such includable corporations as a group. 6. STATE INCOME TAX LIABILITY. Principles similar to those set forth herein shall apply to allocate consolidated, combined or unitary state income tax liability among UCAR and the subsidiaries. 7. SUCCESSORS. This Agreement shall be binding on and inure to the benefit of any successor, by merger, acquisition of assets or otherwise, to any of the parties hereto (including but not limited to any successor of UCAR or the subsidiaries succeeding to their tax attributes under section 381 of the Internal Revenue Code), to the same extent as if such successor had been an original party to the Agreement. IN WITNESS WHEREOF, UCAR and the subsidiaries have executed this Agreement by authorized officers thereof as of the date first above written. DATED: February 16, 2000 UCAR International Inc. By:/s/ Erick Asmussen Its:Comtroller UCAR Global Enterprises By : /s/ Nancy M. Falls Its: Treasurer UCAR Finance Inc. By: /s/ Nancy M. Falls Its: Treasurer UCAR Carbon Company, Inc. By: /s/ Nancy M. Falls Its: Treasurer UCAR Holdings II, Inc. By: /s/ Nancy M. Falls Its: Treasurer UCAR Holdings III, Inc. By: /s/ Nancy M. Falls Its: Treasurer Union Carbide Grafito, Inc. By: /s/ Karen G. Narwold Its: President UCAR Composites Inc. By: /s/ Karen G. Narwold Its: President EX-10.25 9 COMPENSATION DEFERRAL PROGRAM UCAR INTERNATIONAL INC. COMPENSATION DEFERRAL PROGRAM UCAR INTERNATIONAL INC. COMPENSATION DEFERRAL PROGRAM ARTICLE I PURPOSE 1.1 The purpose of this Program is to (i) allow Eligible Employees under the Variable Compensation Plans to defer up to 85% of their Variable Compensation, (ii) allow Eligible Employees to defer up to 50% of their base salary and (iii) allow Eligible Employees to defer a portion or all of their lump sum payments otherwise payable from the SRIP, ERIP and/or Equalization Plan. 1.2 This Program shall be effective for amounts payable on or after January 1, 2000. ARTICLE II DEFINITIONS 2.1 "Administrative Committee" means the Administrative Committee for Non-Qualified Employee Benefit Plans of UCAR International Inc., as appointed by the Chairman and Chief Executive Officer of the Corporation. 2.2 "Aggregate Compensation" means the sum of a Participant's Compensation and Deferred Compensation. 2.3 "Applicable Equity Investment Fund Rate" means the difference between the value of each of the applicable investment funds under the Savings Plan elected by a Participant under Section 8.2 of this Program: Vanguard 500 Index Fund, Vanguard/Windsor II Fund, Vanguard/PRIMECAP Fund, UAM ICM Small Company Portfolio, Vanguard International Growth Fund, Vanguard LifeStrategy(TM) Income Fund, Vanguard LifeStrategy(TM) Conservative Growth Fund, Vanguard LifeStrategy(TM) Moderate Growth Fund and Vanguard LifeStrategy(TM) Growth Fund, determined on a fund by fund basis, as of (i) the later of the Date of Deferral or the effective date of a Participant's election under Section 8.2(c), and (ii) the relevant valuation date for determining the amount of earnings of such investment fund in accordance with Article VIII. Such value shall include any hypothetical dividends and hypothetical capital gains distributions paid on such investment fund during the period for which the Applicable Equity Investment Fund Rate is being determined, as if such hypothetical dividends or hypothetical capital gains distributions are reinvested when payable in additional shares of such fund. The value of a respective investment fund for purposes of this Section 2.3, shall mean the net asset value of such investment fund as reported by such fund. If the investment funds under the Savings Plan are changed, 2 deleted or added to, then the Applicable Equity Investment Fund Rate shall be changed to correspond to the investment funds offered under the Savings Plan, effective on the date such change is made to the investment funds under the Savings Plan. 2.4 "Beneficiary" means the person, persons or estate entitled (as determined under Article VII) to receive payment under this Program following a Participant's death. 2.5 "Board" shall mean the Board of Directors of the Corporation. 2.6 "Change of Control" shall be deemed to occur if any of the following circumstances shall occur: (i) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act becomes the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act of more than 22.5% of the then outstanding voting securities of the Corporation; (ii) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act acquires by proxy or otherwise the right to vote for the election of directors, on any merger or consolidation of the Corporation or for any other matter or question with respect to more than 22.5% of either the then outstanding common stock or the combined voting power of the then outstanding voting securities of the Corporation; (iii) Present Directors and New Directors cease for any reason to constitute a majority of the Board (and, for these purposes, "Present Directors" shall mean individuals who at the beginning of any consecutive twenty-four month period were members of the Board and "New Directors" shall mean individuals whose election as directors by the Board or whose nomination for election as directors by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were Present Directors or New Directors); (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation; or (v) a consummation of: (x) a reorganization, merger or consolidation of the Corporation (a "Business Combination"), unless, following such Business Combination, (a) all or substantially all of the "beneficial owners", as defined in Rule 13d-3 under the Exchange 3 Act, of the outstanding common stock and the combined voting power of the outstanding voting securities of the Corporation, respectively, immediately prior to such Business Combination "beneficially own," as so defined directly or indirectly, more than 50% of the outstanding common equity securities and the combined voting power of the outstanding voting securities of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such Business Combination owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) respectively, in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding common stock of the Corporation and the combined voting power of the outstanding voting securities of the Corporation, respectively, (b) no "person" or "group," within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act (excluding any entity resulting from such Business Combination and any employee benefit plan (and related trust) of the Corporation, its subsidiaries or such entity) is the "beneficial owner", as defined in Rule 13d-3 under the Exchange Act of more than 22.5% of either the then outstanding common equity securities of the entity resulting from such Business Combination or the combined voting power of the outstanding voting securities of such entity except to the extent that such beneficial ownership existed immediately prior to such Business Combination with respect to the common stock and the combined voting power of the outstanding voting securities of the Corporation and (c) at least a majority of the members of the board of directors (or similar governing body) of the entity resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement providing for such Business Combination or the time of the action of the Board approving such Business Combination, whichever is earlier; or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, whether held directly or indirectly through one or more subsidiaries (excluding any grant of any pledge, mortgage or security interest or any sale-leaseback or any similar transaction, but including any foreclosure sale); Provided, that, in the case of both clauses (x) and (y) above, the divestiture of less than substantially all of the assets of the Corporation in one transaction or a series of related transactions, whether effected by sale, lease, exchange, transfer, spin-off, sale of the stock of or merger or consolidation of a subsidiary or otherwise, shall not constitute a Change of Control of the Corporation. Notwithstanding the foregoing, a Change of Control of the Corporation shall not be deemed to occur: (A) pursuant to clauses (i) and (ii) above, solely because more than 22.5% of the then outstanding common stock or the combined voting power of the then 4 outstanding voting securities of the Corporation is held or acquired by one or more employee benefit plans (or related trusts) maintained by the Corporation or its subsidiaries; or (B) pursuant to Subparagraph (v)(y) above, if the Board determines that any sale, lease, exchange or transfer does not involve substantially all of the assets of the Corporation. 2.7 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.8 "Compensation" means, solely for purposes of this Program, a Participant's taxable base salary, taxable Variable Compensation awarded under a Variable Compensation Plan and any compensation that is deferred by the Participant to any other plan maintained by the Corporation which satisfies the requirements of Code Sections 125 or 401(k). 2.9 "Compensation Committee" means the Organization, Compensation and Pension Committee of the Board of Directors of the Corporation, or any successor thereto. 2.10 "Corporation" means UCAR International Inc., a Delaware Corporation, any predecessor thereof and any successor thereof by merger, consolidation or otherwise and its 100% owned subsidiaries, except that UCAR Graph-Tech, Inc. shall remain a subsidiary participating in this Plan until such time that UCAR International Inc. owns, directly or indirectly, less than 50% of the outstanding common stock of UCAR Graph-Tech, Inc. 2.11 "Date of Deferral" means (i) with respect to Variable Compensation, the date on which the Corporation makes payments for Variable Compensation awards for a given Service Year, (ii) with respect to base salary deferral, the date on which the relevant salary would have been paid and (iii) with respect to amounts which would otherwise have been paid from the SRIP, ERIP or Equalization Plan, the date on which lump sum amounts would have otherwise 5 been distributed in accordance with the terms of the SRIP, ERIP or Equalization Plan. 2.12 "Deferred Compensation" means the amount of Compensation deferred by a Participant under this Program pursuant to Section 5.3 of this Program. 2.13 "Disability" shall mean the inability of a Participant to perform in all material respects his or her duties and responsibilities to the Corporation, or any subsidiary of the Corporation, by reason of a physical or mental disability or infirmity which inability is reasonably expected to be permanent and has continued (i) for a period of six consecutive months, or (ii) such shorter period as the Corporation may determine. The Participant (or his or her representative) shall furnish the Corporation with satisfactory medical evidence documenting the Participant's disability or infirmity. 2.14 "Eligible Employee" means an individual who (i) on the date of his or her election to participate in this Program as provided in Section 5-1, is a participant in a Variable Compensation Plan and is employed with the Corporation, or one of its 100% owned subsidiaries that is participating in this Program, in the United States (or outside the United States to the extent such amounts to be deferred would otherwise be included as income for such person under the Code) or (ii) with respect to a deferral of all or a portion of his or her lump sum payments otherwise payable from the SRIP, ERIP and/or Equalization Plan, was employed with the Corporation, or one of its 100% owned subsidiaries that is participating in the Program, in the United States (or outside the United States to the extent such amounts would otherwise be included as income for such person under the Code) during the year in which the deferral election is made pursuant to Section 5.1. 2.15 "Equalization Plan" means the Equalization Benefit Plan for Participants of the UCAR Carbon Retirement Plan, as may be amended from time to time. 6 2.16 "ERIP" means the UCAR Carbon Company Inc. Enhanced Retirement Income Plan, as amended from time to time. 2.17 "Exchange Act" means the Securities Exchange Act of 1934 as amended. 2.18 "Management Plan" means the UCAR International Inc. Management Incentive Plan (effective January 1, 1999), as it may be amended from time to time, or any successor plan. 2.19 "Participant" means an Eligible Employee who (i) elects in advance to defer a portion of his or her base salary in accordance with Section 5.3 of this Program, (ii) elects in advance to defer a portion of his or her Variable Compensation for a given Service Year under one of the Variable Compensation Plans in accordance with Section 5.3 of this Program, if one were to be paid to such Participant for that year, and who is in fact subsequently awarded Variable Compensation for that year, payable during the following calendar year on the Date of Deferral or (iii) elects in advance under this Program to defer his or her lump sum distribution from the SRIP, ERIP or Equalization Plan. 2.20 "Program" means this UCAR International Inc. Compensation Deferral Program, as may be amended from time to time. 2.21 "Retirement" shall mean (a) with respect to any Participant, the Participant's termination of employment with the Corporation when eligible to receive an immediate pension benefit under the Retirement Program and (b) for those Participants who are not participating in the Retirement Program, the date on which such Participant (i) has attained age 50 with at least 10 years of service with the Corporation and (ii) actually retires from employment with the Corporation or a participating subsidiary. 7 2.22 "Retirement Program" means the UCAR Carbon Retirement Plan, as may be amended from time to time. 2.23 "Savings Plan" means the UCAR Carbon Savings Plan, as may be amended from time to time. 2.24 "Service Year" means one of the calendar years on and after 1999, as to which an election may be made in accordance with Article V, and in respect of which Variable Compensation may be paid during the following calendar year on the Date of Deferral. 2.25 "SRIP" means the UCAR Carbon Company Inc. Supplemental Retirement Income Plan, as may be amended from time to time. 2.26 "Stable Value Rate" means the rate of interest for the UCAR Stable Value Fund under the Savings Plan, in effect from time to time. 2.27 "UCAR Stock Value Rate" means the difference between the unit value of the Corporation's common stock as of the later of (i) the Date of Deferral or the effective date of a Participant's election under Section 8.2(c) pursuant to which earnings shall accrue at the UCAR Stock Value Rate and (ii) the relevant date of determination of the amount of earnings in accordance with Section 8.2 of this Program. Such value shall include the value of any hypothetical dividends paid on the common stock during the period for which the UCAR Stock Value Rate is being determined, as if such hypothetical dividends were reinvested when payable in additional shares of the Corporation's common stock. The unit value of the Corporation's common stock for purposes of this Section 2.27 with respect to any relevant date of determination shall be determined in the same manner as provided in the Savings Plan. 2.28 "Unforeseen Emergency" means an event beyond the control of the Participant that would result in severe financial hardship to the Participant if early withdrawal of the Participant's deferrals (including any earnings credited 8 to him or her pursuant to Article VIII of this Program) under this Program were not permitted. Whether a Participant has an Unforeseen Emergency shall be determined by the Administrative Committee. 2.29 "Variable Compensation" means any amounts awarded in accordance with one of the Variable Compensation Plans. 2.30 "Variable Compensation Plans" means, collectively, the Management Plan, incentive plans of UCAR Composites Inc., the UCAR Graph-Tech, Inc. Management Incentive Plan (but only so long as UCAR Graph-Tech, Inc. participates in the Program) and any other variable compensation plan authorized by the Administrative Committee to participate in this Program. 9 ARTICLE III ADMINISTRATION 3.1 Except as otherwise indicated, the Administrative Committee shall supervise the administration and interpretation of this Program, may establish administrative regulations to further the purpose of this Program and shall take any other action necessary for the proper operation of this Program. In carrying out their responsibilities under this Program, the Administrative Committee and other Program fiduciaries shall have discretionary authority to interpret the terms of this Program and to determine eligibility for entitlement to benefits, in accordance with the terms of this Program. An interpretation made pursuant to such discretionary authority shall be given full force and effect, unless it can be shown that the interpretation or determination was arbitrary and capricious. All decisions and acts of the Administrative Committee shall be final and binding upon all Participants, their Beneficiaries and all other persons. 10 ARTICLE IV ELIGIBILITY 4.1 To be eligible to participate in this Program for a given year, a person must have become an Eligible Employee not later than the day on or before the date which an Eligible Employee must make the election provided for in Article V of this Program for that year. 11 ARTICLE V DEFERRALS 5.1 During each of the years this Program is in effect, Eligible Employees shall be informed of the opportunity to participate in this Program. An Eligible Employee choosing to participate in this Program must make an election to do so on or before the date designated by the Administrative Committee and otherwise in accordance with such procedures as may be established by the Administrative Committee. 5.2 (a) While an election to defer Variable Compensation under one of the Variable Compensation Plans shall be irrevocable when made until the next scheduled annual election period, participation in this Program with respect to Variable Compensation shall become effective only on the Date of Deferral and only if, on such date, the Eligible Employee receives an award under one of the Variable Compensation Plans (or would have received an award but for an election to defer under this Program). Variable Compensation awards, if any, for services performed in calendar years 1999 and 2000, must be deferred during the 1999 annual election period except that if a Variable Compensation Plan is first adopted by the Corporation in 2000 and covers services performed in 2000, then a Participant may, within 31 days after such Plan is adopted by the Corporation, make an election to defer amounts which may be paid under such Plan for services performed in 2000. Variable Compensation awards, if any, for services performed in calendar years 2001 and beyond, must be deferred during the annual election period immediately preceding the calendar year in which such services will be performed. Notwithstanding the foregoing, an Eligible Employee who becomes eligible to participate in this Program after January 1, 2000 may elect to defer a Variable Compensation award during the calendar year in which services will be 12 performed; provided, however, he or she makes an election to defer within 31 days after becoming eligible to participate in this Program. (b) An Eligible Employee must elect to defer his or her base salary for services performed in calendar year 2000 during the 1999 annual election period. Participation in this Program shall become effective only on the Date of Deferral and only if the Eligible Employee is employed with the Corporation on the date on which the Eligible Employee must make the election provided for in this Article V. Base salary for services performed in calendar years 2001, and beyond, must be deferred during the annual election period immediately preceding the calendar year in which such services will be performed. A Participant may suspend his or her election to defer his or her base salary at any time; provided, however, that such Eligible Employee may not resume deferrals of base salary until the following calendar year. Notwithstanding the foregoing, an Eligible Employee who becomes eligible to participate in this Program after January 1, 2000, may elect to defer a portion of his or her base salary during the calendar year in which services will be performed; provided he or she makes an election to defer within 31 days after becoming eligible to participate this Program. (c) A Participant must elect to defer lump sum payments that he or she would otherwise receive in accordance with the terms of the SRIP, ERIP or Equalization Plan during the annual election period immediately preceding the calendar year in which such payments would otherwise be received. 5.3 (a) On or before the date designated by the Administrative Committee and otherwise in accordance with such procedures as may be established, a Participant may elect voluntarily to defer (i) up to 85% of the Participant's award under the Variable Compensation Plans (in 1% increments), (ii) up to 50% of his or her base salary (in 1% increments) and/or (iii) up to 13 100% of his or her lump sum payment from the SRIP, ERIP or Equalization Plan (in 1% increments). (b) A Participant must elect, during any applicable calendar year, to defer in the aggregate a minimum of $1,000 of his or her base salary, Variable Compensation or lump sum payments from the SRIP, ERIP or Equalization Plan in order to participate in this Program in any particular year. Notwithstanding any provision in this Program to the contrary, if a Participant fails to defer in the aggregate at least $1,000 of base salary, Variable Compensation or lump sum payment from the SRIP, ERIP or Equalization Plan in any calendar year, the Administrative Committee may, in its sole discretion, require such Participant to irrevocably elect to defer a minimum aggregate amount of $1,000 in the calendar year immediately following thereafter in order to participate in this Program in any particular year. 14 ARTICLE VI PAYMENTS TO PARTICIPANTS AND BENEFICIARIES 6.1 TIME OF PAYMENT. (a) Subject to subsections (b), (c), (d) and (e) of this Section 6.1, a Participant shall begin to receive payment of his or her deferrals, and any earnings accruals credited under Article VIII, during the January next following his or her date of Retirement or other termination of employment. (b) (i) Notwithstanding any provision in this Program to the contrary, a Participant may elect to commence receipt of payments of any amounts deferred upon a specific future fixed year payment date(s) which is at least five years after the Date of Deferral or such shorter schedule as the Administrative Committee may determine. Such payments must begin no later than the calendar year in which the Participant attains age 70 1/2. A Participant making such an election shall receive his or her lump sum payment in the month of the future fixed year payment date as specified by the Participant in his or her election pursuant to Section 5.1 or, if applicable, such Participant shall receive installment payments in accordance with Section 6.2. (ii) With respect to a Participant who has attained age 55 at the time of the election of his or her deferral, the five-year period described in subsection (i) shall instead be one year with respect to all deferrals under this Program. (iii) A Participant is limited to four future fixed year payment dates. The amounts paid out in such future fixed year payments shall include the sum of a Participant's deferrals under this Program and any earnings accrued thereon. (c) A Participant who has an Unforeseen Emergency may receive a distribution of all or a portion of his or her account balance, including any earnings credited to him or her pursuant to Article VIII of this 15 Program; provided that the Participant may not receive an amount greater than the amount necessary to meet the Unforeseen Emergency and any amounts necessary to pay federal, state and local income taxes or penalties reasonably anticipated to result from a withdrawal under this Section 6.1. (d) Notwithstanding any provision in this Program to the contrary, a Participant may, on the applicable Date of Deferral or at any time thereafter prior to a Change of Control, elect to receive payment of his or her entire account balance under this Program at such time as the Board determines that a Change of Control has occurred. Moreover, a Participant may elect to change his or her election to receive (or not to receive) payment of his or her entire account balance under this Program upon the occurrence of a Change of Control at any time prior to the date that the Board determines that a Change of Control has occurred. Any payments made under this subsection (d) shall be made in a lump sum within 45 days after the Change of Control has occurred. (e) A Participant may request a distribution of all or a portion of his or her account balance, including any earnings credited to him or her pursuant to Article VIII of this Program, at any time and for any reason by submitting a written request to the Administrative Committee, subject to the following substantial limitations and conditions: (i) The Participant shall permanently forfeit ten percent (10%) of the amount distributed to him or her; and (ii) If the Participant is still employed by the Corporation, the Participant shall not be permitted to make deferral elections into the Plan for two Plan years following the year of such a distribution. 16 Upon the Participant's agreement to these two conditions, the Administrative Committee shall direct a distribution to the Participant of the amount requested, less the 10% partial forfeiture described above (which shall revert to the Corporation and not be paid to or for the benefit of the Participant, his or her Beneficiary or any other person). The distribution shall be made in lump sum as soon as administratively practicable. 6.2 FORM OF PAYMENTS. (a) A Participant may elect to receive payments under this Program in annual or quarterly installments. Such installments must commence as described in Section 6.1, and must be completed by the calendar year in which the Participant attains age 85. (b) A Participant may elect to receive installment payments either (i) annually during each January or (ii) quarterly, commencing in the January that payment was otherwise due in accordance with Section 6.1. If a Participant does not elect the form of his or her installment payments, such installment payments shall be made annually during each January. (c) If a Participant does not elect the form of his or her payments, such payments shall be made in a lump sum payment. (d) A Participant may change the form of payment previously elected only one time and subject to the following restrictions: (i) such election is made no later than October 31 in the calendar year that the Participant terminates employment, to be effective no earlier than the following calendar year; (ii) the election is subject to the consent of the Administrative Committee. 17 (e) 1. If a Participant dies at any time prior to receiving any portion of his or her account balance under this Program, payment shall be made to the Participant's Beneficiary as follows: (A) If the Participant's Beneficiary is his or her surviving spouse, such Participant's entire account balance under this Program shall be paid as follows: (i) ten annual installments or a shorter schedule, if so elected by the surviving spouse, or (ii) a lump sum payment payable on or about the January 1st following the Participant's death. (B) If the Participant's Beneficiary is someone other than his or her surviving spouse, such Participant's entire account balance under this Program shall be paid in a lump sum payment as soon as practical following the Participant's death. 2. If a Participant dies at any time after payment of his or her account balance under this Program has begun, such Participant's Beneficiary shall continue to receive payment of the Participant's account in the same manner as the Participant elected, or such shorter payment schedule as elected by the Beneficiary. (f) If a Participant sustains a Disability, such Participant shall receive the full amount of his or her account balance (other than deferrals to a specific future date) paid out in ten annual installments or a shorter schedule, if so elected by the Participant. Payments shall begin on the first business day of the second calendar quarter following the onset of Disability. If a Participant has elected to receive a portion or all of his or her account balance on a specific future date, that election will not be affected by the Participant's Disability. (g) If any lump sum distribution otherwise payable under this Program would be disallowed in any part as a deduction to the Corporation in accordance with Section 162(m) (or a successor Section) of the Internal Revenue Code, the Administrative Committee may determine to distribute the 18 amount of such benefit in installments such that the Participant or Beneficiary shall receive the maximum amount permissible in each installment and still preserve the Corporation's full tax deduction. 6.3 AMOUNT OF PAYMENT. (a) If a Participant is terminated by the Corporation for Cause, he or she shall receive the lesser of (A) any amounts he or she actually deferred under Article V, LESS any previous payments made or (B) his or her account balance under this Program. Such payment shall be made in a lump sum payment as soon as administratively practical following the Participant's termination of employment; provided, however, that such Participant will forfeit all earnings accruals credited to him or her pursuant to Article VIII. (b) If a Participant terminates employment voluntarily, such Participant shall receive the full amount of his or her account balance in a lump sum payment as soon as administratively practical following the Participant's termination of employment. However, if a Participant has elected to receive a portion or all of his or her account balance on a specific future date, that election will remain in place. (c) If a Participant terminates employment for any reason other than termination by the Corporation for Cause or voluntary termination, such Participant (or Beneficiary) shall receive the full amount of his or her account balance (other than deferrals to a specific future date) in ten annual installments commencing in the calendar year following the Participant's termination of employment or a shorter schedule, including a lump sum payment, if so elected by the Participant. However, if a Participant has elected to receive a portion or all of his or her account balance on a specific future date, that election will remain in place. 19 6.4 PAYMENT IN U.S. DOLLARS. All payments under this Program shall be madein U.S. dollars. 6.5 REDUCTION OF PAYMENTS. All payments under this Program shall be reduced by any and all amounts that the Corporation is required to withhold pursuant to applicable law. ARTICLE VII BENEFICIARIES 7.1 A Participant may at any time, and from time to time, prior to his or her death designate one or more Beneficiaries to receive any payments to be made following the Participant's death. If no such designation is on file with the Corporation at the time of a Participant's death, the Participant's Beneficiary shall be the beneficiary or beneficiaries named in the beneficiary designation most recently filed by the Participant under the Corporation's Savings Plan. If a Participant has not effectively designated a beneficiary under the Savings Plan, or if no designated beneficiary has survived the Participant, the Participant's Beneficiary shall be the Participant's surviving spouse, or, if no spouse has survived the Participant, the estate of the deceased Participant. If an individual Beneficiary cannot be located for a period of one year following the Participant's death, despite mail notification to the Beneficiary's last known address, and if the Beneficiary has not made a written claim for benefits within such period to the Administrative Committee, the Beneficiary shall be treated as having predeceased the Participant. The Administrative Committee may require such proof of death and such evidence of the right of any person to receive all or part of a deceased Participant account balance, as the Administrative Committee may consider appropriate. The 20 Administrative Committee may rely upon any direction by the legal representatives of the estate of a deceased Participant, without liability to any other person. 21 ARTICLE VIII EARNINGS ACCRUALS 8.1 Each Participant's account balance under this Program shall be credited with earnings from the Date of Deferral through the date such deferral is paid out or withdrawn pursuant to Article VI. Earnings under this Section 8.1 shall accrue at the rate elected in accordance with Section 8.2. 8.2 (a) Earnings accruing in accordance with Section 8.1 shall accrue at (i) the Stable Value Rate, (ii) the Applicable Equity Investment Fund Rate, (iii) the UCAR Stock Value Rate or (iv) a combination of the three rates. (b) Subject to subparagraph (c), a Participant shall designate at the time of his or her election to defer any amounts under this Program which accrual rate or rates shall apply to his or her deferrals; provided such elections must be in whole percentage points. Subject to subparagraph (c) of this Section 8.2, such elections shall be effective as of the Date of Deferral through the date such deferral is paid out or withdrawn pursuant to Article VI. (c) A Participant may elect on a daily basis to change the accrual rate under this Section 8.2 with respect to any or all previous deferrals under this Program. (d) Notwithstanding subparagraph (b) above, a Participant who either (i) is subject to Section 16 of the Exchange Act or (ii) is deemed subject to Section 16 of the Exchange Act by the Administrative Committee, may utilize the UCAR Stock Value Rate at the time of his or her election to defer any amounts under this Program; provided, however, that such allocated amounts shall not be eligible for reallocation to another accrual rate under this Section 8.2 for a period of 6 months from the Date of Deferral. 22 (e) A Participant may elect to have his or her deferral amounts rebalanced on a quarterly basis to accrual rate percentage allocation elections as specified by the Participant. 23 ARTICLE IX GENERAL PROVISIONS 9.1 PROHIBITION OF ASSIGNMENT OR TRANSFER. Any assignment, hypothecation, pledge or transfer of a Participant's or Beneficiary's right to receive payments under this Program shall be null and void and shall be disregarded, except to the extent required by law. 9.2 PROGRAM NOT TO BE FUNDED. The Corporation is not required to, and will not, for the purpose of funding this Program, segregate any monies from its general funds, create any trusts, or make any special deposits, which will give a Participant greater rights than those of a general creditor of the Corporation, and the right of a Participant or Beneficiary to receive a payment under this Program shall be no greater than the right of an unsecured general creditor of the Corporation. 9.3 EFFECT OF PARTICIPATION. Neither selection as a Participant, nor an election to participate or participation in this Program, shall entitle a Participant to receive awards under the Variable Compensation Plans, SRIP, ERIP or Equalization Plan, or affect the Corporation's right to discharge a Participant. 9.4 COMMUNICATIONS TO BE IN WRITING. All elections, requests and communications to the Corporation from Participants and Beneficiaries, and all communications to such persons from the Corporation, shall be in writing, and in such form and manner, and within such time, as the Corporation shall determine. In lieu of the foregoing, the Corporation may install a telephonic voice response system or utilize electronic means (such as e-mail or the internet) for such elections, requests and communications. 9.5 ABSENCE OF LIABILITY. No officer, director or employee of the Corporation shall be personally liable for any acts or omission to act under 24 this Program or, except in circumstances involving bad faith, for such officer's, director's or employee's own act or omission to act. 9.6 TITLES FOR REFERENCE ONLY. The titles given herein to sections and subsections are for reference only and are not to be used to interpret the provisions of this Program. 9.7 DELAWARE LAW TO GOVERN. All questions pertaining to the construction, regulation, validity and effect of the provisions of this Program shall be determined in accordance with Delaware law. 9.8 AMENDMENT. The Compensation Committee may amend this Program at any time, but no amendment may be adopted which alters the payments due Participants or Beneficiaries, as of the date of the amendment, or the times at which payments are due, without the consent of each Participant affected by the amendment and of each Beneficiary (of a then deceased Participant) affected by the amendment. In addition, the Administrative Committee may authorize any amendment which, either by itself or when aggregated with other amendments adopted during the calendar year, does not increase the Corporation's annual cost of any past or future benefits under this Program by more than $500,000. 9.9 PROGRAM TERMINATION. The Compensation Committee may terminate this Program for any reason and at any time. In the event of such termination, the accounts of each Participant or Beneficiary under this Program shall become immediately payable in accordance with Section 6.1; provided that the Compensation Committee, in its sole discretion, upon Program termination or at any time thereafter, may decide to make lump sum payments in lieu of annual payments. 25 UCAR INTERNATIONAL INC. By: _________________________________ 26 EX-10.31 10 MANAGEMENT INCENTIVE PLAN UCAR INTERNATIONAL INC. MANAGEMENT INCENTIVE PLAN (Amended and Restated as of January 1, 1999) TABLE OF CONTENTS TITLE PAGE ---- SECTION 1: PURPOSE..........................................................2 SECTION 2: EFFECTIVE DATE...................................................2 SECTION 3: DEFINITIONS......................................................2 SECTION 4: ADMINISTRATION...................................................2 SECTION 5: AWARDS...........................................................5 SECTION 6: PAYMENT OF AWARDS................................................6 SECTION 7: TERMINATION OF EMPLOYMENT........................................2 SECTION 8: CHANGE OF POSITION DURING A PLAN YEAR............................2 SECTION 9: BENEFICIARY DESIGNATION..........................................2 SECTION 10: GENERAL PROVISIONS..............................................2 SECTION 11: AMENDMENT, SUSPENSION OR TERMINATION............................2 -2- UCAR INTERNATIONAL INC. MANAGEMENT INCENTIVE PLAN SECTION 1: PURPOSE The purpose of the Plan is to: (a) provide incentives and rewards to Officers and Eligible Employees of the Corporation; (b) assist the Corporation in attracting, retaining, and motivating Officers and Eligible Employees of high caliber and experience; and (c) make the Corporation's compensation program competitive with those of other major employers. SECTION 2: EFFECTIVE DATE This Plan constitutes an amendment, restatement and combining of the UCAR International Inc. Management Incentive Plan and the UCAR International Inc. Officers Incentive Plan. This amended, restated and combined Plan shall be effective as of January 1, 1999. SECTION 3: DEFINITIONS 3.1 "Award" shall mean the amount of annual incentive compensation, authorized by the Board, if necessary, payable to a Participant for a Plan Year. 3.2 "Beneficiary" shall mean a Participant's deemed beneficiary pursuant to Section 9.1 hereof. 3.3 "Board" shall mean the Board of Directors of UCAR International Inc. 3.4 "CEO" shall mean the Chief Executive Officer of the Corporation. 3.5 "Controlled Affiliates" shall mean UCAR International Inc. and each of its direct or indirect subsidiaries and affiliates. 3.6 "Corporation" shall mean UCAR International Inc. and its Controlled Affiliates. -3- 3.7 "Department" shall mean the Corporate Human Resources Department of the Corporation. 3.8 "Disability" or "Disabled" shall mean a Participant's inability to engage in any substantial gainful activity because of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of six (6) months or longer. 3.9 "Eligible Employee" shall mean any employees in positions in Grades 13 and above or equivalent, other than Officers. 3.10 "Officer" shall mean any officer of the Corporation or any Participant designated as an officer by the CEO for purposes of this Plan. 3.11 "Participant" shall mean any Eligible Employee authorized by the CEO to participate in the Plan or any Officer authorized by the Board to participate in the Plan. 3.12 "Plan" shall mean this UCAR International Inc.Management Incentive Plan, as it may be amended from time to time. 3.13 "Plan Year" shall mean the calendar year. 3.14 "Retirement" shall mean termination of employment by the Corporation, or by a Controlled Affiliate participating in the Plan, with the right under the UCAR Carbon Retirement Plan to receive a non-actuarially reduced pension immediately upon separation from service. If a Participant does not participate in the UCAR Carbon Retirement Plan, "Retirement" means termination of employment after (i) attaining age 65, (ii) attaining age 62 and completing at least 10 years of employment, or (iii) having accumulated 85 points, where each year of age and each year of employment count for one point. 3.15 "Savings Plan" shall mean the UCAR Carbon Savings Plan. -4- SECTION 4: ADMINISTRATION 4.1 With respect to Eligible Employees, the Plan shall be administered by the Department which, subject to Section 5.1 hereof, shall have full power and authority to construe and interpret the Plan, establish and amend administrative regulations to further the purpose of the Plan, select or authorize the selection criteria of Eligible Employees, authorize Award levels, and take any other action necessary to administer the Plan. The Department's decisions, actions, and interpretations regarding the Plan shall be final and binding upon all Eligible Employees and Beneficiaries. 4.2 With respect to Officers, the Plan shall be administered by the Board, which shall have full power and authority to construe and interpret the Plan, establish and amend administrative regulations to further the purpose of the Plan, select or authorize the selection of Officers, authorize Awards, and take any other action necessary to administer the Plan. The Board's decisions, actions, and interpretations regarding the Plan shall be final and binding upon all Officers and Beneficiaries. 4.3 The Department shall: (i) formulate and recommend to the Board such changes in the Plan as may facilitate the administration of the Plan; (ii) maintain summary records of Awards; (iii) prepare reports and data required by the Corporation and government agencies; (iv) obtain necessary consents and approvals by government agencies; (v) obtain any data requested by the Board; and (vi) take such other actions requested by the Board as are necessary for the effective implementation of the Plan. SECTION 5: AWARDS 5.1 The Board shall determine the aggregate amount to be awarded for each Plan Year. That determination shall be based upon an evaluation of the performance of the Corporation during the Plan Year and such other factors as the Board shall determine. -5- 5.2 The Department shall, subject to the approval of the CEO, determine the amount of the Award granted to each Eligible Employee. The Department shall consider the extent to which an Eligible Employee achieves, during a Plan Year, specific measures of performance established from time to time during the Plan Year. The Department shall provide a report to the Board of the actual Awards to Eligible Employees made under the Plan each year. 5.3 The Board shall determine the amount of the Award granted to each Officer. The Board shall consider the extent to which an Officer achieves, during a Plan Year, specific measures of performance established from time to time during the Plan Year. SECTION 6: PAYMENT OF AWARDS 6.1 The Board shall authorize Awards for a Plan Year at such time after the end of such Plan Year as the Board in its discretion may determine. The Board, in its discretion, may authorize the payment of Awards in cash, stock, or a combination thereof. 6.2 The Board reserves the right to defer payment of some or all Awards, in whole or in part, upon such terms and conditions as the Board in its discretion may determine. The Board's decision regarding the deferral of an Award shall be final and binding on all Participants and Beneficiaries. SECTION 7: TERMINATION OF EMPLOYMENT 7.1 If a Participant's employment with the Corporation is terminated during a Plan Year, by the Corporation without cause, or because of the death, Disability or Retirement of the Participant, then the Award to such Participant shall equal the amount which would have been granted to such Participant under the Plan had such Participant's employment with the Corporation not been terminated multiplied by a fraction the numerator of which is the number of months during such Plan Year that such Participant was employed by the Corporation and the denominator of which is 12. -6- 7.2 If a Participant's employment with the Corporation is terminated during a Plan Year, by the Corporation for cause, or for any reason other than death, Disability or Retirement, then such Participant shall not be entitled to an Award for such Plan Year. However, the CEO may, however, in his or her discretion, determine that it is in the best interests of the Corporation to authorize an Award to such a Participant. If the CEO shall so authorize an Award, then such Award shall be determined pursuant to the guidelines set forth in section 7.1. In addition, the Board may, in its discretion, determine that it is in the best interests of the Corporation to authorize an Award to an Officer. If the Board shall so authorize an Award, then such Award shall be determined pursuant to the guidelines set forth in section 7.1. 7.3 A Participant whose employment with the Corporation is terminated for any reason shall be deemed to have terminated employment with the Corporation on the last day of the month in which the termination occurs. SECTION 8: CHANGE OF POSITION DURING A PLAN YEAR 8.1 If a Participant is reassigned to a different position within the Plan during a Plan Year, the total Award will be determined proportionally based on the relative performance and time in each position. SECTION 9: BENEFICIARY DESIGNATION 9.1 The beneficiary or beneficiaries designated by the Participant or deemed to have been designated by the Participant under the Savings Plan shall be deemed to be the Participant's Beneficiary and a deceased Participant's unpaid Award shall be paid to the Beneficiary. If a Participant does not participate in the Savings Plan or if a Participant does participate in the Savings Plan and has not designated or been deemed to have designated a beneficiary thereunder, then a deceased Participant's unpaid Award shall be distributed to the Participant's estate. If a Beneficiary does not survive the -7- Participant, then a deceased Participant's unpaid Award shall be distributed to the Participant's estate. If the Beneficiary of a deceased Participant survives the Participant, and dies before such Participant's Award is distributed, then such unpaid Award shall be distributed to the Beneficiary's estate. SECTION 10: GENERAL PROVISIONS 10.1 An Eligible Employee may not assign an Award without the Department's prior written consent. Likewise, an Officer may not assign an Award without the Board's prior written consent. Any attempted assignment without such consent shall be null and void. For purposes of this paragraph, any designation of, or payment to, a Beneficiary shall not be deemed an assignment. 10.2 The Plan is intended to constitute an unfunded incentive compensation arrangement for a select group of key personnel. 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 Corporation. All Awards shall be paid from the general funds of the Corporation, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such Awards. 10.3 Nothing contained in the Plan shall give any Participant the right to continue in the employment of the Corporation, or affect the right of the Corporation to discharge a Participant. 10.4 The Plan shall be construed and governed in accordance with the laws of the State of DELAWARE. -8- SECTION 11: AMENDMENT, SUSPENSION OR TERMINATION 11.1 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 or Beneficiaries to receive Awards granted prior to such action. UCAR INTERNATIONAL INC. Dated: ___________ ___, 1999 By:_____________________________ EX-10.36 11 EQUALIZATION BENEFIT PLAN UCAR CARBON EQUALIZATION BENEFIT PLAN (Amended and Restated as of October 1, 1998) EQUALIZATION BENEFIT PLAN GENERAL This is an excess benefit plan for participants in the Retirement Plan who receive a benefit from the Retirement Plan which is limited by Code Section 415. This Plan has been established primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. Specifically, the purpose of this Plan is to provide a retirement benefit, equal to the excess of : (1) the retirement benefit which would be provided by the Retirement Plan determined without regard to Code Section 415, OVER (2) the retirement benefit actually provided by the Retirement Plan. This Plan is completely separate from the Retirement Plan, the Enhanced Retirement Income Plan and the Supplemental Retirement Income Plan, is unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended and is not qualified for special tax treatment under the Code. - 1 - ARTICLE I ELIGIBILITY SECTION 1. A Participant, or survivor of a Participant who has not declined the coverage of a survivor's benefit under the Retirement Plan shall be eligible to participate in this Plan if such Participant receives a retirement benefit from the Retirement Plan which is limited by Code Section 415. ARTICLE II ADMINISTRATION SECTION 1. (a) The Compensation Committee shall have the authority to administer this Plan. The Compensation Committee may adopt such rules as it may deem necessary for the proper administration of this Plan and its decision in all matters involving the interpretation and application of the Plan shall be final, conclusive, and binding on all parties. (b) The Compensation Committee may, in its sole discretion, designate any persons(s) or committee to administer this Plan. To the extent provided by the Compensation Committee, such person(s) or committee designated to administer this Plan shall have the same powers and responsibilities as the Compensation Committee. - 2 - ARTICLE III AMOUNT OF BENEFIT SECTION 1. (a) The monthly amount of Equalization Retirement Income payable to a Participant shall be the excess, if any, of: (i) the Participant's monthly retirement benefit, computed by using the applicable benefit formula provided in Article V of the Retirement Plan and determined without regard to the limitations of Code Sections 415, OVER (ii) the monthly amount of such Participant's or surviving spouse's retirement benefit payable under the Retirement Plan. (b) Any benefits either payable under, or which have been satisfied through, the purchase of non-qualified annuities in connection with this Plan shall be deducted from the amounts payable pursuant to subparagraph (a) above. SECTION 2. For purposes of calculating the amount of a Participant's Equalization Retirement Income pursuant to Section 1 of this Article III, the amount of a Participant's monthly retirement benefit under the Retirement Plan shall be determined without any adjustment on account of (i) a survivor's benefit or (ii) an election to receive level retirement income. SECTION 3. If a Participant does not decline the coverage of a survivor's benefit, the monthly amount of Equalization Retirement Income which such Participant would otherwise have received shall be reduced by applying the same factors used in the Retirement Plan in connection with calculating a survivor's benefit. - 3 - SECTION 4. The monthly amount of Equalization Retirement Income payable to the survivor of a Participant shall be calculated in the same manner that such survivor's benefit is calculated under the Retirement Plan. ARTICLE IV VESTING SECTION 1. A Participant shall be vested in such Participant's right to receive Equalization Retirement Income under this Plan in the same manner and to the same extent as provided under the Retirement Plan . ARTICLE V PAYMENTS SECTION 1. A Participant or such Participant's survivor shall commence receiving Equalization Retirement Income at such time as the Participant or survivor commences benefits under the Retirement Plan. Unless a Participant or survivor elects otherwise, the normal form of payment of a Participant's Equalization Retirement Income is as follows: (a) in the calendar year in which the Participant or survivor is eligible to commence benefits, the Participant or survivor shall begin to receive monthly payments. (b) in or about January of the calendar year following such Participant's or survivor's eligibility to commence benefits, the Participant or survivor shall receive a lump sum payment, representing the remaining amount of the Participant's or survivor's Equalization Retirement Income. (c) Notwithstanding the foregoing, a Participant or survivor may elect during the calendar year in which the Participant or survivor - 4 - commences benefits to forgo the lump sum payment payable in the following year and may elect to continue receiving monthly payments. Alternatively, a Participant or survivor may elect in the calendar year preceding the Participant's or survivor's commencement of benefits to forgo receiving monthly payments, in which case the Participant or survivor shall receive a lump sum in the calendar year in which the Participant or survivor is eligible to commence benefits. (d) Upon a Participant's death, the Participant's survivor may cancel any existing election and may make a new one, provided (i) an election to receive a lump sum payment is made by December 31 prior to the calendar year in which such lump sum payment is to be made and (ii) an election to revoke the right to receive a lump sum payment is made by December 31 prior to the calendar year in which such lump sum was to be paid. SECTION 2. Unless otherwise elected, Equalization Retirement Income payable in monthly payments under this Plan shall include the coverage of a survivor's benefit. A survivor's benefit payable from this Plan shall be paid to that person designated to receive a survivor's benefit under the Retirement Plan. Equalization Retirement Income shall in no event be payable after the death of a Participant who has declined the coverage of a survivor's benefit. SECTION 3. Notwithstanding the provisions of Section 1 of this Article V, a Participant or survivor may elect at any time immediately preceding commencement of benefits to receive substantially equal installments over a period of at least 2 but not more than 10 years commencing as of the January 1 of the calendar year following such election. If a Participant elects a series of payments over a period from 2 to 10 years, this election is irrevocable. This election shall be the same as that made pursuant to the Supplemental Retirement Income Plan and the Enhanced Retirement Income Plan. - 5 - If a Participant elects a monthly annuity as in the Retirement Plan, he or she may again elect a series of payments over a period of from 2 to 10 years when the calculation of the lump sum benefit changes. The calculation of the benefit may change: (i) because of profit sharing or awards paid in the year following the last year worked or (ii) because the interest rate used to calculate the lump sum is not available until the November after the monthly annuity benefit is recalculated. The lump sum payment or installment payments described above shall be calculated using (A) a discount rate for the month of October of the calendar year preceding the payment of the lump sum or installments equal to the average of the Moody's Municipal 10 year Aaa Bond Yield Averages and the Moody's Municipal Long Term Aaa Bond Yield Averages, and (B) the UP-94G Mortality Table. The Compensation Committee or its designee shall determine the procedures for such elections and the time and method of payment for payments in accordance with this Section 3. For Participants who make the election described in this Section 3, the provisions of Sections 1 and 2 of this Article V shall not apply. SECTION 4. Notwithstanding anything in this Plan to the contrary, the Board of Directors may determine that a Participant or survivor shall not be eligible to receive a lump sum payment. SECTION 5. If the Board of Directors determines, after a hearing, that a Participant who is eligible to receive or is receiving Equalization Retirement Income has engaged in any activities which, in the opinion of the Board, are detrimental to the interests of, or are in competition with the Corporation or any of its subsidiaries, such Equalization Retirement Income shall thereupon be terminated. - 6 - ARTICLE VI MISCELLANEOUS SECTION 1. Unless otherwise defined in this Plan, all defined terms shall have the same meaning as set forth in the Retirement Plan. (a) "Code" means the Internal Revenue Code of 1986, as amended. (b) "Compensation Committee" means the Organization and Compensation Committee of the Board of Directors of the Corporation. (c) "Corporation" means UCAR Carbon Company Inc. (d) "Enhanced Retirement Income Plan" means the UCAR Carbon Enhanced Retirement Income Plan. (e) "Equalization Retirement Income" means the benefit payable to a Participant pursuant to Article III of this Plan. (f) "Participant" means an employee of the Corporation who is eligible to participate in the Plan pursuant to Article I. (g) "Plan" means this UCAR Carbon Equalization Benefit Plan, as amended and restated as of October 1, 1998. (h) "Retirement Plan" as used in this Plan means the UCAR Carbon Retirement Plan. (i) "Supplemental Retirement Income Plan" means the UCAR Carbon Supplemental Retirement Income Plan. SECTION 2. The Corporation may amend or terminate this Plan at any time, but any such amendment or termination shall not adversely affect the - 7 - rights of any Participant or survivor of any Participant then receiving benefits under this Plan, or the vested rights of any Participant or survivor. SECTION 3. Except to the extent required by law, no assignment of the rights and interests of a Participant or survivor of a Participant under this Plan shall be permitted nor shall such rights be subject to attachment or other legal processes for debts. SECTION 4. This Plan is intended to be unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended and the rights of a Participant and survivor of a Participant shall be no greater than the right of an unsecured general creditor of the Corporation. SECTION 5. The Corporation may satisfy all or any part of its obligation to provide benefits under this Plan by purchasing, and distributing to a Participant or survivor of a Participant, an annuity from an insurance carrier to provide such benefits. SECTION 6. Neither selection as a Participant nor participation in this Plan shall affect the Corporation's right to discharge any Participant. UCAR CARBON COMPANY INC. By:______________________________ - 8 - EX-10.37 12 AMENDED EQUALIZATION BENEFIT PLAN FIRST AMENDMENT TO THE UCAR CARBON EQUALIZATION BENEFIT PLAN ------------------------- The UCAR Carbon Equalization Benefit Plan (Amended and Restated as of October 1, 1998) ("Plan") is hereby amended as follows: 1. Section 3 of Article V of the Plan is amended in its entirety to read as follows: "The lump sum described above shall be calculated using (A) a discount rate for the month of October of the calendar year preceding the payment of the lump sum equal to the average of the Moody's Municipal 10 year Aaa Bond Yield Averages and the Moody's Municipal Long Term Aaa Bond Yield Averages, and (B) the UP-94G Mortality Table." 2. Section 1(f) of Article VI of the Plan is amended to insert the following after the word "Corporation": "or any other Employer that has adopted the Retirement Plan for its employees," 3. The provisions of paragraph 1 of this First Amendment to the Plan shall be effective with respect to distribution elections received by the Compensation Committee on or after January 1, 2000. 4. The provisions of paragraph 2 of this First Amendment to the Plan shall be effective as of October 1, 1998. UCAR CARBON COMPANY, INC. By: /s/ John C. Arnold ----------------------------------- EX-10.38 13 SUPPLEMENTAL RETIREMENT INCOME PLAN UCAR CARBON SUPPLEMENTAL RETIREMENT INCOME PLAN (Amended and Restated as of July 1, 1998) SUPPLEMENTAL RETIREMENT INCOME PLAN GENERAL This is a supplemental retirement income plan for participants in the Retirement Plan who receive compensation in excess of the compensation which may be considered by the Retirement Plan under Code Section 401(a)(17). This Plan has been established primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. Specifically, the purpose of this Plan is to provide a retirement benefit, equal to the excess of: (1) the retirement benefit which would be provided by the Retirement Plan determined without regard to Code Section 415 or Code Section 401(a)(17), OVER (2) the retirement benefit actually provided by the Retirement Plan and the Equalization Benefit Plan. This Plan is completely separate from the Retirement Plan, the Enhanced Retirement Income Plan and the Equalization Benefit Plan, is unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended and is not qualified for special tax treatment under the Code. ARTICLE I ELIGIBILITY SECTION 1. A Participant, or the survivor of a Participant who has not declined the coverage of a survivor's benefit, shall be eligible to participate in this Plan if such Participant (i) participates in the Retirement Plan and (ii) receives compensation in excess of the compensation which may be considered by the Retirement Plan under Code Section 401(a)(17). ARTICLE II ADMINISTRATION SECTION 1. (a) The Compensation Committee shall have the authority to administer this Plan. The Compensation Committee may adopt such rules as it may deem necessary for the proper administration of this Plan and its decision in all matters involving the interpretation and application of the Plan shall be final, conclusive, and binding on all parties. (b) The Compensation Committee may, in its sole discretion, designate any persons(s) or committee to administer this Plan. To the extent provided by the Compensation Committee, such person(s) or committee designated to administer this Plan shall have the same powers and responsibilities as the Compensation Committee. -2- ARTICLE III AMOUNT OF SUPPLEMENTAL RETIREMENT INCOME SECTION 1 (a) A Participant's monthly amount of Supplemental Retirement Income shall be the excess, if any, of: (i) the Participant's monthly retirement benefit, computed by using the applicable benefit formula provided in Article V of the Retirement Plan and determined without regard to the limitations of Code Sections 401(a)(17) and 415, OVER (ii) the monthly amount of such Participant's retirement benefit actually payable under the Retirement Plan and the Equalization Benefit Plan. (b) Any benefits either payable under, or which have been satisfied through the purchase of, non-qualified annuities in connection with this Supplemental Retirement Income Plan and/or the Equalization Benefit Plan shall be deducted from the amounts payable pursuant to subparagraph (a) above. SECTION 2. For purposes of calculating the amount of a Participant's Supplemental Retirement Income pursuant to Section 1 of this Article III, the amount of a Participant's monthly retirement benefit under the Retirement Plan and the Equalization Benefit Plan shall be determined without any adjustment on account of (i) a survivor's benefit or (ii) an election to receive level retirement income. SECTION 3. If a Participant does not decline the coverage of a -3- survivor's benefit, the monthly amount of Supplemental Retirement Income which such Participant would otherwise have received shall be reduced by applying the same factors used in the Retirement Plan in connection with calculating a survivor's benefit. SECTION 4. The monthly amount of Supplemental Retirement Income payable to the survivor of a Participant shall be calculated in the same manner that such survivor's benefit is calculated under the Retirement Plan. ARTICLE IV VESTING SECTION 1. A Participant shall be vested in such Participant's right to receive Supplemental Retirement Income under this Plan in the same manner and to the same extent as provided under the Retirement Plan. ARTICLE V PAYMENTS SECTION 1. A Participant or such Participant's survivor shall commence receiving Supplemental Retirement Income at such time as the Participant or survivor commences benefits under the Retirement Plan. Unless a Participant or survivor elects otherwise, the normal form of payment of a Participant's Supplemental Retirement Income is as follows: (a) in the calendar year in which the Participant or survivor is eligible to commence benefits, the Participant or survivor shall begin to receive monthly payments. (b) in or about January of the calendar year following such Participant's or survivor's eligibility to commence benefits, the Participant or survivor shall receive a lump sum payment, representing the remaining amount of -4- the Participant's or survivor's Supplemental Retirement Income. (c) Notwithstanding the foregoing, a Participant or survivor may elect during the calendar year in which the Participant or survivor commences benefits to forgo the lump sum payment payable in the following year and may elect to continue receiving monthly payments. Alternatively, a Participant or survivor may elect in the calendar year preceding the Participant's or survivor's commencement of benefits to forgo receiving monthly payments, in which case the Participant or survivor shall receive a lump sum in the calendar year in which the Participant or survivor is eligible to commence benefits. (d) Upon a Participant's death, the Participant's survivor may cancel any existing election and may make a new one, provided (i) an election to receive a lump sum payment is made by December 31 prior to the calendar year in which such lump sum payment is to be made and (ii) an election to revoke the right to receive a lump sum payment is made by December 31 prior to the calendar year in which such lump sum was to be paid. SECTION 2. Unless otherwise elected, Supplemental Retirement Income payable in monthly payments under this Plan shall include the coverage of a survivor's benefit. A survivor's benefit payable from this Plan shall be paid to that person designated to receive a survivor's benefit under the Retirement Plan. Supplemental Retirement Income shall in no event be payable after the death of a Participant who has declined the coverage of a survivor's benefit. SECTION 3. Notwithstanding the provisions of Section 1 of this Article V, a Participant or survivor may elect at any time immediately preceding -5- commencement of benefits to receive substantially equal installments over a period of at least 2 but not more than 10 years commencing as of the January 1 of the calendar year following such election. If a Participant elects a series of payments over a period from 2 to 10 years, this election is irrevocable. This election shall be the same as that made pursuant to the Equalization Benefit Plan and the Enhanced Retirement Income Plan. If a Participant elects a monthly annuity as in the Retirement Plan, he or she may again elect a series of payments over a period of from 2 to 10 years when the calculation of the lump sum benefit changes. The calculation of the benefit may change: (i) because of profit sharing or awards paid in the year following the last year worked or (ii) because the interest rate used to calculate the lump sum is not available until the November after the monthly annuity benefit is recalculated. The lump sum payment or installment payments described above shall be calculated using (A) a discount rate for the month of October of the calendar year preceding the payment of the lump sum or installments equal to the average of the Moody's Municipal 10 year Aaa Bond Yield Averages and the Moody's Municipal Long Term Aaa Bond Yield Averages, and (B) the UP-94G Mortality Table. The Compensation Committee or its designee shall determine the procedures for such elections and the time and method of payment for payments in accordance with this Section 3. For Participants who make the election described in this Section 3, the provisions of Sections 1 and 2 of this Article V shall not apply. SECTION 4. Notwithstanding anything in this Plan to the contrary, -6- the Board of Directors may determine that a Participant or survivor shall not be eligible to receive a lump sum payment. SECTION 5. If the Board of Directors determines, after a hearing, that a Participant who is eligible to receive or is receiving Supplemental Retirement Income has engaged in any activities which, in the opinion of the Board, are detrimental to the interests of, or are in competition with the Corporation or any of its subsidiaries, such Supplemental Retirement Income shall thereupon be terminated. ARTICLE VI MISCELLANEOUS SECTION 1. Unless otherwise defined in this Plan, all defined terms shall have the same meaning as set forth in the Retirement Plan. (a) "Code" means the Internal Revenue Code of 1986, as amended. (b) "Compensation Committee" means the Organization and Compensation Committee of the Board of Directors of the Corporation. (c) "Corporation" means UCAR Carbon Company Inc. (d) "Enhanced Retirement Income Plan" means the UCAR Carbon Enhanced Retirement Income Plan. (e) "Equalization Benefit Plan" means the UCAR Carbon Equalization Benefit Plan. (f) "Participant" means an employee of the Corporation who is -7- eligible to participate in the Plan pursuant to Article I. (g) "Plan" means the UCAR Carbon Supplemental Retirement Income Plan, as amended and restated as of July 1, 1998. (h) "Retirement Plan" means the UCAR Carbon Retirement Plan. (i) "Supplemental Retirement Income" as used in this Plan means the benefit payable to a Participant pursuant to Article III of this Plan. SECTION 2. The Corporation may amend or terminate this Plan at any time, but any such amendment or termination shall not adversely affect the rights of any Participant or survivor, of any Participant then receiving benefits under this Plan, or the vested rights of any Participant or survivor. SECTION 3. Except to the extent required by law, no assignment of the rights and interests of a Participant or survivor of a Participant under this Plan shall be permitted nor shall such rights be subject to attachment or other legal processes for debts. SECTION 4. This Plan is intended to be unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended and the rights of a Participant and a survivor of a Participant shall be no greater than the right of an unsecured general creditor of the Corporation. SECTION 5. The Corporation may satisfy all or any part of its obligation to provide benefits under this Plan by purchasing, and distributing to a Participant or survivor of a Participant, an annuity from an insurance carrier to provide such benefits. -8- SECTION 6. Neither selection as a Participant nor participation in this Plan shall affect the Corporation's right to discharge any Participant. UCAR CARBON COMPANY INC. By:___________________________ -9- EX-10.38(A) 14 1ST AMENDMENT TO SUPP. RETIRE. INCOME PLAN FIRST AMENDMENT TO THE UCAR CARBON SUPPLEMENTAL RETIREMENT INCOME PLAN ------------------------ The UCAR Carbon Supplemental Retirement Income Plan (Amended and Restated as of July 1, 1998) ("Plan"), is hereby amended as follows: 1. Section 3 of Article V of the Plan is amended in its entirety to read as follows: "The lump sum described above shall be calculated using (A) a discount rate for the month of October of the calendar year preceding the payment of the lump sum equal to the average of the Moody's Municipal 10 year Aaa Bond Yield Averages and the Moody's Municipal Long Term Aaa Bond Yield Averages, and (B) the UP-94G Mortality Table." 2. Section 1(f) of Article VI of the Plan is amended to insert the following after the word "Corporation": "or any other Employer that has adopted the Retirement Plan for its employees," 3. The provisions of paragraph 1 of this First Amendment to the Plan shall be effective with respect to distribution elections received by the Compensation Committee on or after January 1, 2000. 4. The provisions of paragraph 2 of this First Amendment to the Plan shall be effective as of July 1, 1998. UCAR CARBON COMPANY, INC. By: /s/ John C. Arnold ----------------------------------- EX-10.39 15 ENHANCED RETIREMENT INCOME PLAN UCAR CARBON ENHANCED RETIREMENT INCOME PLAN (Amended and restated as of July 1, 1998) ENHANCED RETIREMENT INCOME PLAN GENERAL This is an enhanced retirement income plan for participants in the Retirement Plan who receive a retirement benefit under the Retirement Plan which is limited by Code Section 415 or Code Section 401(a)(17). This Plan has been established primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. Specifically, the purpose of this Plan is to provide a retirement benefit equal to the excess of: (1) the retirement benefit which would be provided by the Retirement Plan, determined without regard to Code Section 415 or Code Section 401(a)(17), if (a) average monthly Compensation included Awards and base salary deferred pursuant to the terms of the Compensation Deferral Program or any succesor or predecessor program, and/or (b) all Awards, whether deferred or not, were averaged separately from Base Compensation (as defined in the Retirement Plan); OVER (2) the retirement benefit actually provided by the Retirement Plan, the Equalization Benefit Plan and the Supplemental Retirement Income Plan. This Plan is completely separate from the Retirement Plan, the Supplemental Retirement Income Plan and the Equalization Benefit Plan, is unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended, and is not qualified for special tax treatment under the Code. ARTICLE I ELIGIBILITY SECTION 1. A Participant, or the survivor of a Participant who has not declined the coverage of a survivor's benefit, shall be eligible to participate in this Plan if such Participant receives a retirement benefit from the Retirement Plan which is limited by Code Section 401(a)(17) or Code Section 415, or is a participant in the Compensation Deferral Program. ARTICLE II ADMINISTRATION SECTION 1. (a) The Compensation Committee shall have the authority to administer this Plan. The Compensation Committee may adopt such rules as it may deem necessary for the proper administration of this Plan and its decision in all matters involving the interpretation and application of the Plan shall be final, conclusive, and binding on all parties. (b) The Compensation Committee may, in its sole discretion, designate any person(s) or committee to administer this Plan. To the extent provided by the Compensation Committee, such person(s) or committee designated to administer this Plan shall have the same powers and responsibilities as the Compensation Committee. 2 ARTICLE III AMOUNT OF ENHANCED RETIREMENT INCOME SECTION 1. (a) A Participant's monthly Enhanced Retirement Income shall be computed by using the applicable formula provided in Article V of the Retirement Plan; provided, however, that average monthly Compensation shall be determined without regard to Code Section 415 and Code Section 401(a)(17) and shall be computed by determining the sum of the following amounts: (i) the larger of: (I) 1/36 of a Participant's Base Salary related to the three full calendar years in which such Base Salary was largest during the ten full calendar years next preceding the date of death or retirement, or (II) 1/36 of a Participant's Base Salary for the thirty-six (36) full calendar months next preceding the date of death or retirement; and (ii) 1/36 of the Participant's Awards related to the three full calendar years in which such Awards were the largest during the ten full calendar years next preceding the date of death or retirement; provided, that the calendar years in which the Participant was hired or terminated employment shall each be considered a full calendar year for the purposes of this clause (ii); REDUCED BY (iii) the monthly amount of such Participant's retirement benefit actually payable under the Retirement Plan, the Equalization Benefit Plan and the Supplemental Retirement Income Plan. 3 (b) For purposes of this Section 1, an "Award" will be related to the calendar year in which a Participant performed the services for which the Award was paid. (c) For purposes of this Section 1, the amount of "Base Salary" received in any calendar month shall be calculated in the same manner in which average monthly Compensation used to compute pension benefits under the Retirement Plan is calculated (determined without regard to Incentive Compensation, as defined therein); provided, however, that Base Salary shall also include any base salary deferred by a Participant pursuant to the terms of the Compensation Deferral Program, in the calendar year in which it would otherwise have been paid. (d) Any benefits either payable under, or which have been satisfied through the purchase of, non-qualified annuities in connection with this Enhanced Retirement Income Plan, the Supplemental Retirement Income Plan and/or the Equalization Benefit Plan shall be deducted from the amounts payable pursuant to subparagraph (a) above. (e) Notwithstanding the foregoing, the amount of a Participant's Enhanced Retirement Income shall include any additional non-qualified retirement benefits resulting from agreements entered into by the Corporation and the Participant. SECTION 2. If the Enhanced Retirement Income payable to a Participant under this Plan commences before the grant to such Participant of an Award (whether or not deferred) which may be used to determine average monthly Compensation under Section 1 of this Article III, the monthly amount of Enhanced Retirement Income payable hereunder shall be recalculated after such Award is granted (whether or not deferred). SECTION 3. For purposes of calculating the amount of a Participant's Enhanced Retirement Income pursuant to Section 1 of this Article III, the amount of a Participant's monthly retirement income and monthly pension under the Retirement Plan, the Equalization Benefit Plan and the Supplemental Retirement 4 Income shall be determined without any adjustment on account of (i) a survivor's benefit or (ii) an election to receive level retirement income. SECTION 4. If a Participant does not decline the coverage of a survivor's benefit, the monthly amount of Enhanced Retirement Income which such Participant would otherwise have received shall be reduced by applying the same factors used in the Retirement Plan in connection with calculating a survivor's benefits. SECTION 5. The monthly amount of Enhanced Retirement Income payable to the eligible survivor of a Participant shall be calculated in the same manner that such survivor's benefit is calculated under the Retirement Plan. ARTICLE IV VESTING SECTION 1. A Participant will be vested in such Participant's right to receive Enhanced Retirement Income under the Plan in the same manner and to the same extent as provided under the Retirement Plan. ARTICLE V PAYMENTS SECTION 1. A Participant or such Participant's survivor shall commence receiving Enhanced Retirement Income at such time as the Participant or survivor commences benefits under the Retirement Plan. Unless a Participant or survivor elects otherwise, the normal form of payment of a Participant's Enhanced Retirement Income is as follows: 5 (a) in the calendar year in which the Participant or survivor is eligible to commence benefits, the Participant or survivor shall begin to receive monthly payments. (b) in or about January of the calendar year following such Participant's or survivor's eligibility to commence benefits, the Participant or survivor shall receive a lump sum payment, representing the remaining amount of the Participant's or survivor's Enhanced Retirement Income. (c) Notwithstanding the foregoing, a Participant or survivor may elect during the calendar year in which the Participant or survivor commences benefits to forgo the lump sum payment payable in the following year and may elect to continue receiving monthly payments. Alternatively, a Participant or survivor may elect in the calendar year preceding the Participant's or survivor's commencement of benefits to forgo receiving monthly payments, in which case the Participant or survivor shall receive a lump sum in the calendar year in which the Participant or survivor is eligible to commence benefits. (d) Upon a Participant's death, the Participant's survivor may cancel any existing election and may make a new one, provided (i) an election to receive a lump sum payment is made by December 31 prior to the calendar year in which such lump sum payment is to be made and (ii) an election to revoke the right to receive a lump sum payment is made by December 31 prior to the calendar year in which such lump sum was to be paid. SECTION 2. Unless otherwise elected, Enhanced Retirement Income payable in monthly payments under this Plan shall include the coverage of a survivor's benefit. A survivor's benefit payable from this Plan shall be paid to that person designated to receive a survivor's benefit under the Retirement Plan. Enhanced Retirement Income shall in no event be payable after the death of a Participant who has declined the coverage of a survivor's benefit. 6 SECTION 3. Notwithstanding the provisions of Section 1 of this Article V, a Participant or survivor may elect at any time immediately preceding commencement of benefits to receive substantially equal installments over a period of at least 2 but not more than 10 years commencing as of the January 1 of the calendar year following such election. If a Participant elects a series of payments over a period from 2 to 10 years, this election is irrevocable. This election shall be the same as that made pursuant to the Equalization Benefit Plan and the Supplemental Retirement Income Plan. If a Participant elects a monthly annuity as in the Retirement Plan, he or she may again elect a series of payments over a period of from 2 to 10 years when the calculation of the lump sum benefit changes. The calculation of the benefit may change: (i) because of profit sharing or awards paid in the year following the last year worked or (ii) because the interest rate used to calculate the lump sum is not available until the November after the monthly annuity benefit is recalculated. The lump sum payment or installment payments described above shall be calculated using (A) a discount rate for the month of October of the calendar year preceding the payment of the lump sum or installments equal to the average of the Moody's Municipal 10 year Aaa Bond Yield Averages and the Moody's Municipal Long Term Aaa Bond Yield Averages, and (B) the UP-94G Mortality Table. The Compensation Committee or its designee shall determine the procedures for such elections and the time and method of payment for payments in accordance with this Section 3. For Participants who make the election described in this Section 3, the provisions of Sections 1 and 2 of this Article V shall not apply. SECTION 4. Notwithstanding anything in this Plan to the contrary, the Board of Directors may determine that a Participant or survivor shall not be eligible to receive a lump sum payment. 7 SECTION 5. If the Board of Directors determines, after a hearing, that a Participant who is eligible to receive or is receiving Enhanced Retirement Income has engaged in any activities which, in the opinion of the Board, are detrimental to the interests of, or are in competition with the Corporation or any of its subsidiaries, such Enhanced Retirement Income shall thereupon be terminated. ARTICLE VI MISCELLANEOUS SECTION 1. Unless otherwise defined in this Plan, all defined terms shall have the same meaning as set forth in the Retirement Plan. (a) "Award" means those awards which are made: (i) under any cash award plan and (ii) under any other variable compensation plans (whether or not deferred) designated by the Board of Directors. (b) "Code" means the Internal Revenue Code of 1986, as amended. (c) "Compensation Committee" means the Organization and Compensation Committee of the Board of Directors of the Corporation. (d) "Compensation Deferral Program" as used in this Plan means the UCAR International Inc. Compensation Deferral Program. (e) "Corporation" means UCAR Carbon Company Inc. (f) "Enhanced Retirement Income" means the benefit payable to a Participant pursuant to Article III of this Plan. (g) "Equalization Benefit Plan" means the UCAR Carbon Equalization Benefit Plan. 8 (h) "Participant" means an employee who is eligible to participate in this Plan pursuant to Article I. (i) "Plan" means this UCAR Carbon Enhanced Retirement Income Plan, as amended and restated July 1, 1998. (j) "Retirement Plan" means the UCAR Carbon Retirement Plan. (k) "Supplemental Retirement Income Plan" means the UCAR Carbon Supplemental Retirement Income Plan. SECTION 2. The Corporation may amend or terminate this Plan at any time, but any such amendment or termination shall not adversely affect the rights of any Participant or survivor of any Participant then receiving benefits under this Plan, or the vested rights of any Participant or survivor. SECTION 3. Except to the extent required by law, no assignment of the rights and interests of a Participant or survivor under this Plan will be permitted nor shall such rights be subject to attachment or other legal processes for debts. SECTION 4. This Plan is intended to be unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended and the right of a Participant and a survivor of a Participant shall be no greater than the right of an unsecured general creditor of the Corporation. SECTION 5. The Corporation may satisfy all or any part of its obligation to provide benefits hereunder by purchasing, and distributing to a Participant, or survivor, an annuity from an insurance carrier to provide such benefits. SECTION 6. Neither selection as a Participant or participation in this Plan shall affect the Corporation's right to discharge any Participant. 9 UCAR CARBON COMPANY INC. By:______________________________ 10 EX-10.39(A) 16 1ST AMENDMENT TO ENHANCED RET. INC. PLAN FIRST AMENDMENT TO THE UCAR CARBON ENHANCED RETIREMENT INCOME PLAN -------------------------------------- The UCAR Carbon Enhanced Retirement Income Plan (Amended and Restated as of July 1, 1998) ("Plan"), the Plan is hereby amended as follows: 1. Section 3 of Article V of the Plan is amended in its entirety to read as follows: "The lump sum described above shall be calculated using (A) a discount rate for the month of October of the calendar year preceding the payment of the lump sum equal to the average of the Moody's Municipal 10 year Aaa Bond Yield Averages and the Moody's Municipal Long Term Aaa Bond Yield Averages, and (B) the UP-94G Mortality Table." 2. Section 1(h) of Article VI of the Plan is amended to insert the following after the word "employee": "of the Corporation or any other Employer that has adopted the Retirement Plan for its employees," 3. The provisions of paragraph 1 of this First Amendment to the Plan shall be effective with respect to distribution elections received by the Compensation Committee on or after January 1, 2000. 4. The provisions of paragraph 2 of this First Amendment to the Plan shall be effective as of July 1, 1998. UCAR CARBON COMPANY, INC. By: /s/ John C. Arnold ----------------------------------- EX-21.1 17 LIST OF SUBSIDIARIES Subsidiaries of UCAR International Inc.
Ownership by UCAR Name of Subsidiary Jurisdiction of Incorporation International Inc. - ------------------ ----------------------------- ------------------ 1. UCAR Global Enterprises Delaware 100% Inc. 2. UCAR Finance Inc. Delaware 100% Ownership by UCAR Name of Subsidiary Jurisdiction of Incorporation Enterprises Inc. - ------------------ ----------------------------- ------------------ 3. UCAR Carbon Company Delaware 100% Inc. 4. UCAR Holdings II Inc. Delaware 100% 5. UCAR Carbon S.A. Brazil 95.3% (a) 6. UCAR S.A. Switzerland 100%(b) 7. UCAR Holding GmbH Austria 67% (c) Ownership by UCAR Name of Subsidiary Jurisdiction of Incorporation Company Inc. - ------------------ ----------------------------- ------------------ 8. UCAR Limited United Kingdom 100%(d) 9. EMSA (Pty.) Ltd. South Africa 100% 10. Carbographite Limited South Africa 100% 11. UCAR International Delaware 100% Trading Inc. 12. UCAR Carbon Foreign Virgin Islands 100% Sales Corporation 13. UCAR Composites Inc. California 100% 14. Union Carbide Grafito, New York 100% Inc. 15. Unicarbon Comercial Brazil 100% Ltda. 16. UCAR Carbon (Malaysia) Malaysia 100% Sdn. Bhd. 17. UCAR Graph-Tech Inc. Delaware 100% 18. UCAR Mexicana, S.A. de Mexico 100% C.V. 19. UCAR S.p.A. Italy 100% Ownership by UCAR Name of Subsidiary Jurisdiction of Incorporation Holdings II Inc. - ------------------ ----------------------------- ------------------ 20. UCAR Holdings III Inc. Delaware 100% 21. UCAR Electrodos, S.L. Spain 100%(e) 22. UCAR Inc. Canada 100% Ownership by UCAR Name of Subsidiary Jurisdiction of Incorporation Holding GmbH - ------------------ ----------------------------- ------------------ 23. UCAR Grafit OAO Russia 99% Ownership by UCAR Name of Subsidiary Jurisdiction of Incorporation Holdings S.A. - ------------------ ----------------------------- ------------------ 24. UCAR S.N.C. France 100%(f) 25. Carbone Savoie France 70% Ownership by UCAR Name of Subsidiary Jurisdiction of Incorporation Mexicana, S.A. de C.V. - ------------------ ----------------------------- ---------------------- 26. UCAR Carbon Mexicana, Mexico 100%(g) S.A. de C.V. Ownership by UCAR Name of Subsidiary Jurisdiction of Incorporation Mexicana, S.A. de C.V. - ------------------ ----------------------------- ---------------------- 27. Servicios Administratoes Mexico 100%(h) Carmex, S.A. de C.V. 28. Servicios DYC, S.A. de C.V. Mexico 100%(i) Name of Subsidiary Jurisdiction of Incorporation Ownership by UCAR S.p.A. - ------------------ ----------------------------- ------------------------ 29. UCAR Energia S.r.l. Italy 100% 30. UCAR Specialties S.r.l. Italy 100% Ownership by UCAR Carbon Name of Subsidiary Jurisdiction of Incorporation S.A. - ------------------ ----------------------------- ------------------------- 31. UCAR Produtos de Brazil 99.9%(j) Carbono S.A. 2 Ownership by Unicarbon Name of Subsidiary Jurisdiction of Incorporation Commercial Ltd. - ------------------ ----------------------------- ------------------------- 32. UCAR Carbon S.A. Brazil 2.33%(k) Name of Subsidiary Jurisdiction of Incorporation Ownership by UCAR S.A. - ------------------ ----------------------------- ------------------------- 33. UCAR Holding GmbH Austria 33%(l) Onwership by UCAR Name of Subsidiary Jurisdiction of Incorporation Holdings II Inc. - ------------------ ----------------------------- ------------------------- 34. UCAR Holdings S.A. France 100%(m)
(a) 95.3% owned by UCAR Global Enterprises Inc. 2.33% owned by Unicarbon Comercial Ltda. Third parties own the other shares of UCAR Carbon S.A. (b) 99.9% owned by UCAR Global Enterprises Inc. Nominees own the other three shares of UCAR S.A. (c) 67% owned by UCAR Global Enterprises Inc. UCAR S.A. owns the other shares of UCAR Holding GmbH. (d) 99.9% owned by UCAR Carbon Company Inc. A nominee owns the other share of UCAR Limited. (e) 99.9% owned by UCAR Holdings II Inc. UCAR Carbon Company Inc. owns the other 0.1% of UCAR Electrodos S.L. (f) 99.9% owned by UCAR Holdings S.A. UCAR Holdings III Inc. owns the other share of UCAR S.N.C. (g) 99.9% owned by UCAR Mexicana, S.A. de C.V. UCAR Carbon Company Inc. owns the other 0.1% of UCAR Carbon Mexicana, S.A. de C.V. (h) 99.9% owned by UCAR Carbon Mexicana, S.A. de C.V. A nominee owns the other shares of Servicios Administratoes Carmex, S.A. de C.V. (i) 99.9% owned by UCAR Carbon Mexicana, S.A. de C.V. A nominee owns the other shares of Servicios DYC, S.A. de C.V. (j) 99.9% owned by UCAR Carbon S.A. Third parties own the other shares of UCAR Productos de Carbono S.A. (k) See note (a). 3 (l) 33% owned by UCAR S.A. UCAR Global Enterprises Inc. owns the other shares of UCAR Holding GmbH. (m) 99.4% owned by UCAR Holdings II Inc. UCAR International Inc., UCAR Global Enterprises Inc., UCAR Carbon Company Inc. and three nominees own the other shares of UCAR Holdings S.A. 4 EX-23.1 18 CONSENT OF KPMG LLP The Board of Directors UCAR International Inc. We consent to the incorporation by reference in each of the Registration Statements of UCAR International Inc. on Form S-3 (Nos. 333-26097 and 333-82417), and on Form S-8 (Nos. 33-95546, 33-95548, 33-95550, 333-02560, 333-02598, 333-36653, 333-82393 and 333-82411) of our report dated February 11, 2000, except as to Note 19, which is as of February 23, 2000, relating to the consolidated balance sheets of UCAR International Inc. and subsidiaries as of December 31, 1998 and 1999,and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 1999, which report appears in the December 31, 1999 Annual Report on Form 10-K of UCAR International Inc. /s/ KPMG LLP Nashville, Tennessee March 30, 2000 EX-27.1 19 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF UCAR INTERNATIONAL, INC., INCLUDED IN ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1,000,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 17 3 176 5 204 420 1,071 673 933 315 640 0 0 0 (293) 933 831 831 573 573 38 1 84 46 1 45 0 0 0 42 0.94 0.91
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