-----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, UgyvBBVADFh7RgVbQVEGI07L26aeopi3Nzk7UcEGdAW3WBZqjYHNII/F0xr2Zxnh tdO6wEuBscEAsN4E0d8tHA== 0000932440-02-000242.txt : 20020514 0000932440-02-000242.hdr.sgml : 20020514 ACCESSION NUMBER: 0000932440-02-000242 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAFTECH INTERNATIONAL LTD 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13888 FILM NUMBER: 02644705 BUSINESS ADDRESS: STREET 1: 1521 CONCORD PIKE STREET 2: SUITE 301 CITY: WILMINGTON STATE: DE ZIP: 19803 BUSINESS PHONE: 3027788227 MAIL ADDRESS: STREET 1: 1521 CONCORD PIKE STREET 2: SUITE 301 CITY: WILMINGTON STATE: DE ZIP: 19803 FORMER COMPANY: FORMER CONFORMED NAME: UCAR INTERNATIONAL INC DATE OF NAME CHANGE: 19941011 10-Q 1 graftechmay0210q.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-Q --------------- (MARK ONE) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 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 --------------- GRAFTECH INTERNATIONAL LTD. (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) --------------- 1521 CONCORD PIKE BRANDYWINE WEST, SUITE 301 19803 WILMINGTON, DE (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 778-8227 --------------- 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 [ ] As of March 31, 2002, 55,885,559 shares of common stock, par value $.01 per share, were outstanding. ================================================================================ TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION: ITEM 1. FINANCIAL STATEMENTS: Consolidated Balance Sheets at December 31, 2001 and March 31, 2002....................................................................... Page 2 Consolidated Statements of Operations for the Three Months ended March 31, 2001 and 2002............................................................ Page 3 Consolidated Statements of Cash Flows for the Three Months ended March 31, 2001 and 2002............................................................ Page 4 Consolidated Statement of Stockholders' Deficit for the Three Months ended March 31, 2002........................................................ Page 5 Notes to Consolidated Financial Statements................................................... Page 6 INTRODUCTION TO PART I, ITEM 2, AND PART II, ITEM 1................................................. Page 33 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................. Page 39 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS................................ Page 67 PART II. OTHER INFORMATION:......................................................................... Page 69 ITEM 1. LEGAL PROCEEDINGS......................................................................... Page 75 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................................... Page 77 SIGNATURE .......................................................................................... Page 79
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
DECEMBER 31, MARCH 31, ASSETS 2001 2002 ---- ---- CURRENT ASSETS: Cash and cash equivalents........................................ $ 38 $ 33 Notes and accounts receivable.................................... 95 97 Inventories: Raw materials and supplies..................................... 33 34 Work in process................................................ 111 105 Finished goods................................................. 33 32 -------- -------- 177 171 Prepaid expenses and deferred income taxes....................... 12 19 -------- -------- Total current assets........................................... 322 320 -------- -------- Property, plant and equipment........................................ 931 936 Less: accumulated depreciation...................................... 650 655 -------- -------- Net fixed assets............................................... 281 281 -------- -------- Goodwill............................................................. 29 29 Less: accumulated amortization....................................... 12 12 -------- -------- 17 17 Deferred income taxes................................................ 140 153 Other assets......................................................... 37 46 -------- -------- Total assets................................................... $ 797 $ 817 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable................................................. $ 101 $ 68 Short-term debt.................................................. 7 8 Accrued income and other taxes................................... 45 47 Other accrued liabilities........................................ 57 58 Total current liabilities...................................... 210 181 -------- -------- Long-term debt...................................................... 631 688 Other long-term obligations.......................................... 231 228 Deferred income taxes................................................ 32 38 Minority stockholders' equity in consolidated entities............... 25 25 STOCKHOLDERS' DEFICIT: Preferred stock, par value $.01, 10,000,000 shares authorized, - - none issued................................................... Common stock, par value $.01, 100,000,000 shares authorized, 1 1 58,532,209 shares issued at December 31, 2001, 58,642,203 shares issued at March 31, 2002............................... Additional paid-in capital....................................... 629 635 Accumulated other comprehensive loss............................. (269) (277) Retained deficit................................................. (602) (606) Unearned restricted stock........................................ - (5) Less: cost of common stock held in treasury, 2,322,412 shares 5 5 at December 31, 2001, 2,330,244 shares at March 31, 2002...... (8) (8) Common stock held in employee benefits trust, 426,400 shares at December 31, 2001 and March 31, 2002.......................... (6) (6) -------- -------- Total stockholders' deficit...................................... (332) (343) -------- -------- Total liabilities and stockholders' deficit.................... $ 797 $ 817 ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001 2002 ---- ---- Net sales................................................................... $ 171 $ 138 Cost of sales............................................................... 122 107 ---------- --------- Gross profit......................................................... 49 31 Research and development.................................................... 3 3 Selling, administrative and other expenses.................................. 21 18 Global realignment and related expenses..................................... - 1 Restructuring charge and impairment loss of long-lived and other assets..... - 5 Other (income) expense, net................................................. - (3) ---------- --------- Operating profit..................................................... 25 7 Interest expense............................................................ 19 13 ---------- --------- Income (loss) before provision (benefit) for income taxes, minority interest and extraordinary item......................... 6 (6) Provision (benefit) for income taxes........................................ 2 (5) ---------- --------- Income (loss) of consolidated entities before minority interest and extraordinary item........................................... 4 (1) Less: minority stockholders' share of income................................ 1 1 ---------- --------- Income (loss) before extraordinary item.............................. $ 3 (2) Extraordinary item, net of tax.............................................. - 2 ---------- --------- Net income (loss)................................................ $ 3 $ (4) ========== ========= BASIC EARNINGS (LOSS) PER COMMON SHARE: Income before extraordinary item....................................... $ 0.07 $ (0.03) Extraordinary item, net of tax......................................... - (0.03) ---------- --------- Net income (loss) per share............................................ $ 0.07 $ (0.06) ========== ========= Weighted average common shares outstanding (IN THOUSANDS).............. 45,222 55,823 ========== ========= DILUTED EARNINGS (LOSS) PER COMMON SHARE: Income before extraordinary item....................................... $ 0.07 $ (0.03) Extraordinary item, net of tax......................................... - (0.03) ---------- --------- Net income (loss) per share............................................ $ 0.07 $ (0.06) ========== ========= Weighted average common shares outstanding (IN THOUSANDS).............. 46,033 55,823 ========== =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 PART I (CONT'D) CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN MILLIONS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001 2002 ---- ---- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss)............................................................ $ 3 $ (4) Extraordinary item, net of tax............................................... - 2 Non-cash charges to net income (loss): Depreciation and amortization............................................ 10 7 Deferred income taxes.................................................... - (8) Restructuring charge and impairment loss on long-lived and other assets......................................... - 5 Other non-cash charges................................................... (5) (4) Working capital *............................................................ 5 (45) Long-term assets and liabilities............................................. (2) - -------- ------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES................. 11 (47) -------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures......................................................... (5) (9) Sale of assets............................................................... 1 - -------- ------- NET CASH USED IN INVESTING ACTIVITIES............................... (4) (9) -------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Short-term debt borrowings (reductions), net................................. (1) 1 Revolving credit facility borrowings (reductions), net....................... 2 (25) Long-term debt borrowings.................................................... - 400 Long-term debt reductions.................................................... (7) (312) Minority interest investment................................................. 9 - Sale of common stock under stock options..................................... 1 1 Financing costs.............................................................. - (14) -------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES........................... 4 51 -------- ------- Net increase (decrease) in cash and cash equivalents.............................. 111 (5) Effect of exchange rate changes on cash and cash equivalents...................... (2) - Cash and cash equivalents at beginning of period.................................. 47 38 -------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................ $ 56 $ 33 ======== ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Net cash paid during the period for: Interest expense......................................................... $ 17 $ 12 ======== ======= Income taxes............................................................. $ 6 $ 3 ======== ======= * Net change in working capital due to the following components: (Increase) decrease in current assets: Notes and accounts receivable............................................ $ 22 $ (3) Inventories.............................................................. (11) 4 Prepaid expenses......................................................... - (3) Increase (decrease) in accounts payable and accruals......................... 6 (40) Antitrust investigations and related lawsuits and claims..................... (8) - Restructuring payments....................................................... (4) (3) -------- ------- WORKING CAPITAL..................................................... $ 5 $ (45) ======== =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 PART I (CONT'D) CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (DOLLARS IN MILLIONS) (UNAUDITED)
Accumulated Additional Other Unearned Common Paid-in Comprehensive Retained Restricted Treasury Stock Capital Loss Deficit Stock Stock ----- ------- ---- ------- ----- ----- Balance at December 31, 2001............ $ 1 $ 630 $ (269) $ (602) $ - $ (85) Comprehensive income (loss): Net income (loss).................... - - - (4) - - Foreign currency translation adjustments........................ - - (8) - - - Total comprehensive income (loss)........................ - - (8) (4) - - Issuance of restricted stock............ - 4 - - - - Unamortized restricted stock............ - - - - (5) - Sale of common stock under stock options - 1 - - - - ---- ------- ------- ----- ---- ---- Balance at March 31, 2002............... $ 1 $ 635 $ (277) $ (606) $ (5) $ (85) ==== ======= ======= ===== ==== ====
COMMON STOCK HELD IN TOTAL EMPLOYEE STOCKHOLDER BENEFITS EQUITY TRUST (DEFICIT) ----- --------- Balance at December 31, 2001............ $ (6) $ (332) Comprehensive income (loss): Net income (loss).................... - (4) Foreign currency translation adjustments........................ - (8) Total comprehensive income (loss)........................ - (12) Issuance of restricted stock............ - 5 Unamortized restricted stock............ - (5) Sale of common stock under stock options - 1 ----- ------ Balance at March 31, 2002............... $ (6) $ (343) ===== ======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES (1) INTERIM FINANCIAL PRESENTATION These interim Consolidated Financial Statements are unaudited; however, in the opinion of management, they have been prepared in accordance with Rule 10-01 of Regulation S-X adopted by the SEC and reflect all adjustments (all of which are of a normal, recurring nature) which are necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented. Results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results of operations that may be expected for the entire year ending December 31, 2002. IMPORTANT TERMS We use the following terms to identify various companies or groups of companies in the Consolidated Financial Statements. "GTI" refers to GrafTech International Ltd. only. GTI is our public parent company and the issuer of the publicly traded common stock covered by the Consolidated Financial Statements. GTI is a guarantor of the Senior Notes as defined in Note 10 (the "SENIOR NOTES"). Prior to our Annual Meeting of Stockholders for 2002, GTI was named UCAR International Inc. "UCAR GLOBAL" refers to UCAR Global Enterprises Inc. only. UCAR Global is a direct, wholly owned subsidiary of GTI and the direct or indirect holding company for all of our operating subsidiaries. UCAR Global is a guarantor of the Senior Notes. "UCAR CARBON" refers to UCAR Carbon Company Inc. only. UCAR Carbon is our wholly owned subsidiary through which we conduct most of our U.S. operations. In connection with the corporate realignment of our subsidiaries as described below, UCAR Carbon will change its name to UCAR Technology Company Inc. and transfer its businesses to one or more newly formed wholly owned U.S. subsidiaries. UCAR Carbon is a guarantor of the Senior Notes. "UCAR FINANCE" refers to UCAR Finance Inc. only. UCAR Finance is a direct, wholly owned special purpose finance subsidiary of GTI and the borrower under our senior secured bank credit facilities (as amended, the "SENIOR FACILITIES"). UCAR Finance is the issuer of our 10.25% senior notes due 2012. "GRAFTECH" refers to Graftech Inc. only. Graftech is our 97.5% owned (wholly owned, prior to June 2001) subsidiary engaged in the development, manufacture and sale of natural graphite-based products. In connection with the corporate realignment of our subsidiaries as described below, Graftech will change its name to Graftech Technology Company Inc. and transfer its business to a newly formed 100% owned U.S. subsidiary (to be named Graftech Inc.). "CARBONE SAVOIE" refers to Carbone Savoie S.A.S. and its subsidiaries. Carbone Savoie is our 70% owned subsidiary engaged in the development, manufacture and sale of graphite and carbon cathodes. 6 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES "SUBSIDIARIES" refers to those companies which, at the relevant time, are or were majority owned or wholly owned directly or indirectly by GTI or its predecessors to the extent that those predecessors' activities related to the graphite and carbon business. All of GTI's subsidiaries have been wholly owned (with de minimis exceptions in the case of certain foreign subsidiaries) from at least January 1, 1999 through March 31, 2002, except for: o our German subsidiary, which was acquired in early 1997 and 70% owned until early 1999, when it became wholly owned to facilitate its liquidation; o Carbone Savoie, which has been and is 70% owned; and o Graftech, which was 100% owned until it became 97.5% owned in June 2001. Our 100% owned Brazilian cathode manufacturing operations were contributed to Carbone Savoie and, as a result, became 70% owned on March 31, 2001. "WE," "US" or "OUR" refers to GTI and its subsidiaries collectively or, if the context so requires, GTI, UCAR Global or UCAR Finance, individually. We are realigning the corporate organizational structure of our subsidiaries. Upon completion of this corporate realignment, most of the businesses of each division will be segregated into separate companies along divisional lines. In addition, because most of the operations, net sales and growth opportunities of our Graphite Power Systems Division are located outside the U.S., most of its operations will be held by our Swiss subsidiary or its subsidiaries. Most of our technology will continue to be held by our U.S. subsidiaries. FOREIGN CURRENCY TRANSLATION Generally, except for financial statements of our subsidiary in Russia where high inflation has existed, unrealized gains and losses resulting from translation of financial statements of our foreign subsidiaries from their functional currencies into dollars are accumulated in other comprehensive income (loss) on the Consolidated Balance Sheets until such time as the subsidiaries or their operations are sold or the subsidiaries are substantially or completely liquidated. Translation gains and losses relating to financial statements of foreign subsidiaries in countries where high inflation has existed or which predominantly use the dollar for their operations are included in other (income) expense, net in the Consolidated Statements of Operations. Our Mexican subsidiary began using the dollar as its functional currency during 1999 because its sales and purchases are predominantly dollar-denominated. Prior to August 1, 2000, our Swiss subsidiary used the dollar as its functional currency. Beginning August 1, 2000, our Swiss subsidiary began using the euro as its functional currency because its operations became predominantly euro-dominated. Prior to the 2002 first quarter, we had designated [euro]125 million of Tranche A Term Loans as a net equity hedge for our net investments in Europe. In the 2002 first quarter, a majority of the Tranche A Term Loans were repaid and the net equity hedge was eliminated and the resulting $1 million of loss in other comprehensive income (loss) was 7 charged to other (income) expense. The currency effects associated with the Tranche A Term Loans were reflected in accumulated other comprehensive income (loss) in the Consolidated Statements of Operations where they offset gains and losses recorded on our net investment in Europe. NEW ACCOUNTING STANDARDS In August 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets, excluding goodwill and other intangible assets not being amortized pursuant to SFAS No. 142, and certain other assets. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. We adopted SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 did not have a significant impact on our consolidated financial position or results of operations. In July 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. SFAS No. 143 will be effective for financial statements issued for fiscal years beginning after June 15, 2002. We anticipate that the adoption of SFAS No. 143 will not have a significant impact on our consolidated financial position or results of operations. In July 2001, FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," both of which are effective for financial statements issued for fiscal years beginning after December 15, 2001. SFAS No. 141 and SFAS No. 142 establish accounting and reporting standards for business combinations, goodwill and intangible assets. We adopted SFAS No. 141 and SFAS No. 142 effective January 1, 2002. The adoption of SFAS No. 141 and SFAS No. 142 did not have a significant impact on our consolidated financial position or results of operations, except that we no longer amortize goodwill. Goodwill amortization was $1 million in the 2001 first quarter. 8 (2) EARNINGS PER SHARE Basic and diluted earnings per share are calculated using the following share data:
THREE MONTHS ENDED MARCH 31, --------------- 2001 2002 ---- ---- Weighted average common shares outstanding for basic calculation................... 45,221,935 55,823,444 Add: effect of stock options.......................... 811,362 - -------------- ------------- Weighted average common shares outstanding for diluted calculation................ 46,033,297 55,823,444 ============== =============
PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES Basic earnings (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares outstanding plus the additional common shares that would have been outstanding if potentially dilutive securities had been issued. As a result of the net loss for the three months ended March 31, 2002, 1,109,941 of potential common shares underlying dilutive securities have been excluded from the calculation of diluted earnings (loss) per share because their effect would reduce the loss per share. In addition, the calculation of weighted average common shares outstanding for the diluted calculation excludes consideration of stock options covering 4,318,247 shares and 4,329,097 shares in the three months ended March 31, 2001 and 2002, respectively, because the exercise of these options would not have been dilutive for those periods due to the fact that the exercise prices were greater than the weighted average market price of our common stock for each of those periods. The calculation of both basic and diluted earnings (loss) per share gives effect to, among other things, the grant of 412,300 shares of restricted stock to employees in March 2002. In general, 50% of such shares vest on January 1, 2003 and 50% of such shares vest on January 1, 2004 if the employees are employed by us on the vesting date. Shares which do not vest are forfeited to us and become treasury shares. (3) SEGMENT REPORTING We evaluate the performance of our operating segments based on gross profit. Intersegment sales and transfers of goods and services are not material. The following tables summarize financial information concerning our reportable segments. 9
THREE MONTHS ENDED MARCH 31, ---------------------------- 2001 2002 ---- ---- (DOLLARS IN MILLIONS) Net sales to external customers: Graphite Power Systems Division................. $ 136 $ 111 Advanced Energy Technology Division............. 35 27 ------ ------ Consolidated net sales....................... $ 171 $ 138 ====== ====== Gross profit: Graphite Power Systems Division................. $ 38 $ 25 Advanced Energy Technology Division............. 11 6 ------ ------ Consolidated gross profit.................... $ 49 $ 31 ====== ====== Depreciation and amortization: Graphite Power Systems Division................. $ 9 $ 6 Advanced Energy Technology Division............. 1 1 -------- ------- Consolidated depreciation and amortization... $ 10 $ 7 ====== =======
(4) RESTRUCTURING AND IMPAIRMENT CHARGES In the 2002 first quarter, we recorded a $5 million restructuring charge that related primarily to the mothballing of our graphite electrode operations in Caserta, Italy. This charge includes estimated pension, severance and other related employee benefit costs for 102 employees and other costs related to the mothballing. In the 2001 fourth quarter, we recorded a $7 million restructuring charge and a $27 million impairment loss on long-lived and other assets. The restructuring charge related primarily to exit costs related to the mothballing of our graphite electrode operations in Caserta, Italy. $24 million of the impairment loss related to assets located at our facility in Caserta. The remaining $3 million of the impairment loss related to impairment of available-for-sale securities. In the 2001 third quarter, we recorded a $2 million restructuring charge and impairment loss on long-lived assets related to our restructuring and realignment of our businesses into our Advanced Energy Technology and Graphite Power Systems Divisions, the relocation of our corporate headquarters and the shutdown of our coal calcining operations located in Niagara Falls, New York. As part of the realignment, we have centralized management functions of our Advanced Energy Technology Division in Cleveland, Ohio, and management functions of our Graphite Power Systems Division in Etoy, Switzerland. We have relocated our corporate headquarters, consisting of approximately 10 employees, from Nashville, Tennessee, to Wilmington, Delaware. The relocation was substantially completed by the end of 2001. The charge includes severance and related benefits associated with a workforce reduction of 24 employees and impairment of leasehold improvement assets. 10 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES In the 2001 third quarter, we reversed $2 million of prior restructuring charges based on revised lower estimates of workforce reductions and plant closure costs, and we reclassified $4 million of prior restructuring charges related to on-site waste disposal post monitoring costs to the other long-term obligations. In the 2001 second quarter, we recorded a $58 million charge for restructuring and impairment loss on long-lived assets related to the shutdown of our graphite electrode manufacturing operations in Clarksville and Columbia, Tennessee and our coal calcining operations in Niagara Falls, New York. The $58 million charge included restructuring charges of $2 million for severance and related benefits associated with a work force reduction of 171 employees and $3 million in plant shutdown and related costs. The remaining $53 million of the charge related to the impairment loss on long-lived assets. The shutdown was completed on schedule by the end of the 2001 third quarter. In the 2000 fourth quarter, we recorded a charge of $4 million in connection with a corporate restructuring, mainly for severance and related benefits associated with a workforce reduction of 85 employees. The functional areas affected included finance, accounting, sales, marketing and administration. In 2001, we paid about $1 million of these expenses. In the 2001 third quarter, we revised the workforce reduction estimate to 45 employees and reversed a portion of the $4 million charge. The reversal is part of the $2 million reversal described above. In the 2000 third quarter, we recorded an impairment loss on long-lived assets of $3 million in connection with the re-sourcing of our U.S. cathode production to our facilities in Brazil and France and the reduction of graphite electrode production capacity to accommodate such increased cathode production in Brazil and France. This non-cash charge related to the write-off of certain long-lived assets located at one of our facilities in the U.S. The charge affected GPS. In the 2000 first quarter, we recorded a restructuring charge of $6 million in connection with a restructuring of our advanced graphite materials business. Key elements of the restructuring included elimination of certain product lines and rationalization of operations to reduce costs and improve profitability of remaining product lines. This rationalization included discontinuing certain manufacturing processes at one of our facilities in the U.S. that will be performed at our other facilities in the future. Based on subsequent developments in the 2000 third quarter, we decided not to demolish certain buildings. Therefore, in the 2000 third quarter, we reversed the $4 million of the charge related to demolition and related environmental costs. The $2 million balance of the charge included estimated severance costs for 65 employees. The restructuring was completed in 2000. The following table summarizes activity relating to the accrued expense in connection with the restructuring charges. 11 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
POST PLANT SHUTDOWN MONITORING SEVERANCE AND AND RELATED AND RELATED RELATED COSTS COSTS COSTS TOTAL ------------- ----- ----- ----- (DOLLARS IN MILLIONS) Balance at December 31, 2000............. $ 13 $ 9 $ 4 $ 26 Restructuring charges in 2001............ 4 8 - 12 Payments in 2001......................... (13) (5) - (18) Non-cash write-offs in 2001.............. - (4) - (4) Reclassification of on-site disposal and monitoring costs..................... - - (4) (4) ------ ------ ------ ----- Balance at December 31, 2001............. $ 4 $ 8 $ - $ 12 Restructuring charges in 2002............ 5 - - 5 Payments in 2002......................... (1) (1) - (2) ------ ------ ------ ----- Balance at March 31, 2002................ $ 8 $ 7 $ - $ 15 ====== ====== ====== =====
The restructuring accrual is included in other accrued liabilities on the Consolidated Balance Sheets. (5) LONG-TERM DEBT AND LIQUIDITY The following table presents our long-term debt:
DECEMBER 31, MARCH, 2001 2002 ---- ---- (DOLLARS IN MILLIONS) Senior Facilities: Tranche A euro facility............................ $ 194 $ 22 Tranche A U.S. dollar facility..................... 23 - Tranche B U.S. dollar facility..................... 313 190 Revolving credit facility.......................... 95 70 --------- -------- Total Senior Facilities.......................... 625 282 Swiss mortgage and other European debt.................. 6 6 Senior Notes due 2012................................... - 400 --------- -------- Total.............................................. $ 631 $ 688 ========= ========
SENIOR NOTES On February 15, 2002, UCAR Finance issued $400 million aggregate principal amount of Senior Notes. As described in Note 10, on May 6, 2002, UCAR Finance issued an additional $150 million aggregate principal amount of Senior Notes. Interest on the Senior Notes is payable semi-annually on February 15 and August 15 of each year, commencing August 15, 2002, at the rate of 10.25% per annum. The Senior Notes mature on February 15, 2012. 12 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES Except as described below, UCAR Finance may not redeem the Senior Notes prior to February 15, 2007. On or after that date, UCAR Finance may redeem the Senior Notes, in whole or in part, at specified redemption prices beginning at 105.125% of the principal amount redeemed for the year commencing February 15, 2007 and reducing to 100% of the principal amount redeemed for the years commencing February 15, 2010, and thereafter, in each case plus accrued and unpaid interest to the redemption date. In addition, before February 15, 2005, UCAR Finance is entitled at its option on one or more occasions to redeem Senior Notes (which includes additional Senior Notes, if any) in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the Senior Notes (which includes additional Senior Notes, if any) originally issued at a redemption price of 110.25% of the principal amount redeemed, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more underwritten primary public offering of common stock of GTI pursuant to an effective registration statement under the Securities Act so long as: o at least 65% of such aggregate principal amount of Senior Notes (which includes additional Senior Notes, if any) remains outstanding immediately after each such redemption (other than Senior Notes held, directly or indirectly, by us); and o each such redemption occurs within 60 days after the date of the related public offering. Upon the occurrence of a change of control, UCAR Finance will be required to make an offer to repurchase the Senior Notes at a price equal to 101% of the principal amount redeemed, plus accrued and unpaid interest to the redemption date. For this purpose, a change in control occurs on: o the date on which any person beneficially owns more than 35% of the total voting power of GTI; or o the date on which individuals, who on the issuance date of the Senior Notes, were directors of GTI (or individuals nominated or elected by a vote of 66 2/3% of such directors or directors previously so elected or nominated), cease to constitute a majority of GTI's Board of Directors then in office; or o the date on which a plan relating to the liquidation or dissolution of GTI is adopted; or o the date on which GTI merges or consolidates with or into another person or another person merges into GTI, or all or substantially all of GTI's assets are sold (in each case, determined on a consolidated basis), with certain specified exceptions; or o the date on which GTI ceases to own, directly or indirectly, all of the voting power of UCAR Global, UCAR Carbon and UCAR Finance. 13 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES The Senior Notes rank senior to present and future subordinated debt and equally with present and future senior debt and obligations of UCAR Finance. The Senior Notes are effectively subordinated to present and future secured debt and obligations of UCAR Finance, to the extent of the value of the assets securing such debt and obligations, and are structurally subordinated to debt and obligations, including trade payables, of subsidiaries that are neither guarantors of the Senior Notes nor unsecured intercompany term note obligors. 13 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES The Senior Notes have been guaranteed on a senior unsecured basis by GTI, UCAR Global and UCAR Carbon and other U.S. subsidiaries holding a substantial majority of our U.S. assets, except that the guarantee by UCAR Carbon is secured as described below. Unsecured intercompany term notes in an aggregate principal amount equal to $382 million (based on currency exchange rates in effect at March 31, 2002) and guarantees of those unsecured intercompany term notes issued to UCAR Finance by certain of our foreign subsidiaries have been pledged by UCAR Finance to secure the Senior Notes, subject to the limitation that at no time will the combined value of the pledged portion of any foreign subsidiary's unsecured intercompany term note and unsecured guarantee of unsecured intercompany term notes issued by other foreign subsidiaries exceed 19.99% of the principal amount of the then outstanding Senior Notes. As a result of this limitation and assuming no change in the aggregate principal amount of unsecured intercompany term notes due to changes in currency exchange rates since March 31, 2002, and after giving effect to the issuance of additional Senior Notes on May 6, 2002, the principal amount of unsecured intercompany term notes pledged to secure the Senior Notes equals $381 million, or about 69% of the principal amount of the outstanding Senior Notes (including the additional Senior Notes issued on May 6, 2002 as discussed in Note 10). The remaining unsecured intercompany term notes held by UCAR Finance (in an aggregate principal amount of $1 million (based on currency exchange rates in effect at March 31, 2002 and after giving effect to the issuance of additional Senior Notes on May 6, 2002) and any pledged unsecured intercompany term notes that cease to be pledged due to a reduction in the principal amount of the then outstanding Senior Notes due to redemption, repurchase or other events, will not be subject to any pledge and will be available to satisfy the claims of creditors (including the lenders under the Senior Facilities and the holders of the Senior Notes) of UCAR Finance, as their interests may appear. The Senior Notes contain provisions restricting, subject to certain exceptions, the pledge of those unsecured intercompany term notes to secure any debt or obligation unless they are equally and ratably pledged to secure the Senior Notes for so long as such other pledge continues in effect. The guarantee by UCAR Carbon has been secured by a pledge of all of our shares of Graftech, but at no time will the value of the pledged portion of such shares exceed 19.99% of the principal amount of the then outstanding Senior Notes. The pledge of the shares of Graftech is junior to the pledge of the same shares to secure UCAR Carbon's guarantee of the Senior Facilities. 14 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES The unsecured intercompany term note obligations rank senior to present and future subordinated guarantees, debt and obligations of the respective obligors, and equally with present and future senior guarantees, debt and obligations of the respective obligors. The unsecured intercompany term note obligations are effectively subordinated to present and future secured guarantees, debt and obligations of the respective obligors, to the extent of the value of the assets securing such guarantees, debt and obligations, and are structurally subordinated to guarantees, debt and obligations, including trade payables, of subsidiaries of the respective obligors that are not also unsecured intercompany term note obligors. The Senior Notes contain a number of covenants that, among other things, restrict our ability to incur additional indebtedness, pay dividends, make investments, create or permit to exist restrictions on distributions from subsidiaries, sell assets, engage in certain transactions with affiliates or enter into certain mergers and consolidations. In addition to the failure to pay principal and interest on, or repurchase when required, the Senior Notes, events of default under the Senior Notes include failure to comply with certain covenants in the Senior Notes, failure to pay at maturity or acceleration of other indebtedness exceeding $10 million, judgment defaults in excess of $10 million to the extent not covered by insurance and certain events of bankruptcy. The Senior Notes contain provisions as to legal defeasance and covenant defeasance. SENIOR FACILITIES The Senior Facilities, which have been amended and which amendments since January 1, 2001 are described below, consist of: o A Tranche A Facility providing for initial term loans of $137 million and of [euro]161 million (equivalent to $158 million based on currency exchange rates in effect at February 22, 2000) to UCAR Finance. The Tranche A Facility amortizes in quarterly installments over six years, commencing June 30, 2000, with quarterly installments ranging from about [euro] 2 million in 2000 to about [euro] 17 million in 2005, with the final installment payable on December 31, 2005. In October 2000, we converted $78 million of these loans from dollar-denominated to euro-denominated loans. 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 dollar and euro-denominated revolving and swingline loans to, and the issuance of dollar-denominated letters of credit for the account of, UCAR Finance and certain of our other subsidiaries in an aggregate 15 principal and stated amount at any time not to exceed [euro]200 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 $75 million (which $75 million is reduced by the amount of certain debt (excluding the Senior Notes) incurred by us that is not incurred under the Senior Facilities). At March 31, 2002, after giving effect to the issuance of additional Senior Notes in May 2002 and the application of the net proceeds therefrom: o the term loans under the Tranche A Facility have been fully repaid; and o the principal amount of term loans outstanding under the Tranche B Facility is $131 million, all of the scheduled principal payments of which are due in 2007. We are generally 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 net debt to our EBITDA) of 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; and o 50% of the net proceeds of the issuance of certain GTI equity securities. We may make voluntary prepayments under the Senior Facilities. There is no penalty or premium due in connection with prepayments (whether voluntary or mandatory). UCAR Finance has made and may make secured and guaranteed intercompany loans of the net proceeds of borrowings under the Senior Facilities to UCAR Global's subsidiaries. The obligations of UCAR Finance under the 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). We used the proceeds from the issuance of the Senior Notes in February 2002 to finance the repayment of all of these intercompany loans which were outstanding at that time, except for intercompany revolving loans to UCAR Carbon and our Swiss subsidiary. GTI unconditionally and irrevocably guarantees the obligations of UCAR Finance under the Senior Facilities. This guarantee is secured, with certain exceptions, by first priority 16 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES security interests in all of the outstanding capital stock of UCAR Global and UCAR Finance, all of the intercompany debt owed to GTI and GTI's interest in the lawsuit initiated by us against our former parents. GTI, UCAR Global and each of UCAR Global's subsidiaries guarantees, with certain exceptions, the obligations of UCAR Global's subsidiaries under the intercompany loans, except that our foreign subsidiaries do not guarantee the intercompany loan obligations of our U.S. 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 Facility, prior to repayment of all term loans thereunder, were, and the interest rates applicable to the Revolving Facility are, at our option, either euro LIBOR plus a margin ranging from 1.375% to 3.375% (depending on our leverage ratio) or the alternate base rate plus a margin ranging from 0.375% to 2.375% (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 2.875% to 3.625% (depending on our leverage ratio) or the alternate base rate plus a margin ranging from 1.875% to 2.625% (depending on our leverage ratio). The alternate base rate is the higher of the prime rate announced by JP Morgan Chase Bank 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. At March 31, 2002, the interest rates on outstanding debt under the Senior Facilities were: Tranche A euro Facility, 6.8%; Tranche B Facility, 5.6%; and Revolving Facility, 5.3%. The weighted average interest rate on the Senior Facilities was 5.6% during the 2002 first quarter. The Senior Facilities contain a number of significant covenants that, among other things, significantly restrict our ability to sell assets, incur additional debt, repay or refinance other debt or amend other debt instruments, create liens on assets, enter into sale and lease back transactions, make investments or acquisitions, engage in mergers or consolidations, make capital expenditures, make intercompany dividend payments to GTI, pay intercompany debt owed to GTI, engage in transactions with affiliates, pay dividends to stockholders of GTI or make other restricted payments and that otherwise significantly restrict corporate activities. In addition, we are required to comply with specified minimum interest coverage and maximum leverage ratios, which become more restrictive over time, beginning September 30, 2003. Under the Senior Facilities, GTI is permitted to pay dividends on, and repurchase, common stock in an aggregate annual amount of $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 17 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES 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 to the failure to pay principal, interest and fees when due, events of default under the 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. AMENDMENTS TO SENIOR FACILITIES In April 2001, the Senior Facilities were amended to, among other things, exclude certain expenses incurred in connection with the lawsuit initiated by us against our former parents (up to a maximum of $20 million, but not more than $3 million in any quarter) and certain charges and payments in connection with antitrust fines, settlements and expenses from the calculation of financial covenants. Charges (over and above the $340 million charge recorded in 1997) recorded on or before June 30, 2002 (or during the term of the Senior Facilities, after effectiveness of the amendment described below which became effective in February 2002) for antitrust fines, settlements and expenses are excluded from the calculation of financial covenants (until paid) up to a maximum of $130 million (or $75 million, after effectiveness of the amendment described in Note 10), reduced by the amount of certain debt (other than the Senior Notes) incurred by us that is not incurred under the Senior Facilities ($24 million of which debt was outstanding at March 31, 2002). The fine assessed by the EU Competition Authority, as well as the additional $10 million charge recorded in July 2001 and any payments related to such fine (including payments within the $340 million charge recorded in 1997), are excluded from the calculation of financial covenants through June 30, 2002 (or for the term of the Senior Facilities, after the effectiveness of the amendment described below which became effective in February 2002). In July 2001, the Senior Facilities were amended to, among other things, change our financial covenants so that they were less restrictive through 2006 than would otherwise have been the case. In connection therewith, we agreed that our investments in Graftech and any of our other unrestricted subsidiaries after this amendment will be made in the form of secured loans, which will be pledged to secure the Senior Facilities, and the maximum amount of capital expenditures permitted under the Senior Facilities would be reduced in 2001 and 2002. We do not expect that our capital expenditures would exceed such maximums. In connection therewith, we paid an amendment fee of $2 million and the margin which is added to either euro LIBOR or the alternate base rate in order to determine the interest rate payable thereunder increased by 25 basis points. In December 2001, the Senior Facilities were amended to, among other things, permit the corporate realignment of our subsidiaries. In connection therewith, we paid an amendment fee of $1 million. 18 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES In February 2002, the Senior Facilities were amended to, among other things, permit us to issue up to $400 million aggregate principal amount of Senior Notes, to pledge certain unsecured intercompany term notes and unsecured guarantees of those notes to secure the Senior Notes, to have certain U.S. subsidiaries holding a majority of our U.S. assets guarantee the Senior Notes and to have those U.S. subsidiaries pledge shares of Graftech to secure such guarantees. Furthermore, the amendment permitted the net proceeds from the sale of such senior notes to be applied to repay term loans under the Tranche A and B Facilities and reduce the outstanding balance under the Revolving Facility. In connection with this amendment, our maximum permitted leverage ratio was substantially increased and our minimum required interest coverage ratio was substantially decreased while maintaining full availability of the Revolving Facility. The amendment also changed the manner in which net debt and EBITDA are calculated to exclude certain fees, costs and expenses (including fees of counsel and experts) in connection with the lawsuit initiated by us against our former parents as well as any letter of credit issued to secure payment of the antitrust fine assessed against us by the EU Competition Commission. In addition, the amendment expanded our ability to make certain investments, including investments in Graftech, and eliminate provisions relating to a spin-off of Graftech. In connection therewith, we paid an amendment fee of $1 million and the margin which is added to either euro LIBOR or the alternate base rate in order to determine the interest rate payable thereunder increased by 37.5 basis points. In May 2002, the Senior Facilities were amended as described in Note 10. INTEREST RATE MANAGEMENT We implement interest rate management initiatives to seek to minimize our interest expense and optimize our portfolio of fixed and variable interest rate obligations. Use of these initiatives is allowed under the Senior Notes and the Senior Facilities. In April 2002, we entered into a ten-year interest rate swap for a notional amount of $200 million to effectively convert that amount of fixed rate debt to variable rate debt. LEVERAGE We are highly leveraged and, as discussed in Note 7, have substantial obligations in connection with antitrust investigations, lawsuits and claims (in respect of which we have an unfunded reserve totaling $101 million). We had total debt of $696 million and a stockholders' deficit of $343 million at March 31, 2002. A substantial portion of our debt has variable interest rates or has been effectively converted from a fixed rate obligation to a variable rate obligation pursuant to interest rate management initiatives. We typically discount or factor a portion of our accounts receivable. In the 2001 first quarter, certain of our subsidiaries sold receivables totaling $42 million. In addition, if we are required to pay or issue a letter of credit to secure payment of the fine assessed by the EU Competition Authority pending resolution of our appeal regarding the amount of the fine, the payment would be financed by borrowing under, or the letter of credit 19 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES would constitute a borrowing under, the Revolving Facility. Our leverage and obligations, as well as changes in conditions affecting our industry, changes in global and regional economic conditions and other factors, have adversely impacted our recent operating results. We use, and are dependent on, funds available under the Revolving Facility, including continued compliance with the financial covenants under the Senior Facilities, as well as monthly or quarterly cash flow from operations as our primary sources of liquidity. Our high leverage and substantial obligations in connection with antitrust investigations, lawsuits and claims could have a material impact on our liquidity. Cash flow from operations services payment of our debt and 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 or timing of payment is sooner than expected. Our ability to service our debt, as it comes due, including maintaining compliance with the covenants under the Senior Facilities, and to 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 conditions affecting our industry, changes in global and regional economic conditions, changes in interest and currency exchange rates, developments in antitrust investigations, lawsuits and claims involving us and inflation in raw material, energy and other costs. Even if we are able to meet our debt service and other obligations when due, we may not be able to comply with the financial covenants under the Senior Facilities. A failure to so comply, unless waived by the lenders thereunder, would be a default thereunder. This would permit the lenders to accelerate the maturity of the Senior Facilities. It would also permit them to terminate their commitments to extend credit under the Revolving Facility. This would have an immediate material adverse effect on our liquidity. An acceleration of maturity of the Senior Facilities would permit the holders of the Senior Notes to accelerate the maturity of the Senior Notes. A breach of the covenants contained in the Senior Notes would also permit the holders of the Senior Notes to accelerate the maturity of the Senior Notes. Acceleration of maturity of the Senior Notes would permit the lenders to accelerate the maturity of the Senior Facilities and terminate their commitments to extend credit under the Revolving Facility. If we were unable to repay our debt to the lenders and holders or otherwise obtain a waiver from the lenders and holders, the lenders and holders could proceed against the collateral securing the Senior Facilities and the Senior Notes, respectively, and exercise all other rights available to them. EXTRAORDINARY ITEM In February 2002, we recorded an extraordinary charge of $3 million ($2 million after tax) for write-off of capitalized fees associated with the term loans under Tranche A and B Facilities repaid with the net proceeds from the issuance of the Senior Notes. 20 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES (6) FINANCIAL INSTRUMENTS Certain of our subsidiaries sold receivables totaling $42 million in the 2002 first quarter and $61 million in the 2001 first quarter. None of the receivables sold were recorded on the Consolidated Balance Sheets at March 31, 2002 or December 31, 2001, respectively. (7) CONTINGENCIES ANTITRUST INVESTIGATIONS In April 1998, pursuant to a plea agreement between the U.S. Department of Justice (the "DOJ") and GTI, GTI 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, payable in six annual installments of $20 million, $15 million, $15 million, $18 million, $21 million and $21 million, commencing July 23, 1998. The plea agreement was approved by the court and, as a result, under the plea 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. At our request, in January 2001, the due date of each of the remaining three payments was deferred by one year and, at our request, in January 2002, the payment schedule for the $60 million unpaid balanced outstanding at that time was revised to require a $2.5 million payment in April 2002, a $5.0 million payment in April 2003 and, beginning in April 2004, quarterly payments ranging from $3.25 million to $5.375 million, through January 2007. Beginning in 2004, the DOJ may ask the court to accelerate the payment schedule based on a change in our ability to make such payments. Interest will begin to accrue on the unpaid balance, commencing in April 2004, at the statutory rate of interest then in effect. In January 2002, the statutory rate of interest was 2.13% per annum. Accrued interest will be payable together with each quarterly payment. The revised payment schedule has been approved by the court. All payments due have been timely made. In March 1999, pursuant to a plea agreement between our Canadian subsidiary and the Canadian 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 relevant Canadian court approved the plea agreement and, as a result, under the plea agreement we will not be subject to prosecution by the Canadian 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 October 1999, we became aware that the Korean antitrust authority had commenced an investigation as to whether there had been any violation of Korean antitrust law by producers and distributors of graphite electrodes. In March 2002, we were advised that it had, after holding a hearing, assessed a fine against us in the amount of 676 million KRW (approximately $510,000, based on currency exchange rates in effect on March 31, 2002). Five other graphite electrode producers were also fined by it in amounts ranging up to 4,396 million KRW (approximately $3.3 million based on currency exchange rates in effect on March 31, 2002). Our fine 21 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES represented 0.5% of our graphite electrode sales in Korea during the relevant time period. In May 2002, we appealed the decision. Notwithstanding our appeal, we are required to pay this fine by June 9, 2002. In January 2000, the antitrust enforcement authority of the European Union (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 European antitrust law in connection with the sale of graphite electrodes. In July 2001, the EU Competition Authority issued its decision regarding the allegations. Under the decision, it assessed a fine of [euro]50.4 million (about $46 million, based on currency exchange rates in effect at March 31, 2002) against us. Seven other graphite electrode producers were also fined, with fines ranging up to [euro]80.2 million. From the initiation of its investigation, we have cooperated with the EU Competition Authority. It is the policy of the EU Competition Authority to negotiate appropriate terms of payment of antitrust fines, including extended payment terms. We have had discussions regarding payment terms. After an in-depth analysis of the decision, in October 2001, we filed an appeal to the court challenging the amount of the fine. Appeals of this type may take two years or longer to be decided and the fine or collateral security therefor would typically be required to be paid or provided at about the time the appeal was filed. We are currently in discussions with the EU Competition Authority regarding the appropriate form of collateral security during the pendency of the appeal. If the results of these discussions are not acceptable to us, we may file an interim appeal with the court to waive the requirement for collateral security or to allow us to provide alternative security for payment. We cannot predict how or when the court would rule on such interim appeal. In the 2001 second quarter, we became aware that the Brazilian antitrust authority had requested written information from various steelmakers in Brazil. In April 2002, our Brazilian subsidiary received a request for information from that authority. We intend to provide that information. Except as described above, antitrust investigations against us in the U.S., Canada, the European Union, Japan and Korea have been resolved. We are continuing to cooperate with some of these antitrust authorities in their continuing investigations of others. 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. It is possible that antitrust investigations seeking, among other things, to impose fines and penalties could be initiated by antitrust authorities in Brazil or other jurisdictions. The guilty pleas and decisions described above make it more difficult for us to defend against other investigations as well as civil lawsuits and claims. We have been vigorously protecting, and intend to continue to vigorously protect, our interests in connection with the investigations described above. We may, however, at any time settle any possible unresolved charges. 22 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES ANTITRUST LAWSUITS Through March 31, 2002, except as described in the following paragraphs, we have settled or obtained dismissal of all of the civil antitrust lawsuits (including class action lawsuits) previously pending against us, certain threatened civil antitrust lawsuits threatened against us and certain possible civil antitrust claims against us by certain customers who negotiated directly with us. The settlements cover, among other things, virtually all of the actual and potential claims against us by customers in the U.S. and Canada arising out of alleged antitrust violations occurring prior to the date of the relevant settlement in connection with the sale of graphite electrodes. One of the settlements also covers the actual and potential claims against us by certain foreign customers arising out of alleged antitrust violations occurring prior to the date of that settlement in connection with the sale of graphite electrodes sourced from the U.S. Although each settlement is unique, in the aggregate they consist primarily of current and deferred cash payments with some product credits and discounts. All settlement payments due have been timely made. In 1999, 2000 and 2002, we and other producers of graphite electrodes were served with four complaints commencing four separate civil antitrust lawsuits (the "FOREIGN CUSTOMER LAWSUITS"). The complaints were filed by an aggregate of 37 steelmakers and related parties, all but one 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. We believe that we have strong defenses against claims alleging that purchases of graphite electrodes outside the U.S. are actionable under U.S. federal antitrust law. We filed motions to dismiss the first and second complaints. In June 2001, our motions to dismiss the first and second complaints were granted with respect to substantially all of the plaintiffs' claims. Appeals have been filed by the plaintiffs and the defendants with regard to these dismissals. The third complaint was dismissed without prejudice to refile pending the resolution of such appeals. The fourth complaint was filed in March 2002 and also names Mitsubishi Corporation as a defendant. We filed a motion to stay the lawsuit commenced by the fourth complaint pending the resolution of such appeals. In 1999 and 2000, we were served with three complaints commencing three civil antitrust lawsuits (the "CARBON ELECTRODE LAWSUITS"). The complaints were filed by an aggregate of three companies and the estate of a bankrupt company. Other producers of carbon electrodes are named as defendants in two of the complaints. In the complaints, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of carbon electrodes and seek, among other things, an award of treble damages resulting from such alleged violations. We filed motions to dismiss the second and third complaints. In May 2001, our motion to dismiss the second complaint was denied. In October 2001, we settled the lawsuit commenced by the third complaint. The guilty pleas and decisions described above do not relate to carbon electrodes. 23 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES The foreign customer lawsuits and two of the three carbon electrode lawsuits are still in their early stages. We have been vigorously defending, and intend to continue to vigorously defend, against these remaining lawsuits as well as all threatened lawsuits and possible unasserted claims. We may at any time, however, settle these lawsuits as well as any threatened lawsuits and possible claims. It is possible that additional civil antitrust lawsuits seeking, among other things, to recover damages could be commenced against us in the U.S. and in other jurisdictions. 1997 AND 2001 SECOND QUARTER ANTITRUST EARNINGS CHARGES We recorded a pre-tax charge of $340 million against results of operations for 1997 and, as a result of the assessment of a fine by the EU Competition Authority, we recorded a pre-tax charge of an additional $10 million against results of operations for the 2001 second quarter, as a reserve for potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. The aggregate reserve of $350 million is calculated on a basis net of, among other things, imputed interest on installment payments of the fine payable to the DOJ. Actual aggregate liabilities and expenses (including settled investigations, lawsuits and claims as well as continuing investigations, pending appeals and unsettled pending, threatened and possible lawsuits and claims mentioned above) could be materially higher than $350 million and the timing of payment thereof could be sooner than anticipated. In the aggregate (including the assessment of the fines by the EU Competition Authority, and the Korean antitrust authority and the additional $10 million charge), the fines and net settlements and expenses are within the amounts we used to evaluate the aggregate charge of $350 million. To the extent that aggregate liabilities and expenses, net, are known or reasonably estimable, at March 31, 2002, $350 million represents our estimate of these liabilities and expenses. Our insurance has not and will not materially cover liabilities that have or may become due in connection with antitrust investigations or related lawsuits or claims. Through March 31, 2002, we have paid an aggregate of $249 million of fines and net settlement and expense payments and $11 million of imputed interest. At March 31, 2002, $101 million remained in the reserve. The balance of the reserve is available for the fine payable to the DOJ, the fines assessed by the EU Competition Authority and the Korean antitrust authority and other matters. The aggregate amount of remaining committed payments payable to the DOJ for imputed interest at March 31, 2002 was about $9 million. OTHER PROCEEDINGS AGAINST US 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. 24 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES LAWSUIT INITIATED BY US AGAINST OUR FORMER PARENTS In February 2000, we commenced a lawsuit against our former parents, Mitsubishi Corporation and Union Carbide Corporation. In the lawsuit, we allege, among other things, that certain payments made to our former parents in connection with our leveraged equity recapitalization in January 1995 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 us 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. The defendants have filed motions to dismiss this lawsuit and a motion to disqualify certain of our counsel from representing us in this lawsuit. We are vigorously opposing those motions. Oral hearings were held on those motions in the 2001 first and second quarters. No decision on those motions has been rendered. Through March 31, 2002, we had incurred about $4 million of these legal expenses. This lawsuit is in its earliest stages. The ultimate outcome of this lawsuit is subject to many uncertainties. We may at any time settle this lawsuit. (8) OTHER TRANSACTIONS In January 2002, we announced a new major cost savings plan. The key elements of the 2002 plan include: o the rationalization of graphite electrode manufacturing capacity at our higher cost facilities including the mothballing of our graphite electrode plant in Caserta, Italy, which was completed in the 2002 first quarter, and the incremental expansion of capacity at our lower cost facilities; o the redesign and implementation of changes in our U.S. benefit plans for active and retired employees, which was completed in the 2002 first quarter; o the implementation of work process changes, including consolidating and streamlining order fulfillment, purchasing, finance and accounting, and human resource processes, along with the identification and implementation of outsourcing opportunities; o the implementation of additional plant and corporate overhead cost reductions; and o the corporate realignment of our subsidiaries, consistent with the operational realignment of our divisions, to generate significant tax savings, which is expected to be substantially completed in the 2002 first half. We intend to sell real estate, non-strategic businesses and certain other non-strategic assets over the next two years. These non-strategic businesses contributed net sales of about $25 million in 2001. 25 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES (9) FINANCIAL INFORMATION ABOUT THE PARENT, THE ISSUER, THE GUARANTORS AND THE SUBSIDIARIES WHOSE SECURITIES SECURE THE SENIOR NOTES AND RELATED GUARANTEES On February 15, 2002, UCAR Finance (the "ISSUER") issued $400 million aggregate principal amount of Senior Notes. As described in Note 10, on May 6, 2002, the Issuer issued $150 million aggregate principal amount of additional Senior Notes. The Senior Notes have been guaranteed on a senior basis by GTI (the "PARENT") and UCAR Global, UCAR Carbon and other subsidiaries holding a substantial majority of our U.S. assets, which subsidiaries are UCAR International Holdings Inc., UCAR International Trading Inc., UCAR Carbon Technology LLC, UCAR Composites Inc. and UCAR Holdings III Inc. The guarantors (other than the Parent) are collectively called the "U.S. GUARANTORS." The guarantees of the U.S. Guarantors are unsecured, except that the guarantee of UCAR Carbon has been secured by a pledge of all of our shares of Graftech, but in no event will the value of the pledged portion of such shares exceed 19.99% of the principal amount of the then outstanding Senior Notes. All of the guarantees are full, unconditional and joint and several and the Issuer and each of the U.S. Guarantors are 100% owned by the Parent. Graftech and our other subsidiaries which are not guarantors are called the "NON-GUARANTORS." The following table sets forth condensed consolidating balance sheets at March 31, 2002 and December 31, 2001 and condensed consolidating statements of operations and cash flows for the three months ended March 31, 2002 and 2001 of the Parent, the Issuer, the U.S. Guarantors and the Non-Guarantors. Provisions in the Senior Facilities restrict the payment of dividends by our subsidiaries to the Parent. At March 31, 2002, retained earnings of our Subsidiaries subject to such restrictions were approximately $569 million. Investments in subsidiary companies are recorded on the equity basis. 26 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2002 -------------- U.S. NON- PARENT ISSUER GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ------ ------ ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) ASSETS CURRENT ASSETS: Cash and cash equivalents..................... $ - $ - $ 1 $ 32 $ - $ 33 Notes and accounts receivable................. - 780 444 192 (1,319) 97 Inventories: Raw materials and supplies................ - - 3 33 (2) 34 Work in process........................... - - 38 66 1 105 Finished goods............................ - - 8 24 - 32 -------- ---------- ---------- --------- --------- ------- - - 49 123 (1) 171 Prepaid expenses and deferred income taxes.... - - 9 10 - 19 -------- ---------- ---------- --------- --------- ------- Total current assets...................... - - 503 357 (1,320) 320 -------- ---------- ---------- --------- --------- ------- Property, plant and equipment.................... - - 309 631 (4) 936 Less: accumulated depreciation................... - - (257) (383) (15) (655) -------- ---------- ---------- -------- --------- ------- Net fixed assets.............................. - - 52 248 (19) 281 -------- ---------- ---------- -------- --------- ------- Deferred income taxes and other assets........... 50 24 113 97 (68) 216 -------- ---------- ---------- --------- --------- ------- Total assets.................................. $ 50 $ 804 $ 668 $ 702 $ (1,407) $ 817 ======== ========== ========== ========= ========= ======= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable.............................. $ 10 $ 10 $ 46 $ 66 $ (64) $ 68 Short-term debt............................... 400 103 321 428 (1,244) 8 Accrued income and other taxes................ (17) (1) 37 28 - 47 Other accrued liabilities..................... - - 29 39 (10) 58 -------- ---------- ---------- --------- --------- ------- Total current liabilities................. 393 112 433 561 (1,318) 181 -------- ---------- ---------- --------- --------- ------- Long-term debt................................... - 682 - 6 - 688 Other long-term obligations...................... - (1) 195 32 2 228 Deferred income taxes............................ - - 1 39 (2) 38 Minority stockholders' equity in consolidated entities....................................... - - - 25 - 25 Stockholders' equity (deficit)................... (343) 11 39 39 (89) (343) -------- ---------- ---------- --------- --------- ------- Total liabilities and stockholders' equity $ 50 $ 804 $ 668 $ 702 $ (1,407) $ 817 (deficit)................................... ======== ========== ========== ========= ========= =======
27 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2001 -------------- U.S. NON- PARENT ISSUER GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ------ ------ ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) ASSETS CURRENT ASSETS: Cash and cash equivalents..................... $ - $ 16 $ 8 $ 14 $ - $ 38 Notes and accounts receivable................. - 885 442 365 (1,597) 95 Inventories: Raw materials and supplies................ - - 3 32 (2) 33 Work in process........................... - - 45 66 - 111 Finished goods............................ - - 8 26 (1) 33 -------- -------- -------- --------- --------- --------- - - 56 124 (3) 177 Prepaid expenses and deferred income taxes.... - - 7 5 - 12 -------- -------- -------- --------- --------- --------- Total current assets...................... - 901 513 508 (1,600) 322 -------- -------- -------- --------- --------- --------- Property, plant and equipment.................... - - 308 627 (4) 931 Less: accumulated depreciation................... - - (256) (394) - (650) -------- -------- -------- --------- --------- --------- Net fixed assets.............................. - - 52 233 (4) 281 -------- -------- -------- --------- --------- Other assets..................................... 58 29 216 74 (183) 194 -------- -------- -------- --------- --------- --------- Total assets.................................. $ 58 $ 930 $ 781 $ 815 $ (1,787) 797 ======== ======== ======== ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable.............................. $ 8 $ 13 $ 50 $ 92 $ (62) $ 101 Short-term debt............................... 397 274 407 450 (1,521) 7 Accrued income and other taxes................ (15) - 42 18 - 45 Other accrued liabilities..................... - - 39 33 (15) 57 -------- -------- -------- --------- --------- --------- Total current liabilities................. 390 287 538 593 (1,598) 210 -------- -------- -------- --------- --------- --------- Long-term debt................................... - 626 - 21 (16) 631 Other long-term obligations...................... - - 197 34 - 231 Deferred income taxes............................ - - 5 32 (5) 32 Minority stockholders' equity in consolidated entities....................................... - - - 23 2 25 Stockholders' equity (deficit)................... (332) 17 41 112 (170) (332) -------- -------- -------- --------- --------- -------- Total liabilities and stockholders' equity $ 58 $ 930 $ 781 $ 815 $ (1,787) $ 797 (deficit)................................... ======== ======== ======== ========= ========= ========
28 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 U.S. NON- PARENT ISSUER GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ------ ------ ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) Net sales........................................... $ - $ - $ 53 $ 119 $ (34) $ 138 Cost of sales....................................... - - 45 92 (30) 107 -------- ------- ---------- --------- --------- -------- Gross profit..................................... - - 8 27 (4) 31 R&D, SG&A, global realignment and related expenses, restructuring charge and impairment loss of long-lived and other assets and other expenses... - (3) (11) 20 18 24 -------- ------- ---------- --------- --------- -------- Operating profit (loss).......................... - 3 19 7 (22) 7 Interest income..................................... - (12) (6) (4) 22 - Interest expense.................................... 6 16 5 8 (22) 13 -------- ------- ---------- --------- --------- -------- Income (loss) before provision for income taxes.. (6) (1) 20 3 (22) (6) Provision for (benefit from) income taxes........... (2) - (12) 9 - (5) -------- ------- ---------- --------- --------- -------- Income (loss) of consolidated entities........... (4) (1) 32 (6) (22) (1) Minority stockholders' share of income.............. - - - 1 - 1 Equity in earnings of subsidiaries.................. - - 29 - (29) - -------- ------- ---------- --------- --------- -------- Income (loss) before extraordinary item.......... (4) (1) 3 (7) 7 (2) Extraordinary item, net of tax...................... - 2 - - - 2 -------- ------- ---------- --------- --------- -------- Net income (loss)............................. $ (4) $ (3) $ 3 $ (7) $ 7 $ (4) ======== ======= ========== ========= ========= ======== THREE MONTHS ENDED MARCH 31, 2001 U.S. NON- PARENT ISSUER GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ------ ------ ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) Net sales........................................... $ - $ - $ 68 $ 139 $ (36) $ 171 Cost of sales....................................... - - 55 98 (31) 122 -------- ---------- ---------- --------- --------- ------ Gross profit..................................... - - 13 41 (5) 49 R&D, SG&A, global realignment and related expenses, restructuring charge and impairment loss of long-lived and other assets and other expenses... - - 12 12 - 24 -------- ---------- ---------- --------- --------- ------ Operating profit (loss).......................... - - 1 29 (5) 25 Interest income..................................... - (21) - (5) 26 - Interest expense.................................... 10 21 7 7 (26) 19 -------- ---------- ---------- --------- --------- ------ Income (loss) before provision for income taxes.. (10) - (6) 27 (5) 6 Provision for (benefit from) income taxes........... (4) - (2) 8 - 2 -------- ---------- ---------- --------- --------- ------ Income (loss) of consolidated entries............ (6) - (4) 19 (5) 4 Minority stockholders' share of income.............. - - - 1 - 1 Equity in earnings of subsidiaries.................. (14) - (18) - 32 - -------- ---------- ---------- --------- --------- ------ Net income (loss)............................. $ 8 $ - $ 14 $ 18 $ (37) $ 3 ======== ========== ========== ========= ========= ======
29 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 U.S. NON- PARENT ISSUER GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ------ ------ ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) Net cash provided by (used in) operating activities. $ (4) $ (4) $ - $ (123) $ 84 $ (47) Net cash provided by (used in) investing activities. - 110 79 163 (361) (9) Net cash provided by (used in) financing activities. 4 (122) (86) (22) 277 51 -------- ---------- ---------- --------- --------- ------ Net increase (decrease) in cash and cash equivalents - (16) (7) 18 - (5) Effect of exchange rate changes on cash and cash equivalents...................................... - - - - - - Cash and cash equivalents at beginning of period.... - 16 8 14 - 38 -------- ---------- ---------- --------- --------- ------ Cash and cash equivalents at end of period.......... $ - $ - $ 1 $ 32 $ - $ 33 ======== ========== ========== ========= ========= ====== THREE MONTHS ENDED MARCH 31, 2001 U.S. NON- PARENT ISSUER GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ------ ------ ---------- ---------- ------------ ------------ (DOLLARS IN MILLIONS) Net cash provided by (used in) operating activities. $ - $ (17) $ (10) $ 29 $ 9 $ 11 Net cash provided by (used in) investing activities. - 4 8 (2) (14) (4) Net cash provided by (used in) financing activities. - (7) 8 (2) 5 4 -------- ---------- ---------- --------- --------- ------ Net increase in cash and cash equivalents........... - (20) 6 25 - 11 Effect of exchange rate changes on cash and cash equivalents...................................... - - - (2) - (2) Cash and cash equivalents at beginning of period.... - 31 7 9 - 47 -------- ---------- ---------- --------- --------- ------ Cash and cash equivalents at end of period.......... $ - $ 11 $ 13 $ 32 $ - $ 56 ======== ========== ========== ========= ========= ======
30 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES Unsecured intercompany term notes in an aggregate principal amount, at March 31, 2002, equal to $382 million (based on currency exchange rates in effect at March 31, 2002), and guarantees of those unsecured intercompany term notes, issued to UCAR Finance by certain of our foreign subsidiaries have been pledged by UCAR Finance to secure the Senior Notes, subject to the limitation that at no time will the combined value of the pledged portion of any foreign subsidiary's unsecured intercompany term note and unsecured guarantee of unsecured intercompany term notes issued by other foreign subsidiaries exceed 19.99% of the principal amount of the then outstanding Senior Notes. As described above, the guarantee of the Senior Notes by UCAR Carbon has been secured by a pledge of all of our shares of Graftech, but at no time will the value of the pledged portion of such shares exceed 19.99% of the principal amount of the then outstanding Senior Notes. Rule 3-16 of Regulation S-X adopted by the SEC provides that, for each of the registrant's affiliates whose securities constitute a "substantial" portion of the collateral for registered securities, financial statements (that would be required to be filed if the affiliate were a registrant) must be filed with this Report. Under Rule 3-16(b), securities of a person will be deemed to constitute a "substantial" portion of the collateral if the aggregate principal amount, par value, or book value of securities as carried by the registrant, or the market value of such securities, whichever is the greatest, equals 20% or more of the principal amount of the registered securities. In this case, the pledges of common stock of Graftech and the intercompany notes and related guarantees have been limited such that they will never be more than 19.99% of the principal amount of the outstanding Senior Notes. Therefore, no such financial statements are required to be included in this Report. (10) SUBSEQUENT EVENTS On May 6, 2002, UCAR Finance issued $150 million aggregate principal amount of additional Senior Notes (the "NEW NOTES") at a purchase price of 104.5% of principal amount, plus accrued interest from February 15, 2002. The New Notes were issued under the same Indenture pursuant to which UCAR Finance issued $400 million aggregate principal amount of Senior Notes in February 2002 (the "INITIAL NOTES"). The Initial Notes and the New Notes constitute a single class of debt securities under the Indenture and are called collectively the "SENIOR NOTES." We obtained consent from the holders of the Initial Notes to amend the Indenture so as to waive the requirement to use the gross proceeds from the issuance of the New Notes to make intercompany loans to our foreign subsidiaries and, on April 30, 2002, entered into a Supplemental Indenture to give effect to such amendment. The net proceeds (excluding such accrued interest) from the sale of the New Notes were $151 million. $75 of the net proceeds were used to reduce the outstanding balance under the Revolving Facility and the balance was used to repay term loans under Tranche A and B Facilities. 31 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES The $7 million premium received upon issuance of the New Notes will be added to the principal amount of the New Notes shown on the Consolidated Balance Sheets and amortized (as a credit to interest expense) over the term of the New Notes. In connection with the issuance of the New Notes, the Senior Facilities were amended to, among other things, permit us to issue the New Notes on the same terms as those relating to the Initial Notes. In connection with this amendment, our maximum permitted leverage ratio was changed to measure the ratio of net senior secured debt to EBITDA as against new specified amounts. Our interest coverage ratio was also changed. We believe that these changed ratios provide us with greater flexibility. In addition, the amendment reduced the maximum amount available under the Revolving Facility to [euro]200 million from [euro]250 million ([euro]25 million of which can only be used to pay or secure payment of the fine assessed by the EU Competition Commission) and reduced the basket for certain debt incurred by us that is not incurred under the Senior Facilities to $75 million from $130 million ($24 million of which debt was outstanding at March 31, 2002). In connection with the amendment and the consent, we paid fees and costs of $1 million. In April 2002, we entered into a ten-year interest rate swap for a national amount of $200 million to effectively convert that amount of fixed rate debt to variable rate debt. 32 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES INTRODUCTION TO PART I, ITEM 2, AND PART II, ITEM 1 IMPORTANT TERMS We use the following terms to identify various companies or groups of companies or other matters. These terms help to simplify the presentation of information in this Report. "GTI" refers to GrafTech International Ltd. only. GTI is our public parent company and the issuer of the publicly traded common stock covered by this Report. GTI is a guarantor of the Senior Notes. Prior to our Annual Meeting of Stockholders for 2002, GTI was named UCAR International Inc. "UCAR GLOBAL" refers to UCAR Global Enterprises Inc. only. UCAR Global is a direct, wholly owned subsidiary of GTI and the direct or indirect holding company for all of our operating subsidiaries. UCAR Global is a guarantor of the Senior Notes. "UCAR CARBON" refers to UCAR Carbon Company Inc. only. UCAR Carbon is our wholly owned subsidiary through which we conduct most of our U.S. operations. In connection with the corporate realignment of our subsidiaries as described below, UCAR Carbon will change its name to UCAR Technology Company Inc. and transfer its businesses to one or more newly formed wholly owned U.S. subsidiaries. UCAR Carbon is a guarantor of the Senior Notes. "UCAR FINANCE" refers to UCAR Finance Inc. only. UCAR Finance is a direct, wholly owned special purpose finance subsidiary of GTI and the borrower under our senior secured bank credit facilities (as amended, the "SENIOR FACILITIES"). UCAR Finance is the issuer of our 10.25% senior notes due 2012 (the "SENIOR NOTES"). "GRAFTECH" refers to Graftech Inc. only. Graftech is our 97.5% owned (wholly owned, prior to June 2001) subsidiary engaged in the development, manufacture and sale of natural graphite-based products. In connection with the corporate realignment of our subsidiaries as described below, Graftech will change its name to Graftech Technology Company Inc. and transfer its business to a newly formed 100% owned U.S. subsidiary (to be named Graftech Inc.). "CARBONE SAVOIE" refers to Carbone Savoie S.A.S. and its subsidiaries. Carbone Savoie is our 70% owned subsidiary engaged in the development, manufacture and sale of graphite and carbon cathodes. "SUBSIDIARIES" refer to those companies which, at the relevant time, are or were majority owned or wholly owned directly or indirectly by GTI or its predecessors to the extent that those predecessors' activities related to the graphite and carbon business. All of GTI's subsidiaries have been wholly owned (with de minimis exceptions in the case of certain foreign subsidiaries) from at least January 1, 1999 through March 31, 2002, except for: 33 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES 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 its liquidation; o Carbone Savoie, which has been and is 70% owned; and o Graftech, which was 100% owned until it became 97.5% owned in June 2001. Our 100% owned Brazilian cathode manufacturing operations were contributed to Carbone Savoie and, as a result, became 70% owned on March 31, 2001. "WE," "US" or "OUR" refers to GTI and its subsidiaries collectively or, if the context so requires, GTI, UCAR Global or UCAR Finance, individually. 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, such as our planned 25% owned manufacturing joint venture with Jilin Carbon Joint Stock Company, Ltd. (together with its affiliates, "JILIN") in China, and we do not restate financial information for periods prior to the acquisition of subsidiaries. This means that the financial information for Carbone Savoie is consolidated, since its acquisition, on each line of the Consolidated Financial Statements and the equity of the other 30% owner 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 and other assets, inventory write-downs and that portion of restructuring charges (credits) applicable to non-cash asset write-offs. "ADJUSTED EBITDA" means EBITDA plus the cash portion of restructuring charges (credits), charges (credits) for estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims, securities class actions and stockholder derivative lawsuits, corporate realignment of our subsidiaries and related expenses and the charge related to the withdrawn public offering of Graftech. The amount of restructuring charges (credits) applicable to non-cash asset write-offs was a charge of $4 million in 2001 and nil for the 2002 first quarter. We believe that EBITDA and Adjusted EBITDA are generally accepted as providing useful information regarding a company's ability to incur and service debt. EBITDA and Adjusted 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 and Adjusted EBITDA may not be comparable to methods used by other companies and is not the same as the method for calculating EBITDA under the Senior Facilities or the Senior Notes. 34 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES References to cost in the context of our low-cost supplier strategy do not include the impact of special or non-recurring charges or credits, such as those related to investigations, lawsuits or claims, restructurings, impairment losses, inventory write-downs or expenses incurred in connection with lawsuits initiated by us, or the impact of accounting changes. All historical cost savings and reductions are estimates based on a comparison, with respect to provision for income taxes, to costs in 1998 or, for all other costs, to costs in the 1998 fourth quarter (annualized). All cost savings and reductions targeted or estimated under our new major cost savings plan announced in January 2002 are based on a comparison to costs in 2001. Estimates of savings in interest expense resulting from the 2002 plan do not give effect to the increase in interest expense resulting from the issuance of the Senior Notes. Neither any statement made in this Report nor any charge taken by us relating to any legal proceedings constitutes an admission as to any wrongdoing. Unless otherwise specifically noted, market and market share data in this Report are our own estimates. Market data relating to the steel industry, our general expectations concerning such industry and our market position and market share within such industry, both domestically and internationally, are derived from publications by the International Iron and Steel Institute and other industry sources as well as assumptions made by us, based on such data and our knowledge of the industry. Market data relating to the fuel cell power generation industry, our general expectations concerning such industry and our market position and market share within such industry, both domestically and internationally, are derived from publications by securities analysts relating to Ballard Power Systems Inc., other industry sources and public filings, press releases and other public documents of Ballard Power Systems as well as assumptions made by us, based on such data and our knowledge of the industry. Market and market share data relating to the graphite and carbon industry as well as cost information relating to our competitors, our general expectations concerning such industry and our market position and market share within such industry, both domestically and internationally, are derived from the sources described above and public filings, press releases and other public documents of our competitors as well as assumptions made by us, based on such data and our knowledge of the industry. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under "Risk Factors" and "Forward-Looking Statements" in this Report and the Annual Report. We cannot guarantee the accuracy or completeness of this data and have not independently verified it. None of the sources mentioned above has consented to the disclosure or use of data in this Report. Unless otherwise noted, when we refer to dollars, we mean U.S. dollars. Unless otherwise noted, references to "MARKET SHARES" are based on unit volumes in 2001. As used herein, references to "MAJOR PRODUCT LINES" mean graphite and carbon electrodes and cathodes and flexible graphite. 35 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES The GRAFTECH logo, GRAFCELL(R), eGraf(TM), GRAFOIL(R), GRAFGUARD(R) and GRAFSHIELD(R), are our trademarks and trade names. This Report also contains trademarks and trade names belonging to other parties. We maintain a Web site at http://www.graftechinternational.com, our subsidiary Graftech maintains a Web site at and our High Tech High Temp ("HT2") business unit maintains a Web site at http://www.HT2.com. The information contained on these Web sites is not part of this Report. Reference is made to our Annual Report on Form 10-K for the year ended December 31, 2001, filed under GTI's former name, UCAR International Inc. (the "ANNUAL REPORT"), for background information on various risks and contingencies and other matters related to circumstances affecting us and our industry. FORWARD LOOKING STATEMENTS AND RISKS 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 and sales of steel, aluminum, fuel cells, electronic devices and other products that incorporate our products or that are produced using our products; future prices and sales of and demand for graphite electrodes and our other products; future operational and financial performance of various businesses; strategic plans and programs; impacts of regional and global economic conditions; restructuring, realignment, strategic alliance, supply chain, technology development and collaboration, investment, acquisition, joint venture, operating, integration, tax planning, rationalization, financial and capital projects; legal matters and related costs; consulting fees and related projects; potential offerings, sales and other actions regarding debt or equity securities of us or our subsidiaries; and future costs, working capital, revenue, business opportunities, values, debt levels, cash flow, cost savings and reductions, margins, earnings and growth. The words "will," "may," "plan," "estimate," "project," "believe," "anticipate," "intend," "expect," "should," "target," "goal" 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 affecting our products 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; 36 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES o the possibility that increased production of steel in electric arc furnaces or reductions in graphite electrode manufacturing capacity may not result in stable or increased demand for or prices or sales volume of graphite electrodes; o the possibility that economic or technological developments may adversely affect growth in the use of graphite cathodes in lieu of carbon cathodes in the aluminum smelting process; o the possibility of delays in or failure to achieve widespread commercialization of proton exchange membrane fuel cells which use natural graphite materials and components and the possibility that manufacturers of proton exchange membrane fuel cells using those materials or components may obtain those materials or components or the natural graphite used in them from other sources; o the possibility of delays in or failure to achieve successful development and commercialization of new or improved electronic thermal management or other products; o the possibility of delays in meeting or failure to meet contractually specified development objectives and the possible inability to fund and successfully complete expansion of manufacturing capacity to meet growth in demand for new or improved products, if any; o the possibility that we may not be able to protect our intellectual property or that intellectual property used by us infringes the rights of others; o the occurrence of unanticipated events or circumstances relating to pending antitrust investigations, lawsuits or claims; o the commencement of new investigations, lawsuits or claims relating to the same subject matter as the pending investigations, lawsuits or claims; 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 counterclaims could be asserted against us, legal expenses and distraction of management could be greater than anticipated, or unanticipated events or circumstances may occur; o the possibility that expected cost savings from our 2002 new major cost savings plan, including our Power of One initiative and the shutdown of certain of our facilities or other cost savings efforts, will not be fully realized; o the possibility that anticipated benefits from the realignment of our businesses into two new divisions may be delayed or may not occur; 37 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES o the possibility that the corporate realignment of our subsidiaries may not be completed when anticipated or at all and that, as a result, the anticipated benefits therefrom may not be achieved when anticipated or at all; o the possibility that we may incur unanticipated health, safety or environmental compliance, remediation or other costs or experience unanticipated raw material or energy supply, manufacturing operation or labor difficulties; o the occurrence of unanticipated events or circumstances relating to strategic plans or programs or relating to corporate realignment, restructuring, strategic alliance, supply chain, technology development, investment, acquisition, joint venture, operating, integration, tax planning, rationalization, financial or capital projects; o changes in interest or currency exchange rates, changes in competitive conditions, changes in inflation affecting our raw material, energy or other costs, development by others of substitutes for some of our products and other technological developments; o the possibility that changes in financial performance may affect our compliance with financial covenants or the amount of funds available for borrowing under the Senior Facilities; and o other risks and uncertainties, including those described elsewhere or incorporated by reference in this Report. Occurrence of any of the events or circumstances described above could also have a material adverse effect on our business, financial condition, results of operations or cash flows. No assurance can be given that any future transaction about which forward looking statements may be made will be completed or as to the timing or terms of any such transaction. 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. 38 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We are one of the world's largest manufacturers and providers of high quality natural and synthetic graphite- and carbon-based products and services, offering energy solutions to industry-leading customers worldwide. We manufacture graphite and carbon electrodes and cathodes, used primarily in electric arc furnace steel production and aluminum smelting. We also manufacture other natural and synthetic graphite and carbon products used in, and provide services to, the fuel cell power generation, electronics, semiconductor and transportation markets. We believe that we have the leading market share in all of our major product lines. We have over 100 years of experience in the research and development of graphite and carbon technology, and currently hold numerous patents related to this technology. We are a global business, selling our products and engineering and technical services in more than 70 countries. We have 13 manufacturing facilities strategically located in Brazil, Mexico, South Africa, France, Spain, Russia and the U.S., and a planned joint venture manufacturing facility located in China, which, subject to receipt of required Chinese governmental approvals and satisfaction of other conditions, is expected to commence operations in 2003. Our customers include industry leaders such as Nucor Corporation and Arcelor in steel, Alcoa Inc. and Pechiney in aluminum, Ballard Power Systems in fuel cells, Intel Corporation in electronics, MEMC Electronic Materials, Inc. in semiconductors and The Boeing Company in transportation. REALIGNMENT AND NAME CHANGE In early 2001, we launched a strategic initiative to strengthen our competitive position and to change our corporate vision from an industrial products company to an energy solutions company. In connection with this initiative, we have realigned our company and management around two new operating divisions, our Graphite Power Systems Division and our Advanced Energy Technology Division. We believe that this realignment is enabling us to develop and implement strategies uniquely designed to maximize the value of each of our businesses. We may also adopt compensation plans designed to incentivize management of each division on a basis consistent with its particular strategies. In addition, we believe that this transparent, unified divisional focus has and will continue to better enable us to structure and enter into strategic alliances beneficial to each respective division. To reflect our new emphasis on graphite and carbon technology, our new corporate vision, we changed the name of UCAR International Inc. to GrafTech International Ltd. at our Annual Stockholders Meeting for 2002. Our new trading symbol on the NYSE is "GTI." We are also realigning the corporate organizational structure of our subsidiaries. Upon completion of this corporate realignment, most of the businesses of each division will be 39 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES segregated into separate companies along divisional lines. In addition, because most of the operations, net sales and growth opportunities of our Graphite Power Systems Division are located outside the U.S., most of its operations will be held by our Swiss subsidiary or its subsidiaries. Most of our technology will continue to be held by our U.S. subsidiaries. As part of our new major cost savings plan announced in January 2002, we are using opportunities created by this corporate organizational realignment to change our U.S. benefit plans, improve cash management, intellectual property management and corporate services delivery, reduce associated costs, reduce taxes and reallocate intercompany debt. This reallocation of intercompany debt will better match intercompany debt with cash flow from operations. Debt service on our intercompany debt provides an important source of funds to repay our debt to third parties, including the Senior Facilities and the Senior Notes. OUR DIVISIONS Our Graphite Power Systems Division manufactures and delivers high quality graphite and carbon electrodes and cathodes and related services that are key components of the conductive power systems used to produce steel, aluminum and other non-ferrous metals. Graphite electrodes are consumed in the production of steel in electric arc furnaces, the steel making technology used by all "mini-mills." Mini-mills constitute the higher long-term growth sector of the steel industry. Graphite electrodes are also consumed in refining steel in ladle furnaces and in other smelting processes. Our graphite electrodes accounted for about 79% of this division's net sales during 2001. Carbon electrodes are used in the production of silicon metal, a raw material primarily used in the manufacture of aluminum. Graphite and carbon cathodes are used in aluminum smelting. Because of its strong competitive position, we believe that this division is well positioned to benefit from the expected cyclical recovery in production of steel and other metals. To maintain its strong competitive position, we have instituted a number of strategic initiatives to improve the cost structure, increase the revenues and maximize the cash flow generated by this division. These strategic initiatives include pursuing cost savings, leveraging our global presence with industry leading customers, expanding value-driven enterprise selling, delivering exceptional and consistent quality, and providing superior technical service. Our Advanced Energy Technology Division develops, manufactures and sells high quality, highly engineered natural and synthetic graphite- and carbon-based energy technologies, products and services for both established and high-growth-potential markets. We currently sell these products primarily to the transportation, chemical, petrochemical, fuel cell power generation and electronic thermal management markets. In addition, we provide cost effective technical services to a broad range of markets and license our proprietary technology in markets where we do not anticipate engaging in manufacturing ourselves. We believe that this division will be successful because of our patented and proprietary technologies related to graphite and carbon materials science and our processing and manufacturing technology. 40 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES Natural graphite-based products, including flexible graphite, are developed and manufactured by our subsidiary, Graftech. We are the world's leading manufacturer of natural graphite-based products, including flexible graphite. Flexible graphite is an excellent gasket and sealing material that to date has been used primarily in high temperature and corrosive environments in the automotive, chemical and petrochemical markets. Advanced flexible graphite can be used in the production of materials, components and products for proton exchange membrane fuel cells and fuel cell systems, electronic thermal management applications, industrial thermal management applications, and battery and supercapacitor power storage applications. Our synthetic graphite- and carbon-based products are developed and manufactured by our Advanced Graphite Materials and Advanced Carbon Materials business units, respectively. Their products range from established products, such as graphite and carbon refractories, graphite molds and rocket nozzles and cones, to new carbon composites used in fuel cell power generation and electronic thermal management markets. Our technology licensing and technical services are marketed and sold by our HT2 business unit. We are focused on leveraging our strengths to build the value of this division through the development and commercialization of our technologies into high-growth potential markets. These strengths include: o developing intellectual property; o developing and commercializing prototype and next generation products and services; and o establishing strategic alliances with leading customers and suppliers as well as key technology focused companies. We seek to identify technologies where this division's products and services offer advantages in performance or cost as compared to competitive technologies, materials, products or services. We filed 11 new patent applications during the 2002 first quarter, a 25% increase over our filing rate in 2001. COST REDUCTION PLANS OVERVIEW. GTI's Board of Directors adopted a global restructuring and rationalization plan in September 1998 and we launched additional initiatives to enhance the plan in October 1999. The 1998 plan is now completed. By the end of 2001, we delivered recurring annualized run rate cost savings of $132 million. In January 2002, we announced a new major cost savings plan. Like the 1998 plan, we believe that the 2002 plan is by far the most aggressive major cost reduction plan being implemented in the graphite and carbon industry. 41 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES 2002 PLAN. In January 2002, we announced a new major cost savings plan designed to generate cost savings to strengthen our balance sheet. The key elements of the 2002 plan consist of: o the rationalization of graphite electrode manufacturing capacity at our higher cost facilities and the incremental expansion of capacity at our lower cost facilities; o the redesign and implementation of changes in our U.S. benefit plans for active and retired employees, which was completed in the 2002 first quarter; o the implementation of work process changes, including consolidating and streamlining order fulfillment, purchasing, finance and accounting, and human resource processes, along with the identification and implementation of outsourcing opportunities; o the implementation of additional plant and corporate overhead cost reduction projects; and o the corporate realignment of our subsidiaries, consistent with the operational realignment of our businesses into two operating divisions, to generate significant tax savings. As part of the 2002 plan, we mothballed our graphite electrode manufacturing operations in Caserta, Italy during the 2002 first quarter, ahead of schedule. These operations had the capacity to manufacture 26,000 metric tons of graphite electrodes annually. After the shutdown of our graphite electrode manufacturing operations in Clarksville and Columbia, Tennessee in the 2001 third quarter, these operations were our highest cost graphite electrode manufacturing operations. We expect to further incrementally expand graphite electrode manufacturing capacity at our facilities in Mexico, France and Spain over the next nine to twelve months. After the mothballing and incremental expansion, our total annual graphite electrode manufacturing capacity will remain about 210,000 metric tons. We have identified a number of additional plant and overhead cost reduction projects. One of the major projects is employee benefit plan redesign. We have redesigned and implemented changes in our retiree medical insurance plan and our U.S. retirement and savings plans for active and retired employees. These benefit plan changes resulted in annual cost savings of $2 million in 2001 and will result in annual cost savings of more than $12 million in 2002 and thereafter. We expect that about half of the other plant and overhead cost reduction projects will be completed in 2002. The corporate realignment of our subsidiaries is expected to be substantially completed in the 2002 first half and result in substantial tax savings. As a result of the corporate realignment of our subsidiaries, the effective income tax rate for 2002, excluding non-recurring charges or benefits associated with the corporate realignment of our subsidiaries, is expected to be 35%. 42 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES We intend to sell real estate, non-strategic businesses and certain other non-strategic assets over the next two years. We anticipate that the aggregate estimated pre-tax, cash proceeds from these sales will total $75 million by the end of 2003. These non-strategic businesses contributed net sales of about $25 million in 2001. We believe that satisfactory progress is being made on the planned asset sales, and that successful completion of those asset sales will strengthen our balance sheet. We estimate that the 2002 plan will generate cumulative cost savings of about $45 million by the end of 2002, $120 million by the end of 2003 and $200 million by the end of 2004, and recurring annual cost savings of $80 million by the end of 2004. These savings are additive to those which we achieved by the end of 2001 under the 1998 plan that is now completed. The following table summarizes the targeted savings under the 2002 plan: SUMMARY OF TARGETED ANNUAL COST SAVINGS
YEAR ENDED DECEMBER 31, ----------------------- 2002 2003 2004 CUMULATIVE ---- ---- ---- ---------- (PRE-TAX DOLLARS IN MILLIONS) Cost of sales: Graphite Power Systems Division................... $ 24 $ 43 $ 43 $ 110 Advanced Energy Technology Division............... 4 4 4 12 ----- ----- ----- ------- Total cost of sales............................ 28 47 47 122 Overhead costs........................................ 9 10 11 30 ----- ----- ----- ------- Total cost of sales and overhead costs......... 37 57 58 152 Interest expense savings due to the 2002 plan......... 2 8 12 22 Tax expense........................................... 6 10 10 26 ----- ----- ----- ------- Total savings.................................. $ 45 $ 75 $ 80 $ 200 ===== ===== ===== =======
We achieved cost savings of about $7 million in the 2002 first quarter, despite an estimated $2 million of unanticipated higher graphite electrode production costs associated with our rationalization activities as well as low operating levels and low sales volumes. We expect to meet our targeted annual costs target of $45 million for 2002. The following table summarizes our cost savings for the 2002 first quarter. 43 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES
THREE MONTHS ENDED ANNUAL MARCH 31, TARGET 2002 FOR 2002 BASIS OF MEASUREMENT ---- -------- -------------------- (PRE-TAX DOLLARS IN MILLIONS) Cost of sales: 2001 average graphite electrode Graphite Power Systems Division......... $ 2 $ 24 production cost per metric ton of $1,691 Advanced Energy Technology Division..... 1 4 Cost reduction initiatives ---- ----- Total cost of sales................. 3 28 Overhead costs.............................. 1 9 2001 SG&A expenses of $78 million ---- ----- Total cost of sales and overhead costs. 4 37 Interest expense savings due to the 2002 Assumed interest expense on cash plan..................................... - 2 savings from cost savings plan Tax expense................................. 3 6 45 percent effective tax rate before legal and tax restructuring ---- ----- Total savings......................... $ 7 $ 45 ==== =====
We believe that the 2002 plan will: o further strengthen our position and our competitive advantage as a low cost supplier to the steel and other metals industries; o better enable us to largely maintain our gross profit margin and operating margin during the current global economic downturn; o rationalize our capacity to manufacture both higher value added "supersize" ultra-high power graphite electrodes as well as cost competitive high power small diameter graphite electrodes for ladle furnaces; o further improve our position to benefit, in terms of operations, earnings and cash flow from operations, from the expected cyclical recovery in electric arc furnace steel production; and o enable us to further reduce total debt, which should result in reductions in interest expense (interest expense reductions do not take into account higher interest expense resulting from the sale of the Senior Notes). We believe that implementation of the 2002 plan will require about $20 million of cash exit costs, of which about $5 million was recorded in the 2001 fourth quarter and $5 million was 44 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES recorded in the 2002 first quarter. The 2002 plan resulted in about $29 million of non-cash restructuring charges and impairment losses on long-lived assets, of which about $24 million was recorded in the 2001 fourth quarter. These costs are additive to the $3 million of cash exit costs and $57 million of non-cash restructuring charges and impairment losses on long-lived assets related to the shutdown of our graphite electrode manufacturing operations in Tennessee. The mothballing of our graphite electrode operations in Italy will enable us to avoid annually an average of $2 million of otherwise necessary capital expenditures. We expect to make the planned incremental expansions of graphite electrode manufacturing capacity for capital expenditures of $15 million and complete such expansion within the next nine to twelve months. 1998 PLAN. The key elements of our global restructuring and rationalization plan announced in September 1998 and enhanced in October 1999 included: o the shutdown of our graphite electrode manufacturing operations at our facilities in Canada and Germany; and o the consolidation of administrative functions with the relocation of our corporate headquarters to Tennessee (which have subsequently been relocated to Delaware) and our European headquarters to Switzerland. We also downsized our graphite electrode manufacturing operations at our facilities in Russia. As a result of the 1998 plan and other cost savings initiatives, we have reduced our average graphite electrode production cost per metric ton by the end of 2001 by 15% since the 1998 fourth quarter. OTHER COST REDUCTION ACTIVITIES. Since 1998, we have initiated other cost reduction activities. Some of these activities will continue while the 2002 plan is being implemented. We have evaluated every aspect of our supply chain and improved and continue to improve performance through realignment and standardization of critical business processes, standardization of enterprise wide systems, and improvement of information technology infrastructures and interfaces with trading partners. We reduced inventory levels from 1998 by about 33%, or to about $180 million, by the end of 2001 and reduced our cash cycle time, as compared to 1998, by about 25% by the end of 2001. In the 2001 second quarter, we recorded a $58 million charge for restructuring and impairment loss on long-lived assets related to the shutdown of our graphite electrode manufacturing operations at our facilities in Clarksville and Columbia, Tennessee. In 2000, these operations were our highest cost graphite electrode manufacturing operations. We expect that the shutdown will result in total annual cost savings of $18 million and will enable us to avoid about $9 million in otherwise necessary capital expenditures. Certain of these cost savings were realized in 2001 and the balance will be delivered in 2002. The shutdown was completed on 45 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES schedule near the end of the 2001 third quarter. We incrementally expanded graphite electrode manufacturing capacity at our facilities in Mexico, Spain and South Africa for a capital investment of about $3 million. In the 2001 third quarter, we recorded a $2 million charge for restructuring and impairment loss on long-lived assets related to the realignment of our businesses into our Advanced Energy Technology Division and Graphite Power Systems Division, the relocation of our corporate headquarters and the shutdown of our coal calcining operations located in Niagara Falls, New York. We shut down our coal calcining operations primarily because we entered into a five-year agreement to purchase calcined coal from a third party at a lower net effective cost than we can produce it for ourselves. The shutdown was completed at the end of 2001. As part of the business realignment, we have centralized management functions of our Advanced Energy Technology Division in Cleveland, Ohio, and management functions of our Graphite Power Systems Division in Etoy, Switzerland. On December 21, 2001, we relocated our corporate headquarters, consisting of about 10 employees, from Nashville, Tennessee, to Wilmington, Delaware. The charge relates primarily to a workforce reduction of 24 employees. In the 2001 third quarter, we reversed $2 million of prior restructuring charges based on revised lower estimates of workforce reductions and plant closure costs and we reclassified $4 million of prior restructuring charges related to on-site waste disposal post monitoring costs to the other long-term obligations. In the 2001 fourth quarter, we recorded an impairment loss on long-lived and other assets of $27 million, $24 million of which was associated with the mothballing of our Italian graphite electrode operations. We also recorded a $7 million non-cash restructuring charge, $5 million of which was associated with our Italian operations and $2 million of which was associated with the shutdown of our U.S. graphite electrode operations in addition to the charge recorded in the 2001 second quarter. POWER OF ONE BUSINESS TRANSFORMATION INITIATIVE We began to implement in 2000 and we are continuing to implement 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 believe that the initiative is accelerating development and implementation of business opportunities and developing leadership skills more broadly within all management levels as well as supporting our efforts to reduce costs and working capital needs, improve efficiencies and product quality, shorten cycle times and achieve "BEST IN CLASS" performance. Through March 31, 2002, our investment in the initiative included about $4 million of consulting fees and $3 million of capital expenditures, primarily for advanced planning and scheduling supply chain software and global treasury management systems. We believe that most of the future investment for this initiative will be funded from realized cost savings. 46 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES Effective April 2001, we entered into a ten year service contract with CGI Group Inc. pursuant to which CGI became the delivery arm for our global information technology service requirements, including the design and implementation of our global information and advanced manufacturing and demand planning processes, using J.D. Edwards software. Through this contract, we are seeking to transform our information technology service capability into an efficient, high quality enabler for our global supply chain initiatives as well as a contributor to our cost reduction objectives. Under the outsourcing provisions of this contract, CGI manages our data center services, networks, desktops, telecommunications and legacy systems. Through this contract, we believe that we will be able to leverage the resources of CGI to assist us in achieving our information technology goals and our target cost savings. As part of the 2002 plan, we are also implementing global work process changes, including consolidating and streamlining our order fulfillment, purchasing, finance and accounting and human resource processes, along with the identification and implementation of outsourcing opportunities, targeted for completion by the end of 2003. STRATEGIC ALLIANCES We are pursuing strategic alliances that enhance or complement our existing or related businesses and have the potential to generate strong cash flow. Strategic alliances may be in the form of joint venture, licensing, supply or other arrangements that leverage our strengths to achieve cost savings, improve margins and cash flow, and increase net sales and earnings growth. We have developed a strategic relationship with Conoco. In December 2000, we entered into a license and technical services agreement with Conoco to license our proprietary technology for use at the carbon fiber manufacturing facility that Conoco is building in Ponca City, Oklahoma. We also will continue to provide a wide variety of technical services to Conoco. Under a separate manufacturing tolling agreement entered into February 2001, we are providing manufacturing services to Conoco at our facility in Clarksburg, West Virginia for carbon fibers. Under the three-year manufacturing tolling agreement, we are using raw materials provided by Conoco to manufacture carbon fibers. Conoco's new carbon fiber technology could be used in portable power applications, such as batteries for personal computers and cell phones, as well as a wide range of other electronic devices and automotive applications. We are working with Conoco to expand our strategic relationship in supply chain and other areas. We have developed a strategic alliance in the cathode business with Pechiney, the world's recognized leader in aluminum smelting technology. To broaden our alliance, in March 2001, we contributed our Brazilian cathode manufacturing operations to Carbone Savoie. Pechiney, the 30% minority owner of Carbone Savoie, contributed approximately $9 million in cash to Carbone Savoie as part of this transaction. The cash contribution was used to upgrade manufacturing operations in Brazil and France, which was completed by the end of the 2002 first quarter. Ownership in Carbone Savoie remains 70% by us and 30% by Pechiney. Under our now broadened alliance, Carbone Savoie holds our entire cathode manufacturing capacity. 47 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES In April 2001, we entered into a joint venture agreement with Jilin to produce and sell high-quality graphite electrodes in China, which we believe to be the largest market for graphite electrodes in the world. The joint venture is expected to utilize renovated capacity at Jilin's main facility in Jilin City and complete additions at another facility in Changchun that were begun by Jilin. The joint venture facilities are expected to commence operations in 2003. We are required to make capital contributions of $6 million of cash ($2 million of which has been contributed to date) plus technical assistance (a substantial portion of which has already been contributed) for our 25% ownership interest in the joint venture. The completion of the parties' capital contributions to the joint venture is subject to the receipt of required Chinese governmental approvals and satisfaction of other conditions. We have been working with Ballard Power Systems since 1992 on developing natural graphite-based materials for use in Ballard Power Systems fuel cells for power generation. In June 2001, our subsidiary, Graftech, entered into a new exclusive development and collaboration agreement and a new exclusive long-term supply agreement with Ballard Power Systems, which significantly expand the scope and term of the prior agreements. In addition, Ballard Power Systems became a strategic investor in Graftech, investing $5 million in shares of Ballard Power Systems common stock for a 2.5% equity ownership interest, to support the development and commercialization of natural graphite-based materials and components for proton exchange membrane fuel cells. The scope of the new exclusive development and collaboration agreement includes natural graphite-based materials and components, including flow field plates and gas diffusion layers, for use in proton exchange membrane fuel cells and fuel cell systems for transportation, stationary and portable applications. The initial term of this agreement extends through 2011. Under the new supply agreement, we will be the exclusive manufacturer and supplier of natural graphite-based materials for Ballard Power Systems fuel cells and fuel cell systems. We will also be the exclusive manufacturer of natural graphite-based components, other than those components that Ballard Power Systems manufactures for itself. The initial term of this agreement, which contains customary terms and conditions, extends through 2016. We have the right to manufacture and sell, after agreed upon release dates, natural graphite-based materials and components for use in proton exchange membrane fuel cells to other parties in the fuel cell industry. GLOBAL ECONOMIC CONDITIONS AND OUTLOOK We are impacted in varying degrees, both positively and negatively, as global, regional or country conditions affecting the markets for our products fluctuate. Beginning in mid-2000, economic conditions began to weaken in North America, becoming more severe in the 2000 fourth quarter. Even with this weakening, worldwide electric arc furnace steel production was 285 million metric tons in 2000 (about 34% of total steel production). 48 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES The economic weakening in North America continued and became more severe in 2001. More than 24 steel companies in the U.S. filed for protection under the U.S. Bankruptcy Code since January 1, 2000. Moreover, notwithstanding a substantial decrease in steel production in the U.S., steel inventories, particularly those held by steel service centers, remain high relative to shipments. In March 2002, President Bush announced his decision to impose tariffs of up to 30% on most imported steel as part of a broader plan to rescue the nation's financially troubled steel industry. We believe that this decision is having a modest positive impact on electric arc furnace steel production and, in turn, demand for graphite electrodes in the U.S. We cannot predict, however, whether and to what extent this development will impact our global business over the long-term. The impact of the economic weakness in North America on other regional economies became more severe during 2001. Steel production declined in Brazil in the 2001 second and third quarters by about 10% as compared to the 2000 second and third quarters. This decline was caused both by shortages of electricity brought on by a drought that reduced hydroelectric power generation (although Brazil is now beginning to experience some relief from the drought) as well as by the weakening in global economic conditions. Brazil may also be impacted by the recent currency crisis occurring in Argentina (which could impact both our net sales and collections of accounts receivable in both of those countries). There was also a weakening in the demand for steel in Asia (except for China where electric arc furnace steel production has remained relatively stable). This global economic weakness was exacerbated by the impact on economic conditions of the terrorist acts in the U.S. in September 2001. We believe that worldwide electric arc furnace steel production increased by about 3% in 2001 as compared to 1999, but declined by about 2% in 2001 (to a total of about 279 million metric tons, about 33% of total steel production) as compared to 2000. These fluctuations in electric arc furnace steel production resulted in corresponding fluctuations (to a greater or lesser extent, depending on economic conditions affecting, and decisions by, electric arc furnace steel producers) in demand for graphite electrodes. We estimate that worldwide graphite electrode demand increased by about 4% in 2000 as compared to 1999, but declined by about 10% in 2001 as compared to 2000. Overall pricing worldwide was weak throughout most of this period. However, we implemented increases in local currency selling prices of our graphite electrodes in 2000 and early 2001 in Europe, the Asia Pacific region, the Middle East and South Africa. Recently, we have not been able to maintain all of these price increases. We continue to face pricing pressures worldwide. We are experiencing intense competition in the graphite electrode industry. One of our U.S. competitors, The Carbide/Graphite Group, Inc., filed for protection under the U.S. Bankruptcy Code in October 2001. In order to seek to minimize our credit risks, we have reduced our sales of, or refused to sell (except for cash on delivery), graphite electrodes to some customers and potential customers in the U.S. and, to a limited extent, elsewhere. Our unpaid 49 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES trade receivables from steel companies in the U.S. that have filed for protection under the U.S. Bankruptcy Code since January 1, 2000 have aggregated only 1.4% of net sales of graphite electrodes in the U.S. during the same period. Our volume of graphite electrodes sold increased by 5% in 2000 as compared to 1999, but declined by about 20% in 2001 as compared to 2000. The decline in our volume of graphite electrodes sold in 2001 as compared to 2000 was due primarily to the decline in electric arc furnace steel production as well as our efforts to implement and maintain local currency selling price increases and our efforts to seek to minimize credit risks. Demand and prices for most of our other products sold to the metals and transportation industries are affected by the same global and regional economic conditions that affect graphite electrodes. During 2000, demand for most of these products as a group was relatively stable. Overall pricing did not strengthen. The global and regional economic conditions that have impacted demand and prices for graphite electrodes since mid-2000 have also similarly impacted demand and prices for most of these products (other than graphite cathodes). Demand and prices for graphite cathodes has remained relatively strong since 1999 primarily due to construction of new aluminum smelters using graphite cathodes, even as old smelters using carbon cathodes are removed from service. We believe that business conditions for most of our products (other than cathodes) will remain challenging through 2002 and that a strong recovery in the steel, metals and transportation industries will not occur until the 2002 second half, at the earliest. We expect an increase in our volume of graphite electrodes sold during the remainder of 2002 primarily due to improving conditions in the steel industry and an increase in our market share as we continue to implement our enterprise selling and other strategies. Our graphite electrode order book has strengthened significantly since the middle of the 2002 first quarter, and for the remainder of 2002 is now 85% full. We expect to deliver an increase of approximately 17% to 20% in graphite electrode sales volume during the 2002 second quarter over the 2002 first quarter and to have graphite electrode capacity utilization rates at or greater than 95% for the remainder of 2002 and into the beginning of 2003. Our cathode order book is virtually full for the remainder of 2002 and into the beginning of 2003. In the Advanced Energy Technology Division, we believe that our core businesses have bottomed and expect to deliver new product development and commercialization milestones in the coming quarters. We expect our cost reductions to largely mitigate the impact on gross profit of pressure on net sales. We expect to achieve an average graphite electrode production cost per metric ton of $1,550 for 2002 and $1,400 by the end of 2003. Although conditions are improving for graphite electrode price increases over the long-term, we do not expect graphite electrode prices to strengthen in 2002. Under current global and regional economic conditions, we cannot assure you that we will have the same success in minimizing our credit risks in the future that we have had in the U.S. relating to sales of graphite electrodes in the past. 50 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES We maintain our aggressive net debt goal of $500 million by the end of 2004 and have a nearer term target of $600 million by the end of 2003 or earlier, assuming completion of planned asset sales and full implementation of the 2002 plan. In addition, as previously announced, we are implementing interest rate management initiatives to seek to minimize our interest expense and optimize our portfolio of fixed and variable interest rate obligations. In connection with those initiatives, we recently entered into a ten year interest rate swap for a notional amount of $200 million to effectively convert that amount of fixed rate debt to variable rate debt. We are targeting interest expense of $60 million for 2002, essentially the same as 2001. Our outlook could be significantly impacted by changes in interest rates by the U.S. Federal Reserve Board and the European Central Bank, changes in tax and fiscal policies by the U.S. and other governments, the occurrence of further terrorist acts and developments (including increases in security, insurance, data back-up, transportation and other costs, transportation delays and continuing or increased economic uncertainty and weakness) resulting from terrorist acts and the war on terrorism, and changes in global and regional economic conditions. FINANCING TRANSACTIONS 2002 PRIVATE SENIOR NOTE OFFERINGS. On February 15, 2002, we completed a private offering of $400 million aggregate principal amount of Senior Notes at a price of 100% of principal amount. On May 6, 2002, we completed a private offering of $150 million aggregate principal amount of additional Senior Notes at a price of 104.5% of principal amount, plus accrued interest from February 15, 2002. The Senior Notes bear interest at an annual rate of 10.25% and mature in 2012. We believe that these offerings together with the repayment of term loans under the Senior Facilities, the reduction in the outstanding balance under our revolving credit facility and other amendments to the Senior Facilities have strengthened our balance sheet and enhanced our flexibility to implement our business strategies. The net proceeds from the offering completed in February 2002 were $387 million. We used net proceeds from the first $250 million of Senior Notes sold and 50% of the net proceeds from the balance of the Senior Notes sold to repay term loans under the Senior Facilities. We used the balance of the net proceeds to reduce amounts outstanding under our revolving credit facility. The net proceeds (excluding accrued interest paid by the purchasers of the Senior Notes) from the offering completed in May 2002 were $151 million. We used 50% of the net proceeds to reduce the balance outstanding under our revolving credit facility and the balance to repay term loans under the Senior Facilities. We paid approximately $13 million of debt issuance costs related to the Senior Notes sold in February 2002 and $6 million related to the Senior Notes sold in May 2002. These debt costs are being amortized over the term of the Senior Notes. 51 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES The $7 million premium received upon issuance of the additional Senior Notes issued in May 2002 will be added to the principal amount of the Senior Notes shown on the Consolidated Balance Sheets and amortized (as a credit to interest expense) over the term of the additional Senior Notes. As a result of our receipt of such premium, the effective annual interest rate on the additional Senior Notes is about 9.5%. At March 31, 2002, on an as adjusted basis after giving effect to the offering completed in May 2002, the application of the net proceeds and the corporate realignment of our subsidiaries: o the Senior Facilities constituted $131 million of our total debt of $702 million; o the term loans under the Tranche A Facility have been fully repaid; and o the principal amount of the term loans outstanding under the Tranche B Facility was $131 million, all of the scheduled principal payments of which are due in 2007. We obtained consent from the holders of the Senior Notes issued in February 2002 to amend the Indenture so as to waive the requirement to use the gross proceeds from the issuance of the additional Senior Notes issued in May 2002 to make intercompany loans to our foreign subsidiaries and, on April 30, 2002, entered into a Supplemental Indenture to give effect to such amendment. In February 2002, we recorded an extraordinary charge of $3 million ($2 million after tax) for write-off of capitalized fees associated with the term loans under Tranche A and B Facilities repaid with the net proceeds from the issuance of the Senior Notes in February 2002. We expect to record an extraordinary charge in the 2002 second quarter of $1 million ($1 million after tax) for write-off of capitalized fees associated with the term loans under Tranche A and B Facilities repaid with the net proceeds from the issuance of the additional Senior Notes in May 2002. 2001 PUBLIC EQUITY OFFERING. In July 2001, we completed a public offering of 10,350,000 shares of common stock at a public offering price of $9.50 per share. The net proceeds from that offering were $91 million. 60% of the net proceeds were used to repay term loans under the Senior Facilities. The balance of the net proceeds will be used to fund growth and expansion of our Advanced Energy Technology Division, including growth through acquisitions, and, pending such use, has been applied to reduce outstanding balance under our revolving credit facility. 2000 DEBT RECAPITALIZATION. In February 2000, we completed a debt recapitalization and obtained the Senior Facilities. In the 2000 third quarter, pursuant to our debt recapitalization in February 2000, our Italian subsidiary entered into a [euro]17 million (about $15 million, based on currency exchange rates 52 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES in effect at December 31, 2001) long-term debt arrangement with a third party lender. We also placed on deposit with the third party lender funds in the same amount, which secure the debt. Since we had the legal right to set-off, and the intent to do so, such amounts had been netted and were not reflected separately in the Consolidated Balance Sheets. In February 2002, in connection with the corporate realignment of our subsidiaries, we exercised our right of set-off and retired the debt arrangement. In April 2001, the Senior Facilities were amended to, among other things, exclude certain expenses incurred in connection with the lawsuit initiated by us against our former parents (up to a maximum of $20 million, but not more than $3 million in any quarter) and certain charges and payments in connection with antitrust fines, settlements and expenses from the calculation of financial covenants. Charges (over and above $340 million charge recorded in 1997) recorded on or before June 30, 2002 (or during the term of the Senior Facilities, after effectiveness of the amendment described below which became effective in February 2002) for antitrust fines, settlements and expenses are excluded from the calculation of financial covenants (until paid) up to a maximum of $130 million (or $75 million, after effectiveness of the amendment described in Note 10), reduced by the amount of certain debt (other than the Senior Notes) incurred by us that is not incurred under the Senior Facilities ($24 million of which debt was outstanding at March 31, 2002). The fine assessed by the antitrust authority of the European Union, as well as the additional $10 million charge recorded in July 2001 and any payments related to such fine (including payments within the $340 million charge recorded in 1997), are excluded from the calculation of financial covenants through June 30, 2002 (or for the term of the Senior Facilities, after the effectiveness of the amendment described below which became effective in February 2002). In July 2001, the Senior Facilities were amended to, among other things, change our financial covenants so that they were less restrictive through 2006 than would otherwise have been the case. In connection therewith, we agreed that our investments in Graftech and any of our other unrestricted subsidiaries after this amendment will be made in the form of secured loans, which will be pledged to secure the Senior Facilities, and that the maximum amount of capital expenditures permitted under the Senior Facilities would be reduced in 2001 and 2002. We do not expect that our capital expenditures would exceed such maximums. In connection therewith, we paid an amendment fee of $2 million and the margin which is added to either euro LIBOR or the alternate base rate in order to determine the interest rate payable thereunder increased by 25 basis points. In December 2001, the Senior Facilities were amended to, among other things, permit the corporate realignment of our subsidiaries. In connection therewith, we paid an amendment fee of $1 million. In February 2002, the Senior Facilities were amended to, among other things, permit us to issue up to $400 million aggregate principal amount of Senior Notes, to pledge certain unsecured intercompany term notes and unsecured guarantees of those notes to secure the Senior Notes, to 53 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES have certain U.S. subsidiaries holding a substantial majority of our U.S. assets guarantee the Senior Notes and to have those U.S. subsidiaries pledge shares of Graftech to secure such guarantees. In connection with this amendment, our maximum permitted leverage ratio was substantially increased and our minimum required interest coverage ratio was substantially decreased while maintaining full availability of our revolving credit facility. The amendment also changed the manner in which net debt and EBITDA are calculated to exclude certain fees, costs and expenses (including fees of counsel and experts) in connection with the lawsuit initiated by us against our former parents as well as any letter of credit issued to secure payment of the antitrust fine assessed against us by the antitrust authority of the European Union. In addition, the amendment expanded our ability to make certain investments, including investments in Graftech, and eliminated provisions relating to a spin-off of Graftech. In connection therewith, we paid an amendment fee of $1 million and the margin which is added to either euro LIBOR or the alternate base rate in order to determine the interest rate payable thereunder increased by 37.5 basis points. In connection with issuance of additional Senior Notes in May 2002, the Senior Facilities were amended to, among other things, permit us to issue the additional Senior Notes on the same terms as those relating to the Senior Notes issued in February 2002. In connection with this amendment, our maximum permitted leverage ratio was changed to measure the ratio of net senior secured debt to EBITDA as against new specified amounts. Our interest coverage ratio was also changed. We believe that these changed ratios will provide us with greater flexibility. In addition, the amendment reduced the maximum amount available under our revolving credit facility to [euro] 200 million from [euro] 250 million ([euro] 25 million of which can only be used to pay or secure payment of the fine assessed by the antitrust authority of the European Union) and reduced the basket for certain debt incurred by us that is not incurred under the Senior Facilities to $75 million from $130 million ($24 million of which debt was outstanding at March 31, 2002). In connection therewith, we paid fees and costs of $1 million. LITIGATION AGAINST OUR FORMER PARENT COMPANIES INITIATED BY US In February 2000, we commenced a lawsuit against our former parents, Mitsubishi Corporation and Union Carbide Corporation. In the lawsuit, we allege, among other things, that certain payments made to our former parents in connection with our leveraged equity recapitalization in January 1995 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 GTI 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. Some of our claims provide for joint and several liability; however, damages from our various claims would not generally be additive to each other. The defendants have filed motions to dismiss this lawsuit and a motion to disqualify certain of our counsel from representing us in this lawsuit. We are 54 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES vigorously opposing those motions. Oral hearings were held on those motions in the 2001 first and second quarters. No decision on those motions has been rendered. Litigation such as this lawsuit is complex. Complex litigation can be lengthy and expensive. We expect to incur $10 million to $20 million for legal expenses to pursue this lawsuit from the date of filing the complaint through trial. Through March 31, 2002, we had incurred about $4 million of these legal expenses. This lawsuit is in its earliest stages. The ultimate outcome of this lawsuit is subject to many uncertainties. We may at any time settle this lawsuit. ANTITRUST AND OTHER LITIGATION AGAINST US Since 1997, we have been subject to antitrust investigations by antitrust authorities in the U.S., the European Union, Canada, Japan and Korea. In addition, civil antitrust lawsuits have been commenced and threatened against us and other producers and distributors of graphite and carbon products in the U.S., Canada and elsewhere. We recorded a pre-tax 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, GTI 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, payable in six annual installments of $20 million, $15 million, $15 million, $18 million, $21 million and $21 million, commencing July 23, 1998. In January 2001, at our request, the due date of each of the remaining three payments was deferred by one year and, at our request, in January 2002, the payment schedule for the $60 million unpaid balance outstanding at that time was revised to $2.5 million payment in April 2002, a $5.0 million payment in April 2003 and, beginning in April 2004, quarterly payments ranging from $3.25 million to $5.375 million through January 2007. Beginning in 2004, the U.S. Department of Justice may ask the court to accelerate the payment schedule based on a change in our ability to make such payments. Interest will begin to accrue on the unpaid balance, commencing in April 2004, at the statutory rate of interest then in effect. In January 2002, the statutory rate of interest was 2.13% per annum. Of the $110 million, $90 million is treated as a fine and $20 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. All payments due have been timely made. In October 1999, we became aware that the Korean antitrust authority had commenced an investigation as to whether there had been any violation of Korean antitrust law by producers and distributors of graphite electrodes. In March 2002, we were advised that it had, after holding a hearing, assessed a fine against us in the amount of 676 million KRW (approximately $510,000, based on currency exchange rates in effect on March 31, 2002). Five other graphite electrode producers were also fined by it in amounts ranging up to 4,396 million KRW (approximately $3.3 million, based on currency exchange rates in effect on March 31, 2002). Our fine, which 55 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES represented 0.5% of our graphite electrode sales in Korea during the relevant time period and was the lowest fine as a percentage of sales imposed, reflected a substantial reduction as a result of our cooperation with that authority during its investigation. In May 2002, we appealed the decision. Notwithstanding our appeal, we are required to pay this fine by June 9, 2002 In January 2000, the antitrust authority of the European Union issued a statement of objections initiating proceedings against us and other producers of graphite electrodes. The statement alleged that we and other producers violated European antitrust law in connection with the sale of graphite electrodes. In July 2001, that authority issued its decision. Under the decision, it assessed a fine of [euro] 50.4 million ($46 million, based on currency exchange rates in effect at March 31, 2002) against GTI resulting from the role of our former management in a graphite electrode price fixing cartel. Seven other graphite electrode producers were also fined, with fines ranging up to [euro] 80.2 million. As a result of the assessment of the fine against us, we recorded a pre-tax charge of $10 million against results of operations in the 2001 second quarter as an additional reserve for potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. This decision has brought to a conclusion our last major antitrust liability. From the initiation of its investigation, we have cooperated with the antitrust authority of the European Union. As a result of our cooperation, our fine reflects a substantial reduction from the amount that otherwise would have been assessed. It is the policy of that authority to negotiate appropriate terms of payment of antitrust fines, including extended payment terms. We have had discussions regarding payment terms. After an in-depth analysis of the decision, in October 2001, we filed an appeal to the court challenging the amount of the fine. The fine or collateral security therefor would typically be required to be paid or provided at about the time the appeal was filed. We are currently in discussions with that authority regarding the appropriate form of collateral security during the pendency of the appeal. If the results of these discussions are not acceptable to us, we may file an interim appeal to the court to waive the requirement for collateral security or to allow us to provide alternative security for payment. We cannot predict how or when the court would rule on such interim appeal. In the 2001 second quarter, we became aware that the Brazilian antitrust authority had requested written information from various steelmakers in Brazil. In April 2002, our Brazilian subsidiary received a request for information from that authority. We intend to provide that information. We are continuing to cooperate with the U.S. and Canadian antitrust authorities in their continuing investigations of others. It is possible that antitrust investigations seeking, among other things, to impose fines and penalties could be initiated against us by authorities in Brazil or other jurisdictions. We have settled, among others, virtually all of the actual and potential claims against us by customers in the U.S. and Canada arising out of alleged antitrust violations occurring prior to the date of the relevant settlement in connection with the sale of graphite electrodes. All settlement payments due have been timely made. None of the settlement or plea agreements 56 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES contain restrictions on future prices of our graphite electrodes. There remain, however, certain pending claims as well as pending lawsuits in the U.S. relating to the sale of carbon electrodes and carbon cathodes as well as graphite electrodes sold to foreign customers. It is also possible that additional antitrust lawsuits and claims could be asserted against us in the U.S. or other jurisdictions. Through March 31, 2001, we have paid an aggregate of $249 million of fines and net settlement and expense payments and $11 million of imputed interest. At March 31, 2001, $101 million remained in the reserve. The balance of the reserve is available for the balance of the fine payable by us to the U.S. Department of Justice (excluding imputed interest thereon), the fines assessed against us by the antitrust authorities of the European Union and Korean and other matters. The aggregate amount of remaining committed payments payable to the U.S. Department of Justice for imputed interest at March 31, 2001 was about $9 million. We cannot assure you that remaining liabilities and expenses in connection with antitrust investigations, lawsuits and claims will not materially exceed the remaining uncommitted balance of the reserve or that the timing of payment thereof will not be sooner than anticipated. In the aggregate (including the assessment of fines by the antitrust authorities of the European Union and Korea and the additional $10 million charge), the fines and net settlements and expenses are within the amounts we used to evaluate the $350 million charge. To the extent that aggregate liabilities and expenses, net, are known or reasonably estimable, $350 million represents our estimate of these liabilities and expenses. The guilty pleas and the decision by the antitrust authority of the European Union make it more difficult to defend against other investigations, lawsuits and claims. Our insurance has not and will not materially cover liabilities that have or may become due in connection with antitrust investigations or related lawsuits or claims. CURRENCY MATTERS We incur manufacturing costs and sell our products in multiple currencies. As a result, in general, our results of operations, cash flows and financial condition are affected by changes in currency exchange rates as well as 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 use various off-balance sheet financial instruments. 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 use the dollar as their functional currency) 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 2001 and 2002 first quarter, many of the foreign countries in which we have a manufacturing facility have been subject to significant economic pressures, which have impacted 57 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES inflation and currency exchange rates affecting those countries. As a result, many of the currencies in which we manufacture and sell our products weakened again the dollar. During 2001, the euro declined about 5%, the Brazilian real declined about 16% and the South African rand declined about 36%. In the 2002 first quarter, the South African rand and the euro weakened about 18% and 3%, respectively, while the Brazilian real strengthened about 11%. RESULTS OF OPERATIONS HIGHLIGHTS OF 2002 FIRST QUARTER AS COMPARED TO 2001 FOURTH QUARTER. Net sales of $138 million in the 2002 first quarter represented a $17 million, or 12%, decrease from net sales of $155 million in the 2001 fourth quarter. Gross profit of $31 million in the 2002 first quarter represented an $11 million, or 26%, decrease from gross profit of $42 million in the 2001 fourth quarter. Gross margin declined to 22.3% of net sales in 2002 first quarter from 26.9% in 2001 fourth quarter. This decline was primarily due to the decline in net sales experienced by both of our divisions. Our 2002 first quarter earnings, before previously announced restructuring charges and impairment losses on long-lived and other assets, tax benefits associated with the 2002 plan and a non-cash extraordinary charge associated with our successful private offering of Senior Notes in February 2002, was a net loss of $1 million, or $0.02 per diluted share, and, after those charges and benefits, was a net loss of $4 million, or $0.06 per diluted share. The following table summarizes the impact of those non-recurring charges and benefits. THREE MONTHS ENDED MARCH 31, 2002 ---------------------- (DOLLARS IN MILLIONS) Net loss............................................. $ (4) Charges: Restructuring charges (including global realignment and related expenses) and impairment loss on long-lived and other assets, net of tax............................ 6 Extraordinary item, net of tax.................. 2 Tax benefit related to legal and tax restructuring (5) ----- Net loss before non-recurring charges and benefits...................................... $ (1) ====== The legal and tax restructuring and global realignment mentioned in the preceding table and in our Consolidated Financial Statements are part of the corporate realignment of our subsidiaries. The tax benefits from the corporate realignment (which are referred to as tax benefits from legal and tax restructuring) have been recorded separately from expenses to implement the corporate realignment (which are referred to as global realignment and related expenses). The activities relating to our legal and tax restructuring that would be expected to 58 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES impact tax benefits and expense were substantially completed in the 2002 first quarter. We recorded global realignment and related expenses of $2 million in 2001 fourth quarter and $1 million in 2002 first quarter. GRAPHITE POWER SYSTEMS DIVISION. Net sales decreased to $111 million in the 2002 first quarter from $126 million in the 2001 fourth quarter, primarily due to the lower volume and lower average sales revenue per metric ton of graphite electrodes sold. The decline was primarily due to seasonal factors, continued weakness in demand through January and February due to economic conditions and limited availability of finished graphite electrode inventories to meet increased demand in March. The volume of graphite electrodes sold was 38,500 metric tons, 9 percent lower than in the 2001 fourth quarter. The lower volume of graphite electrodes sold represented a decrease of $9 million in net sales. Average sales revenue per metric ton of graphite electrodes in the 2002 first quarter was $2,083, a decrease of 7% from the average in the 2001 fourth quarter of $2,251. The lower average sales revenue per metric ton represented a decrease of $6 million in net sales. Of the 7%, changes in currency exchange rates accounted for approximately 3%. We exceeded our expectations for cost reductions. Average graphite electrode production cost per metric ton in the 2002 first quarter was $1,638, about $13 lower than in the 2001 fourth quarter despite low operating levels and low sales volumes. Low operating levels were due to both reductions in production in response to weakness in economic conditions that continued into the middle of the 2002 first quarter as well as reductions in production associated with the mothballing of our Italian graphite electrode plant as part of the 2002 plan and furnace maintenance at our Brazilian graphite electrode plant. We completed the mothballing of our Italian graphite electrode plant during the 2002 first quarter, more than two months ahead of schedule. We believe that the accelerated mothballing as well as other actions will allow us to accelerate achievement of our cost savings targets under the 2002 plan. We also undertook extensive furnace maintenance, which resulted in extended production down time, at our Brazilian graphite electrode plant in preparation for higher operating levels during the remainder of 2002 and into 2003. We estimate that these activities resulted in higher than anticipated graphite electrode production costs of approximately $2 million. Gross profit in the 2002 first quarter was $25 million (22.3% of net sales), a decrease from gross profit in the 2001 fourth quarter of $35 million (27.3% of net sales). The decrease in gross profit was largely due to the decrease in net sales. ADVANCED ENERGY TECHNOLOGY DIVISION. Net sales decreased to $27 million in the 2002 first quarter from $29 million in the 2001 fourth quarter, primarily due to due to weakness in the industrial end markets served, particularly the semiconductor and automotive markets. We believe that the core businesses in this division bottomed during the 2002 first quarter. New product development and commercialization efforts continue to progress successfully. During the 2002 first quarter, IBM Corporation, Hitachi, Ltd. and Agilent Technologies Inc. approved and 59 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES purchased eGraf(TM) thermal interface products for computer, consumer electronic and telecommunication applications. Gross profit in the 2002 first quarter declined to $6 million (22.3% of net sales) as compared to gross profit in the 2001 fourth quarter of $7 million (25.3% of net sales). The decrease in gross margin was primarily due to the decrease in net sales. OTHER ITEMS. Selling, administrative and other expenses were $18 million in the 2002 first quarter, a decline of $1 million, or 5%, from the 2001 fourth quarter, primarily due to a reduction in franchise and other taxes. We recorded other income, net, of $3 million for the 2002 first quarter, primarily due to a currency exchange gain on euro denominated debt. This other income, net, essentially offsets the estimated $2 million of higher graphite electrode production costs during the 2002 first quarter. Adjusted EBITDA for the 2002 first quarter was approximately $20 million. Interest expense was $13 million in the 2002 first quarter, an increase of $2 million from the 2001 fourth quarter. The increase resulted from higher average annual interest rates and higher average total debt outstanding. NET DEBT AND WORKING CAPITAL. Net debt (total debt less cash, cash equivalents and short-term investments) increased during the 2002 first quarter as expected and as previously announced. At March 31, 2002, net debt was $663 million and total debt was $696 million, including $70 million under our revolving credit facility and $212 million of term loans, as net cash from operations declined primarily due to lower sales and working capital requirements, primarily accounts payable. The use of cash to settle payables in the 2002 first quarter increased primarily due to seasonal payable patterns and higher obligations related to preparations at facilities globally to accommodate the mothballing of our Italian graphite electrode plant. In addition, in the 2002 first quarter, we incurred $14 million of cash costs associated with the issuance of Senior Notes in February 2002 and related amendment fees. These costs were capitalized and will be amortized over the term of the Senior Notes. THREE MONTHS ENDED MARCH 31, 2002 AS COMPARED TO THREE MONTHS ENDED MARCH 31 2001. Net sales of $138 million in the 2002 first quarter represented a $33 million, or 19%, decrease from net sales of $171 million in the 2001 first quarter. Gross profit of $31 million in the 2002 first quarter represented an $18 million, or 37%, decrease from gross profit of $49 million in the 2001 first quarter. Gross margin declined to 22.3% of net sales in 2002 first quarter from 28.5% in 2001 first quarter. The decrease in net sales and gross profit was primarily due to lower volume of graphite electrodes sold. Cost of sales declined primarily due to lower volumes of most products sold. GRAPHITE POWER SYSTEMS DIVISION. Net sales decreased to $111 million in the 2002 first quarter from $136 million in the 2001 first quarter, primarily due to the lower volume of graphite electrodes sold and lower average graphite electrode sales revenue per metric ton. Volume of graphite electrodes sold was 38,500 metric tons in the 2002 first quarter as compared to 43,000 metric tons in the 2001 first quarter. The lower volume of graphite electrodes sold represented a decrease of $11 million in net sales. The decrease was primarily a result of a decline in North American electric arc furnace steel production, weaker demand in Europe and Russia, actions 60 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES taken by us to manage credit risk and limited availability of finished graphite electrode inventories to meet increased demand in March 2002. Average sales revenue per metric ton of graphite electrodes in the 2002 first quarter was $2,083 as compared to the average in the 2001 first quarter of $2,419. The lower average sales revenue per metric ton represented a decrease of $13 million in net sales. Unfavorable changes in currency exchange rates represented $4 million of the $13 million decrease in net sales of graphite electrodes. Net sales of cathodes increased in the 2002 first quarter by 2% from the 2001 first quarter. Cost of sales decreased to $86 million in the 2002 first quarter from $98 million in the 2001 first quarter. The decrease was primarily due to lower operating levels. Cost of sales per metric ton of graphite electrodes benefited from improved productivity, head-count reductions, plant cost reductions, lower costs due to the strengthening of the dollar and lower maintenance spending as compared to the 2001 first quarter, partially offset by higher than anticipated graphite electrode production costs of approximately $2 million resulting from activities associated with the accelerated mothballing of our Italian graphite electrode plant and extensive furnace maintenance, which resulted in extended production down time, at our Brazilian graphite electrode plant in preparation for higher operating levels during the remainder of 2002 and into 2003. Average cost of sales per metric ton of graphite electrodes was $1,638 per metric ton in the 2002 first quarter, a decline of $127, or about 7%, as compared to the 2001 first quarter, despite lower operating levels and lower sales volumes. Low operating levels were due to both reductions in production in response to weakness in economic conditions that continued into the middle of the 2002 first quarter as well as reductions in production associated with the mothballing of our Italian graphite electrode plant as part of the 2002 plan and furnace maintenance at our Brazilian graphite electrode plant. Gross profit in the 2002 first quarter was $25 million (22.3% of net sales), a decrease from gross profit in the 2001 first quarter of $38 million (27.4% of net sales). ADVANCED ENERGY TECHNOLOGY DIVISION. Net sales decreased to $27 million in the 2002 first quarter from $35 million in the 2001 first quarter, primarily due to decreases in volume of refractories sold, in new business sales, in volume of flexible graphite sold for gasket applications due to lower demand from the automotive industry and in products sold to customers in the semiconductor and industrial sectors, particularly in Europe, partially offset by an increase in sales of products to customers in the aerospace industry. We believe that the core businesses in this division bottomed during the 2002 first quarter. New product development and commercialization efforts continue to progress successfully. During the 2002 first quarter, IBM, Hitachi and Agilent approved and purchased eGraf(TM) thermal interface products for computer, consumer electronic and telecommunication applications. Cost of sales was $21 million in the 2002 first quarter as compared to $24 million in the 2001 first quarter. The decrease was primarily due to lower operating levels. Gross profit in the 2002 first quarter was $6 million (22.3% of net sales) as compared to gross profit in the 2001 first quarter of $11 million (32.0% of net sales). 61 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES OPERATING PROFIT FOR US AS A WHOLE. Operating profit in the 2002 first quarter was $6 million, or 4.6% of net sales, as compared to operating profit in the 2001 first quarter of $25 million, or 14.6% of net sales. Operating profit in the 2002 first quarter was impacted by a restructuring charge and impairment loss on long-lived and other assets of $6 million that related primarily to the mothballing of our graphite electrode plant in Italy and a charge of $1 million related to the corporate realignment of our subsidiaries. Excluding these non-recurring charges, operating profit in the 2002 first quarter would have been $12 million, or 8.7% of net sales. Selling, administrative and other expenses were $18 million in the 2002 first quarter, a decline of $3 million, or 14%, from 2001 first quarter. The decline was primarily due to a reduction in franchise and other taxes. Other income, expense, net was income of $3 million in 2002 first quarter as compared to nil in 2001 first quarter. This change was primarily associated with a currency exchange gain on euro denominated debt. This other income essentially offsets the estimated $2 million of higher than anticipated graphite electrode production costs during the 2002 first quarter. OTHER ITEMS AFFECTING US AS A WHOLE. Interest expense was $13 million in the 2002 first quarter, a decrease of $6 million from the 2001 first quarter. The decrease resulted from lower average annual interest rates and lower average total debt outstanding. Average outstanding total debt was $663 million in the 2002 first quarter as compared to $729 million in the 2001 first quarter. The decrease in average debt outstanding was primarily due to use of net proceeds from our public offering of common stock in July 2001 to reduce debt. The average annual interest rate was 7.6% in 2002 first quarter as compared to 8.8% in the 2001 first quarter. These average annual rates excluded inputed interest of the fine payable to the DOJ. Provision for income taxes was a $6 million benefit in the 2002 first quarter as compared to a $2 million expense in the 2001 first quarter. Excluding the benefit of $6 million, which was related to the corporate realignment of our subsidiaries, the provision for income taxes for the 2002 first quarter would have been nil. No tax benefit was provided on the restructuring charge and impairment loss on long-lived and other assets of $6 million related to the mothballing of our graphite electrode plant in Italy. The effective income tax rate, before non-recurring charges and impairment losses that related to the mothballing of our Italian graphite electrode plant and the corporate realignment of our subsidiaries, was 35% in the 2002 first quarter as compared to 40% in 2001 first quarter. The effective income tax rate for the 2001 first quarter was higher than the U.S. federal statutory income tax rate of 35% primarily as the result of the fact that a substantial percentage of our earnings was derived from higher tax jurisdictions. In the 2002 first quarter, we recorded an extraordinary item, net of tax, of $2 million in connection with the write-off of capitalized fees associated with the Tranche A and B Term Loans repaid with the net proceeds from the issuance of the Senior Notes. 62 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES As a result of the changes described above, net loss was $4 million in the 2002 first quarter as compared to net income of $3 million in the 2001 first quarter. Net loss per diluted share, before non-recurring charges and tax benefits and extraordinary charges, was $0.02 for the 2002 first quarter as compared to earnings per diluted share of $0.07 in the 2001 first quarter. Net loss per diluted share, after non-recurring charges and tax benefits and extraordinary charges, was $0.06 for the 2002 first quarter. LIQUIDITY AND CAPITAL RESOURCES Our sources of funds have consisted principally of invested capital, cash flow from operations, debt financing and, since July 2001, net proceeds from our public offering of common stock. Our uses of those funds (other than for operations) have consisted principally of debt reduction, capital expenditures, payment of fines, liabilities and expenses in connection with investigations, lawsuits and claims and payment of restructuring costs. We are highly leveraged and have substantial obligations in connection with antitrust investigations, lawsuits and claims (in respect of which we have an unfunded reserve totaling $101 million). We had total debt of $696 million and a stockholders' deficit of $343 million at March 31, 2002 as compared to total debt of $638 million and a stockholders' deficit of $332 million at December 31, 2001. A substantial portion of our debt has variable interest rates or has been effectively converted from a fixed rate obligation to a variable rate obligation pursuant to interest rate management initiatives. We typically discount or factor a portion of our accounts receivable. In the 2001 first quarter, certain of our subsidiaries sold receivables totaling $42 million. In addition, if we are required to pay or issue a letter of credit to secure payment of the fine assessed by the antitrust authority of the European Union pending resolution of our appeal regarding the amount of the fine, the payment would be financed by borrowing under (or secured by a letter of credit that would constitute a borrowing under) our revolving credit facility. Our leverage and obligations, as well as changes in conditions affecting our industry, changes in global and regional economic conditions and other factors, have adversely impacted our recent operating results. Cash and cash equivalents were $33 million at March 31, 2002 as compared to $38 million at December 31, 2001. Net debt (which is total debt, net of cash, cash equivalents and short-term investments) was $663 million at March 31, 2002 as compared to $600 million at March 31, 2001. As a result of our high leverage and substantial obligations in connection with antitrust investigations, lawsuits and claims, changes in conditions affecting our industry, changes in global and regional economic conditions and other factors, we have placed high priority on efforts to manage cash and reduce debt. 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 63 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES 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 payment of interest on our previously outstanding senior subordinated notes (which have since been redeemed)) due to various factors. These factors include customer order patterns, customer buy-ins in advance of annual price increases, fluctuations in working capital requirements 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 (before deducting cash used for capital expenditures). The third quarter tends to produce relatively less positive cash flow primarily as a result of scheduled plant shutdowns by our customers for vacations. Following a recovery in the steel and other metals and transportation industries, we believe that our cash flow would follow this historical pattern. We use, and are dependent on, funds available under our revolving credit facility, including continued compliance with the financial covenants under the Senior Facilities, as well as monthly or quarterly cash flow from operations as our primary sources of liquidity. We believe that our cost savings initiatives will, over the next one to two years, continue to improve our cash flow from operations for a given level of net sales. Improvements in cash flow from operations resulting from these initiatives are being partially offset by associated cash implementation costs, while they are being implemented. Our high leverage and substantial obligations in connection with antitrust investigations, lawsuits and claims could have a material impact on our liquidity. Cash flow from operations services payment of our debt and 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 or timing of payment is sooner than expected. Our ability to service our debt as it comes due is dependent on our future financial and operating performance. Our ability to maintain compliance with the covenants under the Senior Facilities is also 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 conditions affecting our industry, changes in global and regional economic conditions, changes in interest and currency exchange rates, developments in antitrust investigations, lawsuits and claims involving us and inflation in raw material, energy and other costs. 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. Even if we are able to meet our debt service and other obligations when due, we may not be able to comply with the financial covenants under the Senior Facilities. A failure to comply with any of the covenants under the Senior Facilities, unless waived by the lenders, would be a default under the Senior Facilities. This would permit the lenders to accelerate the maturity of the Senior Facilities. It would also permit the lenders to terminate their commitments to extend credit under our revolving credit facility. This would have an immediate material adverse effect on our liquidity. 64 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES An acceleration of maturity of the Senior Facilities or a breach of the covenants contained in the Senior Notes would permit the holders of the Senior Notes to accelerate the maturity of the Senior Notes. Acceleration of maturity of the Senior Notes would permit the lenders to accelerate the maturity of the Senior Facilities and terminate their commitments to extend credit under our revolving credit facility. If we were unable to repay our debt to the lenders or holders, the lenders and holders could proceed against the collateral securing the Senior Facilities and the Senior Notes, respectively, and exercise all other rights available to them. If we were unable to repay our debt to the lenders or the holders, or otherwise obtain a waiver from the lenders or the holders, 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 obtain any such waiver or take any of such actions on favorable terms or at all. As described above, we are dependent on our revolving credit facility and continuing compliance with the financial covenants under the Senior Facilities for liquidity. The Senior Facilities require us to, among other things, comply with specified minimum interest coverage and maximum leverage ratios that become more restrictive over time. At March 31, 2002, on an actual basis and as adjusted to give effect to the issuance of additional Senior Notes in May 2002, we were in compliance with the financial covenants under the Senior Facilities. If we were to believe that we would not continue to comply with such covenants, we would seek an appropriate waiver or amendment from the lenders thereunder. There can be no assurance that we would be able to obtain such waiver or amendment on acceptable terms or at all. While our revolving credit facility provides for maximum borrowings of up to [euro] 200 million ($174 million, based on currency exchange rates in effect at March 31, 2002), our ability to borrow under this facility may effectively be less because of the impact of additional borrowings upon our compliance with the maximum leverage ratio permitted under the Senior Facilities. At March 31, 2002, on an actual basis and as adjusted to give effect to issuance of additional Senior Notes in May 2002, we had full availability under our revolving credit facility. In addition, payment of the fine or issuance of a letter of credit to secure payment of the fine assessed by the antitrust authority of the European Union would significantly reduce remaining funds available under our revolving credit facility for operating and other purposes. 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 that, based on our expected cash flow from operations, our expected resolution of our remaining obligations in connection with antitrust investigations, lawsuits and claims, and existing capital resources, and taking into account our efforts to reduce costs and working capital needs, improve efficiencies and product quality, 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 when due. 65 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES CASH FLOW USED IN OR PROVIDED BY OPERATING ACTIVITIES. Cash flow used in operating activities was $47 million in the 2002 first quarter as compared to cash flow provided by operating activities of $11 million in the 2001 first quarter. The decreased generation of cash flow of $58 million resulted primarily from a reduction in gross profit and an increase in working capital, primarily due to a reduction in accounts payable. The use of cash to settle payables in the 2002 first quarter increased primarily due to seasonal payable patterns, higher obligations related to preparations at facilities globally to accommodate the mothballing of our Italian graphite electrode plant and the shut down of our graphite manufacturing operations in Tennessee, and reduced spending because of lower operating levels. In addition, in the 2002 first quarter, we incurred $13 million of cash costs associated with the issuance of Senior Notes. These costs were capitalized and will be amortized over the term of the Senior Notes. Our average days payable outstanding decreased by about 18 days and our days sales outstanding increased by about 12 days at the end of the 2002 first quarter as compared to the end of the 2001 first quarter. Careful management of credit risk allowed us to avoid significant accounts receivable losses in light of the poor financial condition of many of our potential and existing customers. In light of current global and regional economic conditions, we cannot assure that we will not be materially adversely affected by accounts receivable losses in the future. CASH FLOW USED IN INVESTING ACTIVITIES. We used $9 million of cash flow for investing activities during the 2002 first quarter as compared to $4 million during the 2001 first quarter. This increase of $5 million was primarily due to a higher use of capital expenditures for expansion in the 2002 first quarter compared to a reduced level of capital expenditures in the 2001 first quarter. CASH FLOW PROVIDED BY FINANCING ACTIVITIES. Cash flow provided by financing activities was $51 million in the 2002 first quarter as compared to cash provided by financing activities of $4 million in the 2001 first quarter. The increase was due to additional borrowings in the 2002 first quarter to fund working capital needs and expenses in connection with our private offering of Senior Notes in February 2002. During the 2001 first quarter, we received $9 million from an additional minority investment in connection with the broadening of our strategic alliance in the cathode business with Pechiney. During the 2002 first quarter, we completed a private offering of $400 million of Senior Notes. Net proceeds were $387 million which were used to repay term loans under the Senior Facilities and reduce the outstanding balance under our revolving credit facility. ACCOUNTING CHANGES In August 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets, excluding goodwill and other intangible assets not being amortized pursuant to SFAS No. 142, and certain other assets. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. We adopted SFAS No. 66 PART I (CONT'D) GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES 144 effective January 1, 2002. The adoption of SFAS No. 144 did not have a significant impact on our consolidated financial position or results of operations. In July 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. SFAS No. 143 will be effective for financial statements issued for fiscal years beginning after June 15, 2002. We anticipate that the adoption of SFAS No. 143 will not have a significant impact on our consolidated financial position or results of operations. In July 2001, FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," both of which are effective for financial statements issued for fiscal years beginning after December 15, 2001. SFAS No. 141 and SFAS No. 142 establish accounting and reporting standards for business combinations, goodwill and intangible assets. We adopted SFAS No. 141 and SFAS No. 142 effective January 1, 2002. The adoption of SFAS No. 141 and SFAS No. 142 did not have a significant impact on our consolidated financial position or results of operations, except that we no longer amortize goodwill. ITEM 3. 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 or speculative purposes or to generate income, and we do not use leveraged derivatives. We implement interest rate management initiatives to seek to minimize our interest expense and optimize our portfolio of fixed and variable interest rate obligations. Our exposure to changes in interest rates results primarily from floating rate long-term debt (or derivatives that effectively convert fixed rate debt to variable rate debt) tied to LIBOR or euro LIBOR. We enter into agreements with financial institutions, which are intended to limit, or cap, our exposure to the incurrence of additional interest expense with respect to a portion of such debt (or derivatives) due to increases in variable interest rates. At March 31, 2002, we had outstanding interest rate caps of $100 million limiting our floating interest rate factor on related debt to a weighted-average rate of 5.0% (where the interest on the debt is based on LIBOR) through June 2002. We recently entered into a ten year interest rate swap for a notional amount of $200 million to effectively convert that amount of fixed rate debt to variable rate debt. Fees related to these agreements or swaps are charged to interest expense over the term of relevant agreement or swap. 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; 67 PART II GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES 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. 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 for the purpose of hedging against these risks with an aggregate notional amount of about $37 million at December 31, 2001 and $34 million at March 31, 2002. All of our contracts mature within one year. All of our contracts are marked-to-market monthly and, accordingly, transaction gains and losses are reflected in the Consolidated Statements of Operations. Unrealized gains and losses on our outstanding contracts were nil at December 31, 2001 and March 31, 2002. 68 PART II GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES ITEM 1. LEGAL PROCEEDINGS ANTITRUST INVESTIGATIONS In April 1998, pursuant to a plea agreement between the Antitrust Division of the U.S. Department of Justice (the "DOJ") and GTI, GTI 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, payable in six annual installments of $20 million, $15 million, $15 million, $18 million, $21 million and $21 million, commencing July 23, 1998. The plea agreement was approved by the U.S. District Court for the Eastern District of Pennsylvania (the "DISTRICT COURT") and, as a result, under the plea 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. At our request, in January 2001, the due date of each of the remaining three payments was deferred by one year and, at our request, in January 2002, the payment schedule for the $60 million unpaid balance outstanding at that time was revised to require a $2.5 million payment in April 2002, a $5.0 million payment in April 2003 and, beginning in April 2004, quarterly payments ranging from $3.25 million to $5.375 million, through January 2007. Beginning in 2004, the DOJ may ask the District Court to accelerate the payment schedule based on a change in our ability to make such payments. Interest will begin to accrue on the unpaid balance, commencing in April 2004, at the statutory rate of interest then in effect. In January 2002, the statutory rate of interest was 2.13% per annum. Accrued interest will be payable together with each quarterly payment. The revised payment schedule has been approved by the District Court. All payments due have been timely paid. In March 1999, pursuant to a plea agreement between our Canadian subsidiary and the Canadian 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 relevant Canadian court approved the plea agreement and, as a result, under the plea agreement we will not be subject to prosecution by the Canadian 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 October 1999, we became aware that the Korean antitrust authority had commenced an investigation as to whether there had been any violation of Korean antitrust law by producers and distributors of graphite electrodes. In March 2002, we were advised that the Korean antitrust authority, after holding a hearing on this matter, assessed a fine against us in the amount of 676 million KRW (approximately $510,000, based on currency exchange rates in effect on March 31, 2002). Five other graphite electrode producers were also fined by the Korean antitrust authority in amounts ranging up to 4,396 million KRW (approximately $3.3 million, based on currency exchange rates in effect on March 31, 2002). Our fine, which represented 0.5% of our graphite electrode sales in Korea during the relevant time period and was the lowest fine as a percentage of sales imposed by the Korean antitrust authority, reflected a substantial reduction as a result of 69 PART II GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES our cooperation with that authority during its investigation. In May 2002, we appealed the decision. Notwithstanding our appeal, we are required to pay this fine by June 9, 2002. In January 2000, the Directorate General-Competition of the Commission of the European Communities, the antitrust enforcement authority of the European Union (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. On July 18, 2001, the EU Competition Authority issued its decision regarding the allegations. Under the decision, the EU Competition Authority assessed a fine of [euro]50.4 million (about $46 million, based on exchange rates in effect at March 31, 2002) against us. Seven other graphite electrode producers were also fined under the decision, with fines ranging up to [euro]80.2 million. From the initiation of its investigation, we have cooperated with the EU Competition Authority. As a result of our cooperation, our fine reflects a substantial reduction from the amount that otherwise would have been assessed. It is the policy of the EU Competition Authority to negotiate appropriate terms of payment of antitrust fines, including extended payment terms. We have had discussions regarding payment terms with the EU Competition Authority. After an in-depth analysis of the decision, in October 2001, we filed an appeal to the Court of First Instance of the European Communities in Luxembourg challenging the amount of the fine. Appeals of this type may take two years or longer to be decided and the fine or collateral security therefor would typically be required to be paid or provided at about the time the appeal was filed. We are currently in discussions with the EU Competition Authority regarding the appropriate form of collateral security during the pendency of the appeal. If the results of these discussions are not acceptable to us, we may file an interim appeal to the Court to waive the requirement for collateral security or to allow us to provide alternative security for payment. We cannot predict how or when the Court would rule on such interim appeal. In the 2001 second quarter, we became aware that the Brazilian antitrust authority had requested written information from various steelmakers in Brazil. In April 2002, our Brazilian subsidiary received a request for information from that authority. We intend to provide that information. Except as described above, the antitrust investigations against us in the U.S., Canada, the European Union, Japan and Korea have been resolved. We are continuing to cooperate with the DOJ and the Canadian Competition Bureau in their continuing investigations of others. 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. It is possible that antitrust investigations seeking, among other things, to impose fines and penalties could be initiated against us by antitrust authorities in Brazil or other jurisdictions. The guilty pleas and decisions described above make it more difficult for us to defend against other investigations as well as civil lawsuits and claims. We have been vigorously 70 PART II GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES protecting, and intend to continue to vigorously protect, our interests in connection with the investigations described above. We may, however, at any time settle any possible unresolved charges. ANTITRUST LAWSUITS Through March 31, 2002, except as described in the following paragraphs, we have settled or obtained dismissal of all of the civil antitrust lawsuits (including class action lawsuits) previously pending against us, certain civil antitrust lawsuits threatened against us and certain possible civil antitrust claims against us by certain customers who negotiated directly with us. The settlements cover, among other things, virtually all of the actual and potential claims against us by customers in the U.S. and Canada arising out of alleged antitrust violations occurring prior to the date of the relevant settlements in connection with the sale of graphite electrodes. One of the settlements also covers the actual and respective potential claims against us by certain foreign customers arising out of alleged antitrust violations occurring prior to the date of that settlement in connection with the sale of graphite electrodes sourced from the U.S. Although each settlement is unique, in the aggregate they consist primarily of current and deferred cash payments with some product credits and discounts. All settlement payments due thereunder have been timely made. In 1999 and 2000, we and other producers of graphite electrodes were served with three complaints commencing three separate civil antitrust lawsuits in the District Court. In March 2002, we were served with another complaint commencing a separate civil antitrust lawsuit in the District Court. These lawsuits are collectively called the "FOREIGN CUSTOMER LAWSUITS". The first complaint, entitled FERROMIN INTERNATIONAL TRADE CORPORATION, ET AL. V. UCAR INTERNATIONAL INC., ET AL. was filed by 27 steelmakers and related parties, all but one of whom are located outside the U.S. The second complaint, entitled BHP NEW ZEALAND LTD. ET AL. V. UCAR INTERNATIONAL INC., ET AL. was filed by 4 steelmakers, all of whom are located outside the U.S. The third complaint, entitled SAUDI IRON AND STEEL COMPANY V. UCAR INTERNATIONAL INC., ET AL., was filed by a steelmaker who is located outside the U.S. The fourth complaint, entitled ARBED, S.A., ET AL. V. MITSUBISHI CORPORATION, ET AL., was filed by 5 steelmakers, all of whom were 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. We believe that we have strong defenses against claims alleging that purchases of graphite electrodes outside the U.S. are actionable under U.S. federal antitrust law. We filed motions to dismiss the first and second complaints. In June 2001, our motions to dismiss the first and second complaints were granted with respect to substantially all of the plaintiffs' claims. Appeals have been filed by the plaintiffs and the defendants with the Third Circuit Court of Appeals with regard to these dismissals. The third complaint was dismissed without prejudice to refile pending the resolution of such appeals. We have filed a motion to stay the lawsuit commenced by the fourth complaint pending resolution of appeals in the other foreign customer lawsuits. 71 PART II GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES In 1999 and 2000, we were served with three complaints commencing three civil antitrust lawsuits (the "CARBON ELECTRODE LAWSUITS"). The first complaint, filed in the District Court, is entitled GLOBE METALLURGICAL, INC. V. UCAR INTERNATIONAL INC., ET AL. The second complaint, filed in the U.S. Bankruptcy Court for the Northern District of Ohio, is entitled IN RE SIMETCO, INC. The third complaint, filed in the U.S. District Court for the Southern District of West Virginia, is entitled ELKEM METALS COMPANY INC and ELKEM METALS COMPANY ALLOY LLP V. UCAR CARBON COMPANY INC., ET AL. SGL Carbon AG is also named as a defendant in the first complaint and SGL Carbon Corporation is also named as a defendant in the first and third complaints. In the complaints, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of carbon electrodes and seek, among other things, an award of treble damages resulting from such alleged violations. We filed motions to dismiss the second and third complaints. In May 2001, our motion to dismiss the second complaint was denied. In October 2001, we settled the lawsuit commenced by the third complaint. The guilty pleas and decisions described above do not relate to carbon electrodes. The foreign customer lawsuits and two of the three carbon electrode lawsuits are still in their early stages. We have been vigorously defending, and intend to continue to vigorously defend, against these remaining lawsuits as well as all threatened lawsuits and possible unasserted claims. We may at any time, however, settle these lawsuits as well as any threatened lawsuits and possible claims. It is possible that additional civil antitrust lawsuits seeking, among other things, to recover damages could be commenced against us in the U.S. and in other jurisdictions. 1997 AND 2001 SECOND QUARTER ANTITRUST EARNINGS CHARGES We recorded a pre-tax charge of $340 million against results of operations for 1997 and, as a result of the assessment of a fine by the EU Competition Authority, we recorded a pre-tax charge of an additional $10 million against results of operations for the 2001 second quarter, as a reserve for potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. The aggregate reserve of $350 million is calculated on a basis net of, among other things, imputed interest on installment payments of the DOJ fine. Actual aggregate liabilities and expenses (including settled investigations, lawsuits and claims as well as continuing investigations, pending appeals and unsettled pending, threatened and possible lawsuits and claims mentioned above) could be materially higher than $350 million and the timing of payment thereof could be sooner than anticipated. In the aggregate (including the assessment of the fine by the EU Competition Authority, the assessment of the fine by the Korean antitrust authority and the additional $10 million charge), the fines and net settlements and expenses are within the amounts we used to evaluate the aggregate charge of $350 million. To the extent that aggregate liabilities and expenses, net, are known or reasonably estimable, at March 31, 2002, $350 million represents our estimate of these liabilities and expenses. Our insurance has not and will not materially cover liabilities that have or may become due in connection with antitrust investigations or related lawsuits or claims. 72 PART II GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES Through March 31, 2002, we have paid an aggregate of $249 million of fines and net settlement and expense payments and $11 million of imputed interest. At March 31, 2002, $101 million remained in the reserve. The balance of the reserve is available for the fine payable to the DOJ (excluding imputed interest thereon), the fines assessed by the EU Competition Authority and the Korean antitrust authority and other matters. The aggregate amount of remaining committed payments payable to the DOJ for imputed interest at March 31, 2002 was about $9 million. OTHER PROCEEDINGS AGAINST US 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 independent directors of GTI'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 include two of the respective representatives of Mitsubishi and Union Carbide who served on GTI's Board of Directors at the time of our 1995 leveraged equity recapitalization, Hiroshi Kawamura and Robert D. Kennedy. Mr. Kennedy, who was a director of GTI 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 GTI had engaged in illegal graphite electrode price fixing activities and that any determination of GTI'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. In January 2000, Mitsubishi was indicted by the DOJ on a one count charge of aiding and abetting violations of U.S. federal antitrust law in connection with the sale of graphite electrodes. Mitsubishi entered a plea of not guilty. In February 2001, a jury found Mitsubishi guilty of the charge. Mitsubishi entered into a sentencing agreement with the DOJ, which was approved by the District Court, pursuant to which Mitsubishi agreed to pay a fine of $134 million and not appeal its conviction. Mitsubishi has also been named as a defendant in several civil antitrust lawsuits commenced by electric arc furnace steel producers with respect to its alleged participation in those activities. In addition, we allege that, in January 1995, GTI did not have the statutory capital surplus required to lawfully authorize the payments that GTI made to its former parents. We also allege that Mitsubishi and Union Carbide were unjustly enriched by receipts from their investments in GTI and that they knowingly induced or actively and substantially assisted former senior management of GTI to engage in illegal graphite electrode price fixing activities in breach of their fiduciary duties to GTI. 73 PART II GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES Based on the allegations summarized above, we are seeking to recover from Mitsubishi and Union Carbide 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. The defendants have filed motions to dismiss this lawsuit and a motion to disqualify certain of our counsel from representing us in this lawsuit. We are vigorously opposing those motions. Oral hearings were held on those motions in the 2001 first and second quarters. No decision on those motions has been rendered. We expect to incur $10 million to $20 million for legal expenses to pursue this lawsuit from the date of filing the complaint through trial. Through March 31, 2002, we had incurred about $4 million of these legal expenses. This lawsuit is in its earliest stages. The ultimate outcome of this lawsuit is subject to many uncertainties. We may at any time settle this lawsuit. 74 PART II GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ---------------------------------------- (A) EXHIBITS The exhibits listed in the following table have been filed as part of this Quarterly Report on Form 10-Q. EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 3.1* - Amended and Restated Certificate of Incorporation of GrafTech International Ltd. (formerly known as UCAR International Inc.). 3.1(b) - Certificate of Amendment to the Amended and Restated Certificate of Incorporation of GrafTech International Ltd. (formerly known as UCAR International Inc.). 4.5 - First Supplemental Indenture, dated as of April 30, 2002, among UCAR Finance Inc., GrafTech International Ltd. (formerly known as UCAR International Inc.), UCAR Global Enterprises Inc., UCAR Carbon Company Inc., UCAR Composites Inc., UCAR Carbon Technology LLC, UCAR Holdings III Inc. and UCAR International Trading Inc. and State Street Bank and Trust Company. 4.6 - Registration Rights Agreement, dated as of May 6, 2002, among GrafTech International Ltd. (formerly known as UCAR International Inc.), each of the Subsidiaries listed therein, Credit Suisse First Boston Corporation and J.P. Morgan Securities Inc. 10.14 - Sixth Amendment to Credit Agreement, dated as of February 22, 2000, among GrafTech International Ltd. (formerly known as 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. 10.15 - Reaffirmation Agreement, dated as of May 6, 2002, among UCAR Finance Inc., GrafTech International Ltd. (formerly known as UCAR International Inc.), UCAR Global Enterprises Inc., UCAR Carbon Company Inc., UCAR Composites Inc., UCAR Technology LLC, UCAR Holdings III Inc. and UCAR International Trading Inc. and State Street Bank and Trust Company. * Incorporated by reference to the Registration Statement of the registrant on Form S-1 (Registration No. 33-94698) (B) REPORTS ON FORM 8-K The following Reports on Form 8-K were filed during the quarter ended March 31, 2002: 75 PART II GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES (i) Report on Form 8-K dated January 28, 2002 as filed by UCAR International Inc., filing a press release dated January 28, 2002 announcing the launch of a private offering of $250 million aggregate principal amount of senior notes of UCAR Finance Inc. No financial statements were filed with such Report on Form 8-K. (ii) Report on Form 8-K dated February 8, 2002 as filed by UCAR International Inc., filing a press release dated February 8, 2002 announcing the pricing of the private offering of senior notes of UCAR Finance Inc. and the increase in the aggregate principal amount of such notes to $400 million. No financial statements were filed with such Report on Form 8-K. (iii) Report on Form 8-K dated February 15, 2002 as filed by UCAR International Inc., filing a press release dated February 15, 2002 announcing the closing of the private offering of $400 million aggregate principal amount of senior notes of UCAR Finance Inc. No financial statements were filed with such Report on Form 8-K. 76 PART II GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES 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. GRAFTECH INTERNATIONAL LTD. Date: May 13, 2002 By: /s/ CORRADO F. DE GASPERIS ----------------------------- Corrado F. De Gasperis VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND CHIEF INFORMATION OFFICER 77 PART II GRAFTECH INTERNATIONAL LTD. AND SUBSIDIARIES INDEX TO EXHIBITS ----------------- EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------- ----------------------- 3.1(b) - Certificate of Amendment to the Amended and Restated Certificate of Incorporation of GrafTech International Ltd. (formerly known as UCAR International Inc.). 4.5 - First Supplemental Indenture, dated as of April 30, 2002, among UCAR Finance Inc., GrafTech International Ltd. (formerly known as UCAR International Inc.), UCAR Global Enterprises Inc., UCAR Carbon Company Inc., UCAR Composites Inc., UCAR Carbon Technology LLC, UCAR Holdings III Inc. and UCAR International Trading Inc. and State Street Bank and Trust Company. 4.6 - Registration Rights Agreement, dated as of May 6, 2002, among GrafTech International Ltd. (formerly known as UCAR International Inc.), each of the Subsidiaries listed therein, Credit Suisse First Boston Corporation and J.P. Morgan Securities Inc. 10.14 - Sixth Amendment to Credit Agreement, dated as of February 22, 2000, among GrafTech International Ltd. (formerly known as UCAR International Inc.), UCAR Global Enterprises Inc., UCAR Finance Inc., 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. 10.15 - Reaffirmation Agreement, dated as of May 6, 2002, among UCAR Finance Inc., GrafTech International Ltd. (formerly known as UCAR International Inc.), UCAR Global Enterprises Inc., UCAR Carbon Company Inc., UCAR Composites Inc., UCAR Technology LLC, UCAR Holdings III Inc. and UCAR International Trading Inc. and State Street Bank and Trust Company. 78 EX-3 3 graftechmay0210qex31b.txt EXHIBIT 3.1(B) EXHIBIT 3.1(b) CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF UCAR INTERNATIONAL INC. I, Karen G. Narwold, hereby certifies that: 1. The name of the corporation is UCAR International Inc. (the "Corporation"). 2. I am the Vice President, General Counsel, Human Resources and Secretary of the Corporation. 3. The Corporation is duly organized and validly existing under the General Corporation Law of the State of Delaware, as amended. 4. The Board of Directors of the Corporation, by resolutions duly adopted, declared it advisable that the Amended and Restated Certificate of Incorporation of the Corporation be amended in order to change the name of the Corporation to GrafTech International Ltd. 5. This Amendment to the Amended and Restated Certificate of Incorporation of the Corporation was duly adopted, effective May 7, 2002, in accordance with Section 242 of the General Corporation Law of the State of Delaware. 6. Article FIRST of the Amended and Restated Certificate of Incorporation of the Corporation be, and hereby is, amended in its entirety to read as follows: "FIRST: NAME ---- The name of this corporation is GrafTech International Ltd. (the "Corporation")." IN WITNESS WHEREOF, the undersigned has signed this Certificate of Amendment on this 7th day of May, 2002. /S/ KAREN G. NARWOLD ----------------------------------- Karen G. Narwold Vice President, General Counsel, Human Resources and Secretary State of Delaware ) County of New Castle ) Sworn to before me this day of May 7th 2002. /S/ REBECCA E. GREEN - ------------------------------------ Notary Public EX-4 4 graftechmay0210qex45.txt EXHIBIT 4.5 EXHIBIT 4.5 FIRST SUPPLEMENTAL INDENTURE FIRST SUPPLEMENTAL INDENTURE, dated as of April 30, 2002 (this "SUPPLEMENTAL INDENTURE"), among UCAR Finance Inc., a Delaware corporation (the "COMPANY"), UCAR International Inc., UCAR Global Enterprises Inc., UCAR Carbon Company Inc., UCAR Composites Inc., UCAR Carbon Technology LLC, UCAR Holdings III Inc. and UCAR International Trading Inc. (collectively, the "GUARANTORS"), and State Street Bank and Trust Company, a trust company organized under the laws of the Commonwealth of Massachusetts, as Trustee (the "TRUSTEE"). W I T N E S S E T H: WHEREAS, the parties entered into the Indenture, dated as of February 15, 2002 (the "INDENTURE"), among the Company, the Guarantors, UCAR International Holdings Inc. ("UCAR INTERNATIONAL HOLDINGS") and the Trustee relating to $400,000,000 of 10 1/4% Senior Notes due 2012 issued by the Company (the "SECURITIES"); WHEREAS, all capitalized terms used herein without definition herein shall have the meanings ascribed thereto in the Indenture; WHEREAS, UCAR International Holdings was dissolved, and its assets were transferred to UCAR Carbon Company Inc., in March 2002; WHEREAS, the Company wishes to issue up to $150,000,000 in Additional Securities pursuant to the Indenture (the "NEW SECURITIES"); WHEREAS, the Company conducted a consent solicitation to provide for amendments to the Indenture waiving the application of Section 2.13 of the Indenture in connection with the issuance of the New Securities so that the Company would not be required to use the gross proceeds from the sale of the New Securities to make Intercompany Loans to Foreign Restricted Subsidiaries; WHEREAS, the registered holders of a majority in principal amount at maturity of the Securities outstanding as of the record date established for such consent solicitation have consented to such amendments so long as the proceeds from the issuance of the New Securities are used as described in the Consent Solicitation Statement, dated April 23, 2002, of the Company; WHEREAS, Section 9.01 of the Indenture permits the Company, the Guarantors and the Trustee to amend the Indenture without notice to or consent of any Securityholder to, among other things, cure any ambiguity, omission, defect or inconsistency or to make any change that does not adversely affect the rights of any Securityholder; and WHEREAS, all things required to be done to make this Supplemental Indenture a valid supplement to the Indenture according to the terms of the Indenture have been done; NOW, THEREFORE, the parties agree as follows: SECTION 1. AMENDMENTS TO THE INDENTURE. The Indenture is hereby amended as follows: (a) There shall be added a new definition of "New Securities" to Section 1.01 of the Indenture, as follows: "New Securities" means up to $150,000,000 of Additional Securities issued after the date of this Supplemental Indenture. (b) Paragraph (8) of the definition of "Permitted Liens" in Section 1.01 of the Indenture is hereby amended and restated in its entirety as follows: (8) Liens existing on the Issue Date and Liens created to secure the Securities; (c) The first sentence of Section 2.13 of the Indenture is hereby amended and restated in its entirety as follows: The Company shall be entitled, subject to its compliance with Section 4.03, to issue Additional Securities under this Indenture which shall have identical terms as the Initial Securities issued on the Issue Date, other than with respect to the date of issuance and, if appropriate, the issue price; PROVIDED, HOWEVER, that the Company makes one or more Intercompany Loans equal to the gross proceeds of such Additional Securities (other than the New Securities) to one or more Foreign Restricted Subsidiaries. (d) Section 4.14(b) of the Indenture is hereby amended and restated in its entirety as follows: (b) UCAR International shall cause UCAR Electrodos, after the completion of the Realignment insofar as the Realignment relates to it, and UCAR S.p.A., after the repayment of the Secured Intercompany Note issued by it, and each Foreign Restricted Subsidiary that receives an Intercompany Loan from the sale of Additional Securities from the Company to, at the time of such completion, repayment, or receipt, respectively, execute and deliver to the Company an Intercompany Note in the principal amount equal to the principal amount of its Secured Intercompany Note at such time or the portion of the gross proceeds received by such Foreign Restricted Subsidiary, respectively. Until the proceeds received by the Company on the Issue Date are loaned in the form of an Intercompany Loan to UCAR Electrodos and UCAR S.p.A. in 2 an aggregate amount equal to the principal amount of their respective Secured Intercompany Notes, such proceeds shall be invested only in Temporary Cash Investments or used to reduce the Company's borrowings under the Revolving Credit Facility; provided that at least $31.0 million of capacity shall be retained and not drawn under the Revolving Credit Facility during such period. The Company shall, at the same time that such an Intercompany Note is issued to it, pledge and deliver to the Trustee such Intercompany Note, subject to the limitation that at no time will the combined value of the pledged portion of any Foreign Restricted Subsidiary's Intercompany Note and Intercompany Note Guarantee exceed 19.99% of the principal amount of the then outstanding Securities. The Company shall use its commercially reasonable best efforts (1) to complete the Realignment as it relates to UCAR Electrodos and (2) to cause UCAR S.p.A. to repay the Secured Intercompany Note issued by UCAR S.p.A., in each case, within 90 days after the Issue Date. (e) The following sentence is hereby added at the end of Section 5.01(c) of the Indenture: The foregoing limitation shall not prohibit any pledge of assets of any Subsidiary Guarantor or Intercompany Note Obligor, as the case may be, under the Credit Agreement or this Indenture. (f) The first sentence of Section 4 of the Rule 144A/Regulation S Appendix to the Indenture (entitled "Provisions Relating to Initial Securities, Private Exchange Securities and Exchange Securities") is hereby amended and restated in its entirety as follows: The Company issued the Securities under an Indenture dated as of February 15, 2002, as supplemented by the First Supplemental Indenture dated as of April 30, 2002 (as so supplemented, the "INDENTURE"), among the Company, the Guarantors and the Trustee. (g) Exhibit 1 to the Indenture, the form of supplemental indenture for future guarantors referenced in the definition of "Guaranty Agreement" contained in Section 1.01 of the Indenture ("EXHIBIT 1"), is hereby amended as follows: (i) The first "whereas" clause contained in Exhibit 1 is hereby amended and restated in its entirety as follows: WHEREAS, the Company and the other Guarantors have heretofore executed and delivered to the Trustee an indenture, dated as of February 15, 2002, as supplemented by the first supplemental indenture, dated as of April 30, 2002 (as so supplemented and as the same may be further amended or supplemented, the "INDENTURE"), providing for the issuance of an aggregate principal amount of $400,000,000 of 10 1/4% Senior 3 Notes due 2012 (the "INITIAL NOTES") and an additional aggregate principal amount of up to $150,000,000 of 10 1/4% Senior Notes due 2012 (the "NEW NOTES" and, together with the Initial Notes, the "NOTES"); (ii) Exhibit 1 is hereby amended to delete the signature block for UCAR International Holdings. (h) Exhibit 2 to the Indenture, the form of intercompany note referenced in the definition of "Intercompany Note" contained in Section 1.01 of the Indenture ("EXHIBIT 2"), is hereby amended as follows: (i) Section 3 of Exhibit 2 to the Indenture is hereby amended and restated in its entirety as follows: SECTION 3. PREPAYMENTS. This Intercompany Note shall not be prepayable by the Payor, except in accordance with the Indenture dated as of February 15, 2002, as supplemented by the First Supplemental Indenture dated as of April 30, 2002 (as so supplemented and as the same may be further amended or supplemented, the "INDENTURE"), among the Payee, the Guarantors named therein and State Street Bank and Trust Company, as Trustee, relating to the issuance by the Payee of $400,000,000 of 10 1/4% Senior Notes due 2012 (the "Initial Notes") and the issuance by the Payee of up to an additional $150,000,000 of 10 1/4% Senior Notes due 2012 (the "NEW NOTES" and, together with the Initial Notes, the "NOTES"); (ii) All references in Exhibit 2 to "Senior Notes" are hereby amended to refer to "Notes". SECTION 2. TERMINATION OF GUARANTY OF UCAR INTERNATIONAL HOLDINGS. The parties acknowledge that when it dissolved, UCAR International Holdings ceased to be a Subsidiary Guarantor under, and party to, the Indenture, and was released from all obligations under Article 10 of the Indenture, without any further action required on the part of the Trustee or any Holder, in accordance with the second paragraph of Section 10.06 of the Indenture. SECTION 3. GOVERNING LAW. This Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. SECTION 4. COUNTERPARTS. This Supplemental Indenture may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 4 SECTION 5. RATIFICATION. Except as expressly amended hereby, each provision of the Indenture shall remain in full force and effect and, as amended hereby, the Indenture is in all respects ratified and confirmed by each of the Company, the Guarantors and the Trustee. [remainder of page intentionally left blank] 5 IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be duly executed as of the date first above written. UCAR FINANCE INC., by /s/ Corrado F. De Gasperis ---------------------------------- Name: Corrado F. De Gasperis Title: Vice President, Chief Financial Officer and Chief Information Officer UCAR INTERNATIONAL INC., by /s/ Corrado F. De Gasperis ---------------------------------- Name: Corrado F. De Gasperis Title: Vice President, Chief Financial Officer and Chief Information Officer UCAR GLOBAL ENTERPRISES INC., by /s/ Corrado F. De Gasperis ---------------------------------- Name: Corrado F. De Gasperis Title: Vice President, Chief Financial Officer and Chief Information Officer UCAR CARBON COMPANY INC., by /s/ Corrado F. De Gasperis ---------------------------------- Name: Corrado F. De Gasperis Title: Vice President, Chief Financial Officer and Chief Information Officer UCAR COMPOSITES INC., by /s/ Scott Mason ----------------------------------------- Name: Scott C. Mason Title: Chief Executive Officer 6 UCAR CARBON TECHNOLOGY LLC., by /s/ Corrado F. De Gasperis ------------------------------------- Name: Corrado F. De Gasperis Title: Vice President, Chief Financial Officer and Chief Information Officer UCAR HOLDINGS III INC., by /s/ Corrado F. De Gasperis ---------------------------------- Name: Corrado F. De Gasperis Title: Vice President, Chief Financial Officer and Chief Information Officer UCAR INTERNATIONAL TRADING INC., by /s/ Corrado F. De Gasperis ---------------------------------- Name: Corrado F. De Gasperis Title: Vice President, Chief Financial Officer and Chief Information Officer STATE STREET BANK AND TRUST COMPANY, as Trustee by /s/ Patrick E. Thebado ----------------------------------------- Name: Patrick E. Thebado Title: Vice President [Signature Page to First Supplemental Indenture] 7 EX-4 5 graftechmay0210qex46.txt EXHIBIT 4.6 EXHIBIT 4.6 EXECUTION COPY $150,000,000 UCAR FINANCE INC. 10 1/4% Senior Notes due 2012 REGISTRATION RIGHTS AGREEMENT May 6, 2002 Credit Suisse First Boston Corporation J.P. Morgan Securities Inc. c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Dear Sirs: UCAR Finance Inc., a Delaware corporation (the "ISSUER"), proposes to issue and sell to Credit Suisse First Boston Corporation and J.P. Morgan Securities Inc. (collectively, the "INITIAL PURCHASERS"), upon the terms set forth in a purchase agreement dated May 1, 2002 (the "PURCHASE AGREEMENT"), $150,000,000 aggregate principal amount of its 10 1/4% Senior Notes due 2012 (the "INITIAL SECURITIES") to be guaranteed (the "GUARANTIES") by UCAR International Inc. and each of the entities listed in Schedule A herein (together with UCAR International Inc., the "GUARANTORS" and, collectively with the Issuer, the "COMPANY"). The Initial Securities will be issued as additional securities pursuant to the Indenture, dated as of February 15, 2002 (as amended, the "INDENTURE"), among the Issuer, the Guarantors named therein and State Street Bank and Trust Company, as trustee (the "Trustee"). As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company agrees with the Initial Purchasers, for the benefit of the Initial Purchasers and the holders of the Securities (as defined below) (collectively the "HOLDERS"), as follows: 1. REGISTERED EXCHANGE OFFER. Unless not permitted by applicable law (after the Company has complied with the ultimate paragraph of this Section 1), the Company shall promptly and, not later than 30 days (such 30th day being a "FILING DEADLINE") after the date on which the Initial Purchasers purchase the Initial Securities pursuant to the Purchase Agreement (the "CLOSING DATE"), prepare and file with the Securities and Exchange Commission (the "COMMISSION") a registration statement on an appropriate form under the Securities Act of 1933, as amended (the "SECURITIES ACT") or amend an existing registration statement (each such registration statement, an "EXCHANGE OFFER REGISTRATION STATEMENT"), with respect to a proposed offer (the "REGISTERED EXCHANGE OFFER") to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of debt securities of the Company issued under the Indenture, identical in all material respects to the Initial Securities and registered under the Securities Act (the "EXCHANGE SECURITIES"). The Company shall use its commercially reasonable best efforts to (i) cause such Exchange Offer Registration Statement to become effective under the Securities Act by July 5, 2002 (July 5, 2002 being an "EFFECTIVENESS DEADLINE") and (ii) keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "EXCHANGE OFFER REGISTRATION PERIOD"). If the Company commences the Registered Exchange Offer, the Company (i) will be entitled to consummate the Registered Exchange Offer 30 days after such commencement (provided that the Company has accepted all the Initial Securities theretofore validly tendered in accordance with the terms of the Registered Exchange Offer) and (ii) will be required to consummate the Registered Exchange Offer no later than 40 days after the date on which the Exchange Offer Registration Statement is declared effective (such 40th day being the "CONSUMMATION DEADLINE"). Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Securities electing to exchange the Initial Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Initial Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an "EXCHANGING DEALER"), is required to deliver a prospectus containing the information set forth in (a) Annex A hereto on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell Securities (as defined below) acquired in exchange for Initial Securities constituting any portion of an unsold allotment, is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its commercially reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided, however, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180-days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Initial Securities acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the "Private Exchange") for the Initial Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects to the Initial Securities (the "Private Exchange Securities"). The Initial Securities, the Exchange Securities and the Private Exchange Securities are herein collectively called the "Securities". In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply with all applicable laws. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: 2 (x) accept for exchange all the Securities validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (y) deliver to the Trustee for cancellation all the Initial Securities so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Initial Securities, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Initial Securities of such Holder so accepted for exchange. The Indenture will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Initial Securities surrendered in exchange therefor or, if no interest has been paid on the Initial Securities, from the date of original issue of the Initial Securities. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker-dealer, that it will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If following the date hereof there has been announced a change in Commission policy with respect to exchange offers that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Registered Exchange Offer is permitted by applicable federal law, the Company will seek a no-action letter or other favorable decision from the Commission allowing the Company to consummate the Registered Exchange Offer. The Company will pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Company will take all such other actions as may be requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (i) participating in telephonic conferences with the Commission, (ii) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that the Registered Exchange Offer should be permitted and (iii) diligently pursuing a resolution (which need not be favorable) by the Commission staff. 2. SHELF REGISTRATION. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated by August 14, 2002, (iii) any Initial Purchaser so requests with respect to the Initial Securities (or the Private Exchange Securities) not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer or, in the case of any 3 Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not receive freely tradeable Exchange Securities on the date of the exchange and any such Holder so requests, the Company shall take the following actions (the date on which any of the conditions described in the foregoing clauses (i) through (iv) occur, including in the case of clauses (iii) or (iv) the receipt of the required notice, being a "TRIGGER DATE"): (a) The Company shall promptly (but in no event more than 45 days after the Trigger Date (such date being a "FILING DEADLINE")) file with the Commission and thereafter use its commercially reasonable best efforts to cause to be declared effective no later than 60 days after the Filing Deadline (such 60th day being an "EFFECTIVENESS DEADLINE") a registration statement (the "SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer Registration Statement, a "REGISTRATION STATEMENT") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "SHELF REGISTRATION"); provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its commercially reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the date of its effectiveness or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) are no longer restricted securities (as defined in Rule 144 under the Securities Act, or any successor rule thereof). The Company shall be deemed not to have used its commercially reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. REGISTRATION PROCEDURES. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of Exchange Securities received by such broker-dealer in the 4 Registered Exchange Offer (a "PARTICIPATING BROKER-DEALER"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders. (b) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus do not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (g) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this 5 Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities pursuant to any Registration Statement the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. 6 (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form with an underwriter or underwriters reasonably acceptable to the Company) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, upon execution of customary confidentiality agreements reasonably satisfactory to the Company and its counsel, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that the matters to be covered by such opinion shall include, without limitation, as customary, the due incorporation and good standing of the Company and its domestic subsidiaries; the qualification of the Company and its domestic subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(o) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities; the absence of material legal or governmental proceedings involving the Company and its subsidiaries; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 3(o) hereof; the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act, respectively; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from any documents incorporated by reference therein of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Shelf Registration Statement to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (r) In the case of the Registered Exchange Offer, if requested by any Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to such Initial Purchaser or such Participating Broker-Dealer signed opinions in the form set forth in 7 Section 6(c)-(d) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants to deliver to such Initial Purchaser or such Participating Broker-Dealer comfort letters, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Initial Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on the Initial Securities so exchanged that such Initial Securities are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall the Initial Securities be marked as paid or otherwise satisfied. (t) The Company will use its commercially reasonable best efforts to (a) if the Initial Securities have been rated prior to the initial sale of such Initial Securities, confirm such ratings will apply to the Securities covered by a Registration Statement, or (b) if the Initial Securities were not previously rated, cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "Rules") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. (v) The Company shall use its commercially reasonable best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. REGISTRATION EXPENSES. (a) All expenses incident to the Company's performance of and compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement is ever filed or becomes effective, including without limitation; (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state "blue sky" or securities laws; (iii) all expenses of printing (including printing certificates for the Securities to be issued in the Registered Exchange Offer and the Private Exchange and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company; (v) all application and filing fees in connection with listing the Exchange Securities on a national securities exchange or automated quotation system pursuant to the requirements hereof; and 8 (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance); but excluding fees and expenses of counsel to any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any underwriting discounts and commissions (including any fees and expenses of counsel of, and discounts and commissions relating to, any "qualified independent underwriter" engaged pursuant to Section 3(u) hereof) and transfer taxes relating to the sale or disposition of any Securities by a Holder; PROVIDED, HOWEVER, that nothing herein shall be construed to limit the Company's obligations under Section 4(b) herein. The Company will bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company. (b) In connection with any Registration Statement required by this Agreement, the Company will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities who are tendering Initial Securities in the Registered Exchange Offer and/or selling or reselling Securities pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Cravath, Swaine & Moore unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. 5. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer, their respective affiliates which will be participating in any offering of the Securities and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the "Indemnified Parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse without limitation, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker-Dealer from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker-Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder or Participating Broker-Dealer results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder or Participating Broker-Dealer; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities 9 Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company, its directors, its officers who sign any Registration Statement, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such director, officer or controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse without limitation, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its directors, officers who sign any Registration Statement or controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action, and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or 10 defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party, each of the Company's directors, each officer who signs any Registration Statement, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. ADDITIONAL INTEREST UNDER CERTAIN CIRCUMSTANCES. (a) Additional interest (the "Additional Interest") with respect to the Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iv) below being herein called a "Registration Default"): (i) any Registration Statement required by this Agreement is not declared effective by the Commission on or prior to the applicable Effectiveness Deadline; (ii) the Registered Exchange Offer has not been consummated on or prior to the Consummation Deadline; or (iii) any Registration Statement required by this Agreement has been declared effective by the Commission but (A) such Registration Statement thereafter ceases to be effective or (B) such Registration Statement or the related prospectus ceases to be usable in connection with resales of Transfer Restricted Securities during the periods specified herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Each of the foregoing will constitute a Registration Default whatever the reason for any such event and whether it is voluntary or involuntary or is beyond the control of the Company or pursuant to operation of law or as a result of any action or inaction by the Commission. Additional Interest shall accrue on the Securities over and above the interest set forth in the title of the Securities from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at a rate of 0.50% per annum (the "ADDITIONAL INTEREST RATE") for the first 90-day period immediately following the occurrence of such Registration Default. The Additional Interest Rate shall increase by an additional 0.50% per annum with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum Additional Interest Rate of 2.0% per annum. The Additional Interest Rate shall not increase beyond 0.50% per annum during any 90-day period in the case of concurrent Registration Defaults during any such period. (b) A Registration Default referred to in Section 6(a)(iv) hereof shall be deemed not to have occurred and be continuing in relation to a Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events with respect to the Company that would 11 need to be described in such Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured. (c) Any amounts of Additional Interest due pursuant to Section 6(a) will be payable in cash on the regular interest payment dates with respect to the Securities. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest Rate by the principal amount of the Securities and further multiplied by a fraction, the numerator of which is the number of days such Additional Interest Rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. (d) "TRANSFER RESTRICTED SECURITIES" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of an Initial Security for an Exchange Security, the date on which such Exchange Security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 7. RULES 144 AND 144A. The Company shall use its commercially reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Initial Securities identified to the Company by the Initial Purchasers upon request. Upon the request of any Holder of Initial Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("MANAGING UNDERWRITERS") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering, subject to the approval of the Company, which shall not be unreasonably withheld. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. MISCELLANEOUS. (a) REMEDIES. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Section 1 and 2 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Sections 1 and 2 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) NO INCONSISTENT AGREEMENTS. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights 12 granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents, whose decision shall be binding on all Holders. Without the consent of the Holder of each Security affected thereby, however, no modification may change the provisions relating to the payment of Additional Interest and the provisions of Section 5 hereof. (d) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company. (2) if to the Initial Purchasers; Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010-3629 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group with a copy to: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Fax No.: (212) 474-3700 Attention: William J. Whelan, III (3) if to the Company, at its address as follows: UCAR Finance Inc. c/o UCAR International Inc. Brandywine West 1521 Concord Pike, Suite 301 Wilmington, Delaware 19803 Fax No.: (302) Attention: General Counsel with a copy to: Kelley Drye & Warren LLP Two Stamford Plaza 281 Tresser Boulevard Stamford, CT 06901 Fax No.: (203) 327-2669 Attention: M. Ridgway Barker All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (e) THIRD PARTY BENEFICIARIES. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, 13 and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. (f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns. (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (j) SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) SECURITIES HELD BY THE COMPANY. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (l) SUBMISSION TO JURISDICTION. By the execution and delivery of this Agreement, the Company submits to the non-exclusive jurisdiction of the Federal and State courts in the Borough of Manhattan in the City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 14 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Issuer a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the several Initial Purchasers, the Issuer and the Guarantors in accordance with its terms. Very truly yours, UCAR FINANCE INC. by /S/ KAREN G. NARWOLD ------------------------------------------ Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary UCAR INTERNATIONAL INC. by /S/ KAREN G. NARWOLD ------------------------------------------ Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary UCAR GLOBAL ENTERPRISES INC. by /S/ KAREN G. NARWOLD ------------------------------------------ Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary UCAR CARBON COMPANY INC. by /S/ KAREN G. NARWOLD ------------------------------------------ Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary UCAR COMPOSITES INC. by /S/ KAREN G. NARWOLD ------------------------------------------ Name: Karen G. Narwold Title: Secretary UCAR TECHNOLOGY LLC by /S/ KAREN G. NARWOLD ------------------------------------------ Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary UCAR HOLDINGS III INC. by /S/ KAREN G. NARWOLD ------------------------------------------ Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary UCAR INTERNATIONAL TRADING INC. by /S/ KAREN G. NARWOLD ------------------------------------------ Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary (Registation Rights AGreement Signature Page) The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION J.P. MORGAN SECURITIES INC. By: CREDIT SUISSE FIRST BOSTON CORPORATION by ------------------------------------------- Name: Title: By: J.P. MORGAN SECURITIES INC. by /S/ CHRISTOPHER M. BOEGE ------------------------------------------ Name: Christopher M. Boege Title: Vice President (Registation Rights AGreement Signature Page) The foregoing Registratio Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION J.P. MORGAN SECURITIES INC. By: CREDIT SUISSE FIRST BOSTON CORPORATION by /S/ PETER MATT ------------------------------------------- Name: Peter Matt Title: Managing Director By: J.P. MORGAN SECURITIES INC. by ------------------------------------------ Name: Title: (Registation Rights AGreement Signature Page) SCHEDULE A ---------- GUARANTOR - --------- UCAR International Inc. UCAR Global Enterprises Inc. UCAR Carbon Company Inc. UCAR Composites Inc. UCAR Technology LLC UCAR Holdings III Inc. UCAR International Trading Inc. 17 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 18 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Initial Securities, where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." 19 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 200 , all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus.(1) The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - ---------------------- (1) In addition, the legend required by Item 502(e) of Regulation S-K will appear on the inside front cover page of the Exchange Offer prospectus below the Table of Contents. 20 ANNEX D [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ----------------------------------------------------- Address: ----------------------------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 21 EX-10 6 graftechmay0210qex1014.txt EXHIBIT 10.14 EXHIBIT 10.14 EXECUTION COPY SIXTH AMENDMENTdated as of April 23, 2002 (this "Amendment") to the Credit Agreement dated as of February 22, 2000 (as previously amended, 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 JPMORGAN CHASE BANK, as Administrative Agent, Collateral Agent and Issuing Bank. A. Pursuant to the Credit Agreement, the Lenders and the Issuing Bank have extended and have agreed to extend credit to the Borrower and the LC Subsidiaries, on the terms and subject to the conditions set forth therein. B. The Borrower has requested an amendment of the Credit Agreement as set forth herein. C. The Required Lenders are willing to agree to such amendment on the terms and subject to the conditions set forth herein. D. Each capitalized term used and not otherwise defined herein shall have the meaning assigned to it in the Credit Agreement. Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT. (a) The preamble to the Credit Agreement is hereby amended by inserting immediately prior to the last sentence thereof the following sentence: "In no circumstance whatsoever will any Letter of Credit issued pursuant to this Agreement on behalf of Lenders holding Revolving Commitments or the proceeds of any Revolving Loan be used for any purpose other than paying (or providing Letter of Credit support to facilitate or defer the payment of) antitrust fines imposed by the European Union, if at the time of, or as a result of, the issuance of 2 such Letter of Credit or the making of such Loan the Revolving Exposure exceeds or would exceed EUR175,000,000." (b) Section 1.01 of the Credit Agreement is hereby amended by deleting the definition of "Amendment Fees". (c) Section 1.01 of the Credit Agreement is hereby amended by adding thereto, in the appropriate alphabetical order the following definitions: "ADDITIONAL SENIOR NOTES" shall mean senior notes of the Borrower issued under the indenture for the Senior Notes and having terms no less favorable to the Borrower and the Lenders than those contemplated by Exhibit A to the Sixth Amendment to this Agreement. "LEVERAGE RATIO" as of the last day of any fiscal quarter shall mean the ratio of (a) Net Debt as of such day to (b) EBITDA for the four quarter period ended as of such day. "NET SENIOR SECURED DEBT" shall mean, with respect to UCAR, Global, the Borrower and the Subsidiaries on a consolidated basis, at any time, (a) that portion of Total Debt which is secured by any assets of UCAR, Global, the Borrower or any Subsidiary, other than the Senior Notes and the Additional Senior Notes, 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 (including Euro-equivalent currencies) 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 (including Euro-equivalent currencies) or Dollars that are held in jurisdictions from which funds may be freely transferred to the Borrower. (d) The definition of "Net Proceeds" is hereby amended by (i) deleting the "and" directly preceding clause (b)(iii), substituting therefor a "," and adding directly after such clause (b)(iii) the phrase "and (iv) in the case of any issuance of Additional Senior Notes, accrued net interest paid by the purchasers of such Additional Senior Notes". (e) The definition of "Prepayment Event" is hereby amended by replacing the phrase "and (xiv)" with the phrase ", (xiv) and (xv)". (f) The definition of "Revolving Commitment" is hereby amended by adding the following sentence at the end of the definition: "The aggregate amount of the Revolving Commitments on the Amendment Effective Date under the Sixth Amendment is EUR200,000,000." 3 (f) Section 2.09(d) of the Credit Agreement is hereby amended by replacing the reference to "Senior Notes" with the phrase "Senior Notes or the Additional Senior Notes". (g) Section 2.10(c) of the Credit Agreement is hereby amended by inserting in the first sentence thereof directly following the phrase "such Net Proceeds are received," the phrase "(1) in the case of the Net Proceeds received in respect of Additional Senior Notes, prepay (x) Revolving Borrowings in an aggregate amount equal to the lesser of the Revolving Loans then outstanding and 50% of the Net Proceeds of such Additional Senior Notes and (y) prepay Term Borrowings in an aggregate amount equal to all Net Proceeds thereof other than those used to prepay Revolving Loans under clause (x) above and (2) in all other cases,". (h) Section 7.01(a) of the Credit Agreement is hereby amended by (i) deleting in clause (xii) thereof the phrase "not in excess of $130,000,000" and substituting the phrase "not in excess of $75,000,000"; (ii) renumbering the last clause thereof "(xvi)" rather than "(xv)"; (iii) changing the reference in such new clause (xvi) from "(xiv)" to "(xv)"; (iv) deleting the "and" at the end of clause (xiv) thereof; (v) deleting in the first sentence of clause (xiv) thereof preceding the phrase "Guarantee by UCAR" the word "unsecured" and adding after the phrase "any Domestic Subsidiary of the Senior Notes" the phrase "that is either unsecured or secured solely by a lien described in Section 7.02(w)"; and (vi) inserting between such clause (xiv) and new clause (xvi) the following new clause: "(xv) Additional Senior Notes not guaranteed by any person other than UCAR, Global and the Domestic Subsidiaries in an aggregate principal amount not to exceed $150,000,000; any Guarantee by UCAR, Global or any Domestic Subsidiary of the Additional Senior Notes that is either unsecured or secured solely by a lien described in Section 7.02(w); PROVIDED that (A) 50% of the Net Proceeds of the aggregate principal amount thereof shall be applied to prepay Revolving Loans to the extent outstanding in accordance with Section 2.10(c) and (B) all Net Proceeds thereof other than those prepaid under clause (A) above shall be applied to prepay Term Loans in accordance with Section 2.10(c); and". (i) Section 7.02 of the Credit Agreement is hereby amended by (i) replacing clause (v) thereof in its entirety by the following: "(v) Liens on Intercompany Senior Loans to secure Senior Notes and Additional Senior Notes or to secure the Obligations; PROVIDED that the aggregate principal amount of the Intercompany Senior Loans securing Senior Notes and Additional Senior Notes shall not at any time exceed $400,000,000 (excluding the impact of changes in currency exchange rates after February 15, 2002); and" (ii) changing the reference to "Senior Notes" in clause (w) thereof to "Senior Notes or Additional Senior Notes" and (iii) adding in clause (w) thereof following the phrase "or any Subsidiary" the phrase "securing the Senior Notes or the Additional Senior Notes". 4 (j) Section 7.08 of the Credit Agreement is hereby amended by adding at the end of clause (c)(i) immediately following the phrase "in respect of the Senior Notes" the phrase "and the Additional Senior Notes". (k) Section 7.09(d) of the Credit Agreement is hereby amended by (i) replacing each reference therein to the phrase "the Senior Notes" with the phrase "the Senior Notes or the Additional Senior Notes" and (ii) replacing in the proviso at the end thereof the phrase "the aggregate principal amount of the Senior Notes" with the phrase "$400,000,000 (excluding the impact of changes in currency exchange rates after February 15, 2002)". (l) Section 7.11 of the Credit Agreement is hereby amended by (i) deleting the table set forth therein and substituting therefor the following:
---------------------------------- ---------------------------- ----------------------------------- FROM AND INCLUDING: TO AND INCLUDING: RATIO: ---------------------------------- ---------------------------- ----------------------------------- Effective Date of Sixth Amendment June 30, 2002 1.60 : 1.0 ---------------------------------- ---------------------------- ----------------------------------- July 1, 2003 September 30, 2003 1.65 : 1.0 ---------------------------------- ---------------------------- ----------------------------------- October 1, 2003 December 31, 2003 1.75 : 1.0 ---------------------------------- ---------------------------- ----------------------------------- January 1, 2004 December 31, 2004 2.00 : 1.0 ---------------------------------- ---------------------------- ----------------------------------- January 1, 2005 December 31, 2005 2.25 : 1.0 ---------------------------------- ---------------------------- ----------------------------------- January 1, 2006 December 31, 2006 2.75 : 1.0 ---------------------------------- ---------------------------- ----------------------------------- January 1, 2007 Tranche B Maturity Date 3.25 : 1.0 ---------------------------------- ---------------------------- -----------------------------------
and (ii) deleting from both provisos thereto all clauses (A)(i) and (B)(i) and renumbering all clauses (A)(ii), (A)(iii), (B)(ii) and (B)(iii) accordingly. (m) Section 7.12 of the Credit Agreement is hereby amended by (i) replacing each reference to the phrase "Leverage Ratio" with "Senior Secured Leverage Ratio", (ii) replacing each reference to the phrase "Net Debt" with "Net Senior Secured Debt", (iii) deleting the table set forth therein and substituting therefor the following:
---------------------------------- ---------------------------- ----------------------------------- FROM AND INCLUDING: TO AND INCLUDING: RATIO: ---------------------------------- ---------------------------- ----------------------------------- Effective Date of Sixth Amendment June 30, 2003 2.75 : 1.0 ---------------------------------- ---------------------------- -----------------------------------
5
---------------------------------- ---------------------------- ----------------------------------- July 1, 2003 September 30, 2003 2.65 : 1.0 ---------------------------------- ---------------------------- ----------------------------------- October 1, 2003 December 31, 2004 2.50 : 1.0 ---------------------------------- ---------------------------- ----------------------------------- January 1, 2005 December 31, 2005 2.25 : 1.0 ---------------------------------- ---------------------------- ----------------------------------- January 1, 2006 Tranche B Maturity Date 2.00 : 1.0 ---------------------------------- ---------------------------- -----------------------------------
and (iv) deleting from both provisos thereto all clauses (A)(i) and (B)(i) and renumbering all clauses (A)(ii), (A)(iii), (B)(ii) and (B)(iii) accordingly. SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT EFFECTIVE PRIOR TO THE AMENDMENT EFFECTIVE DATE. (a) Effective as of December 6, 2001: (i) Section 1.01 of the Credit Agreement is hereby amended by adding thereto, in the appropriate alphabetical order the following definition: "REALIGNMENT TRANSACTIONS" shall mean (i) the transactions specified on Schedule 10.15 as modified in accordance with the penultimate sentence of Section 10.15 and (ii) the prepayment of any Intercompany Term Loan made by the Borrower to UCAR Carbon Company Inc. with the proceeds of new Intercompany Term Loans made by the Borrower to any other Guarantor (other than UCAR). (ii) Section 3.03(b) of the Credit Agreement is hereby amended by (i) deleting the "and" at the end of clause (iii) thereof, (ii) replacing the "." at the end of clause (iv) thereof with a "; and" and (iii) adding immediately after clause (iv) thereof the following new clause (v): "(v) any Intercompany Term Loan made by the Borrower to UCAR Carbon Company Inc. may be prepaid with the proceeds of any Intercompany Term Loan made by the Borrower to any other Guarantor (other than UCAR)." (b) Effective upon the effectiveness of this Amendment in accordance with Section 5: (i) The definition of "Indebtedness" is hereby amended by inserting at the end of clause (i) thereof immediately before the phrase "and (j)" the phrase "(in each case, net of any margin deposit in respect thereof)". (ii) The definition of "Interest/Exchange Rate Protection Agreement" is hereby amended by adding at the end thereof the phrase "or 6 to take advantage of reduced interest rates by converting fixed rate obligations to floating rate obligations". (iii) Section 7.01(a) of the Credit Agreement is hereby amended by (A) inserting in clause (iii) thereof the phrase "or to take advantage of reduced interest rates by converting fixed rate obligations to floating rate obligations" immediately following the phrase "and other Indebtedness" and (B) inserting at the end of such clause (iii) the phrase "or shall be entered into to take advantage of reduced interest rates by converting fixed rate obligations to floating rate obligations". (iv) Section 7.02 of the Credit Agreement is hereby amended by adding at the end of clause (h) thereof the phrase "and deposits to secure obligations in respect of Interest/Exchange Rate Protection Agreements having the effect of converting fixed rate obligations under Senior Notes or Additional Senior Notes to floating rate obligations". SECTION 3. REDUCTION OF REVOLVING COMMITMENTS. As of the Amendment Effective Date, without any notice or any other action by any person, the aggregate amount of the Revolving Commitments shall automatically and permanently be reduced by an amount that will result in the Revolving Commitments equaling EUR200,000,000. SECTION 4. REPRESENTATIONS AND WARRANTIES. Each of UCAR, Global and the Borrower represents and warrants to each Lender as of the date hereof and as of the Amendment Effective Date that after giving effect to this Amendment: (a) the representations and warranties set forth in Article IV of the Credit Agreement are true and correct in all material respects, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties were true and correct in all material respects as of the earlier date), and (b) no Default or Event of Default has occurred and is continuing. SECTION 5. EFFECTIVENESS. This Amendment shall become effective when the Administrative Agent or its counsel shall have received counterparts of this Amendment that, when taken together, bear the signatures of the Borrower, UCAR, Global and the Required Lenders, but the provisions of Sections 1 and 3 above shall not become effective until as of the first date (the "AMENDMENT EFFECTIVE DATE") on which the following conditions are met: (a) the Borrower shall have received gross proceeds in respect of the Additional Senior Notes in an amount not less than $100,000,000; (b) Revolving Loans and Term Loans shall have been prepaid in an aggregate principal amount not less than that required under Sections 2.10(c) and 7.01(a)(xv) as amended hereby in connection with the issuance of such Additional Senior Notes; (c) each Lender shall have received the Amendment Fee required to be paid to it pursuant to Section 6 below; and (d) the representations and warranties set forth in Section 4 above shall be true and correct on and as of such date. Notwithstanding anything herein to the contrary, the Amendment Effective Date shall not occur after May 31, 2002. 7 SECTION 6. AMENDMENT FEE. The Borrower agrees to pay to each Lender that executes and delivers to the Administrative Agent (or its counsel) a copy of this Amendment at or prior to 5:00 p.m., New York City time, on April 23, 2002, an amendment fee (the "AMENDMENT FEE") in an amount equal to 0.125% of such Lender's Revolving Commitment (whether used or unused) and outstanding Term Loans, in each case based on the amount outstanding immediately after the issuance of the Additional Senior Notes, the application of the Net Proceeds therefrom in accordance with Section 2.10(c) and the reduction of the Revolving Commitments pursuant to Section 3 above; PROVIDED that the Borrower shall have no liability for any such Amendment Fee if the Amendment Effective Date shall not occur. Such Amendment Fee shall be payable on the Amendment Effective Date. SECTION 7. EFFECT OF AMENDMENT. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders, the Issuing Bank, the Collateral Agent or the Administrative Agent, under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Borrower to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances. SECTION 8. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Delivery of any executed counterpart of a signature page of this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof. SECTION 9. APPLICABLE LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 10. HEADINGS. The headings of this Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. [SIGNATURE PAGES FOLLOW] 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date and year first above written. UCAR INTERNATIONAL INC., By: /S/ WALTER D. CARTER, JR. ------------------------------ Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR GLOBAL ENTERPRISES INC., By: /S/ WALTER D. CARTER, JR. ------------------------------ Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR FINANCE INC., By: /S/ WALTER D. CARTER, JR. ----------------------------------- Name: Walter D. Carter, Jr. Title: Assistant Treasurer JPMORGAN CHASE BANK, as a Lender, and as Administrative Agent, Collateral Agent and Issuing Bank, By: ------------------------------ Name: Title: 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: JPMORGAN CHASE BANK By: /S/ JAMES H. RAMAGE -------------------------------- Name: James H. Ramage Title: Managing Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: GENERAL ELECTRIC CAPITAL CORPORATION By: /S/ GREGORY HONG -------------------------------- Name: Gregory Hong Title: Duly Authorized Signatory 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: FLEET NATIONAL BANK By: /S/ SANDRA H. BENNETT -------------------------------- Name: Sandra H. Bennett Title: Senior Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: THE BANK OF NOVA SCOTIA By: /S/ BRIAN ALLEN -------------------------------- Name: Brian Allen Title: Managing Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: BANK OF AMERICA, N.A. By: /S/ MICHELLE R. SUTCH -------------------------------- Name: Michelle R. Sutch Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: WACHOVIA BANK, N.A. By: /S/ JORGE A. GONZALEZ -------------------------------- Name: Jorge A. Gonzalez Title: Managing Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: CIC By: S/ GARY GEORGE /S/ TIM HUBAND -------------------------------- Name: Gary George Tim Huband Title: Manager Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: PB CAPITAL CORPORATION By: /S/ JEFFREY FROST -------------------------------- Name: Jeffrey Frost Title: Managing Director Portfolio Managment By: /S/ AURELIO ALMONTE -------------------------------- Name: Aurelio Almonte Title: Associate 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: THE BANK OF NEW YORK By: /S/ CHRISTINE T. RIO -------------------------------- Name: Christine T. Rio Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: CREDIT LYONNAIS NEW YORK BRANCH By: /S/ ATTILA KOC ------------------------------- Name: Attila Koc Title: Senior Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: NATEXIS BANQUES POPULAIRES By: /S/ WILLIAM J. BURKE -------------------------------- Name: William J. Burke Title: Vice President By: /S/ JOSEPH A. MILLER -------------------------------- Name: Joseph A. Miller Title: Associate 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: BANK PEKAO S.A. By: /S/ HUSSEIN B. EL-TAWIL -------------------------------- Name: Hussein B. El-Tawil Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: CREDIT SUISSE FIRST BOSTON By: /S/ PAUL J. CORONA -------------------------------- Name: Paul J. Corona Title: Director By: /S/ WILLIAM S. LUTKINS -------------------------------- Name: William S. Lutkins Title: Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: AMMC CDO I, LIMITED By: American Money Management Corp., as Collateral Manager By: /S/ DAVID P. MEYER -------------------------------- Name: David P. Meyer Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: AMMC CLO II, LIMITED By: American Money Management Corp., as Collateral Manager By: /S/ DAVID P. MEYER -------------------------------- Name: David P. Meyer Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: ARES III CLO LTD. By: Ares CLO Management LLC, its Investment Manager By: /S/ CHRISTOPHER N. JACOBS -------------------------------- Name: Christopher N. Jacobs Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: ARES IV CLO LTD. By: Ares CLO Management IV, L.P., Investment Manager By: Ares CLO GP IV, LLC, Its Managing Member By: /S/ CHRISTOPHER N. JACOBS -------------------------------- Name: Christopher N. Jacobs Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: ARES LEVERAGED INVESTMENT FUND II, L.P. By: Ares Management III, its General Partner By: /S/ CHRISTOPHER N. JACOBS -------------------------------- Name: Christopher N. Jacobs Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: ARES V CLO LTD. By: Ares CLO Management V, L.P., Investment Manager By: Ares CLO GP V, LLC, Its Managing Member By: /S/ CHRISTOPHER N. JACOBS -------------------------------- Name: Christopher N. Jacobs Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: ARES IV CLO LTD. By: Ares CLO Management VI, L.P., Investment Manager By: Ares CLO GP VI, LLC, Its Managing Member By: /S/ CHRISTOPHER N. JACOBS -------------------------------- Name: Christopher N. Jacobs Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: SANKATY ADVISORS, INC., as Collateral Manager for Brant Point CBO 1999-1 LTD, as Term Lender By: /S/ DIANE J. EXTER -------------------------------- Name: Diane J. Exter Title: Managing Director Portfolio Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: SANKATY ADVISORS, LLC, Collateral Manager for Great Point CLO 1999-1 LTD, as Term Lender By: /S/ DIANE J. EXTER -------------------------------- Name: Diane J. Exter Title: Managing Director Portfolio Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: SANKATY ADVISORS, LLC, as Collateral Manager for Race Point CLO, Limited, as Term Lender By: /S/ DIANE J. EXTER -------------------------------- Name: Diane J. Exter Title: Managing Director Portfolio Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: SANKATY HIGH YIELD ASSET PARTNERS, L.P. By: /S/ DIANE J. EXTER -------------------------------- Name: Diane J. Exter Title: Managing Director Portfolio Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: SANKATY HIGH YIELD PARTNERS II, LP. By: /S/ DIANE J. EXTER -------------------------------- Name: Diane J. Exter Title: Managing Director Portfolio Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: HARBOUR TOWN FUNDING TRUST By: /S/ ANN E. MORRIS -------------------------------- Name: Ann E. Morris Title: Authorized Agent 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: VWNTURE CDO 2002, LIMITED By: /S/ MARTIN F. DAVEY -------------------------------- Name: Martin F. Davey Title: Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: APEX (TRIMARAN) CDO I, LTD. By Trimaran Advisors L.L.C. By: /S/ DAVID M. MILLISON -------------------------------- Name: David M. Millison Title: Managing Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: SAWGRASS TRADING LLC By: /S/ ANN E. MORRIS -------------------------------- Name: Ann E. Morris Title: Asst. Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: CARLYLE HIGH YIELD PARTNERS, L.P. By: /S/ LINDA PACE -------------------------------- Name: Linda Pace Title: Principal 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: CARLYLE HIGH YIELD PARTNERS II, L.P. By: /S/ LINDA PACE -------------------------------- Name: Linda Pace Title: Principal 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: CARLYLE HIGH YIELD PARTNERS III, LTD. By: /S/ LINDA PACE -------------------------------- Name: Linda Pace Title: Principal 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: KZH CNC LLC By: /S/ SUSAN LEE -------------------------------- Name: Susan Lee Title: Authorized Agent 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: WINGED FOOT FUNDING TRUST L.P. By: /S/ ANN E. MORRIS -------------------------------- Name: Ann E. Morris Title: Authorized Agent 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: LONG LANE MASTER TRUST IV By: Fleet National Bank as Trust Administrator By: /S/ DARCEY F. BARTEL -------------------------------- Name: Darcey F, Bartel Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: BLUE SQUARE FUNDING SERIES 3 Deutsche Bank Trust Co. Americas formerly known as Bankers Trust By: /S/ JENNIFER BOHANNON -------------------------------- Name: Jennifer Bohannon Title: Assistant Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: ELF FUNDING TRUST I By: Highland Capital Management, L.P. As Collateral Manager By: /S/ LOUIS KOVEN -------------------------------- Name: Louis Koven Title: Executive Vice President- CFO Highland Capital Management, L.P. 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: ELF FUNDING TRUST III By: New York Life Investment Management, LLC, as Attorney-in- Fact By: /S/ ROBERT H. DIAL -------------------------------- Name: Robert H. Dial Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: GLENEAGLES TRADING LLC By: /S/ ANN E. MORRIS -------------------------------- Name: Ann E. Morris Title: Asst. Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: PAMCO CAYMEN LTD. By: Highland Capital Management, L.P. As Collateral Manager By: /S/ LOUIS KOVEN -------------------------------- Name: Louis Koven Title: Executive Vice President- CFO Highland Capital Management L.P. 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: ENDURANCE CLO I, LTD c/o ING Capital Advisors LLC, as Portfolio Manager By: /S/ GORDON COOK -------------------------------- Name: Gordon Cook Title: Senior Vice President & Portfolio Manager ARCHIMEDES FUNDING III, LTD. ING Capital Advisors LLC, as Collateral Manager By: /S/ GORDON COOK ---------------------------- Name: Gordon Cook Title: Senior Vice President & Portfolio Manager Name of Institution: ARCHIMEDES FUNDING II, LTD. ING Capital Advisors LLC, as Collateral Manager By: /S/ GORDON COOK ------------------------------- Name: Gordon Cook Title: Senior Vice President & Portfolio Manager Name of Institution: SEQUILS-ING I (HBDGM), LTD. ING Capital Advisors LLC, as Collateral Manager By: /S/ GORDON COOK -------------------------------- Name: Gordon Cook Title: Senior Vice President & Portfolio Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: KZH ING-3 LLC By: /S/ SUSAN LEE -------------------------------- Name: Susan Lee Title: Authorized Agent 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: AERIES FINANCE-II LTD. By: INVESCO Senior Secured Management, Inc. As Sub-Managing Agent By: /S/ GREGORY STOECKLE -------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: AMARA-1 FINANCE, LTD. By: INVESCO Senior Secured Management, Inc. As Sub-advisor By: /S/ GREGORY STOECKLE -------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: AMARA 2 FINANCE, LTD. By: INVESCO Senior Secured Management, Inc. As Sub-Advisor By: /S/ GREGORY STOECKLE -------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: AVALON CAPITAL LTD. By: INVESCO Senior Secured Management, Inc. As Portfolio Advisor By: /S/ GREGORY STOECKLE -------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: AVALON CAPITAL LTD. 2 By: INVESCO Senior Secured Management, Inc. As Portfolio Advisor By: /S/ GREGORY STOECKLE -------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: CERES II FINANCE LTD. By: INVESCO Senior Secured Management, Inc. As Sub-Managing Agent (Financial) By: /S/ GREGORY STOECKLE -------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: CHARTER VIEW PORTFOLIO By: INVESCO Senior Secured Management, Inc. As Investment Advisor By: /S/ GREGORY STOECKLE -------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: TRITON CDO IV, LIMITED By: INVESCO Senior Secured Management, Inc. As Investment Advisor By: /S/ GREGORY STOECKLE -------------------------------- Name: Gregory Stoeckle Title: Authorized Signatory 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: KATONAH I, LTD. By: /S/ RALPH DELLA ROCCA -------------------------------- Name: Ralph Della Rocca Title: Authorized Officer Katonah Capital, LLC As Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: KATONAH II, LTD. By: /S/ RALPH DELLA ROCCA -------------------------------- Name: Ralph Della Rocca Title: Authorized Officer Katonah Capital, LLC As Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: KATONAH III, LTD. By: /S/ RALPH DELLA ROCCA -------------------------------- Name: Ralph Della Rocca Title: Authorized Officer Katonah Capital, LLC As Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: MAPLEWOOD (CAYMAN) LTD. By: Mass Mutual Life Insur. Co., As Investment Manager By: /S/ STEVEN J. KATZ -------------------------------- Name: Steven J. Katz Title: Second Vice President and Associate General Counsel 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: /S/ STEVEN J. KATZ -------------------------------- Name: Steven J. Katz Title: Second Vice President and Associate General Counsel 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: MUZINICH CASHFLOW CBO LTD. By: /S/ DANIEL NACCARELLA -------------------------------- Name: Daniel Naccarella Title: Authorized Signatory 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: OCTAGON INVESTMENT PARTNERS II, LLC By: Octagon Credit Investors, LLC, as sub-investment manager By: /S/ MICHAEL B. NECHAMKIN -------------------------------- Name: Michael B. Nechamkin Title: Portfolio Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: OCTAGON INVESTMENT PARTNERS III, LTD. By: Octagon Credit Investors, LLC, as Portfolio Manager By: /S/ MICHAEL B. NECHAMKIN -------------------------------- Name: Michael B. Nechamkin Title: Portfolio Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: OCTAGON INVESTMENT PARTNERS IV, LTD. By: Octagon Credit Investors, LLC, as collateral manager By: /S/ MICHAEL B. NECHAMKIN --------------------------------- Name: Michael B. Nechamkin Title: Portfolio Manager 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: ADDISON CDO, LIMITED (ACCT 1279) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /S/ MOHAN V. PHANSALKAR --------------------------------- Name: Mohan V. Phansalkar Title: Executive Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: BEDFORD CDO, LIMITED (ACCT 1276) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /S/ MOHAN V. PHANSALKAR -------------------------------- Name: Mohan V. Phansalkar Title: Executive Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: CAPTIVA III FINANCE LTD. (ACCT 275), as advised by Pacific Investment Management Company LLC By: /S/ DAVID DYER -------------------------------- Name: David Dyer Title: Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: DELANO COMPANY (ACCT 274) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /S/ MOHAN V. PHANSALKAR -------------------------------- Name: Mohan V. Phansalkar Title: Executive Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: JISSEKIKUN FUNDING, LTD. (ACCT 1288) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /S/ MOHAN V. PHANSALKAR -------------------------------- Name: Mohan V. Phansalkar Title: Executive Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: SEQUILS-MAGNUM, LTD. (#1280) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /S/ MOHAN V. PHANSALKAR -------------------------------- Name: Mohan V. Phansalkar Title: Executive Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: PPM SPYGLASS FUNDING TRUST By: /S/ ANN E. MORRIS -------------------------------- Name: Ann E. Morris Title: Authorized Agent 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: TUSCANY CDO, LIMITED By: PPM America, Inc., as Collateral Manager By: /S/ DAVID C. WAGNER -------------------------------- Name: David C. Wagner Title: Managing Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: KZH RIVERSIDE LLC By: /S/ SUSAN LEE -------------------------------- Name: Susan Lee Title: Authorized Agent 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: SCUDDER FLOATING RATE FUND By: /S/ KENNETH WEBER -------------------------------- Name: Kenneth Weber Title: Sr. Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: LIBERTY - STEIN ROE ADVISOR FLOATING RATE ADVANTAGE FUND By: Stein Roe & Farnham Incorporated, as Advisor By: /S/ KATHLEEN A. ZAM -------------------------------- Name: Kathleen A. Zam Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: SRF 2000 LLC By: /S/ ANN E. MORRIS -------------------------------- Name: Ann E. Morris Title: Asst. Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: SRF TRADING, INC. By: /S/ ANN E. MORRIS -------------------------------- Name: Ann E. Morris Title: Asst. Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: STEIN ROE & FARNHAM CLO I LTD., By: Stein Roe & Farnham Incorporated, As Portfolio Manager By: /S/ KATHLEEN A. ZAM -------------------------------- Name: Kathleen A. Zam Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY By: /S/ KATHLEEN A. ZAM -------------------------------- Name: Kathleen A. Zam Title: Vice President Stein Roe & Farnham Incorporated, as Advisor to the Stein Roe Floating Rate Limited Liability Company 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: KZH SOLEIL-2 LLC By: /S/ SUSAN LEE -------------------------------- Name: Susan Lee Title: Authorized Agent 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: TORONTO DOMINION (NEW YORK), INC. By: /S/ STACEY MALEK -------------------------------- Name: Stacey Malek Title: Vice President 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: VAN KAMPEN PRIME RATE INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /S/ DARVIN D. PIERCE -------------------------------- Name: Darvin D. Pierce Title: Executive Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: VAN KAMPEN SENIOR INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /S/ DARVIN D. PIERCE -------------------------------- Name: Darvin D. Pierce Title: Executive Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: VAN KAMPEN SENIOR FLOATING RATE FUND By: Van Kampen Investment Advisory Corp. By: /S/ DARVIN D. PIERCE -------------------------------- Name: Darvin D. Pierce Title: Executive Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: GALAXY CLO 1999-1 LTD. By: /S/ THOMAS G. BRANDT -------------------------------- Name: Thomas G. Brandt Title: Managing Director 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: ALLSTATE LIFE INSURANCE COMPANY By: /S/ JERRY D. ZINKULA -------------------------------- Name: Jerry D. Zinkula Title: By: /S/ CHRIS GOERGEN -------------------------------- Name: Chris Goergen Title: Authorized Signatories 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: AIMCO CDO SERIES 2000-A By: /S/ JERRY D. ZINKULA -------------------------------- Name: Jerry D. Zinkula Title: By: /S/ CHRIS GOERGEN -------------------------------- Name: Chris Goergen Title: Authorized Signatories 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: AIMCO CLO SERIES 2001-A By: /S/ JERRY D. ZINKULA -------------------------------- Name: Jerry D. Zinkula Title: By: /S/ CHRIS GOERGEN -------------------------------- Name: Chris Goergen Title: Authorized Signatories 9 Signature Page to Sixth Amendment to UCAR Finance Inc. Credit Agreement. Name of Institution: SIMSBURY CLO, LTD. By: Mass Mutual Life Insurance Company, as Collateral Manager By: /S/ STEVEN J. KATZ -------------------------------- Name: Steven J. Katz Title: Second Vice President and Associate General Counsel 10 EXHIBIT A TERM SHEET - ADDITIONAL SENIOR NOTES ISSUER: UCAR Finance Inc. PARENT COMPANY GUARANTORS: UCAR International Inc., UCAR Global Enterprises Inc. and UCAR Carbon Company Inc. PRINCIPAL AMOUNT: $500-$550 million (includes Initial Offering of $400 million) RANKING: Senior TERM: 10 years OPTIONAL REDEMPTION: 5 year non-call protection CLAWBACK: Up to 35% of the Senior Notes may be redeemed at any time within 3 years with the proceeds of an equity offering. CHANGE OF CONTROL PUT: Change of control put at 101% CUSTOMARY COVENANTS: Including, but not limited to, the following: LIMITATION ON INDEBTEDNESS LIMITATION ON RESTRICTED PAYMENTS LIMITATION ON MERGERS AND CONSOLIDATIONS LIMITATION ON ASSET SALES LIMITATION ON PAYMENTS RESTRICTIONS AFFECTING SUBSIDIARIES LIMITATION ON TRANSACTIONS WITH AFFILIATES LIMITATION ON LIENS USE OF NET PROCEEDS: As to the initial issuance of Senior Notes in February 2002 (up to $400 million): 100% of first $200 million (first $250 million, if offering is more than $300 million and not more than $400 million) and 50% of balance to be used to repay senior secured term bank debt; balance to be used for working capital and general corporate purposes (to reduce revolver pending use) 11 As to the issuance of additional Senior Notes (up to $150 million): 50% of the net proceeds from such issuance (excluding accrued interest paid by the Noteholders) to be applied to reduce the Revolving Loans until fully repaid and the remainder of the net proceeds (excluding accrued interest paid by the Noteholders) to repay the Term Loans in accordance with the Credit Agreement STRUCTURE: Same as senior secured lenders prior to issuance of Senior Notes in February 2002 (excluding security, except for pledge of unsecured notes and related unsecured guarantees and junior pledge of shares of Graftech), including the following: Senior unsecured guarantees by virtually all U.S. subsidiaries (including Graftech if it becomes 100% owned) Intercompany note structure for foreign subsidiaries (which cannot give direct guarantees of the Senior Notes for tax reasons) Foreign subsidiaries issue senior unsecured intercompany notes to UCAR Finance, in a principal amount equal to up to the principal amount of Senior Notes (with one-time exclusion for Proposed Offering up to $150 million) with unsecured cross-guarantees by other foreign subsidiaries These notes are pledged to secure repayment of the Senior Notes No material priority debt incurred by foreign subsidiaries at date of initial issuance, except secured intercompany notes to UCAR Finance with similar cross-guarantees (except that they are secured), which are pledged to Senior Lenders. EX-10 7 graftechmay0210qex1015.txt EXHIBIT 10.15 EXHIBIT 10.15 EXECUTION COPY REAFFIRMATION AGREEMENT, dated as of May 6, 2002 (as the same may from time to time be amended, supplemented or otherwise modified, this "Agreement"), among UCAR Finance Inc. (the "Company"), UCAR International Inc., UCAR Global Enterprises Inc., UCAR Carbon Company Inc., UCAR Composites Inc., UCAR Technology LLC, UCAR Holdings III Inc. and UCAR International Trading Inc. (collectively, the "Guarantors") and State Street Bank and Trust Company, as trustee (the "Trustee"). The Company intends to issue $150 million of additional 10 1/4% Senior Notes due 2012 (the "Additional Offering") pursuant to the Indenture dated February 15, 2002 among the Company, the Guarantors, UCAR International Holdings Inc. and the Trustee (the "Indenture"). Each of the Company and the Guarantors is party to the Indenture, as amended and the Company and each of the Company and UCAR Carbon Company Inc. is party to the Graftech Pledge Agreement dated February 15, 2002 (the "Graftech Pledge Agreement"). Each of the Company and the Guarantors (each, a "Reaffirming Party") expects to realize, or has realized, substantial direct and indirect benefits as a result of the Additional Offering. The execution and delivery of this Agreement is required under the Purchase Agreement among the Company, the Guarantors, Credit Suisse First Boston Corporation and J.P. Morgan Securities Inc. dated May 1, 2002. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Indenture. In consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows for the equal and ratable benefit of all Holders of Securities issued pursuant to the Indenture, as amended, including Holders of Securities issued in the Additional Offering: ARTICLE I REAFFIRMATION SECTION 1.1 REAFFIRMATION. Each of the Reaffirming Parties hereby consents to the Additional Offering, each of the Guarantors hereby confirms its respective guarantee under the Indenture, as amended, and UCAR Carbon Company Inc. hereby confirms its pledge of shares of stock of Graftech Inc. under the Graftech Pledge Agreement, and the Company hereby reaffirms its pledge of the Intercompany Note Obligations under the Indenture. Each of the Reaffirming Parties agrees that notwithstanding the consummation of the Additional Offering 2 such guarantees and pledges, as applicable, shall continue to be in full force and effect and shall accrue to the benefit of the Holders of the Securities. ARTICLE II REPRESENTATIONS AND WARRANTIES Each Reaffirming Party hereby represents and warrants, which representations and warranties shall survive execution and delivery of this Agreement, as follows: SECTION 2.1 ORGANIZATION. Such Reaffirming Party is duly organized and validly existing in good standing under the laws of the jurisdiction of its formation. SECTION 2.2 AUTHORITY; ENFORCEABILITY. Such Reaffirming Party has the power and authority to execute, deliver and carry out the terms and provisions of this Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement. Such Reaffirming Party has duly executed and delivered this Agreement, and this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 2.3 INDENTURE; GRAFTECH PLEDGE AGREEMENT. The representations and warranties of such Reaffirming Party contained in the Indenture and the Graftech Pledge Agreement, as applicable, are true and correct in all material respects on and as of the date hereof with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. ARTICLE III MISCELLANEOUS SECTION 3.1 NOTICES. All notices and other communications hereunder shall be made at the addresses, in the manner and with the effect provided in Article 14 of the Indenture. SECTION 3.2 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 3.3 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. 3 SECTION 3.4 SUCCESSORS. All agreements of the Company and the Guarantors in this Agreement and shall bind their successors. All agreements of the Trustee in this Agreement shall bind its successors. SECTION 3.5 MULTIPLE ORIGINALS. The parties may sign any number of copies of this Agreement. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Agreement. SECTION 3.6 HEADINGS. The headings of the Sections of this Agreement have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 3.7 AMENDMENT. This Agreement may be waived, modified or amended only by a written agreement executed by each of the parties hereto. 4 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. UCAR FINANCE INC., By: /S/ KAREN G. NARWOLD ---------------------------------------------- Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary UCAR INTERNATIONAL INC., By: /S/ KAREN G. NARWOLD ---------------------------------------------- Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary UCAR GLOBAL ENTERPRISES INC., By: /S/ KAREN G. NARWOLD ---------------------------------------------- Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary UCAR CARBON COMPANY INC., By: /S/ KAREN G. NARWOLD --------------------------------------------- Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary UCAR COMPOSITES INC., By: /S/ KAREN G. NARWOLD --------------------------------------------- Name: Karen G. Narwold Title: Secretary UCAR CARBON TECHNOLOGY LLC, By: /S/ KAREN G. NARWOLD --------------------------------------------- Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary 5 UCAR HOLDINGS III INC., By: /S/ KAREN G. NARWOLD -------------------------------------------- Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary UCAR INTERNATIONAL TRADING INC., By: /S/ KAREN G. NARWOLD -------------------------------------------- Name: Karen G. Narwold Title: Vice President, General Counsel, Human Resources and Secretary STATE STREET BANK AND TRUST COMPANY, as Trustee, By: /S/ PATRICK E. THEBADO -------------------------------------------- Name: Patrick E. Thebado Title: Vice President -----END PRIVACY-ENHANCED MESSAGE-----