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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20490
THE CARBIDE/GRAPHITE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1575609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Code)
One Gateway Center, 19th Floor
Pittsburgh, PA
15222
(Address of principal executive offices)
Registrant's telephone number, including area code: (412) 562-3700
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of the close of business on September 26, 1997 was $164,178,724.
As of the close of business on September 26, 1997 there were 8,632,272
shares of the Registrant's $0.01 par value Common Stock outstanding.
Documents incorporated by reference:
Information required under Part I (Item 1) and Part II (Items 5, 6, 7 and
8) is, in part, incorporated by reference from the Registrant's Annual Report to
Stockholders for fiscal 1997, which is filed as an exhibit hereto. The
information required under Part III is incorporated by reference to the
Registrant's Proxy Statement and Notice of the Annual Meeting of Stockholders
for 1997, which is to be filed within 120 days after July 31, 1997.
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PART I
Item 1 Business
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Overview
The Carbide/Graphite Group, Inc. (the Company or Registrant) is a major
U.S. manufacturer of graphite electrode products and calcium carbide products.
Graphite electrodes are used as conductors of electricity, and are consumed, in
the electric arc furnace steel-making process common to all mini-mill steel
producers. Calcium carbide and derivative products, primarily acetylene, are
used in the manufacture of specialty chemicals, as a fuel in metal cutting and
welding and for metallurgical applications such as iron and steel
desulfurization. The Company is the only manufacturer of graphite electrodes
that produces its own requirements of needle coke, the principal raw material
used in the manufacture of graphite electrodes, and the Company sells needle
coke to other manufacturers of graphite products. Net sales for the Company's
graphite electrode products segment and calcium carbide products segment
represented 72.5% and 27.5%, respectively, of consolidated net sales for fiscal
1997. Refer to Note 12 of the Company's Annual Report to Stockholders for
fiscal 1997 (incorporated by reference under Item 8 of this Form 10-K) for
information regarding sales (including export sales), operating income and
identifiable assets by business segment.
On September 26, 1997, the Company completed a tender offer for essentially
all ($79.9 million) of its 11.5% Senior Notes due 2003 (the Senior Notes) (the
Tender). The tender price paid to holders of the Senior Notes was $1,086.20 for
each $1,000 in Senior Note principal. Also, most holders received an additional
$15.00 per $1,000 in Senior Note principal in exchange for their consent to
eliminate substantially all of the restrictive covenants and certain default
provisions in the Senior Note Indenture other than the covenants to pay interest
on and principal of the Senior Notes and the default provisions related to such
covenants. Consents were received by holders of more than a majority of the
outstanding Senior Notes, resulting in the elimination of such restrictive
covenants and default provisions. After the Tender, $0.1 million in Senior
Notes were outstanding.
In connection with the Tender, the Company entered into an agreement with
PNC Bank for a five year, $125 million revolving credit facility, with a $15
million sub-limit for standby letters of credit (the 1997 Revolving Credit
Facility). The 1997 Revolving Credit Facility replaces a $25 million revolving
credit facility with PNC Bank entered into on December 1, 1995 (the 1995
Revolving Credit Facility). Interest under the 1997 Revolving Credit Facility is
based on, at the option of the Company, either PNC Bank's prime rate or a
floating LIBOR rate plus a spread (currently 0.625%) based on a leverage
calculation. Repayment of funds borrowed under the new credit agreement are not
required until the expiration of the facility on September 25, 2002. The new
facility can be extended under certain conditions. The most restrictive
covenants under the 1997 Revolving Credit Facility include an Interest Coverage
Ratio of 3.5 to 1.0, a Consolidated Total Indebtedness to EBITDA Ratio of 3.0 to
1.0 and a Minimum Consolidated Tangible Net Worth, all as defined in the 1997
Revolving Credit Facility agreement. The 1997 Revolving Credit Facility is and
the 1995 Revolving Credit Facility was secured with receivables and inventory.
As a result of the Tender and revolving credit facility refinancing, the
Company will record a pre-tax charge of approximately $10 million as an
extraordinary loss on the early retirement of debt in the quarter ending October
31, 1997. This extraordinary charge represents the premium paid to Senior Note
holders in connection with the Tender and the write off of unamortized deferred
financing fees associated with the Senior Notes tendered and the 1995 Revolving
Credit Facility.
Graphite Electrode Products Business
Products and Markets
The Company's graphite electrode products business segment includes
graphite electrodes, needle coke,
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bulk graphite, granular graphite (primarily from machine turnings) and
processing services. The following table presents the Company's net sales and
percentage of segment sales within its graphite electrode products segment for
fiscal 1997, by principal product category:
<TABLE>
<CAPTION>
Fiscal 1997
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Product Category Net Sales % of Net Sales
- --------------------------------------------- ---------------------------
<S> <C> <C>
(dollars in thousands)
Graphite electrodes.......................... $147,206 70.1%
Needle coke (third party sales).............. 28,615 13.6
Bulk graphite................................ 19,712 9.4
Granular graphite............................ 10,223 4.9
Other........................................ 4,289 2.0
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Total graphite electrode products net sales $210,045 100.0%
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</TABLE>
The Company's needle coke production capacity at its affiliate,
Seadrift Coke, L.P. is currently approximately 130,000 tons per year, an
increase of approximately 20% over fiscal 1996 as a result of capital
improvements made in the first quarter of fiscal 1997. While the Company uses
the majority of its needle coke production in its own electrode manufacturing
operations, it sells additional quantities of needle coke to other graphite
electrode producers. During fiscal 1997, the Company sold approximately 45% of
its needle coke production to seven other graphite electrode producers. A $22
million needle coke production capacity expansion announced in fiscal 1997 and
projected for completion during the third quarter of fiscal 1998 should
substantially increase the amount of needle coke produced by the Company.
Company estimates indicate that needle coke production capacity should increase
from 130,000 tons currently to approximately 170,000 tons once the expansion
project is completed, an increase of approximately 30%.
In connection with the fiscal 1995 sale of the Company's graphite
specialty products business (the Specialty Products Sale) to SGL Carbon
Corporation (SGL Corp.), the Company agreed to continue to produce graphite
rods and plates (also known as bulk graphite), the majority of which are sold to
SGL Corp. at prices approximating the Company's manufacturing cost under a
supply agreement which expires in January 1998 (the SGL Supply Agreement). Sales
to SGL Corp. under this contract in fiscal 1997 were $16.7 million. The Company
also sells these bulk graphite rods and plates, and certain other graphite
products, to other graphite specialty customers. As the SGL Supply Agreement
expires in January 1998, the Company is currently pursuing a strategy to
increase its customer base for bulk graphite. While the Company believes that
it will sell bulk graphite to both SGL Corp. and other bulk graphite customers
once the SGL Supply Agreement expires, there can be no assurance that the
Company will be able to sell quantities of bulk graphite equal to those sold
while the SGL Supply Agreement was in effect. All bulk graphite sold once the
SGL Supply Agreement expires will be sold at a mark-up over the Company's
manufacturing cost. Granular graphite is primarily turnings from the machining
of graphite electrodes and is used in a variety of industrial applications,
including brake shoe materials and carbon additives for steel chemistry. In
addition, the Company provides processing services, which include graphitizing
baked rods.
Domestic sales of graphite electrode products are made primarily by
the Company's direct sales force, consisting of seven salesmen for graphite
electrodes and one salesman for other graphite products. This sales force is
supported by five technical service personnel. International sales of electrodes
are made through long-standing relationships with over twenty independent
agents. Exports of graphite electrodes account for approximately 50% of the
Company's annual shipments of graphite electrodes and subject the Company to
risks associated with fluctuations in foreign currency exchange rates. Most
foreign currencies were weaker in relationship to the U.S. dollar during fiscal
1997 which negatively impacted foreign price realizations. The Company
regularly enters into forward foreign currency contracts to help mitigate
foreign currency exchange rate exposure. In addition, the Company is attempting
to shift sales to markets in which transactions are completed in U.S. dollars
and to markets with foreign currencies that are not as weak. There can be no
assurance that the
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Company's attempts to mitigate its exposure to foreign currency valuations will
fully offset the negative effects of the strengthened U.S. dollar.
The steel industry, which constitutes the principal market for the
Company's graphite electrodes and a major market for its calcium carbide for
metallurgical applications, is highly cyclical. As a result, the Company's steel
industry-related products will face periods of reduced demand, which, because of
the generally high fixed costs of the Company's business, could result in
substantial downward pressure on profitability. Demand for and sales of graphite
electrodes and needle coke fluctuate from quarter to quarter due to such factors
as scheduled plant shutdowns by customers, vacations, changes in customer
production schedules in response to seasonal changes in energy costs, weather
conditions, strikes and work stoppages at customer plants and changes in
customer order patterns in response to the announcement of price increases.
Manufacturing and Modernization
The Company's electrodes are manufactured at its facilities in Niagara
Falls, New York and St. Marys, Pennsylvania. Both plants are equipped with
facilities for milling, mixing, homogenizing and extruding; baking and rebaking;
pitch impregnating; graphitizing; and machine finishing. The Company currently
has the capacity to manufacture approximately 110 million pounds of electrodes
annually.
The Company manufactures all of its needle coke (the primary raw
material for graphite electrodes) at its affiliate, Seadrift Coke, L.P., in
Seadrift, Texas. The Company currently has the capacity to manufacture
approximately 130,000 tons of needle coke annually, 55% of which is used
internally for the production of graphite electrodes. Needle coke is shipped
from Seadrift largely by rail (and to a lesser extent by barge) to the Company's
St. Marys facilities.
The Company has initiated a program to modernize certain components of
its electrode manufacturing process (the Modernization Program). The primary
objectives of the Modernization Program, expected to cost approximately $34
million, are the automation of labor intensive processes and the replacement of
older equipment with new, state-of-the-art technology in order to reduce costs
while improving electrode quality and consistency. A major aspect of the
Modernization Program will focus on the electrode forming processes, including
the addition of equipment to automate the Company's sizing and weighing systems,
and to enhance production capabilities by adding new needle coke preheaters,
needle coke and pitch mixers as well as mix cooling/homogenization equipment.
These improvements, which management expects to cost approximately $26 million,
are designed to reduce total labor requirements and minimize variations in the
critical initial forming of the electrodes, resulting in better and more
consistent electrode quality. In addition, the Company will be adding three new
computer-controlled machine tools used for electrode finishing in its Niagara
Falls facility. With a cost of approximately $8 million, the machine tool
system is expected to meet the highest electrode machining standard. The
majority of the cost for the machine tool system is being financed under a long-
term operating lease. During fiscal 1997, a major portion of the construction
and equipment installation associated with the Modernization Program projects
took place. Both projects are expected to be commissioned in mid-fiscal 1998.
While the Company does not believe that significant start-up costs will be
incurred with respect to the Modernization Program projects, there can be no
assurance that significant start-up costs will not be incurred in connection
with such projects.
In fiscal 1997, the Company also announced that it will spend
approximately $28 million to build a longitudinal graphitizing facility. This
new facility, which will replace older, less cost effective Acheson graphitizing
facilities, should increase productivity, as well as allow for the production of
larger, higher quality electrodes. This project is expected to be completed by
late 1999 and will be financed with current cash reserves, internally generated
cash flows and available credit facilities.
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Calcium Carbide Products Business
Products and Markets
The Company's primary products in this segment are pipeline acetylene,
calcium carbide for metallurgical applications such as iron and steel
desulfurization and calcium carbide for fuel gas applications. The following
table presents the Company's net sales and percentage of segment sales within
its calcium carbide products business for fiscal 1997, by principal product
category:
<TABLE>
<CAPTION>
Fiscal 1997
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Product Category Net Sales % of Net Sales
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<S> <C> <C>
(dollars in thousands)
Pipeline acetylene........................... $27,577 34.7%
Metallurgical applications................... 24,652 31.0
Calcium carbide for fuel gas applications.... 21,187 26.6
Other........................................ 6,125 7.7
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Total calcium carbide product net sales.... $79,541 100.0%
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</TABLE>
The Company produces acetylene at its Louisville and Calvert City,
Kentucky plants for pipeline delivery to three customers, International
Specialty Products (ISP), Air Products and Chemicals, Inc. (Air Products) and
E.I. duPont de Nemours & Company (DuPont), for use in the manufacture of
specialty chemicals. Each of these customers, which together represented 34.7%
of the Company's total calcium carbide product net sales in fiscal 1997, has
been supplied by the Company for over thirty years. Although relationships with
these pipeline customers are longstanding, there can be no assurance that any of
these customers will continue to operate its adjacent facility or require the
Company's acetylene product.
The Company sells calcium carbide for metallurgical applications, such
as blast furnace hot metal desulfurization, foundry iron desulfurization and
electric furnace slag conditioning and deoxidation. Most calcium carbide
desulfurization products are finely ground to talcum powder size and, together
with several additives, are injected into baths of molten iron to reduce the
sulfur content of the material. Sales of calcium carbide for metallurgical
applications represented 31.0% of total calcium carbide products net sales for
fiscal 1997. The Company continues to face increased competition from other
calcium carbide suppliers and substitute desulfurization agents in this product
line. The Company sells calcium carbide to a major distributor, ESM
Metallurgical Products, which in turn supplies carbide mixtures and a variety of
ancillary services to steel mills for metallurgical applications.
Calcium carbide is sold to industrial gas generators as a raw material
for the production of cylinder acetylene, a fuel gas which is primarily used in
the metal fabrication and construction industries. The acetylene distribution
market is comprised of several large, national distributors of industrial gases
with numerous generating locations, and a large number of small companies that
generate acetylene for distribution within their regional markets. The Company
sells to both types of customers.
The Company markets calcium carbide products through a sales force of
three and through distributors, with technical service support from a staff of
two, to industrial gas distributors, pipeline acetylene customers and steel mill
and foundry customers. Sales to customers other than pipeline customers are
generally made through purchase orders.
Manufacturing
The Company manufactures its calcium carbide products at plants in
Louisville and Calvert City, Kentucky with a combined production capacity of
approximately 200,000 tons. Both plants operate submerged arc electric furnaces
for the production of calcium carbide, as well as crushing, screening and
packing equipment;
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acetylene generators; and ball mill blending facilities. The Louisville plant
supplies pipeline acetylene to DuPont; the Calvert City plant supplies pipeline
acetylene to ISP and Air Products.
Competition
Graphite Electrode Products
The Company's competition in graphite electrodes includes two major
producers, UCAR International Inc. (UCAR) and SGL Carbon AG (SGL), as well as a
group of smaller, foreign producers, including Showa Denko KK (of Japan), Tokai
Carbon Co., Ltd. (of Japan), Nippon Carbon Co. Ltd. (of Japan) and VAW Aluminum
AG (of Germany). Participants in the graphite electrode industry compete on the
basis of service and product quality, reliability, efficiency and price.
UCAR and SGL are market and price leaders, each have world-wide market
shares ranging between 25% and 35%, and each have greater financial resources
than the Company. Both maintain operations in various international markets.
The Company is one of a small group of graphite electrode producers each having
a world-wide market share of 5% to 7%. While the Company markets its graphite
electrodes world-wide, it has no production facility outside of the United
States and, accordingly, has significant transportation and duty cost
disadvantages relative to its competitors located in foreign markets.
From time to time, graphite electrode manufacturers, including the
Company, experience temporary declines in the quality of their graphite
electrodes, frequently resulting in customer credits and reimbursements. The
Company continually evaluates and implements procedures to improve electrode
quality and believes that its electrode performance meets the quality
requirements of its customers. Moreover, the Modernization Program is intended
to enhance further the Company's ability to consistently manufacture electrodes
of acceptable quality. There can be no assurance, however, that temporary
declines in electrode quality will not recur.
Outside of Japan, there are currently only three needle coke
producers: Conoco, Inc. (Conoco), UNO-VEN Company (Uno-Ven) and the Company's
affiliate, Seadrift Coke, L.P. Conoco is the largest needle coke producer, with
annual capacity currently estimated by the Company to be 400,000-450,000 tons.
Uno-Ven has a production capacity of approximately 100,000 tons per year and the
Company's production capacity is currently approximately 130,000 tons per year.
In Japan, there are four small producers, one of which is a Conoco affiliate,
and two of which make a different type of coke from coal tar pitch. The Company
believes the three Japanese producers (other than the Conoco affiliate) produce
an aggregate of approximately 200,000 tons per year. Participants in the needle
coke industry compete primarily on price and quality.
The Company has numerous competitors in the sale of granular graphite,
including other electrode manufacturers and a variety of graphite scrap dealers.
Fine grain graphite blocks and rods, bulk graphite, are produced by a number of
companies throughout the world, including UCAR and SGL. These materials are
marketed on a world-wide basis by the Company.
Calcium Carbide Products
The Company's primary competitors in the manufacture and marketing of
calcium carbide in the United States and Canada are Elkem and Airgas, Inc.,
both of which market calcium carbide through a joint venture, Elkem-American
Carbide Company. Participants in the calcium carbide market compete on the
basis of service and product quality, reliability, efficiency and price.
The Company sells all of its acetylene to the adjacent specialty
chemical and products plants of its pipeline customers. These plants are not
supplied with acetylene by any source other than the Company. See "--Calcium
Carbide Products Business--Products and Markets."
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For many years, other, less expensive materials have competed with
cylinder acetylene for use in the metal fabrication and construction industries.
Acetylene has maintained its market position, however, by virtue of its ease of
transport and use and because it burns hotter and cuts cleaner. Calcium carbide-
based desulfurization products compete with magnesium-based desulfurization
products and, with respect to ductile iron foundries, lime spar. The commodity
price of magnesium and the resultant price of magnesium-based desulfurizers
affects the demand for calcium carbide-based desulfurization products.
Raw Materials and Costs
Graphite Electrode Products
The significant raw material costs of production for all graphite
electrode manufacturers are needle coke, coal tar pitch, natural gas for the
heating of kilns and electricity for graphitizing. The Company's graphite
electrode business purchases its needle coke requirements from Seadrift Coke,
L.P., an affiliate of the Company.
The Company uses low sulfur decant oil, a by-product of fluid
catalytic cracking units in integrated oil refineries, in the manufacture of
needle coke. Most of this feedstock is purchased from refineries along the U.S.
Gulf Coast. A limited number of refineries on the U.S. Gulf Coast produce
decant oil suitable for use by the Company. At times, due to restraints on local
availability, the Company has purchased decant oil on the West Coast at a higher
cost (due primarily to transportation costs) than if obtained from a local
refinery. Conoco and Uno-Ven, the Company's two largest needle coke
competitors, operate large, integrated refineries that have the ability to
desulfurize decant oil.
The cost of refinery decant oil is pegged to the U.S. Gulf Coast spot
cargo barge prices for heavy fuel oil. Fuel oil prices generally move with
world-wide crude oil prices and, to some extent, with winter weather conditions
in the United States. The Company periodically hedges its oil costs by trading
in futures contracts for crude oil and/or heating oil and oil swap agreements
for low sulfur fuel oil. The Company believes that decant oil of an acceptable
quality is generally available to supply its current needs as well as its
projected needs upon the completion of the capacity expansion project at
Seadrift Coke, L.P. However, there can be no assurance that the Company will be
able to obtain an adequate quantity of suitable feedstocks at all times in the
future or at acceptable prices.
Electricity for graphitizing operations represents a major cost factor
due to the immense quantities of electricity needed to graphitize electrodes. At
the Company's plant in Niagara Falls, electricity is supplied by the Power
Authority of the State of New York at favorable, pre-determined prices under a
contract that expires in 2006. The St. Marys plant is supplied electricity under
a conventional power contract. Through an electricity co-generation process,
the Seadrift facility is a net power producer, resulting in virtually no
electrical power costs for that facility. Heating fuel for kilns is natural gas
purchased by the Company from either interstate natural gas carriers or from
local gas well operators.
Calcium Carbide Products
Raw materials required for calcium carbide manufacture are lime,
metallurgical coke and lesser quantities of petroleum coke and large amounts of
electricity for submerged arc electric furnaces. The Company believes that its
raw materials are widely available at satisfactory prices, although the cost of
metallurgical coke was up slightly during fiscal 1997. Both the Louisville and
Calvert City plants are supplied electricity under conventional power contracts.
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Employees
At July 31, 1997, the Company employed 885 people in its graphite
electrode products segment; 32% were salaried and 68% were paid hourly. At
July 31, 1997, there were 308 people in the calcium carbide segment; 21% were
salaried and 79% were paid hourly. Seadrift Coke, L.P. is staffed entirely with
salaried personnel.
The Company has various labor agreements with unions representing its
hourly work force. Within the graphite electrode products business, the St.
Marys labor agreement will expire in June 1999, and the Niagara Falls labor
agreement will expire in January 1999. Within the calcium carbide products
business, the Louisville and Calvert City agreements will expire in July 2001
and February 2001, respectively. The Company believes that its relationships
with the unions are stable. However, there can be no assurance that new
agreements will be reached when the current agreements expire without union
action or will be on terms satisfactory to the Company.
Patents and Trademarks
The Company does not believe that any of its patents, patent
applications or trademarks are material to its business or operations.
Environmental Compliance
In connection with the agreement under which the Company acquired its
operating assets from The BOC Group, plc (BOC) (the Asset Acquisition), BOC,
agreed to indemnify the Company, its successors and assigns, against certain
liabilities, to the extent not disclosed and expressly excluded from the
indemnity, arising from (i) pre-closing operations of its former divisions
(regardless of whether such liabilities arose during or before BOC's ownership
thereof); (ii) assets transferred to the Company pursuant to the Asset
Acquisition; and (iii) pre-closing activities conducted at the real property and
leased premises transferred to the Company pursuant to the Asset Acquisition.
Such indemnification includes certain liabilities arising out of the use,
generation, transportation, storage, treatment, release or disposal of hazardous
materials; the violation of any environmental regulations; or any claim or cause
of action to the effect that the Company is responsible or liable for acts or
omissions of BOC concerning hazardous materials. Under the indemnity, the
Company is required to pay 20% of the first $2.5 million of costs relating to
such environmental claims or liabilities. Thereafter, BOC is responsible for all
of such liabilities. The BOC indemnity survives for all covered claims brought
within 15 years after closing of the Asset Acquisition, which occurred in July
1988. A number of identifiable costs at the time of the Asset Acquisition, such
as the need for certain pollution control equipment, receipt of certain
discharge permits and the need for continued operation and maintenance of a
landfill used exclusively by the Company at its St. Marys facility, were
disclosed by BOC and were excluded from the indemnification. The Company has
installed much of the pollution control equipment and received the discharge
permits excluded from the BOC indemnity. If any of the pollution control
equipment excluded from the BOC indemnity is required in the future for
reactivation of production equipment or increases in capacity, the costs related
thereto are not believed by the Company to be material.
In connection with the Specialty Products Sale, the Company agreed to
indemnify SGL Corp. for 80% of all environment costs in excess of an aggregate
$100,000 threshold up to a maximum exposure of $6.0 million. In addition, with
respect to the Company's former subsidiary, Speer Canada, Inc., sold pursuant to
the Specialty Products Sale, the Company agreed to indemnify SGL Corp. for 80%
of all environment costs, in excess of a $100,000 threshold, relating to such
former subsidiary's operations prior to the consummation of the Specialty
Products Sale, up to a maximum exposure of $1.5 million. As of July 31, 1997,
no environmental claims have been submitted for indemnification by SGL Corp.
Since 1970, a wide variety of federal, state and local environmental
laws, regulations and ordinances have been, and continue to be, adopted and
amended. Some of these laws, regulations and ordinances hold current
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owners or operators of land liable for their own and previous owners' or
operators' releases of hazardous substances. Because of its operations and the
operations of its predecessors, and the use, production or discharge of certain
substances by their plants, the Company is affected by these laws and
regulations. Various Company facilities have experienced some level of
regulatory scrutiny in the past and continue to be subject to regulatory
inspections and requests for investigation or response action in connection with
releases or threatened releases of hazardous substances.
Lime hydrate generated as a by-product of acetylene production at the
Louisville facility has been stored in ponds at the site. One twenty acre pond
was also used in the past for disposal of various materials such as bag house
dust and plant debris. In 1993, the Company notified the Kentucky Department of
Environmental Protection of this pond's historic uses and indicated that based
on its investigation of the historical facts associated with the pond, the
Company does not believe that any further remedial actions are required. At
this point, the Company believes that the matter is closed with no further
action required.
The Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act, the Safe Drinking Water Act, each as amended, and similar state or
local counterparts of these federal laws, regulate air emissions, water
discharges and wastes. The Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, among others, provides for responses to and
liability for releases or threatened releases of hazardous substances into the
environment. The Company's current operations require compliance with the above
laws as well as the Toxic Substances Control Act and related laws designed to
assess the risk to health and the environment at early developmental stages of
new products. In addition, the Company is subject to laws adopted or proposed in
various states that impose various reporting or remediation requirements if
operations cease or the property is transferred or sold. While the Company
believes it is in substantial compliance with these regulations, from time to
time it receives from various government agencies notification or complaints or
gives notice to such agencies of potential violations of the requirements, which
the Company then works with the agency to resolve. No such notice is outstanding
or anticipated which would be expected to have a material adverse effect on the
Company's financial condition, future operating results or cash flows.
The Clean Air Act was amended in 1990 (including Title V). While the
Company believes that its facilities generally meet current regulatory standards
applicable to air emissions, some of its facilities will be required to comply
with new standards for hazardous emissions to be promulgated by the United
States Environmental Protection Agency (USEPA) over the next several years. In
addition, the Clean Air Act has resulted and will continue to result in
revisions to state implementation plans which may necessitate the installation
of additional controls for certain of the Company's emission sources. The
Company's Title V applications for its five production facilities are in various
stages of completion. The Company does not believe that its compliance with
Title V will have a material adverse effect on its financial condition, future
operating results or cash flows.
Periodic upsets at the Niagara Falls facility resulting in particulate
air emissions from baking and graphitization furnaces and odor complaints have
led the Niagara County Health Department to recommend an aggressive program of
preventive maintenance and evaluation of upgrade alternatives to reduce these
incidents and the odor. The Company has made certain improvements and is
evaluating further corrective actions which may, in future years, require
expenditures for new production and air pollution control equipment. The
Company does not believe that such expenditures will have a material adverse
effect on its financial condition, future operating results or cash flows.
The Company has submitted to the NYDEC a plan for compliance with
restrictions on emissions of volatile organic compounds from its graphitization
plant at Niagara Falls. The Company has received preliminary approval of its
plan and expects formal approval during fiscal 1998. Management does not
believe that expenditures under the proposed plan for compliance will
materially affect the Company's financial condition, future operating results or
cash flows.
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<PAGE>
The St. Marys facility used a permitted landfill for the disposal of
residual waste. Based on the adoption of new residual waste regulations in
Pennsylvania and the fact that the landfill was approaching the end of its
useful life, the Company closed the landfill in July 1997 and contracted outside
of the Company for disposal services. The Company's closure plan was approved by
the Pennsylvania Department of Environmental Resources during fiscal 1995. Costs
related to the landfill closure and a 15-year monitoring commitment are expected
to be $0.8 million which have been recorded as of July 31, 1997. The timing of
payments related to these activities, including payments for disposal services,
is not expected to materially impact the Company's cash flow in the future.
Refer to Item 3, "Legal Proceedings" for a discussion of
environmental-related claims against the Company.
During fiscal 1997, the Company spent approximately $1.9 million on
capital expenditures in order to comply with environmental laws and regulations
(which expenditures are included in the consolidated financial statements,
including the notes thereto, appearing elsewhere in this Form 10-K as additions
to property, plant, and equipment). During fiscal 1998, the Company expects to
spend approximately $2.0 million for such projects.
-9-
<PAGE>
Item 2 Properties
- --------------------
The Company maintains its corporate headquarters at One Gateway
Center, Pittsburgh, Pennsylvania under a lease with an initial term expiring on
December 31, 1999.
The Company has the following additional properties, which are owned
or leased, as indicated:
<TABLE>
<CAPTION>
Area
(approximate Owned
Location Use square feet) or Leased
- --------------------------------------- --------------------- ------------- ----------
<S> <C> <C> <C>
Graphite Electrode Products Facilities:
Niagara Falls, New York............. Electrodes 1,000,000 Owned
St. Marys, Pennsylvania............. Electrodes 742,000 Owned
Seadrift, Texas..................... Needle Coke 743,000 Owned
Calcium Carbide Products Facilities:
Calvert City, Kentucky.............. Carbide Products 150,000 Owned
Louisville, Kentucky................ Carbide Products 200,000 Owned
Louisville, Kentucky................ Carbide Sales, Technical 6,000 Leased
and Finance Offices
</TABLE>
Pursuant to the Specialty Products Sale, SGL Corp. acquired a discrete
portion of the Company's St. Marys facility. The Company and SGL Corp. share
common services such as steam and compressed air in St. Marys. In addition, the
Company leases to SGL Corp. a portion of a building and certain parking lot
space at its facility in Niagara Falls pursuant to a lease expiring in January
2000 (subject to optional renewals by SGL Corp. for a maximum of five additional
years).
The Company owns all of its major manufacturing facilities. The
Company believes that its plants and facilities, which are of varying ages and
types of construction, are in satisfactory condition.
Many of the Company's operations are conducted at extremely high
temperatures, exceeding 5,000 degrees Fahrenheit in the case of electrode
graphitizing. In some facilities, a maintenance "turnaround" is conducted
annually; in other facilities, major maintenance is conducted on an ongoing
basis. Maintenance expenditures, which are expensed as incurred, amounted to
approximately $37.5 million, $37.1 million and $36.1 million for the fiscal
years ended July 31, 1997, 1996 and 1995, respectively.
Item 3 Legal Proceedings
- ---------------------------
General
In May 1997, the Company was served with a subpoena issued by a Grand
Jury empanelled by the United States District Court for the Eastern District of
Pennsylvania. The Company was advised by attorneys for the Antitrust Division
of the United States Department of Justice (the DOJ) that the Grand Jury is
investigating price fixing by producers of graphite products in the United
States and abroad during the past five years. The Company is cooperating with
the DOJ in the investigation. The DOJ has granted the Company and certain
former and present senior executives the opportunity to participate in its
Corporate Leniency Program and the Company has entered into an agreement with
the DOJ under which the Company and such executives who cooperate will not be
subject to criminal prosection with respect to the investigation if charges are
issued by the Grand Jury. Under the agreement, the Company has agreed to use
its best efforts to provide for restitution to its domestic customers for actual
damages if any conduct of the Company which violated the Federal Antitrust Laws
in the manufacture and sale of such graphite products caused damage to such
customers. As far as the Company is aware, the DOJ has not made a finding that
any person or company violated the law with respect to the subject
-10-
<PAGE>
matter of the Grand Jury proceeding. The proceeding is in its preliminary
stages. At this time, management cannot determine whether a material loss will
be incurred as a result of the proceeding. No provision for any liability
related to such matters has been made in the consolidated financial statements
of the Company for the fiscal year ended July 31, 1997.
Four civil cases have been filed in the United States District Court
for the Eastern District of Pennsylvania in Philadelphia asserting claims on
behalf of purchasers for violations of the Sherman Act. Those cases have been
consolidated. The consolidated case names the Company, UCAR, SGL Corp. and
SGL as defendants and seeks treble damages. The Company intends to vigorously
defend against this consolidated action. The case is in its preliminary stages.
At this time, management cannot determine whether a material loss will be
incurred as a result of the case. No provision for any liability related to
such matter has been made in the consolidated financial statements for the
fiscal year ended July 31, 1997.
The Company is also involved in various legal proceedings considered
incidental to the conduct of its business, the ultimate disposition of which, in
the opinion of the Company's management, will not have a material adverse effect
on the financial position, fiscal year operating results or business of the
Company. Claims (other than environmental and contract claims and claims for
punitive damages) against the Company are generally covered by insurance which
includes a $250,000 per occurrence self-insured retention. As of July 31, 1997,
a $0.4 million reserve has been recorded to provide for estimated exposure on
claims for which a loss is deemed probable.
Environmental
In April 1995, the Company was named as a third-party defendant in a
Superfund action in Federal District Court in New Jersey relating to waste
disposal at a landfill located in Sayreville, New Jersey (the Sayreville
Litigation). Carbon Graphite Group, Inc. was named as successor to Airco-Speer
Company (Airco-Speer). Since this landfill was closed prior to the organization
of the Company in 1988, the Company's only possible connection with the
Sayreville Litigation would be if it were a successor to Airco-Speer, a claim
which it disputes. Furthermore, pursuant to the Asset Purchase Agreement by
which the Company acquired assets from BOC, BOC agreed to provide an
indemnification for certain environmental matters. BOC has assumed and
commenced the defense of the Sayreville Litigation and agreed to indemnify the
Company for losses associated therewith in accordance with the terms of the
Asset Purchase Agreement. In addition, BOC asserts that the liability in this
matter was settled by a 1992 agreement with the plaintiffs in the present case.
As a result of a motion for summary judgement, the Court has substantially
reduced the scope of claims which may be brought against the Company. Based on
the above, management does not believe that the Company will incur a material
loss with respect to the Sayreville Litigation.
Item 4 Submission of Matters to Vote of Securities Holders
- -------------------------------------------------------------
This item is not applicable to the Registrant for this Annual Report
on Form 10-K.
-11-
<PAGE>
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
- -------------------------------------------------------------------------------
Information required by this item is furnished on page 20 of the
Company's Fiscal 1997 Annual Report to Stockholders which has been filed as an
exhibit to this Annual Report on Form 10-K and is incorporated herein by
reference. Information regarding dividend restrictions is included in Note 8 on
pages 29 and 30 of the Company's Fiscal 1997 Annual Report to Stockholders.
Item 6 Selected Financial Data
- ---------------------------------
Information required by this item is, in part, furnished on page 19 of
the Company's Fiscal 1997 Annual Report to Stockholders which has been filed as
an exhibit to this Annual Report on Form 10-K and is incorporated herein by
reference. During fiscal 1994, the Company paid a $5.00 per share Common Stock
dividend. No other Common Stock dividends were declared or paid during the five
year period ended July 31, 1997.
Item 7 Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations
---------------------
Information required by this item is furnished on pages 11 through 18
of the Company's Fiscal 1997 Annual Report to Stockholders which has been filed
as an exhibit to this Annual Report on Form 10-K and is incorporated herein by
reference.
Item 8 Financial Statements and Supplementary Data
- -----------------------------------------------------
Information required by this item is furnished on pages 20 through 38
of the Company's Fiscal 1997 Annual Report to Stockholders which has been filed
as an exhibit to this Annual Report on Form 10-K and is incorporated herein by
reference. Supplementary data required by this item is furnished in Note 15 on
page 37 of the Company's Fiscal 1997 Annual Report to Stockholders.
Item 9 Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
--------------------
This item is not applicable to the Registrant for this Annual Report
on Form 10-K.
-12-
<PAGE>
PART III
Items 10 Directors and Executive Officers of the Registrant
- -------------------------------------------------------------
Information required by this item is furnished on pages 3 through 6 of
the Company's Proxy Statement to be dated October 31, 1997 and to be filed
within 120 days of July 31, 1997 and is incorporated herein by reference.
Item 11 Executive Compensation
- --------------------------------
Information required by this item is furnished on pages 8 through 18
of the Company's Proxy Statement to be dated October 31, 1997 and to be filed
within 120 days of July 31, 1997 and is incorporated herein by reference.
Item 12 Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information required by this item is furnished on pages 1, 2, 6 and 7
of the Company's Proxy Statement to be dated October 31, 1997 and to be filed
within 120 days of July 31, 1997 and is incorporated herein by reference.
Item 13 Certain Relationships and Related Transactions
- --------------------------------------------------------
Information required by this item is furnished on page 18 of the
Company's Proxy Statement dated to be dated October 31, 1997 and to be filed
within 120 days of July 31, 1997 and is incorporated herein by reference.
-13-
<PAGE>
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a)(1) List of Financial Statements
The following consolidated financial statements, including the notes
thereto, of the Company and the Report of Independent Accountants set forth on
pages 21 through 38 and page 20, respectively, in the Company's Fiscal 1997
Annual Report to Stockholders, which has been filed as an exhibit to this Annual
Report on Form 10-K, are incorporated by reference into this Item 14 of Form 10-
K by Item 8 hereof:
* Consolidated Balance Sheets as of July 31, 1997 and 1996.
* Consolidated Statements of Operations for the Years Ended July 31, 1997,
1996 and 1995.
* Consolidated Statements of Stockholders' Equity for the Years Ended July
31, 1997, 1996 and 1995.
* Consolidated Statements of Cash Flows for the Years Ended July 31, 1997,
1996 and 1995.
* Report of Independent Accountants dated September 10, 1997, except for Note
16 as to which the date is September 26, 1997.
(a)(2) List of Financial Statement Schedules
The following financial statement schedule of the Company and the Report of
Independent Accountants are included on pages 22 and 21, respectively, of this
Annual Report on Form 10-K and are incorporated by reference into this Item 14
on Form 10-K:
* Report of Independent Accountants dated September 10, 1997, except for Note
16 as to which the date is September 26, 1997.
* Schedule II -- Valuation and Qualifying Accounts for the Three Years Ended
July 31, 1997, 1996 and 1995.
All other financial statement schedules are not required, are not
applicable or the information called for therein is included elsewhere in the
consolidated financial statements or related notes thereto.
(a)(3) List of Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- -------------- ------------------------------------------------------------------------------------------------
<C> <S>
3.1* Restated Certificate of Incorporation of the Company (incorporated herein by reference
to Exhibit 3.1 to the Company's Registration Statement on Form S-1, Registration No.
33-31408)
3.2* Amended and Restated By-Laws of the Company (incorporated herein by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-1, Registration No. 33-
31408)
3.3* Restated Stockholders' Agreement dated as of September 19, 1995 among the Company
and the Management Stockholders (incorporated herein by reference to Exhibit 3.3 to the
Company's Registration Statement on Form S-1, Registration No. 33-31408)
4.1* Specimen Certificate for Common Stock of the Company (incorporated herein by
reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-91102)
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------ ------------------------------------------------------------------------------------------------
<C> <S>
4.2* Indenture dated August 26, 1993 between the Company and State Street Bank and Trust
Company, as trustee, relating to 11 1/2% Senior Notes Due 2003, including the form of
Senior Note included therein (incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1, Registration No. 33-91102)
4.3 Supplemental Indenture No. 2 dated as of September 15, 1997 between the Company and
State Street Bank and Trust, as trustee, related to the elimination of substantially all of the
restrictive covenants and certain default provisions in the Senior Note Indenture
10.1* Securities Purchase Agreement dated as of September 25, 1991 between the Company and
BOC (incorporated herein by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-65150)
10.2* Asset Transfer Agreement dated as of July 9, 1988 among the Company, BOC, and Centre
Capital Investors, L.P. (incorporated herein by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1, Registration No. 33-65150)
10.3* Asset Purchase Agreement dated as of January 17, 1995 among the Company, The C/G
Specialty Products Business Trust, Materials Technology Corporation, and SGL Carbon
Corporation (incorporated herein by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated January 17, 1995)
10.4* Share Purchase Agreement dated as of January 17, 1995 between the Company and 9012-
9677 Quebec Inc. (incorporated herein by reference to Exhibit 2.2 to the Company's Current
report on Form 8-K dated January 17, 1995)
10.5 Revolving Credit Agreement and Letter of Credit Issuance dated September 25, 1997 by
and Among the Company, PNC Bank, N.A. and the Financial Institutions party thereto
10.6* Revolving Credit Agreement and Letter of Credit Issuance dated December 1, 1995 by and
among the Company, PNC Bank, National Association and the Financial Institutions party
thereto (incorporated herein by reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1, Registration No. 33-31408)
10.7* Security Agreement and Collateral Assignment, dated December 1, 1995 between the
Company and PNC Bank, National Association (incorporated herein by reference to Exhibit
10.6 to the Company's Registration Statement on Form S-1, Registration No. 33-31408)
10.8* Subsidiary Guaranty Agreement, dated December 1, 1995 by Seadrift Coke, L.P. in favor
of PNC Bank, National Association (incorporated herein by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1, Registration No. 33-31408)
10.9* Subsidiary Security Agreement and Collateral Assignment, dated December 1, 1995
between Seadrift Coke, L.P. and PNC Bank, National Association (incorporated herein by
reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1,
Registration No. 33-31408)
10.10* Pledge Agreement, dated December 1, 1995 by the Company in favor of PNC Bank,
National Association (incorporated herein by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1, Registration No. 33-31408)
10.11* Letter Agreement, dated December 1, 1995 between PNC Bank, National Association and
the Company (incorporated herein by reference to Exhibit 10.12 to the Company's
Registration Statement on Form S-1, Registration No. 33-31408)
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- -----------------------------------------------------------------------------------------------
<C> <S>
10.12* Office Lease dated August 30, 1991 between the Company and The Equitable Life
Assurance Society of the United States (incorporated herein by reference to Exhibit 10.10
to the Company's Registration Statement on Form S-1, Registration No. 33-65150)
10.13* Letter Agreement dated as of January 1, 1995 between the Company and James G. Baldwin
(incorporated herein by reference to Exhibit 10. 15 to the Company's Registration Statement
on Form S-1, Registration No. 33-91102)
10.14* Employment Agreement dated as of January 1, 1995 between the Company and Nicholas
T. Kaiser (incorporated herein by reference to Exhibit 10.16 to the Company's Registration
Statement on Form S-1, Registration No. 33-91102)
10.15* Employment Agreement dated as of March 1, 1995 between the Company and Walter B.
Fowler (incorporated herein by reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1, Registration No. 33-91102)
10.16* Employment Agreement dated as of March 1, 1995 between the Company and Ronald N.
Clawson (incorporated herein by reference to Exhibit 10.18 to the Company's Registration
Statement on Form S-1, Registration No. 33-91102)
10.17* Employment Agreement dated as of March 1, 1995 between the Company and Stephen D.
Weaver (incorporated herein by reference to Exhibit 10.19 to the Company's Registration
Statement on Form S-1, Registration No. 33-91102)
10.18 Revised Employment Agreement dated March 31, 1997 between the Company and Nicholas
T. Kaiser
10.19 Employment Agreement dated as of April 1, 1997 between the Company and Walter B.
Fowler
10.20 Severance Agreement dated April 16, 1997 between the Company and Ronald N. Clawson
10.21 Separation Agreement dated April 25, 1997 between the Company and Walter E. Damian
10.22 Separation Agreement dated April 25, 1997 between the Company and Jim J. Trigg
10.23* Restated 1988 Management Stock Option Plan of the Company (incorporated herein by
reference to Exhibit 10.20 to the Company's Registration Statement on Form S-1,
Registration No. 33-91102)
10.24* Performance Option Agreement under the 1988 Management Stock Option Plan
(incorporated herein by reference to Exhibit 10.21 to the Company's Registration Statement
on Form S-1, Registration No. 33-91102)
10.25* Restated 1991 Management Stock Option Plan of the Company (incorporated herein by
reference to Exhibit 10.22 of the Company's Registration Statement on Form S-1,
Registration No. 33-91102)
10.26* Stock Option Agreement dated as of August 1, 1993 between the Company and James G.
Baldwin (incorporated herein by reference to Exhibit 10.23 to the Company's Registration
Statement on Form S-1, Registration No. 33-91102)
10.27* Stock Option Agreement dated as of March 8, 1994 between the Company and James G.
Baldwin (incorporated herein by reference to Exhibit 10.24 to the Company's Registration
Statement on Form S-1, Registration No. 33-91102)
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- -----------------------------------------------------------------------------------------------
<C> <S>
10.28* 1995 Stock-Based Incentive Compensation Plan of the Company (incorporated herein by
reference to Exhibit 10.24 to the Company's Registration Statement on Form S-1,
Registration No. 33-31408)
10.29* Amendment to 1995 Stock-Based Incentive Compensation Plan of the Company dated
August 26, 1996 (incorporated herein by reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for its fiscal year ended July 31, 1996, Commission File No.
0-20490)
10.30* Agreement under the 1995 Stock-Based Incentive Plan (incorporated herein by reference
to Exhibit 10.22 to the Company's Registration Statement on Form S-1, Registration No.
33-91102)
10.31* Non-Employee Director Stock-Based Incentive Compensation Plan of the Company dated
August 26, 1996 (incorporated herein by reference to Exhibit 10.27 to the Company's
Annual Report on Form 10-K for its fiscal year ended July 31, 1996, Commission File No.
0-20490)
10.32 Intentionally Omitted.
10.33 Incentive Bonus Plan of the Company
10.34* Supplemental Executive Savings Plan of the Company (incorporated herein by reference
to Exhibit 10.31 to the Company's Annual Report on Form 10-K for its fiscal year ended
July 31, 1996, Commission File No. 0-20490)
10.35* Replacement Power Agreement between the Power Authority of the State of New York and
the Company dated October 17, 1994 (incorporated herein by reference to Exhibit 10.31
to the Company's Registration Statement on Form S-1, Registration No. 33-91102)
10.36* Acetylene Purchase Agreement dated as of January 1, 1985 between BOC (as predecessor
to the Company) and GAF Corporation (incorporated herein by reference to Exhibit 10.32
to the Company's Registration Statement on Form S-1, Registration No. 33-91102)
10.37* Amendment to the Acetylene Supply Agreement between Air Products & Chemicals and the
Company dated as of October 21, 1994 (incorporated herein by reference to Exhibit 10.33
to the Company's Registration Statement on Form S-1, Registration No. 33-91102)
10.38* Acetylene Agreement dated January 1, 1975, as amended June 12, 1978 and February 10,
1982, between Airco, Inc. and DuPont (incorporated herein by reference to Exhibit 10.34
to the Company's Registration Statement on Form S-1, Registration No. 33-91102)
10.39* Subcontract dated as of July, 1994 between the Company and Brown & Root, Inc.
(incorporated herein by reference to Exhibit 10.35 to the Company's Registration Statement
on Form S-1, Registration No. 33-91102)
10.40 Engineering, Procurement and Construction Agreement between Seadrift Coke, L.P. and
Foster Wheeler USA Corporation for Coker Expansion Project dated June 2, 1997
10.41* Supply Agreement dated as of January 17, 1995 between SGL Corp. and the Company
(incorporated herein by reference to Exhibit 10.36 to the Company's Registration Statement
on Form S-1, Registration No. 33-91102)
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- --------------------------------------------------------------------------------------------
<C> <S>
10.42* Agreement between the Company (Carbide Unit), Calvert City, Kentucky, and the Oil,
Chemical and Atomic Workers, International Union, AFL-CIO Local 3-556, dated February
1, 1996 (incorporated herein by reference to Exhibit 10.38 to the Company's Annual Report
on Form 10-K for its fiscal year ended July 31, 1996, Commission File No. 0-20490)
10.43* Agreement between the Company (Electrode Unit) and International Union of Electrical,
Technical Salaried Machine and Furniture Workers, AFL-CIO Local Union 502, dated June
3, 1996 (incorporated herein by reference to Exhibit 10.39 to the Company's Annual Report
on Form 10-K for its fiscal year ended July 31, 1996, Commission File No. 0-20490)
10.44* Agreement by and between the Company (Carbide Division), Louisville, Kentucky Plant,
and International Brotherhood of Firemen and Oilers Local No. 320, Affiliated with the
AFL-CIO, dated July, 1 1996 (incorporated herein by reference to Exhibit 10.40 to the
Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1996,
Commission File No. 0-20490)
10.45* Agreement between the Company (Electrode Unit) and Oil, Chemical and Atomic Workers
International Union and Local Union Number 8-23516, dated January 23, 1994
(incorporated herein by reference to Exhibit 10.40 to the Company's Registration Statement
on Form S-1, Registration No. 33-91102)
10.46* Carbide Supply Agreement dated August 1, 1988 between the Company and BOC
(incorporated herein by reference to Exhibit 10.30 to the Company's Registration Statement
on Form S-1, Registration No. 33-65150)
10.47* Master Lease between the Company and PNC Leasing Corp. dated January 27, 1997
(incorporated herein by reference to Exhibit 10.43 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 1997, Commission File No. 0-20490)
10.48 Contract to Provide Engineering, Procurement and Construction Management Services
between the Company and Brown & Root, Inc. dated June 18, 1996
11.1* Calculation of Earnings Per Share for the Fiscal Years Ended July 31, 1991, 1992 and 1993
(incorporated herein by reference to Exhibit 11.1 to the Company's Registration Statement
on Form S-1, Registration No. 33-91102)
11.2* Calculation of Earnings (Loss) Per Share for the Fiscal Year and each of the Quarters in the
Fiscal Year Ended July 31, 1994 (incorporated herein by reference to Exhibit 11.3 to the
Company's Registration Statement on Form S-1, Registration No. 33-91102)
11.3* Calculation of Earnings Per Share for the Fiscal Year and each of the Quarters for the Fiscal
Year Ended July 31, 1995 (incorporated herein by reference to Exhibit 11.4 to the
Company's Registration Statement on Form S-1, Registration No. 33-31408)
11.4* Calculation of Earnings Per Share for the Fiscal Year and each of the Quarters for the Fiscal
Year Ended July 31, 1996 (incorporated herein by reference to Exhibit 11.4 to the
Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1996,
Commission File No. 0-20490)
11.5 Calculation of Earnings Per Share for the Fiscal Year and each of the Quarters for the Fiscal
Year Ended July 31, 1997
13.1 Fiscal 1997 Annual Report to Stockholders of the Company
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- --------------------------------------------------------------
<C> <S>
21.1 Subsidiaries and Affiliates of the Company
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
</TABLE>
- ----------------
* Exhibit has previously been filed with the Commission and is herein
incorporated by reference.
(b) Reports on Form 8-K
On May 5, 1997, the Company filed on Form 8-K its press release
announcing that Ronald N. Clawson had retired from his positions as President -
Carbide Products and Director of the Company. On June 3, 1997, the Company
filed on Form 8-K its press release announcing the Company's results for the
quarter and nine months ended April 30, 1997.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on
October 27, 1997.
The Carbide/Graphite Group, Inc.
By: /s/ Walter B. Fowler
-----------------------------------
(Walter B. Fowler)
President and Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on
October 27, 1997.
Signature Title
- --------------------- ---------------------------------------------------------
/s/ Walter B. Fowler* Chairman of the Board, President, Chief Executive Office
- ---------------------- and Director (Principal Executive Officer)
(Walter B. Fowler)
/s/ Stephen D. Weaver Vice President -- Finance and Chief Financial Officer
- ---------------------- (Principal Financial Officer)
(Stephen D. Weaver)
/s/ Jeffrey T. Jones Controller -- Corporate Finance (Principal Accounting
- ---------------------- Officer)
(Jeffrey T. Jones)
Director
- ----------------------
(James G. Baldwin)
Director
- ----------------------
(James R. Ball)
/s/ Paul F. Balser* Director
- ----------------------
(Paul F. Balser)
/s/ Robert M. Howe* Director
- ----------------------
(Robert M. Howe)
/s/ Ronald B. Kalich* Director
- ----------------------
(Ronald B. Kalich)
/s/ Nicholas T. Kaiser* Director
- -----------------------
(Nicholas T. Kaiser)
/s/ Charles E. Slater* Director
- ----------------------
(Charles E. Slater)
* Signatures representing a majority of the Registrant's Board of Directors.
-20-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
THE CARBIDE/GRAPHITE GROUP, INC.
Our report on the consolidated financial statements of The Carbide/Graphite
Group, Inc. and Subsidiaries (the Company) has been incorporated by reference in
this Form 10-K from page 20 of the 1997 Annual Report to Stockholders of the
Company. In connection with our audits of such financial statements, we have
also audited the related financial statement schedule listed under Item 14 on
page 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Pittsburgh, Pennsylvania
September 10, 1997, except for Note 16 as to
which the date is September 26, 1997
-21-
<PAGE>
SCHEDULE II
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended July 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------------------------------ ----------- ---------- -------------- ----------- -------------
Additions
--------------------------
Balance at
Beginning Charged Charged to Balance at
of Period to Expense other accounts Deductions End of Period
---------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year Ended July 31, 1997 $1,896 $133 - $ - * $2,029
Year Ended July 31, 1996 5,152 120 - (3,376) * 1,896
Year Ended July 31, 1995 5,514 166 - (528) * 5,152
</TABLE>
* Represents uncollectible accounts written off and recoveries of customer
accounts previously reserved for.
-22-
<PAGE>
EXHIBIT 4.3
SUPPLEMENTAL INDENTURE NO. 2 dated as of September 15, 1997 (this
"Supplemental Indenture No. 2") between The Carbide/Graphite Group, Inc., a
Delaware corporation (the "Company"), and State Street Bank and Trust Company,
as trustee ("Trustee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Trustee entered into (i) the Indenture
dated as of August 26, 1993 with respect to $115,000,000 aggregate principal
amount of 11 1/2% Senior Notes due 2003 (the "Notes") and (ii) the Supplemental
Indenture No. 1 dated as of November 15, 1994 with respect to the Notes
(together, the "Indenture", with all capitalized terms used but not defined
herein having the same meanings ascribed to such terms therein);
WHEREAS, Section 9.02 of the Indenture provides that (i) the Company
and the Trustee may amend or supplement certain provisions of the Indenture with
the consent of the Holders of at least a majority in principal amount of the
Notes then outstanding (including consents obtained in connection with a tender
offer or exchange offer for the Notes) and (ii) the Company and the Trustee may
amend Section 4.10 of the Indenture with the consent of the Holders of at least
two-thirds in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes) (the
"Two-Thirds Consent");
WHEREAS, the Company has offered to purchase each of the outstanding
Notes for cash, upon the terms and subject to the conditions set forth in that
certain "Offer to Purchase and Solicitation of Consents to Amendments of the
Indenture" dated August 29, 1997 and accompanying "Consent and Letter of
Transmittal" (collectively, with the ancillary documents associated therewith,
the "Offer to Purchase");
WHEREAS, under the terms of the Offer to Purchase, holders that tender
Notes in accordance with the terms of the Offer to Purchase and who deliver a
duly executed "Consent and Letter of Transmittal" are deemed to consent to
certain amendments to the Indenture which would permanently delete or amend
certain of the covenants, events of default and other related provisions of the
Indenture (the "Proposed Amendments");
WHEREAS, in accordance with the terms of the Indenture, holders of not
less than two-thirds in principal amount of the outstanding Notes have tendered
their Notes and consented to the Proposed Amendments to be effected by this
Supplemental Indenture No. 2; and
WHEREAS, the Company has authorized the execution and delivery of this
Supplemental Indenture No. 2 and the Trustee has received an Officers'
Certificate and an Opinion of Counsel pursuant to Section 9.06 of the Indenture,
and therefore the Company and the Trustee are authorized to execute and deliver
this Supplemental Indenture No. 2.
NOW THEREFORE, in consideration of good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE>
SECTION 1. AMENDMENTS TO INDENTURE.
-----------------------
(a) The following Sections of the Indenture are hereby eliminated
effective as of the Operative Date (as hereinafter defined): Section 4.05;
Section 4.07; Section 4.08; Section 4.09; Section 4.10; Section 4.11; Section
4.12; Section 4.13; Section 4.14; Section 4.15; Section 4.17; Section 4.18;
Section 5.01; Section 5.02; Section 6.01(v); and Section 6.01(vi). Section 3.09
of the Indenture (concerning Asset Sale Offers) is also hereby eliminated (such
Section being made unnecessary due to the aforementioned deletion of Section
4.10), effective as of the Operative Date. The text of all such sections are
replaced by the phrase "Intentionally deleted" and the surrounding Sections are
not renumbered.
(b) All definitions set forth in Section 1.01 that relate to defined
terms used solely in Sections deleted hereby are deleted in their entirety,
effective as of the Operative Date.
SECTION 2. MISCELLANEOUS.
-------------
(a) Operative Date. The amendments to the Indenture made hereby shall
only become effective on the date, if any, that the Offer (as defined in the
Offer to Purchase) is consummated (the "Operative Date"), which date will be set
forth in an Officers' Certificate delivered to the Trustee. This Supplemental
Indenture No. 2 is effective upon execution.
(b) Duplicate Originals. The parties may sign any number of copies of
this Supplemental Indenture No. 2. One signed copy is enough to prove this
Supplemental Indenture No. 2.
(c) Governing Law. The internal law of the State of New York shall
govern and be used to construe this Supplemental Indenture No. 2.
(d) Counterpart Originals. The parties may sign any number of copies
of this Supplemental Indenture No. 2. Each signed copy shall be an original,
but all of them together represent the same agreement.
(e) Headings. The headings of the Sections and Subsections of this
Supplemental Indenture No. 2 have been inserted for convenience of reference
only, are not to be considered a part of this Supplemental Indenture No. 2 and
shall in no way modify or restrict any of the terms or provisions hereof.
2
<PAGE>
SIGNATURES
Dated as of September 15, 1997 THE CARBIDE/GRAPHITE GROUP, INC.
By: /s/ Stephen D. Weaver
--------------------------------
Stephen D. Weaver
Vice President - Finance and
Chief Financial Officer
Attest:
By: /s/ Jeffrey T. Jones
-----------------------------
Name: Jeffrey T. Jones
Title: Controller-Corporate Finance
Dated as of September 15, 1997
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
------------------------------
Arthur J. MacDonald
Assistant Vice President
Attest:
By:
-------------------------------
Name:
Title:
<PAGE>
SIGNATURES
Dated as of September 15, 1997 THE CARBIDE/GRAPHITE GROUP, INC.
By: /s/
--------------------------------
Stephen D. Weaver
Vice President - Finance and
Chief Financial Officer
Attest:
By:
-----------------------------
Name:
Title:
Dated as of September 15, 1997
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: /s/ Arthur J. MacDonald
--------------------------------
Arthur J. MacDonald
Assistant Vice President
Attest:
By: /s/ Donald E. Smith
-------------------------------
Name: DONALD E. SMITH
Title: VICE PRESIDENT
<PAGE>
EXHIBIT 10.5
REVOLVING CREDIT AND
LETTER OF CREDIT ISSUANCE AGREEMENT
By and Among
THE CARBIDE/GRAPHITE GROUP, INC.,
as Borrower
and
THE FINANCIAL INSTITUTIONS PARTY hereto
and
PNC BANK, NATIONAL ASSOCIATION,
as Agent
and
PNC BANK, NATIONAL ASSOCIATION,
as L/C Issuer
Dated as of September 25, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
SCHEDULES................................................................... v
EXHIBITS.................................................................... vi
ARTICLE I CERTAIN DEFINITIONS.............................................. 1
1.01. Certain Definitions................................................ 1
1.02. Construction....................................................... 21
1.03. Accounting Principles.............................................. 21
ARTICLE II REVOLVING CREDIT FACILITY....................................... 22
2.01. Revolving Credit Commitments....................................... 22
2.02. Nature of Lenders' Obligations with Respect to Revolving
Credit Loans...................................................... 23
2.03. Commitment Fee..................................................... 23
2.04 Reductions of Revolving Credit Commitment.......................... 24
2.05. Revolving Credit Loan Requests..................................... 25
2.06. Making Revolving Credit Loans...................................... 25
2.07. Notes and Interest Rates Provisions................................ 26
2.08. Interest Payments, Interest Rates and Certain Related
Payments Pertaining to the Revolving Credit Loans................. 26
2.09. Prepayments; Allocation of Repayments.............................. 30
2.10. Yield Protection................................................... 31
2.11. Special Provisions Relating to the Euro-Rate Option................ 33
2.12. Capital Adequacy................................................... 35
2.13. Swingline Loans.................................................... 35
2.14 Loan Account....................................................... 36
2.15. All Advances to Constitute One Loan................................ 36
2.16. Use of Proceeds.................................................... 37
2.17. Letter of Credit Subfacility....................................... 37
2.18. Taxes.............................................................. 42
2.19. Payments........................................................... 43
ARTICLE III SET-OFF, ACCOUNT, SECURITY INTERESTS........................... 44
3.01. Set-Off............................................................ 44
3.02. Loan Disbursement Account.......................................... 44
3.03. Assigned Collateral................................................ 44
3.04. Designation of Class A Subsidiary Guarantors; Subsidiary
Assigned Collateral............................................... 44
<PAGE>
3.05. Further Cooperation................................................ 45
ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................. 46
4.01. Organization and Qualification..................................... 46
4.02. Capitalization and Ownership....................................... 47
4.03. Subsidiaries....................................................... 47
4.04. Power and Authority................................................ 47
4.05. Validity and Binding Effect........................................ 47
4.06. No Conflict........................................................ 47
4.07. Litigation......................................................... 48
4.08. Financial Statements............................................... 48
4.09. Margin Stock....................................................... 48
4.10. Full Disclosure.................................................... 49
4.11. Tax Returns and Payments........................................... 49
4.12. Consents and Approvals............................................. 49
4.13. No Event of Default; Compliance with Instruments................... 50
4.14. Compliance with Laws............................................... 50
4.15. Investment Company; Public Utility Holding Company................. 50
4.16. Plans and Benefit Arrangements..................................... 50
4.17. Title to Properties................................................ 52
4.18. Insurance.......................................................... 52
4.19. Employment Matters................................................. 52
4.20. Environmental Matters.............................................. 52
4.21. Senior Debt Status................................................. 54
4.22. Solvency of Borrower............................................... 54
4.23. Burdensome Restrictions............................................ 54
4.24. Brokers............................................................ 54
4.25. Liens.............................................................. 54
4.26. No Material Adverse Change......................................... 55
ARTICLE V CONDITIONS OF LENDING OR ISSUANCE OF LETTER OF CREDIT............ 55
5.01. Conditions to Initial Borrowings................................... 55
5.02. Each Additional Revolving Credit Loan or Issuance of a Letter
of Credit......................................................... 59
5.03. Location of Closing................................................ 59
ARTICLE VI AFFIRMATIVE COVENANTS........................................... 60
6.01. Preservation of Existence, etc..................................... 60
6.02. Reporting Requirements............................................. 60
6.03. Notices Regarding Plans and Benefit Arrangements................... 63
-ii-
<PAGE>
6.04. Payment of Liabilities, Including Taxes, etc....................... 65
6.05. Maintenance of Insurance........................................... 65
6.06. Maintenance of Properties and Leases............................... 65
6.07. Maintenance of Permits and Franchises.............................. 65
6.08. Visitation Rights.................................................. 66
6.09. Keeping of Records and Books of Account............................ 66
6.10. Plans and Benefit Arrangements..................................... 66
6.11. Compliance with Laws............................................... 66
6.12. Use of Proceeds.................................................... 66
6.13. Environmental Laws................................................. 67
6.14. Senior Debt Status................................................. 67
ARTICLE VII NEGATIVE COVENANTS............................................. 67
7.01. Indebtedness....................................................... 68
7.02. Liens.............................................................. 69
7.03. Loans, Acquisitions and Investments................................ 69
7.04. Liquidations, Mergers and Consolidations........................... 70
7.05. Dispositions of Assets or Subsidiaries............................. 70
7.06. Affiliate Transactions............................................. 71
7.07. Subsidiaries, Partnerships and Joint Ventures...................... 71
7.08. Continuation of or Change in Business.............................. 72
7.09. Plans and Benefit Arrangements..................................... 72
7.10. Fiscal Year........................................................ 73
7.11. Changes in Organizational Documents................................ 73
7.12. Minimum Consolidated Tangible Net Worth............................ 73
7.13. Interest Coverage.................................................. 73
7.14. Leverage Ratio..................................................... 73
7.15 Operating Leases................................................... 73
7.16. Limitation on Negative Pledge Clauses.............................. 73
7.17. No Changes......................................................... 74
ARTICLE VIII DEFAULT....................................................... 74
8.01. Events of Default.................................................. 74
8.02. Consequences of Event of Default................................... 78
ARTICLE IX THE AGENT....................................................... 80
9.01. Appointment and Grant of Authority................................. 80
9.02. Delegation of Duties............................................... 80
9.03. Reliance by Agent on Lenders for Funding........................... 80
-iii-
<PAGE>
9.04. Non-Reliance on Agent.............................................. 81
9.05. Responsibility of Agent and Other Matters.......................... 81
9.06. Actions in Discretion of Agent; Instructions from the Lenders...... 82
9.07. Indemnification.................................................... 83
9.08. Agent's Rights as a Lender......................................... 83
9.09. Notice of Default.................................................. 83
9.10. Payment to Lenders................................................. 83
9.11. Holders of Notes................................................... 84
9.12. Equalization of Lenders............................................ 84
9.13. Successor Agent.................................................... 85
9.14. Calculations....................................................... 85
9.15. Beneficiaries...................................................... 85
ARTICLE X GENERAL PROVISIONS............................................... 86
10.01. Amendments and Waivers............................................. 86
10.02. Taxes.............................................................. 87
10.03. Costs and Expenses, etc............................................ 87
10.04. Notices............................................................ 88
10.05. Participation and Assignment....................................... 89
10.06. Successors and Assigns............................................. 92
10.07. No Implied Waivers; Cumulative Remedies; Writing Required.......... 92
10.08. Severability....................................................... 92
10.09. Indemnity.......................................................... 93
10.10. Confidentiality.................................................... 93
10.11. Survival........................................................... 94
10.12. GOVERNING LAW...................................................... 94
10.13. FORUM.............................................................. 94
10.14. Non-Business Days.................................................. 95
10.15. Integration........................................................ 95
10.16. Headings........................................................... 95
10.17. Counterparts....................................................... 95
10.18. Funding by Branch, Subsidiary or Affiliate......................... 96
10.19. WAIVER OF JURY TRIAL............................................... 96
-iv-
<PAGE>
SCHEDULES
---------
Schedule 1.01(a) Lenders
Schedule 2.17(j) Assumed Letters of Credit
Schedule 4.01 Jurisdictions of Incorporation and Qualification of
Borrower
Schedule 4.02 Capital Stock Options
Schedule 4.03 Interests in Subsidiaries and Other Entities
Schedule 4.07 Litigation
Schedule 4.11 Agreements Concerning Tax Returns
Schedule 4.12 Consents and Approvals
Schedule 4.16 Plans and Benefit Arrangements
Schedule 4.20 Environmental Matters
Schedule 5.01(b) Jurisdictions of Organization and Qualification of
Subsidiary Guarantor
Schedule 7.01 Permitted Indebtedness
Schedule 7.03 Other Investments
Schedule 7.06 Affiliate Transaction
-v-
<PAGE>
EXHIBITS
--------
Exhibit "A-1" Form of Revolving Credit Note
Exhibit "A-2" Form of Swingline Note
Exhibit "B" Form of Borrower Security Agreement
Exhibit "C-1" Form of Application and Agreement for Letter of Credit
Exhibit "C-2" Form of Reimbursement Agreement
Exhibit "D" Form of Loan Request
Exhibit "E" Form of Assignment and Assumption Agreement
Exhibit "F" Form of Compliance Certificate
Exhibit "G" Form of Opinion of Counsel
Exhibit "H" Form of UCC-1 for Borrower
Exhibit "I" Form of Subsidiary Guaranty
Exhibit "J" Form of Subsidiary Security Agreement
Exhibit "K" Form of UCC-1 for Subsidiary Guarantor
Exhibit "L" Form of Subordination Agreement
-vi-
<PAGE>
REVOLVING CREDIT AND
LETTER OF CREDIT ISSUANCE AGREEMENT
THIS REVOLVING CREDIT AND LETTER OF CREDIT ISSUANCE AGREEMENT, dated as of
September 25, 1997, made by and among THE CARBIDE/GRAPHITE GROUP, INC., a
Delaware corporation (as more fully defined below, the "Borrower"), and the
Lenders (as hereinafter defined) and PNC BANK, NATIONAL ASSOCIATION, in its
capacity as L/C Issuer (as hereinafter defined) and as agent for the L/C Issuer
and the Lenders under this Agreement (in such capacity, as more fully defined
below, the "Agent").
WITNESSETH:
WHEREAS, the Borrower has requested the Lenders to make available to the
Borrower Revolving Credit Loans in an aggregate principal amount not exceeding
One Hundred and Twenty-Five Million Dollars ($125,000,000) at any one time
outstanding; and the Borrower has requested the Lenders to provide for the
issuance for the account of the Borrower Letters of Credit with an aggregate
Stated Amount not exceeding Fifteen Million Dollars ($15,000,000) at any one
time outstanding; provided that at no time will Total Utilization exceed One
Hundred and Twenty-Five Million ($125,000,000); and
WHEREAS, the Lenders are willing to make the Revolving Credit Loans
available to the Borrower upon the terms and conditions hereinafter set forth;
and the L/C Issuer is willing to issue Letters of Credit for the account of the
Borrower upon the terms and conditions hereinafter set forth; and the Lenders
are willing to purchase risk participations with respect to each Letter of
Credit issued by the L/C Issuer hereunder upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises (each of which is
incorporated herein by reference) and the mutual covenants and agreements
hereinafter set forth, and other valuable consideration, and intending to be
legally bound hereby, the parties hereto hereby covenant and agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
1.01. Certain Definitions. In addition to words and terms defined
-------------------
elsewhere in this Agreement, the following words and terms shall have the
following meanings, respectively, unless the context hereof clearly requires
otherwise:
<PAGE>
Affiliate of any Person shall mean any other Person (i) which owns
---------
beneficially, directly or indirectly, 10% or more of the outstanding voting
securities of such Person, or which is otherwise in control of such Person, or
(ii) which is otherwise controlled by any entity described in clause (i) above;
provided that for purposes of this definition the terms "control" and
"controlled by" shall have the meanings assigned to them in Rule 405 under the
Securities Act of 1933, as amended.
Agent shall mean PNC Bank, National Association, a national banking
-----
association organized under the laws of the United States of America, in its
capacity as agent for the L/C Issuer and the Lenders pursuant to this Agreement,
and its successors in such capacity.
Agent's Fee shall mean the fee due the Agent in its capacity as Agent as
-----------
more fully set forth in that certain letter agreement by and between the Agent
and the Borrower dated August 15, 1997.
Agreement shall mean this Revolving Credit and Letter of Credit Issuance
---------
Agreement as the same may be supplemented or amended from time to time including
all schedules and exhibits hereto.
Applicable Commitment Fee shall have the meaning ascribed to it in Section
-------------------------
2.03 of this Agreement.
Applicable Euro-Rate Margin shall have the meaning ascribed to it in
---------------------------
Section 2.08(b)(ii) of this Agreement.
Applicable Letter of Credit Fee shall have the meaning ascribed to it in
-------------------------------
Section 2.17(b) of this Agreement.
Application and Agreement for Letter of Credit shall mean an application
----------------------------------------------
and agreement for either a standby letter of credit or for an amendment thereto
substantially in the form of Exhibit "C-1" hereto.
-------------
Assigned Collateral shall mean "Assigned Collateral" as described in the
-------------------
Security Agreement.
Assignment and Assumption Agreement shall mean an Assignment and Assumption
-----------------------------------
Agreement by and among a Purchasing Lender, a Transferor Lender and the Agent,
as the Agent and on behalf of the remaining Lenders, as consented and agreed to
by the Borrower, substantially in the form of Exhibit "E" hereto.
-----------
-2-
<PAGE>
Assignment Fee shall mean the fee described in Section 10.05(b).
--------------
Authorized Officer shall mean those persons designated initially in the
------------------
several incumbency certificates delivered pursuant to Section 5.01 hereof by the
Borrower or a Subsidiary Guarantor, as the case may be. The Borrower, or a
Subsidiary Guarantor, as the case may be, may amend such list of persons from
time to time by giving written notice of such amendment to the Agent.
Availability shall mean, as of any time of determination either (i) the
------------
positive difference between the aggregate Revolving Credit Commitments and Total
Utilization, if the aggregate Revolving Credit Commitments is greater than Total
Utilization at such time, or (ii) zero, if the aggregate Revolving Credit
Commitments is less than or equal to Total Utilization at such time.
Base Rate shall mean, the greater of (i) the Prime Rate, or (ii) the
---------
Federal Funds Effective Rate plus fifty basis points (1/2 of 1%) per annum.
Base Rate Option shall mean the interest rate option described in Section
----------------
2.08(b)(i) hereof.
Base Rate Portion shall mean the portion of the Revolving Credit Loans or
-----------------
the Swingline Loan which bears, or is to bear, interest under the Base Rate
Option.
Benefit Arrangement shall mean at any time an "employee benefit plan",
-------------------
within the meaning of Section 3(3) of ERISA, which is neither a Plan or a
Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to, by any member of the ERISA Group.
Borrower shall mean The Carbide/Graphite Group, Inc., a corporation
--------
organized and existing under the laws of the State of Delaware and its
successors and permitted assigns.
Borrowing Date shall mean, with respect to any Revolving Credit Loan or the
--------------
Swingline Loan, the date for the making thereof, which shall be a Business Day.
Business Day shall mean (i) any day other than a Saturday or Sunday or a
------------
legal holiday on which commercial banks in Pittsburgh, Pennsylvania are
authorized or required to be closed under the laws of the Commonwealth of
Pennsylvania, federal law or other applicable Law of an Official Body, and (ii)
if the applicable Business Day relates to any day for the determination of any
Euro-Rate, any day that satisfies the conditions of clause (i) above provided
that such day is a day on which dealings in Dollar deposits are carried on in
the London interbank market.
-3-
<PAGE>
Capital Adequacy Event shall have the meaning ascribed to it in Section
----------------------
2.12 hereof.
Capital Compensation Amount shall have the meaning ascribed to it in
---------------------------
Section 2.12 hereof.
Capital Stock shall mean any and all shares, of any class (however
-------------
designated) of capital stock of a corporation.
Cash Collateral Account shall have the meaning ascribed to it in Section
-----------------------
8.02(e) hereof.
Cash Interest Expense means for the Borrower and its Subsidiaries for any
---------------------
period, gross interest expense for such period net of any interest income for
such period plus any interest capitalized during such period and excluding from
the calculation of gross interest expense any amortization of capitalized fees
(all of the foregoing determined on a consolidated basis and in accordance with
GAAP).
Cash Equivalents shall mean (i) securities issued or directly and fully
----------------
guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (ii) time deposits, certificates of deposit and eurodollar
time deposits with maturities of not more than six months from the date of
acquisition, bankers' acceptances with maturities not exceeding six months from
the date of acquisition and overnight bank deposits, in each case with any
Lender or with any domestic commercial bank having capital and surplus in excess
of $500,000,000, (iii) repurchase obligations with a term of not more than
thirty days for underlying securities of any of the types described in clause
(i) or (ii) and entered into with any bank meeting the qualifications specified
in clause (ii) above, (iv) commercial paper maturing in 180 days or less rated
not lower than A-1 by S&P or P-1 by Moody's on the date of acquisition, and (v)
interests in pooled investment funds the assets of which are invested in
investments referred to in clauses (i) through (iv) above.
Class A Subsidiary Guarantor shall mean Seadrift Coke, L.P., a Texas
----------------------------
limited partnership and each other directly or indirectly owned Subsidiary of
the Borrower designated by the Lenders as a "Class A Subsidiary Guarantor"
pursuant to Section 3.04 hereof.
Closing shall mean the execution and delivery of this Agreement and the
-------
other Loan Documents by the parties hereto and thereto on the Closing Date.
Closing Date shall mean September 25, 1997.
------------
-4-
<PAGE>
Commitment Fee shall have the meaning ascribed to it in Section 2.03
--------------
hereof.
Compliance Certificate shall mean a certificate executed by the chief
----------------------
financial officer or the controller of the Borrower, substantially in the form
of Exhibit "F" hereto.
-----------
Consolidated Intangible Assets shall mean, with respect to the Borrower and
------------------------------
its Subsidiaries, all assets properly classified as intangible assets under
GAAP, including without limitation goodwill, patents, copyrights, trademarks,
trade names, franchises, licenses, organization costs and deferred charges.
Consolidated Net Worth shall mean stockholders' equity of the Borrower and
----------------------
its Subsidiaries determined on a consolidated basis, as determined in accordance
with GAAP consistently applied.
Consolidated Tangible Net Worth shall mean the remainder determined by
-------------------------------
subtracting from Consolidated Net Worth the aggregate amount of Consolidated
Intangible Assets.
Consolidated Total Indebtedness shall mean the Indebtedness of the Borrower
-------------------------------
and its subsidiaries determined on a consolidated basis in accordance with GAAP,
consistently applied; provided however, that for the purpose of this definition
Indebtedness described in items (iv), (v) and (vi) of Section 7.01 shall be
excluded.
Consolidated Total Indebtedness to EBITDA Ratio shall mean, as of any date
-----------------------------------------------
of determination, the ratio of the Borrower's Consolidated Total Indebtedness as
of the end of the Borrower's most recently completed Fiscal Quarter to the
Borrower's EBITDA for the Borrower's four most recently completed Fiscal
Quarters treated as a single accounting period.
Default shall mean any event or condition which with notice or passage of
-------
time or both of the foregoing, would constitute an Event of Default.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of
----------------------------- -
the United States of America.
EBITDA shall mean, for any period, the consolidated net income (or net
------
loss) of the Borrower for such period as determined in accordance with GAAP,
plus (a) the sum of (i) depreciation expense, (ii) amortization expense, (iii)
- ----
Interest Expense, (iv) total income tax expense, (v) extraordinary or unusual
losses (including after tax losses on sales of assets outside of the ordinary
course of business and not otherwise included in GAAP extraordinary or unusual
losses), (vi) other non-cash charges, and (vii) the net loss of any Person that
is accounted for by the equity method of accounting, except to the extent of
the amount of dividends or distributions paid to the Borrower, less (b) the sum
----
of (i) extraordinary or unusual gains (including after tax
-5-
<PAGE>
gains on sales of assets outside of the ordinary course of business and not
otherwise included in GAAP extraordinary or unusual gains), (ii) other non-cash
credits, and (iii) the net income of any Person that is accounted for by the
equity method of accounting, except to the extent of the amount of dividends or
distributions paid to the Borrower.
Environmental Complaint shall mean any written complaint setting forth a
-----------------------
cause of action for personal or property damage or equitable relief, or any
order, notice of violation or citation issued pursuant to any Environmental Laws
by an Official Body or arising out of, or issued pursuant to, any Environmental
Laws or any Environmental Conditions.
Environmental Conditions shall mean any conditions of the environment,
------------------------
including, without limitation, the work place, the ocean, natural resources
(including flora or fauna), soil, surface water, ground water, any actual or
potential drinking water supply sources, substrata or the ambient air, relating
to or arising out of, or caused by the use, handling, storage, treatment,
recycling, generation, transportation, release, spilling, leaking, pumping,
emptying, discharging, injecting, escaping, leaching, disposal, dumping,
threatened release or other management or mismanagement of Regulated Substances
resulting from the use of, or operations on, the Property.
Environmental Laws shall mean all federal, state and local laws and
------------------
regulations, including permits, orders, judgments, consent decrees issued, or
entered into by Borrower or a Subsidiary of the Borrower, pursuant thereto,
relating to pollution or protection of human health or the environment or
employee safety in the work place.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
-----
the same may be amended or supplemented from time to time, and any successor
statute of similar import, and the rules and regulations thereunder, in each
case as from time to time in effect.
ERISA Group shall mean, at any time, the Borrower and all members of a
-----------
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control and all other entities which, together with
the Borrower, are treated as a single employer under Section 414 of the Internal
Revenue Code.
Euro-Rate shall mean for any day, as used herein, for each segment of the
---------
Euro-Rate Portion corresponding to a proposed or existing Euro-Rate Interest
Period, the interest rate per annum determined by the Agent by dividing (the
resulting quotient rounded upward to the nearest 1/100th of 1% per annum) (i)
the rate of interest determined by the Agent in accordance with its usual
procedures (which determination shall be conclusive absent manifest error) to be
the average of the London interbank offered rates of interest per annum set
forth on Telerate display page 3750 or such other display page on the Telerate
System as may replace such page to evidence the average of rates quoted by banks
designated by the British Bankers' Association (or
-6-
<PAGE>
an appropriate successor, or, if the British Bankers' Association or its
successor ceases to provide such quotes a comparable replacement determined by
the Agent) two (2) Business Days prior to the first day of such Euro-Rate
Interest Period in an amount comparable to such Euro-Rate Portion for such Euro-
Rate Interest Period and having a borrowing date and a maturity comparable to
such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve
Percentage. The Euro-Rate may also be expressed by the following formula:
Telerate page 3750 quoted by British
Euro-Rate = Banker's Association or appropriate successor
---------------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding
on the effective date of any change in the Euro-Rate Reserve Percentage as of
such effective date. The Agent shall give prompt notice to the Borrower of the
Euro-Rate as determined or adjusted in accordance herewith, which determination
shall be conclusive absent manifest error.
Euro-Rate Interest Period shall mean any individual period equal to be one
-------------------------
(1), two (2), three (3) or six (6) months selected by the Borrower commencing on
the Borrowing Date, a conversion date or a renewal date of a Euro-Rate Portion
to which such period shall apply.
Euro-Rate Option shall mean the interest rate option described in Section
----------------
2.08b(ii) hereof.
Euro-Rate Portion shall mean each portion of the Revolving Credit Loans
-----------------
which bears, or is to bear, interest under the Euro-Rate Option; and the term
Euro-Rate Portions shall mean collectively all such portions of the Revolving
- ------------------
Credit Loans which bear, or are to bear, interest under the Euro-Rate Option.
Euro-Rate Reserve Percentage shall mean for any day the percentage
----------------------------
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Agent in accordance with its usual procedures (which determination shall
be conclusive absent manifest error) which is in effect on such day as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirements (including, without
limitation, supplemental, marginal and emergency reserve requirements) for the
Agent with respect to eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D promulgated by the Federal Reserve
Board).
Event of Default shall have the meaning ascribed to it in Section 8.01
----------------
hereof.
-7-
<PAGE>
Expiration Date shall mean September 30, 2002, or such later date as
---------------
determined by the Lenders in accordance with Section 2.01(b).
Federal Bankruptcy Code shall mean the bankruptcy code of the United States
-----------------------
of America codified in Title 11 of the United States Code, as from time to time
amended or supplemented.
Federal Funds Effective Rate shall mean for any day the rate per annum
----------------------------
(based on a year of 360 days and actual days elapsed and rounded upward to the
nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day (or if such day is not a Business Day, the previous
Business Day) as being the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
federal funds brokers on the previous trading day, as computed and announced by
such Federal Reserve Bank (or any successor) in substantially the same manner as
such Federal Reserve Bank computes and announces the weighted average it refers
to as the "Federal Funds Effective Rate" as of the date of this Agreement.
Federal Reserve Board shall mean the Board of Governors of the United
---------------------
States Federal Reserve System as constituted from time to time.
Fee shall mean any of the Commitment Fee, the Letter of Credit Fee, the L/C
---
Fronting Fee, the Underwriting Fee and the Agent's Fee.
Fiscal Quarter shall mean each three month fiscal period of the Borrower
--------------
beginning respectively on each August 1, November 1, February 1 and May 1 during
the term hereof and ending on the immediately succeeding October 31, January 31,
April 30 and July 31.
Fiscal Year shall mean each 12-month fiscal period of the Borrower
-----------
beginning August 1 and ending on the immediately succeeding July 31.
GAAP shall mean, subject to the provisions of Section 1.03 hereof,
----
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
may be recognized by a significant segment of the accounting profession, which
are applicable to the circumstances as of the date of determination.
Guaranty or Guarantee shall mean any obligation, direct or indirect, by
---------------------
which a Person undertakes to guaranty, assume or remain liable for the payment
of another Person's obligations, including but not limited to (i) endorsements
of negotiable instruments, (ii) discounts with recourse, (iii) agreements to pay
upon a second Person's failure to pay, (iv) agreements to
-8-
<PAGE>
maintain the capital, working capital solvency or general financial condition of
a second Person and (v) agreements for the purchase or other acquisition of
products, materials, supplies or services, if in any case payment therefor is to
be made regardless of the non-delivery of such products, materials or supplies
or the non-furnishing of such services.
Indebtedness shall mean as to any person at any time, any and all
------------
indebtedness, obligations or liabilities of such person for or in respect of:
(i) borrowed money, (ii) amounts raised under or liabilities in respect of any
note purchase or acceptance credit facility, (iii) reimbursement obligations
under any letter of credit, currency swap agreement, hedging contracts, interest
rate swap, cap, collar or floor agreement or other interest rate management
device, raw materials management device or commodities management device (except
raw materials or commodity management devices entered into in the ordinary
course of business), (iv) any forward sale or purchase agreements, capitalized
leases or conditional sales agreements having the commercial effect of a
borrowing of money entered into by such person to finance its operations or
capital requirements (but not including trade payables and accrued expenses
incurred in the ordinary course of business), or (v) any Guaranty of any of the
foregoing.
Indenture shall mean that certain Indenture dated as of August 26, 1993,
---------
as amended, by and between the Borrower and State Street and Trust Company
concerning the issuance of the 11.5% senior notes due September 1, 2003,
together with all extensions, renewals, amendments, substitutions and
replacements thereto and thereof.
Interest Expense shall mean interest expense, as determined in accordance
----------------
with GAAP, as appearing on the Borrower's financial statements.
Interest Hedge Agreement shall mean any interest rate swap agreement,
------------------------
interest rate cap agreement, interest rate collar agreement, interest rate
insurance or any other agreement or arrangement designed to provide protection
against fluctuations in interest rates.
Interest Payment Date shall have the meaning ascribed to it in Section 2.08
---------------------
hereof.
Interest Rate Option shall mean the Euro-Rate Option or Base Rate Option.
--------------------
Internal Revenue Code shall mean the Internal Revenue Code of 1986, as the
---------------------
same may be amended or supplemented from time to time, and any successor statute
of similar import, and the rules and regulations thereunder, as from time to
time in effect.
Inventory shall mean, with respect to the Borrower or any Subsidiary
---------
Guarantor, any and all now owned or hereafter acquired goods, merchandise, raw
material, work-in-process and finished goods inventory and other tangible
personal property intended for sale or lease and all materials and supplies
which are used or consumed in selling or furnishing such goods,
-9-
<PAGE>
merchandise or other personal property, in the custody or possession, actual or
constructive, of the Borrower or any Subsidiary Guarantor, as the case maybe,
including such inventory as is on consignment to third parties, leased to
customers of the Borrower or any Subsidiary Guarantor, as the case maybe, or
otherwise temporarily out of the custody or possession of the Borrower or any
Subsidiary Guarantor, as the case maybe.
L/C Fronting Fee shall have the meaning ascribed to it in Section 2.17(b)
----------------
of this Agreement.
L/C Issuer shall mean PNC Bank, National Association, as the issuer of
----------
Letters of Credit pursuant to Section 2.17, and any successor to PNC Bank,
National Association as the issuer of Letters of Credit hereunder.
Labor Contracts shall have the meaning ascribed to it in Section 4.19
---------------
hereof.
Law shall mean any law (including common law), constitution, statute,
---
treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
Lender Obligations shall mean collectively, (i) all unpaid principal and
------------------
accrued and unpaid interest under the Revolving Credit Loans and the Swingline
Loan, (ii) all accrued and unpaid Fees hereunder or under any of the other Loan
Documents, (iii) the face amount of all Letters of Credit then outstanding,
together with all Unreimbursed L/C Draws and all accrued and unpaid interest on
such Unreimbursed L/C Draws, (iv) the actual (as opposed to nominal) credit
exposure determined in accordance with standard industry practices to any Lender
or Affiliate of a Lender under an Interest Hedge Agreement between such Person
and the Borrower, (v) any other amounts payable hereunder or under any of the
other Loan Documents, including all reimbursements, indemnities, fees, costs,
expenses, prepayment premiums and other obligations of the Borrower to a Lender
(in any capacity hereunder) or any indemnified party hereunder, (vi) all out-of-
pocket costs and expenses incurred by the Agent in connection with this
Agreement or any other Loan Documents, including but not limited to the
reasonable fees and expenses of the Agent's counsel, (vii) all out-of-pocket
costs and expenses incurred by a Lender after an Event of Default in connection
with any administration or enforcement of the Loan Documents , including but not
limited to the reasonable fees and expenses of such Lender's counsel, and (vii)
all other liabilities, obligations, covenants, duties and Indebtedness of the
Borrower to the Agent, the L/C Issuer and the Lenders of any and every kind and
nature, arising under this Agreement or the other Loan Documents, whether
heretofore, now or hereafter owing, arising, due or payable from the Borrower to
the Agent, the L/C Issuer or the Lenders.
-10-
<PAGE>
Lenders shall mean the financial institutions named on Schedule 1.01(a)
------- ----------------
hereto and their respective successors and assigns as permitted hereunder,
each of which is referred to herein as a Lender.
------
Letter of Credit shall mean any standby letter of credit issued by the L/C
----------------
Issuer for the account of the Borrower upon the application of the Borrower
pursuant to this Agreement, and all extensions, renewals, amendments,
substitutions and replacements thereto and thereof.
Letter of Credit Fee shall have the meaning ascribed to it in Section 2.17.
--------------------
Lien shall mean any mortgage, deed of trust, pledge, lien, security
----
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, whether voluntarily or involuntarily given, including but not
limited to any conditional sale or title retention arrangement, and any
assignment, deposit arrangement or lease intended as, or having the effect of,
security and any filed financing statement or other notice of any of the
foregoing (whether or not a lien or other encumbrance is created or exists at
the time of the filing).
Loans shall mean Revolving Credit Loans and Swingline Loans and Loan shall
-----
mean separately, any Revolving Credit Loan or Swingline Loan.
Loan Account shall mean the loan account maintained by a Lender as more
------------
fully described in Section 2.14 hereof.
Loan Disbursement Account shall have the meaning ascribed to it in Section
-------------------------
3.02 hereof.
Loan Documents shall mean this Agreement, the Notes, any Application and
--------------
Agreement for Letter of Credit, the Reimbursement Agreement, the Security
Documents, any Interest Rate Hedge Agreement executed by a Lender or an
affiliate of a Lender, any Subordination Agreement and any other agreements,
instruments, certificates or documents contemplated thereby, as any of the same
may be supplemented or amended from time to time in accordance herewith or
therewith; and Loan Document shall mean any of the Loan Documents.
-------------
Loan Request shall mean a request for Revolving Credit Loans made in
------------
accordance with Section 2.05 hereof which request shall be substantially in the
form of Exhibit "D" hereto.
-----------
Margin Regulations shall mean Regulation G, T, U or X as promulgated by the
------------------
Board of Governors of the Federal Reserve System, as amended from time to time.
-11-
<PAGE>
Material Adverse Change shall mean any set of circumstances or events which
-----------------------
(a) has or would reasonably be expected to have any material adverse effect upon
the validity or enforceability of this Agreement, any Notes, any Application and
Agreement for Letter of Credit or any Security Document, taken as a whole (b) is
or would reasonably be expected to be material and adverse to the business,
properties, assets, financial condition or results of operations of the Borrower
and its Subsidiaries, taken as a whole or (c) impairs materially or would
reasonably be expected to impair materially the ability of the Borrower, or a
Subsidiary Guarantor, to duly and punctually pay or perform each such party's
respective obligations under the Loan Documents.
Maximum Purchase Commitment shall mean the maximum amount the purchaser in
---------------------------
a Securitization Contract is committed to purchase at any one time during the
term of such Securitization Contract.
Moody's shall mean Moody's Investors Service, Inc., a corporation organized
-------
and existing under the laws of the State of Delaware, its successors and
assigns, and, if such corporation shall be dissolved or liquidated or shall no
longer perform the functions of a securities rating agency, "Moody's" shall be
deemed to refer to any other nationally recognized securities rating agency
designated by the Agent, with the approval of the Borrower, by notice to the
Lenders.
Multiemployer Plan shall mean any employee benefit plan which is a
------------------
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any member of the ERISA Group is then making or accruing
an obligation to make contributions or, within the preceding five Plan years,
has made or had an obligation to make such contributions.
Multiple Employer Plan shall mean a Plan which has two or more contributing
----------------------
sponsors (including the Borrower or any member of the ERISA Group) at least two
of whom are not under common control, as such a plan is described in Sections
4063 and 4064 of ERISA.
Notes shall mean collectively all of the Revolving Credit Notes and the
-----
Swingline Note and Note separately shall mean any Revolving Credit Note and the
----
Swingline Note.
October 1997 Delivery Date shall mean the date on which the Borrower's
--------------------------
financial statements and Compliance Certificate for the Fiscal Quarter Ending
October 31, 1997 are required to be delivered to the Lenders pursuant to items
(i) and (iii) of Section 6.02.
Official Body shall mean any national, federal, state, local or other
-------------
government or political subdivision or any agency, authority, bureau, central
bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
-12-
<PAGE>
Participant shall mean any bank or financial institution which acquires
-----------
from any Lender an undivided interest in the Lender's Ratable Share of the
Revolving Credit Commitments, Revolving Credit Loans, Letters of Credit and
Unreimbursed L/C Draws, pursuant to Section 10.05.
Participation shall mean the sale, made in accordance with the provisions
-------------
of Section 10.05, by any Lender to any Participant of an undivided interest in
such Lender's Ratable Share of the Revolving Credit Commitments, Revolving
Credit Loans, Letters of Credit and Unreimbursed L/C Draws.
PBGC shall mean the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title IV of ERISA or any other governmental agency,
department or instrumentality succeeding to the functions of said corporation.
Permitted Liens shall mean:
---------------
(i) Liens for taxes, assessments, governmental levies or similar
charges incurred in the ordinary course of business and
which are not yet due and payable, or if due and payable,
(aa) are being contested in good faith and by appropriate
and lawful proceedings diligently conducted, but only so
long as such proceedings could not subject the Agent, the
Lenders or the L/C Issuer to any (1) civil or criminal
penalties or liabilities or (2) involve any risk of loss,
sale or forfeiture of any Assigned Collateral or the
Subsidiary Assigned Collateral not otherwise protected
against and (bb) for which such reserves or other
appropriate provisions, if any, as shall be required by GAAP
shall have been made and (cc) which shall be paid in
accordance with the terms of any final judgments or orders
relating thereto within thirty (30) days after the entry of
such judgments or orders and (dd) which do not impair the
first priority lien of the Agent for the benefit of the
Agent, the Lenders and the L/C Issuer in the Receivables,
the Inventory or the proceeds thereof;
(ii) Pledges or deposits made in the ordinary course of business
to secure payment of workmen's compensation, or to
participate in any fund in connection with workmen's
compensation, unemployment insurance, old-age pensions,
other social security programs or similar program or to
secure liability to insurance
-13-
<PAGE>
carriers under insurance or self-insurance agreements or
arrangement;
(iii) Liens of mechanics, materialmen, warehousemen, carriers,
or other like Liens, securing obligations incurred in the
ordinary course of business that are not yet due and payable
and Liens of landlords securing obligations to pay lease
payments that are not yet due and payable or in default, or
if such Liens are due and payable, (aa) are being contested
in good faith and by appropriate and lawful proceedings
diligently conducted and (bb) for which such reserves or
other appropriate provisions, if any, as required by GAAP
shall have been made and (cc) which shall be paid in
accordance with the terms of any final judgments or orders
relating thereto within thirty (30) days after the entry of
such judgments or orders;
(iv) Pledges or deposits made in the ordinary course of business
to secure performance of bids, tenders, contracts (other
than for the repayment of borrowed money) or leases, not in
excess of the aggregate amounts due thereunder, or to secure
statutory obligations, or surety, appeal, indemnity,
performance or other similar bonds required in the ordinary
course of business;
(v) (aa) Encumbrances consisting of zoning restrictions,
easements, rights-of-way, or other restrictions on the use
of real property, (bb) defects in title to real property,
and (cc) Liens, encumbrances and title defects affecting
real property not known by the Borrower or a Subsidiary, as
applicable, and not discoverable by a search of the public
records, none of which materially impairs the use of such
property;
(vi) Liens, security interests and mortgages in favor of the
Agent for the benefit of the Agent, the Lenders and the L/C
Issuer;
(vii) (aa) Liens on assets of a Person which is merged into or
acquired by the Borrower or a Subsidiary of the Borrower
after the date of this Agreement, and (bb) Liens on assets
acquired after the date of this Agreement, provided that (A)
--------
such Liens existed at the time of such merger or acquisition
and were not created in anticipation thereof, (B) no such
Lien is spread to cover any property or assets of the
Borrower or any Subsidiary of the Borrower and (C) the
principal amount of Indebtedness secured thereby is not
increased
-14-
<PAGE>
from the amount outstanding immediately prior to such merger
or acquisition;
(viii) Liens created by or resulting from any litigation or legal
proceedings which are currently being contested in good
faith by appropriate and lawful proceedings diligently
conducted and for which such reserves or other appropriate
provisions, if any, as shall be required by GAAP shall have
been made and Liens arising out of judgments or orders for
the payment of money which do not constitute an Event of
Default hereunder;
(ix) Liens placed upon fixed assets or equipment hereafter
acquired to secure all or a portion of the purchase price
thereof, provided that any such lien shall not encumber any
other property of the Borrower;
(x) other Liens incidental to the conduct of the Borrower's
business or the ownership of its property and assets which
were not incurred in connection with the borrowing of money
or the obtaining of advances or credit, and which do not in
the aggregate materially detract from the value of the
Borrower's property or assets or which do not materially
impair the use thereof in the operation of the Borrower's
business; and
(xi) Leases or subleases including existing operating leases in
favor of PNC Leasing Corp. not otherwise prohibited by this
Agreement or other Loan Documents; provided, however,
-------- -------
nothing set forth in items (ii) through (xi) of this
definition shall permit or authorize Liens on any of the
Assigned Collateral or Subsidiary Assigned Collateral except
in favor of the Agent for the benefit of the Agent, the
Lenders and the L/C Issuer.
Person or person shall mean any individual, corporation, partnership,
----------------
association, joint-stock company, trust, unincorporated organization, joint
venture, government or political subdivision or agency thereof, or any other
entity.
Plan shall mean at any time an employee pension benefit plan (including a
----
Multiple Employer Plan but not a Multiemployer Plan) which is covered by Title
IV of ERISA or is subject to the minimum funding standards under Section 412 of
the Code and either (i) is maintained by any member of the ERISA Group for
employees of any member of the ERISA Group or (ii) has at any time within the
preceding five years been maintained by any entity which
-15-
<PAGE>
was at such time a member of the ERISA Group for employees of any entity which
was at such time a member of the ERISA Group.
PNC Bank shall mean PNC Bank, National Association, and its successors and
--------
assigns.
Portions shall mean collectively the Base Rate Portions and the Euro-Rate
--------
Portions; and the term Portion shall mean individually any of the Portions.
-------
Prime Rate shall mean for any day, a fluctuating interest rate per annum
----------
equal to the rate of interest which the Agent announces from time to time as its
prime lending rate, which rate may not be the lowest rate then being charged by
the Agent to commercial borrowers.
Principal Office shall mean the principal commercial banking office of the
----------------
Agent in Pittsburgh, Pennsylvania.
Prohibited Transaction shall mean any prohibited transaction as defined in
----------------------
Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which
neither a statutory, an individual nor a class exemption has been issued by the
United States Department of Labor.
Property shall mean, and refer to, each parcel of real property, whether
--------
owned in fee or leased, of the Borrower or a Subsidiary.
Purchasing Lender shall mean a Lender which becomes a party to this
-----------------
Agreement by executing an Assignment and Assumption Agreement.
Ratable Share shall mean the proportion that a Lender's Revolving Credit
-------------
Commitment bears to the Revolving Credit Commitments of all of the Lenders,
respectively.
Receivable shall mean, with respect to the Borrower or any Subsidiary
----------
Guarantor, all accounts, accounts receivable, contract rights related to such
accounts, instruments, chattel paper, general intangibles related to such
accounts and all other rights to payments of moneys for any reason (whether or
not evidenced by a contract, instrument, chattel paper or document), and all
other rights, powers and privileges of the Borrower, or any Subsidiary
Guarantor, as the case may be, arising thereunder or related thereto (including
but not limited to all guarantees, collateral security, surety bonds, rights
under letters of credit, insurance or other direct or indirect security),
assertible against any Person whatever and all rebates, refunds, adjustments and
returned, rejected, or repossessed goods relating thereto and all proceeds of
any of the foregoing.
Register shall have the meaning ascribed to it in Section 10.05(c).
--------
-16-
<PAGE>
Regulated Substances shall mean any substance, including without limitation
--------------------
Solid Waste, the generation, manufacture, processing, distribution, treatment,
storage, disposal, transport, recycling, reclamation, use, reuse or other
management or mismanagement of which is regulated by the Environmental Laws.
Reimbursement Agreement shall mean the Reimbursement Agreement
-----------------------
substantially in the form of Exhibit "C-2" as the same may be supplemented and
-------------
amended from time to time.
Reportable Event shall mean any of the events or occurrences set forth in
----------------
Section 4043(b) of ERISA.
Required Lenders shall mean Lenders whose Revolving Credit Commitments
----------------
aggregate at least 51% of the Revolving Credit Commitments of all of the
Lenders.
Revolving Credit Commitment shall mean as to any Lender at any time, the
---------------------------
amount initially set forth opposite its signature hereto, and thereafter on
Schedule I to the most recent Assignment and Assumption Agreement, as the same
may be reduced pursuant to Sections 2.04 or 2.10(a) hereof, and Revolving Credit
----------------
Commitments shall mean the aggregate Revolving Credit Commitments of all of the
- -----------
Lenders.
Revolving Credit Loans shall mean collectively, all Revolving Credit or any
----------------------
Revolving Credit Loan and Revolving Credit Loan shall mean any Revolving Credit
---------------------
Loan made by the Lenders or one of the Lenders to the Borrower pursuant to
Section 2.01 hereof.
Revolving Credit Notes shall mean collectively all the promissory notes of
----------------------
the Borrower in the form of Exhibit "A-1" hereto and Revolving Credit Note shall
-------------
mean separately each promissory note of the Borrower substantially in the form
of Exhibit A-1 hereto in each case evidencing the Revolving Credit Loans
together with all amendments, extensions, renewals, replacements, refinancings
or refundings thereof or thereto in whole or in part.
S&P shall mean Standard & Poor's Ratings Group, a division of McGraw Hill
---
Corporation, and, if such corporation shall be dissolved or liquidated or shall
no longer perform the functions of a securities rating agency, "S&P" shall be
deemed to refer to any other nationally recognized securities rating agency
designated by the Agent, with the approval of the Borrower, by notice to the
Lenders.
Securitization shall mean the monetizing of Receivables of the Borrower and
--------------
the consolidated Subsidiaries.
-17-
<PAGE>
Securitization Contract shall mean a contract between the Borrower or a
-----------------------
consolidated Subsidiary on the one hand and the purchaser of receivables on the
other hand relating to a Securitization.
Security Agreement shall mean a security agreement, substantially the form
------------------
of Exhibit "B" attached hereto and incorporated herein by reference, together in
-----------
each case with all extensions, renewals, amendments, substitutions and
replacements thereto and thereof.
Security Documents shall mean the Security Agreement, any Subsidiary
------------------
Guaranty, any Subsidiary Security Agreement, the Uniform Commercial Code filings
and any and all security agreements, pledge agreements, mortgages, deeds of
trust, other agreements and other documents (including without limitation
financing statements) related to the creation, perfection or maintenance of
Liens in favor of the Agent in any assets of the Borrower or a Subsidiary
Guarantor as security for the Lender Obligations.
Senior Notes shall mean those certain 11-1/2% per annum senior notes of the
------------
Borrower due September 1, 2003 issued pursuant to the Indenture; and the term
Senior Note shall mean any of the Senior Notes.
-----------
Solid Waste shall mean any garbage, refuse or sludge from any waste
-----------
treatment plant, water supply treatment plant or air pollution control facility
generated by activities on the Property, and any unpermitted release into the
environment or the work place of any material as a result of activities on the
Property, including without limitation, baghouse dust, dross, scrap and used
Regulated Substances.
Solvent shall mean, with respect to any person on a particular date, that
-------
on such date (i) the fair value of the property of such person is greater than
the total amount of liabilities, including, without limitation, contingent
liabilities, of such person, (ii) the present fair salable value of the assets
of such person is not less than the amount that will be required to pay the
probable liability of such person on its debts as they become absolute and
matured, (iii) such person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (iv) such person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
person's ability to pay as such debts and liabilities mature, and (v) such
person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
-18-
<PAGE>
Stated Amount shall mean as to any Letter of Credit, the lesser of (i) the
-------------
face amount thereof or (ii) the remaining available undrawn amount thereof
(regardless of whether any conditions for drawing could then be met).
Subordination Agreement shall mean a subordination agreement executed by a
-----------------------
Subsidiary of the Borrower as the subordinated creditor, the Borrower or a
Subsidiary of the Borrower as the debtor and the Agent on behalf of the Lenders
as senior creditors each substantially in the form of Exhibit "L" hereto
together with all extensions, renewals, amendments, substitutions and
replacements thereto and thereof.
Subordinated Note shall mean either or both and Subordinated Notes shall
----------------- ------------------
mean both (i) the demand note dated January 17, 1995 by the Borrower as maker to
CG Specialty Products Management Corporation in the principal amount of Forty-
Nine Million Nine Hundred Forty Thousand Five Hundred Fifty Dollars
($49,940,550) and (ii) the demand note dated March 25, 1995 by the Borrower as
maker to CG Specialty Products Management Corporation in the principal amount of
Three Million Two Hundred Forty Three Thousand Nine Hundred Eighty Dollars and
Seventy Five Cents ($3,243,980.75) and all extensions, renewals, amendments,
substitutions and replacements thereto and thereof.
Subsidiary of any person at any time shall mean any corporation or trust of
----------
which more than 50% (by number of shares or number of votes) of the outstanding
Capital Stock or shares of beneficial interest normally entitled to vote for the
election of one or more directors or trustees (regardless of any contingency
which does or may suspend or dilute the voting rights) is at such time owned
directly or indirectly by such person or one or more of such person's
Subsidiaries, or any partnership of which such person is a general partner or of
which more than 50% of the partnership interests is at the time directly or
indirectly owned by such person or one or more of such person's Subsidiaries.
Subsidiary Assigned Collateral shall mean "Assigned Collateral", as
------------------------------
described in the Subsidiary Security Agreement executed by each Class A
Subsidiary Guarantor.
Subsidiary Guarantor shall mean each Class A Subsidiary Guarantor and each
--------------------
other Subsidiary of the Borrower incorporated or organized in the United States
of America.
Subsidiary Guaranty shall mean a guaranty agreement executed by a
-------------------
Subsidiary Guarantor substantially in the form of Exhibit "I" attached hereto,
-----------
together in each case with all extensions, renewals, amendments, substitutions
and replacements thereto and thereof.
Subsidiary Security Agreement shall mean a security agreement executed by a
-----------------------------
Class A Subsidiary Guarantor, substantially in the form of Exhibit "J" attached
-----------
hereto and
-19-
<PAGE>
incorporated herein by reference, together in each case with all extensions,
renewals, amendments, substitutions and replacements thereto and thereof.
Supplemental Documentation shall mean agreements, instruments, documents,
--------------------------
financing statements, warehouse receipts, bills of lading, notices of assignment
of accounts, schedules of accounts assigned, and other written matter necessary
or reasonably requested by Agent to perfect and maintain perfected Agent's lien
and security interest for the benefit of the Agent, the Lenders and the L/C
Issuer in the Assigned Collateral or the Subsidiary Assigned Collateral.
Swingline Loan shall mean a disbursement made by PNC to Borrower pursuant
--------------
to Section 2.13.
Swingline Note shall mean the promissory note of the Borrower evidencing
--------------
Indebtedness of the Borrower under the Swingline Option which note is
substantially in the form of Exhibit "A-2" to the Agreement, together with all
-------------
extensions, renewals, amendments, modifications, substitutions and replacements
thereto and thereof.
Swingline Option shall mean the loan option between the Borrower and PNC
----------------
Bank pursuant to Section 2.13 hereof.
Tender Offer shall mean the tender for the Senior Notes made pursuant to
------------
the tender offer announced August 29, 1997 which offer has an expiration date of
September 26, 1997, unless otherwise extended.
Total Utilization shall mean as of the time of determination the sum of
-----------------
Revolving Credit Loans outstanding, Swingline Loans outstanding, the
Unreimbursed L/C Draws outstanding and the aggregate Stated Amount of the
Letters of Credit outstanding.
Transfer Effective Date shall have the meaning ascribed to it in the
-----------------------
applicable Assignment and Assumption Agreement.
Transferor Lender shall mean the selling Lender pursuant to an Assignment
-----------------
and Assumption Agreement.
Uniform Commercial Code or UCC shall mean the Pennsylvania Uniform
------------------------------
Commercial Code and, if applicable, the Uniform Commercial Code in effect in the
state in which the place of business of the Borrower is located, or, if the
Borrower has more than one place of business, the state in which the Borrower
has its Chief Executive Office.
-20-
<PAGE>
Underwriting Fee. The fee due the Agent pursuant to the letter agreement
-----------------
dated August 15, 1997 between the Borrower and the Agent.
Unreimbursed L/C Draw shall have the meaning ascribed to it in Section
---------------------
2.17(f).
1.02. Construction.
------------
(a) Unless the context of this Agreement otherwise clearly requires,
references to the plural include the singular, the singular the plural and the
part the whole, "or" has the inclusive meaning represented by the phrase
"and/or," and "including" has the meaning represented by the phrase "including
without limitation." References in this Agreement to "determination" of or by
the Agent, L/C Issuer or the Lenders shall be deemed to include reasonable good
faith estimates by the Agent, L/C Issuer or the Lenders (in the case of
quantitative determinations) and reasonable and good faith beliefs by the Agent,
L/C Issuer or the Lenders (in the case of qualitative determinations). Whenever
the Agent, L/C Issuer or the Lenders are granted the right herein to act in its
or their sole discretion or to grant or withhold consent such right shall be
exercised reasonably and in good faith. The words "hereof," "herein,"
"hereunder" and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. The article,
section and other headings contained in this Agreement are for reference
purposes only and shall not control or affect the construction of this Agreement
or the interpretation thereof in any respect. Article, Section, schedule and
exhibit references are to this Agreement unless otherwise specified. Except as
otherwise specified in this Agreement, all references in this Agreement (i) to
any Person, other than the Borrower, shall be deemed to include such Person's
successors and assigns, and (ii) to any Law, agreement or contract specifically
defined or referred to in Agreement shall be deemed references to such Law,
agreement or contract as the same may be amended, supplemented, modified,
extended, waived, consolidated, replaced or renewed from time to time, but only
to the extent permitted by, and effected in accordance with, the terms thereof.
(b) For purposes of this Agreement, all terms used in Article 9 of
the UCC and not specifically defined in this Agreement shall herein have the
meanings assigned to such terms in the UCC as from time to time in effect in the
Commonwealth of Pennsylvania.
(c) References to "writing" include printing, typing, lithography
and other means of reproducing words in a tangible visible form. References to
"written" include "printed", "typed", "lithographed" and other adjectives
relating to words reproduced in a tangible visible form consistent with the
preceding sentence and also include electronic images and images stored on
computer disks, magnetic tape and like media.
1.03. Accounting Principles. Except as otherwise provided in this
---------------------
Agreement, all computations and determinations as to accounting or financial
matters and all financial state-
-21-
<PAGE>
ments to be delivered pursuant to this Agreement shall be made and prepared in
accordance with GAAP (including principles of consolidation where appropriate),
and all accounting or financial terms shall have the meanings ascribed to such
terms by GAAP.
ARTICLE II
REVOLVING CREDIT FACILITY
-------------------------
2.01. Revolving Credit Commitments. (a) Subject to the terms and
----------------------------
conditions hereof and relying upon the representations and warranties herein set
forth, each Lender severally agrees to make revolving credit loans (the
"Revolving Credit Loans") to the Borrower at any time or from time to time on or
- -----------------------
after the date hereof to, but not including, the Expiration Date, provided that
--------
the aggregate principal amount of each Lender's Revolving Credit Loans
outstanding hereunder to the Borrower shall not exceed at any one time such
Lender's Ratable Share of the aggregate Revolving Credit Commitments minus such
Lender's Ratable Share of the sum of (i) the aggregate Stated Amount of
outstanding Letters of Credit issued pursuant to Section 2.17 and (ii) the
aggregate amount of Unreimbursed L/C Draws. Within such limits of time and
amount and subject to the other provisions of this Agreement, the Borrower may
borrow, repay and reborrow pursuant to this Section 2.01. The aggregate amount
of the Revolving Credit Commitments on the Closing Date is $125,000,000. All
Revolving Credit Commitments shall expire on the Expiration Date; and all
Revolving Credit Loans outstanding on the Expiration Date shall become due and
payable in full on such date.
(b) Extension of Expiration Date. Commencing in 1998, upon the
----------------------------
written request of the Borrower directed to the Agent given not earlier than the
delivery of the audited financial statements of the Borrower and its
Subsidiaries for the Fiscal Year just ended nor later than November 15
immediately following the last day of the Fiscal Year covered by the most
recently delivered audited financial statements of the Borrower and its
Subsidiaries, at the sole and absolute discretion of the Lenders, the Lenders
may extend the Expiration Date then in effect in one year increments measured
from the Expiration Date in effect on the date that each such request is
received; provided however the initial extension of the Expiration Date shall
alter the Expiration Date from September 30, 2002 to December 31, 2003 and
thereafter each subsequent extension of the Expiration Date shall be to the next
successive December 31st; and provided further, that the initial extension of
----------------
the Expiration Date, if granted, shall not become effective until January 1,
1999. It is understood that the first such request for an extension of the
Expiration Date may not be made until the delivery to the Bank of the audited
financial statements of the Borrower and its Subsidiaries for the Fiscal Year
ending July 31, 1998, and in any event the first such request must be made on or
before November 15, 1998. No such extension of an Expiration Date shall be
effective unless the Borrower shall have received a written notice of all
Lenders which consents to such extension.
-22-
<PAGE>
2.02. Nature of Lenders' Obligations with Respect to Revolving Credit
---------------------------------------------------------------
Loans. Each Lender shall be obligated to participate in each request for
- -----
Revolving Credit Loans pursuant to Section 2.05 hereof in accordance with its
Ratable Share. The aggregate principal amount of each Lender's Revolving Credit
Loans outstanding hereunder to the Borrower at any time shall never exceed such
Lender's Ratable Share of the aggregate Revolving Credit Commitments minus such
Lender's Ratable Share of the sum of (i) Swingline Loans outstanding, (ii) the
aggregate Stated Amount of the outstanding Letters of Credit and (iii) the
aggregate amount of Unreimbursed L/C Draws. The obligations of each Lender
hereunder are several. The failure of any Lender to perform its obligations
hereunder shall not affect the obligations of the Borrower, or any other Lender,
to any other party nor shall the Borrower, or any other Lender, be liable for
the failure of such Lender to perform its obligations hereunder. The Lenders
shall have no obligation to make Revolving Credit Loans hereunder on or after
the Expiration Date.
2.03. Commitment Fee. Accruing from Closing Date until the Expiration
--------------
Date, the Borrower agrees to pay to the Agent for the account of each Lender, as
consideration for such Lender's Revolving Credit Commitment hereunder, a
commitment fee (the "Commitment Fee") equal to the Applicable Commitment Fee per
--------------
annum, as determined below, (all computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed) on the average daily amount
equal to such Lender's Revolving Credit Commitment minus such Lender's Ratable
Share of Total Utilization. All Commitment Fees shall be payable (i) quarterly
in arrears beginning October 31, 1997 and continuing on the last Business Day of
each Fiscal Quarter occurring during the term of the Revolving Credit Commitment
thereafter, (ii) on the Expiration Date and (iii) upon acceleration of the
Notes.
For purposes of this Agreement, the term "Applicable Commitment Fee" shall mean
-------------------------
the rate per annum set forth in the chart below which corresponds to the range
of ratios in which the Borrower's Consolidated Total Indebtedness to EBITDA
Ratio, as at the end of the preceding fiscal quarter, falls:
-23-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Consolidated Total Indebtedness Applicable
to EBITDA Ratio Commitment Fee
- --------------------------------------------------------------------------------
<S> <C>
Less than or equal to 1.5 to 1.0 .15%
- --------------------------------------------------------------------------------
Greater than 1.5 to 1.0 but less than or equal
to 2.0 to 1.0 .175%
- --------------------------------------------------------------------------------
Greater than 2.0 to 1.0 but less than or equal
to 2.5 to 1.0 .20%
- --------------------------------------------------------------------------------
Greater than 2.5 to 1.0 .225%
- --------------------------------------------------------------------------------
</TABLE>
All such adjustments shall be determined as of the date the Borrower's quarterly
financial statements and Compliance Certificate are required to be delivered to
the Lenders pursuant to items (i) and (iii) of Section 6.02. The foregoing
notwithstanding the Applicable Commitment Fee from the Closing Date to and
including the October 1997 Delivery Date shall be .175%.
2.04 Reductions of Revolving Credit Commitment.
-----------------------------------------
(a) Voluntary Reduction of Revolving Credit Commitments. Subject to
---------------------------------------------------
the provisions of Section 2.09 hereof, at any time and from time to time upon at
least five (5) Business Days' prior written notice to the Agent, the Borrower
may terminate, in whole or in part, without penalty, the then unused portion of
the Revolving Credit Commitments, thereby causing a corresponding abatement of
the Commitment Fee. Each such reduction shall be in a minimum principal amount
of $5,000,000 or, if in excess of $5,000,000, in integral multiples of
$1,000,000. The Commitment Fee shall cease to accrue with respect to any unused
portion of the Revolving Credit Commitments so terminated five (5) Business Days
after receipt of such notice. Notice of termination once given shall be
irrevocable and the portion of the Revolving Credit Commitments so terminated
shall not be available for borrowing once such notice has been given under the
terms hereof. The Agent shall promptly notify each Lender of its Ratable Share
of such terminated unused portion and the date of each such termination.
(b) Mandatory Reduction of Revolving Credit Commitment. The
Borrower, subject to the provisions of Section 2.09, shall be required to reduce
the Revolving Credit Commitment and immediately repay outstanding Revolving
Credit Loans which cause the Total Utilization to be in excess of the Revolving
Credit Commitment, as so reduced, in each of the following amounts in each of
the following circumstances:
-24-
<PAGE>
(x) on the date of sale, by the amount of the Maximum
Purchase Commitment; and
(y) on the date of funding by the amount of any
Indebtedness issued by the Borrower or any of its
Subsidiaries pursuant to item (vii) of Section 7.01.
2.05. Revolving Credit Loan Requests. Except as otherwise provided herein,
------------------------------
the Borrower may from time to time prior to the Expiration Date request the
Lenders to make Revolving Credit Loans to the Borrower by the delivery to the
Agent, not later than Noon (Pittsburgh, Pennsylvania time) (i) three (3)
Business Days prior to the proposed Borrowing Date with respect to the making of
Revolving Credit Loans to which the Euro-Rate Option applies for any Revolving
Credit Loans; and (ii) on the Business Day of the proposed Borrowing Date with
respect to the making of a Revolving Credit Loan to which the Base Rate Option
applies of a duly completed request therefor substantially in the form of
Exhibit "D" hereto or a request by telephone immediately confirmed in writing by
- -----------
letter or facsimile in such form (each, a "Loan Request"), it being understood
------------
that the Agent may rely on the authority of any person making such a telephonic
request without the necessity of receipt of such written confirmation. Each
Loan Request shall be irrevocable and shall specify (i) the proposed Borrowing
Date; (ii) the aggregate amount of the proposed Revolving Credit Loans to be
made on such Borrowing Date, which amount shall be in integral multiples of
$100,000 and not less than $1,000,000; (iii) subject to Section 2.08(d), whether
the Euro-Rate Option or the Base Rate Option shall apply to the proposed
Revolving Credit Loans to be made on such Borrowing Date; and (iv) in the case
of Revolving Credit Loans to which the Euro-Rate Option applies and subject to
Sections 2.08(d) and 2.08(e), an appropriate Euro-Rate Interest Period for each
Euro-Rate Portion of the Revolving Credit Loans to be made on such Borrowing
Date.
2.06. Making Revolving Credit Loans. Subject to Section 9.03, the Agent
-----------------------------
shall, promptly after receipt by it of a Loan Request pursuant to Section 2.05
(but not later than noon (Pittsburgh, Pennsylvania time) on the Borrowing Date
for same day funding and 2:00 p.m. (Pittsburgh, Pennsylvania time) on the second
Business Day preceding any Borrowing Date for which any Portion of the Revolving
Credit Loans to be made on such Borrowing Date bears interest at the Euro-Rate
Option), notify the Lenders of its receipt of such Loan Request specifying: (i)
the proposed Borrowing Date and the time and method of disbursement of such
Revolving Credit Loan; (ii) the amount and type of such Revolving Credit Loan
and the applicable Euro-Rate Portions and Euro-Rate Interest Periods (if any);
and (iii) the apportionment among the Lenders of the Revolving Credit Loans as
determined by the Agent in accordance with Section 2.02 hereof. Subject to
Section 9.03, each Lender shall remit the principal amount of each Revolving
Credit Loan to the Agent such that the Agent is able to, and the Agent shall, to
the extent the Lenders have made funds available to it for such purpose, fund
such Revolving Credit Loan to the Borrower in Dollars and immediately available
funds at the Principal Office
-25-
<PAGE>
prior to 2:00 P.M. (Pittsburgh, Pennsylvania time) on the Borrowing Date,
provided that if any Lender fails to remit such funds to the Agent in a timely
manner, or any Lender fails to advise the Agent of its intention not to fund,
then the Agent may elect in its sole discretion to fund with its own funds the
Revolving Credit Loan of such Lender on the Borrowing Date.
2.07. Notes and Interest Rates Provisions. The obligation of the Borrower
-----------------------------------
to repay the aggregate unpaid principal amount of the Revolving Credit Loans
made to the Borrower by each Lender, together with interest thereon, shall be
evidenced by a promissory note of the Borrower dated the Closing Date in
substantially the form attached hereto as Exhibit "A-1" payable to the order of
-------------
each Lender in a face amount equal to the Revolving Credit Commitment of such
Lender.
2.08. Interest Payments, Interest Rates and Certain Related Payments
--------------------------------------------------------------
Pertaining to the Revolving Credit Loans.
- ----------------------------------------
(a) Interest. The Revolving Credit Notes shall bear interest on the
--------
actual unpaid principal amount thereof from time to time outstanding from the
date thereof until payment in full at the rates of interest set forth in Section
2.08(b). The Borrower shall pay accrued interest on the unpaid principal balance
of the Revolving Credit Notes in arrears:
(i) with respect to the Base Rate Portion, at the rate specified
in the Base Rate Option, (A) on the last Business Day of each Fiscal
Quarter during the term of the Revolving Credit Commitment, (B) at
maturity, whether by acceleration or otherwise, of the Revolving Credit
Notes and (C) thereafter on demand until all amounts evidenced by the
Revolving Credit Notes are paid in full; and
(ii) with respect to each Euro-Rate Portion, at the rate
specified in the Euro-Rate Option, (A) on the last day of the Euro-Rate
Interest Period applicable thereto; provided, however, if the Euro-Rate
--------
Interest Period chosen for any Euro-Rate Portion exceeds three (3) months,
interest on that Euro-Rate Portion shall be due and payable at the end of
every three (3) months during such Euro-Rate Interest Period and on the
last day of such Euro-Rate Interest Period, (B) at the maturity, whether by
acceleration or otherwise, of the Revolving Credit Notes and (C) thereafter
on demand until all amounts evidenced by the Revolving Credit Notes are
paid in full.
(b) Interest Rate Options. During the term hereof, the Borrower
---------------------
shall have the option of electing, from time to time, one or more of the
Interest Rate Options set forth below to be applied to the Revolving Credit
Loans.
(i) Base Rate Option. Interest under this Interest Rate Option
----------------
shall accrue, for the Base Rate Portion of the Revolving Credit Loans
outstanding, at a rate per
-26-
<PAGE>
annum equal to the Base Rate. The Base Rate shall be adjusted automatically
from time to time upon each change in the Prime Rate or the Federal Funds
Effective Rate, as the case may be, and in accordance with the provisions
of Section 2.08(c).
(ii) Euro-Rate Option. Interest under this Interest Rate Option
----------------
shall accrue, for each Euro-Rate Portion of the Revolving Credit Loans
outstanding, for any Euro-Rate Interest Period selected, at a rate per
annum equal to the sum of (A) the Euro-Rate plus (B) the Applicable Euro-
----
Rate Margin as determined below. The rate of interest established pursuant
to the preceding sentence of this Section 2.08(b)(ii) for each Euro-Rate
Portion shall be adjusted from time to time in accordance with the
provisions of Section 2.08(c).
For purposes of this Agreement, the term "Applicable Euro-Rate Margin" shall
---------------------------
mean the rate per annum set forth in the chart below which corresponds to the
range of ratios in which the Borrower's Consolidated Total Indebtedness to
EBITDA Ratio as at the end of the preceding fiscal quarter falls:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Consolidated Total Indebtedness Applicable Euro-Rate
to EBITDA Ratio Margin
- ---------------------------------------------------------------------------------
<S> <C>
- ---------------------------------------------------------------------------------
Less than or equal to 1.5 to 1.0 1/2%
- ---------------------------------------------------------------------------------
Greater than 1.5 to 1.0 but less than or equal
to 2.0 to 1.0 5/8%
- ---------------------------------------------------------------------------------
Greater than 2.0 to 1.0 but less than or equal
to 2.5 to 1.0 3/4%
- ---------------------------------------------------------------------------------
Greater than 2.5 to 1.0 7/8%
- ---------------------------------------------------------------------------------
</TABLE>
All adjustments shall be determined as of the date the Borrower's quarterly
financial statements and Compliance Certificate are required to be delivered
pursuant to items (i) and (iii) of Section 6.02. The foregoing notwithstanding
the Applicable Euro-Rate Margin from the Closing Date to and including the
October 1997 Delivery Date shall be 5/8%.
(c) Interest After Maturity. After the occurrence of an Event of
-----------------------
Default and during the continuation thereof, the Base Rate Portion shall bear
interest at a rate per annum which shall be two hundred (200) basis points (2%)
above the Base Rate otherwise in effect during such period. After the occurrence
of an Event of Default and during the continuation thereof, all Euro-Rate
Portions shall bear interest (i) until the end of the then current Euro-Rate
Interest Period for each such Euro-Rate Portion, at a rate per annum which shall
be two hundred (200) basis points (2%) above the sum of (A) the Euro-Rate plus
----
(B) the Applicable
-27-
<PAGE>
Euro-Rate Margin otherwise in effect during such period and (ii) at the end of
the then current Euro-Rate Interest Period for each such Euro-Rate Portion, such
Euro-Rate Portions shall automatically be converted to the Base Rate Portion,
and thereafter the interest rate shall be calculated in accordance with the
initial sentence of this Section 2.08(c).
(d) Interest Periods; Limitations on Elections. At any time when
------------------------------------------
the Borrower shall select, convert to or renew the Euro-Rate Option to apply to
all or any portion of the outstanding Revolving Credit Loans, it shall elect one
or more Euro-Rate Interest Periods as the case may be. All the foregoing,
however, is subject to the following:
(i) any Euro-Rate Interest Period which would otherwise end on
a day which is not a Business Day shall be extended to the next Business
Day unless such Business Day falls in the succeeding calendar month in
which case such Euro-Rate Interest Period shall end on the next preceding
Business Day; and
(ii) any Euro-Rate Interest Period which begins on the last day
of a calendar month or on a day for which there is no numerically
corresponding day in the subsequent calendar month during which such Euro-
Rate Interest Period is to end shall end on the last Business Day of such
subsequent month.
Elections by the Borrower of the Euro-Rate Option shall be subject to the
following limitations:
(i) The Euro-Rate Portion for each Euro-Rate Interest Period
shall be in an aggregate principal amount of $5,000,000 or more; provided,
--------
however, that each increment in excess of $5,000,000 shall be $1,000,000 or
an integral multiple thereof;
(ii) No Euro-Rate Interest Period may be elected at any time
that a Default or an Event of Default shall have occurred and be
continuing;
(iii) No Euro-Rate Interest Period may be elected which would
end later than the Expiration Date;
(iv) No Euro-Rate Interest Period may be elected with regard
to amounts outstanding which would be in excess of the Revolving Credit
Commitment;
(v) At no time may there be more than eight (8) separate
Euro-Rate Interest Periods in effect; and
-28-
<PAGE>
(vi) Until the earlier to occur of (A) completion of
syndication as determined by the Agent or (B) ninety days from the Closing
Date the Borrower may only elect the one (1) month Euro-Rate Interest
Period.
(e) Election, Renewal or Conversion of Interest Rate Options.
--------------------------------------------------------
Elections or renewals of, or conversions to, the Base Rate Option shall continue
in effect until converted or renewed as hereinafter provided. Elections or
renewals of, or conversions to, the Euro-Rate Option shall expire as to each
Euro-Rate Portion at the expiration of the applicable Euro-Rate Interest Period.
At any time with respect to the Base Rate Portion or at the expiration of the
applicable Euro-Rate Interest Period with respect to any Euro-Rate Portion, the
Borrower may cause (subject to Subsection 2.08(d)) all or any part of the
principal amount of such portion to be converted to, or to be renewed under, the
Euro-Rate Option by notice to the Agent as hereinafter provided. Such notice (i)
shall be irrevocable, (ii) shall be given not later than Noon (Pittsburgh,
Pennsylvania time) in the case of a conversion to or renewal of, either in whole
or in part, the Euro-Rate Option, not less than three (3) Business Days prior to
the proposed effective date for such conversion or renewal, and (iii) shall set
forth:
(A) the effective date of such conversion or renewal, which shall
be a Business Day;
(B) the new Euro-Rate Interest Period(s) selected; and
(C) with respect to each such Euro-Rate Interest Period, the
aggregate principal amount of the corresponding Euro-Rate Portion.
At the expiration of each Euro-Rate Interest Period, any part (including the
whole) of the principal amount of the corresponding Euro-Rate Portion as to
which no notice of conversion or renewal has been received shall automatically
be converted to the Base Rate Option. The Agent shall promptly notify the
Borrower and the Lenders of any such automatic conversion.
(f) Notification of Election of an Interest Rate Option. The
---------------------------------------------------
Borrower, by an Authorized Officer, shall notify the Agent of each election of
an Interest Rate Option, each conversion from one Interest Rate Option to
another, the amount of the Revolving Credit Loans then outstanding to be
allocated to each Interest Rate Option and, where relevant, the Euro-Rate
Interest Periods as provided for in this Agreement. Any such communication may
be oral or written and if oral it shall be followed promptly by written
confirmation of such Interest Rate Option election executed by an Authorized
Officer of the Borrower.
(g) Calculation of Interest. Interest on the Base Rate Portion
-----------------------
shall be calculated on the basis of a 365 or 366 day year, as the case may be,
and the actual days elapsed. Interest on each Euro-Rate Portion shall be
calculated on the basis of a 360-day year and the
-29-
<PAGE>
actual days elapsed. The calculation of the amount of interest due and owing to
the Lenders shall be evidenced by posting the amount of interest due under the
Revolving Credit Notes to the Loan Account established by the Agent pursuant to
Section 2.14.
(h) Lawful Interest Rates Intended. In no event whatsoever
------------------------------
shall the interest rates charged hereunder exceed the highest rate permissible
under any law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. In the event that such a court determines
that any Lender has received interest hereunder in excess of the highest
applicable rate, such Lender shall promptly refund such excess to the Borrower,
or at such Lender's option, apply such excess in reduction of the principal
balance of the Lender Obligations owing to the affected Lender.
2.09. Prepayments; Allocation of Repayments.
-------------------------------------
(a) Prepayments of Base Rate Portion. The Borrower, upon oral or
--------------------------------
written notice to the Agent by an Authorized Officer of Borrower given not later
than 12:00 noon (Pittsburgh, Pennsylvania time) on the proposed date for
prepayment, may prepay without penalty or premium any or all of the Base Rate
Portion. Any oral notice of election hereunder shall be followed immediately by
written confirmation of such prepayment election executed by an Authorized
Officer of Borrower
(b) Prepayments of Euro-Rate Portions. Except as otherwise provided
---------------------------------
in Section 2.10(c), the Borrower, upon oral or written notice to the Agent by an
Authorized Officer of Borrower given at least three (3) Business Days prior to
the proposed date for repayment, may prepay, all or any part of such Euro-Rate
Portion. If such Euro-Rate Portion is prepaid on the last day of the Euro-Rate
Interest Period applicable thereto, such prepayment shall be without premium or
penalty. If the Borrower prepays a Euro-Rate Portion other than on the last day
of the Euro-Rate Interest Period applicable thereto, the Borrower agrees to pay,
in addition to the other amounts set forth in this Section 2.09(b), such
additional amounts as may be necessary to compensate each Lender for any loss
(including loss of profit on a pre-tax basis) and any direct or indirect costs,
including the costs of reemployment of funds prepaid at rates lower than the
cost to such Lender of such funds. Such losses and costs shall be specified in
writing to the Borrower by the affected Lenders (and such specifications shall
set forth in reasonable detail the calculation of such losses and costs) and
such specifications shall, absent manifest error, be binding and conclusive on
the Borrower. Such prepayment shall include the then outstanding principal
amount of the Euro-Rate Portion being prepaid together with accrued interest,
fees and other amounts then due and payable on the amount prepaid, to the day of
such prepayment. Except as provided in this Section 2.09(b), there shall be no
voluntary prepayment of any Euro-Rate Portion.
-30-
<PAGE>
(c) Allocation of Repayments of Principal. Any voluntary
-------------------------------------
prepayment pursuant to this Section 2.09 hereof shall be applied first to the
repayment of any Euro-Rate Portion of the Revolving Credit Loans for which its
associated Euro-Rate Interest Period expires on the date of such payment,
second, to the reduction of the Base Rate Portion of the Revolving Credit Loans,
and third, to the reduction of such Euro-Rate Portions of the Revolving Credit
Loans as directed by the Borrower, and if the Borrower fails to give such
directions, or if a Default or Event of Default has occurred and is continuing,
to the reduction of such Euro-Rate Portions of the Revolving Credit Loans as the
Agent may select in its sole and absolute discretion. Any reduction in any Euro-
Rate Portion on a date other than the date on which its associated Euro-Rate
Interest Period expires may result in a funding loss for which the Borrower will
owe the Lenders an indemnity payment pursuant to Section 2.10 hereof.
2.10. Yield Protection.
----------------
(a) If any change subsequent to the Closing Date in any Law or in
the interpretation or application thereof by any Official Body or in the
compliance with any guideline or request from any Official Body, shall make it
unlawful for any Lender to maintain or give effect to its obligations as
contemplated under the Revolving Credit Commitment, such Lender shall notify the
Borrower and the Agent in writing of its determination of such unlawfulness and
an explanation thereof. Thereafter, such Lender's obligation to make available
any further Revolving Credit Loans hereunder shall forthwith be cancelled and
the Borrower, within thirty (30) days, or within such longer period as may be
allowed by Law, if any, shall repay to such Lender so affected its pro rata
share of the outstanding principal amount of all Revolving Credit Loans together
with interest thereon to the date of repayment and fees, if any, due as of the
date of termination; provided, however, that the affected Lender's obligations
--------
which are lawful, if severable from those which are unlawful, shall continue,
and with respect to those obligations, this Agreement shall not terminate.
(b) If any Law issued after the Closing Date (including, without
limitation, Regulation D of the Federal Reserve Board), or if any change on or
after the Closing Date in any Law (including, without limitation, Regulation D)
or in the interpretation thereof by any Official Body charged with the
administration thereof, shall
(i) subject any Lender to any tax, levy, impost, charge, fee,
duty, deduction or withholding or any kind hereunder (other than any tax
imposed or based upon the income of such Lender and payable to any
governmental or taxing authority in the United States of America, any state
or any municipality thereof); or
(ii) change the basis of taxation of any Lender with respect to
payments of principal or interest or other amounts due hereunder (other
than any change
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<PAGE>
which affects, and only to the extent that it affects, the taxation by the
United States, any state or any municipality thereof based upon the income
of such Lender); or
(iii) impose, modify or deem applicable any reserve, special
deposit or similar requirements against assets held by any Lender (other
than such requirements which result solely from a change in the credit
quality of the Borrower or which are included in the determination of the
applicable rate of interest hereunder); or
(iv) impose upon any Lender any other obligation or condition
with respect to this Agreement,
and the result of any of the foregoing is to increase the cost to any Lender, to
decrease the yield to any Lender with respect to the Revolving Credit Loans or
any Letters of Credit, to reduce the income receivable by any Lender or to
impose any expenses upon any Lender with respect to the Revolving Credit Loans
or any Letters of Credit by an amount which any Lender reasonably deems
material, then and in any such case:
(A) the Lender so affected shall promptly notify the
Borrower and the Agent of the happening of such event;
(B) the Borrower shall pay to the affected Lender,
within five (5) Business Days of written demand such amount as will
compensate such Lender for such additional cost or reduced amount,
calculated from the date of the notification by such Lender; and
(C) the Borrower may pay to such affected Lender the
affected Revolving Credit Loan in full without the payment of any
additional amount other than on account of such Lender's out-of-pocket
losses (including funding losses, if any, as provided in paragraph (c)
below) not otherwise provided for in subparagraph (B) immediately above.
The Lender so affected shall present to the Borrower and the Agent a certificate
setting forth such increased cost or reduced amount. Such certificate shall set
forth in reasonable detail the calculation of the amount due and such Lender's
reasons for invoking the provisions of this Section 2.10(b). Such certificate
shall be conclusive evidence of the amount due thereunder except in the case of
manifest error in computation. The Borrower shall pay such amount to such
Lender, as additional consideration hereunder, within ten (10) days of the
Borrower's receipt of such certificate.
(c) The Borrower agrees to indemnify each Lender, on demand,
against any loss or expense (including loss of profit) which such Lender may
sustain or incur in
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<PAGE>
liquidating or employing deposits from third parties acquired to effect, fund or
maintain such Euro-Rate Portions or any part thereof as a consequence of (i) the
failure of the Borrower to make a payment on the due date thereof, (ii) the
failure of the Borrower to borrow under, convert to or renew under the Euro-Rate
Option on the proposed effective date of such borrowing, conversion or renewal,
or (iii) the payment, prepayment or conversion by the Borrower of any Euro-Rate
Portions for any reason on a day other than the last day of the applicable Euro-
Rate Interest Period. Any Lender's determination of an amount payable under this
paragraph (c) shall be conclusive absent manifest error.
(d) The foregoing notwithstanding, if the affected Lender can
mitigate or eliminate such increased cost or reduced yield by transferring the
Loans to another existing lending office of such Lender, such Lender agrees to
so transfer the Loans.
2.11. Special Provisions Relating to the Euro-Rate Option.
---------------------------------------------------
(a) Euro-Rate Unascertainable. In the event that on any date on
-------------------------
which a Euro-Rate Option would otherwise be set, the Agent shall have determined
(which determination shall be final and conclusive) that, by reason of
circumstances affecting the London interbank market, adequate, reasonable means
do not exist for ascertaining the Euro-Rate, the Agent shall give prompt notice
of such determination to the Borrower and the Lenders. Until the Agent notifies
the Borrower and the Lenders that the circumstances giving rise to such
determination no longer exist (which notice shall be given promptly following
receipt of knowledge thereof by the Agent), the right of the Borrower to borrow
under, convert to or renew the Euro-Rate Option shall be suspended. Any notice
of borrowing under, conversion to or renewal of the Euro-Rate Option which was
to become effective during the period of such suspension shall be treated as a
request to borrow under, convert to or renew the Base Rate Option with respect
to the principal amount therein specified.
(b) Inability to Offer Euro-Rate. In the event that any Lender
----------------------------
shall determine, in its sole discretion, that it is unable to obtain deposits in
the London interbank market in sufficient amounts and with maturities related to
such Euro-Rate Portions which would enable such Lender to fund such Euro-Rate
Portions, then such Lender shall notify the Borrower and the Agent that the
right of the Borrower to borrow under, convert to or renew the Euro-Rate Option,
shall be suspended with respect to such Lender. Such notice shall set forth in
reasonable detail such Lender's reasons for invoking the provisions of this
Section 2.11(b). Following notification of the suspension of the Euro-Rate
Option with respect to such Lender, the Borrower agrees to negotiate with such
Lender for a modified or alternative fixed rate of interest, which will allow
such Lender to realize its anticipated and bargained-for yield. In the event
that the Borrower and such Lender cannot agree on a modified or alternative
fixed rate of interest, any notice of borrowing under, conversion to or renewal
of the Euro-Rate Option which was to become effective during the period of
suspension shall be treated as a request to borrow under,
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<PAGE>
convert to or renew the Base Rate Option with respect to the principal amount
specified therein attributable to such Lender.
(c) Illegality. If any Lender shall determine in good faith (which
----------
determination shall be final and conclusive) that compliance with any Law
(whether or not having the force of law) or the interpretation or application
thereof by any Official Body, has made it unlawful or impractical for such
Lender to make or maintain the Revolving Credit Loans under the Euro-Rate
Option, such Lender shall give notice of such determination to the Borrower and
the Agent, which notice shall set forth in reasonable detail such Lender's
reasons for invoking the provisions of this Section 2.11(c). Notwithstanding any
provision of this Agreement to the contrary, unless and until such Lender shall
have given notice to the Borrower and the Agent that the circumstances giving
rise to such determination no longer apply (which notice shall be given promptly
following receipt of knowledge thereof by such Lender):
(i) with respect to any Euro-Rate Interest Periods thereafter
commencing, interest in an amount equal to such Lender's Ratable Share of
the corresponding Euro-Rate Portion shall be computed and payable under the
Base Rate Option; and
(ii) on such date, if any, as shall be required by law, an
amount equal to such Lender's Ratable Share of any Euro-Rate Portion, as
the case may be, then outstanding shall be automatically converted to the
Base Rate Option and the Borrower shall pay to such Lender the accrued and
unpaid interest on such amounts to (but not including) such conversion
date.
The Borrower shall pay any such Lender any additional amounts reasonably
necessary to compensate such Lender for any costs incurred by such Lender as a
result of any conversion pursuant to clause (ii) above which occurs on a day
other than the last day of the relevant Euro-Rate Interest Period, including,
but not limited to, any interest or fees payable by such Lender to lenders of
funds obtained by them to loan or maintain the lending of the Revolving Credit
Loans so converted. Such Lender shall furnish to the Borrower and the Agent a
certificate as to the amount necessary to compensate it for such costs, which
certificate shall set forth in reasonable detail the calculation of the amount
due. Such certificate shall constitute conclusive evidence of the amount due
thereunder absent any manifest error in computation. The Borrower shall pay
such amount to such Lender, as additional consideration hereunder, within ten
(10) days of the Borrower's receipt of such certificate.
(d) The foregoing notwithstanding, if the affected Lender can
continue to offer the Euro-Rate Option to the Borrower by transferring the
Revolving Credit Loans to another existing lending office of such Lender, such
Lender agrees to so transfer the Revolving Credit Loans.
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<PAGE>
2.12. Capital Adequacy. If after the Closing Date (i) any adoption of or
----------------
any change in or in the interpretation by an Official Body of any Law or (ii)
compliance with any Law, guideline or request of any Official Body exercising
control over banks or financial institutions generally or any court (whether or
not having the force of law), affects or would affect the amount of capital
required or expected to be maintained by any Lender or any corporation
controlling such Lender other than those resulting solely from a change in the
credit quality of the Borrower (a "Capital Adequacy Event"), and the result of
such Capital Adequacy Event is to reduce the rate of return on capital of such
Lender or any corporation controlling such Lender as a consequence thereof to a
level below that which such Lender could have achieved but for such Capital
Adequacy Event, taking into consideration such Lender's policies with respect to
capital adequacy, by an amount which such Lender deems to be material, such
Lender shall promptly deliver to the Borrower and the Agent a statement of the
amount necessary to compensate such Lender for the reduction in the rate of
return on its capital attributable to the commitments under this Agreement or
any of the Loan Documents (the "Capital Compensation Amount"). Each Lender
shall determine the Capital Compensation Amount in good faith, using reasonable
attribution and averaging methods. Each Lender shall, from time to time,
furnish to the Borrower and the Agent a certificate setting forth the amount so
determined and the calculations of such amount. Such certificate shall
constitute conclusive evidence of the amount due thereunder absent any manifest
error in computation. Such amount shall be due and payable by the Borrower to
such Lender ten (10) days after such notice is given. As soon as practicable
after any Capital Adequacy Event, such Lender shall submit to the Borrower and
the Agent estimates of the Capital Compensation Amounts that would be payable as
a function of such Lender's Revolving Credit Commitment hereunder.
2.13. Swingline Loans.
---------------
(a) Swingline Option. Subject to the provisions of this Section
2.13, PNC Bank agrees that the Borrower may request that Swingline Loans, in an
aggregate amount at any one time outstanding not to exceed the lesser of (i)
$5,000,000 or (ii) an amount which, when added to the aggregate principal amount
of (A) all other Loans then outstanding, (B) the aggregate Stated Amount of
outstanding Letters of Credit issued pursuant to Section 2.17 and (C) the
aggregate amount of unreimbursed draws does not exceed $125,000,000.
(b) Limitations on and Evidence of Swingline Loans. Each Swingline
----------------------------------------------
Loan or repayment of a Swingline Loan must be in the minimum principal amount of
$10,000 or, if in excess of $10,000 in integral multiples of $10,000. The
obligation of the Borrower to repay, prior to the Expiration Date, the aggregate
unpaid principal amount of such Swingline Loans advanced by PNC Bank shall be
evidenced by the Swingline Note substantially in the form of Exhibit "A-2"
-------------
hereto. The principal amount actually due and owing PNC Bank shall be the
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<PAGE>
aggregate unpaid principal amount of all disbursements of Swingline Loans made
by PNC Bank, all as shown on such PNC Bank Loan Account established pursuant to
Section 2.14.
(c) Swingline Procedure. The Borrower may from time to time from
-------------------
the Closing Date to the Business Day prior to the Expiration Date request a
Swingline Loan. Such request shall be made not later than Noon (Pittsburgh Time)
on the date of the proposed Swingline Loan. Such request may be made to the
Agent orally or in writing and if orally confirmed in writing. PNC Bank shall
make the Swingline Loan available to the Borrower not later than 3:00 P.M.
Pittsburgh Time on the same Business Day such Swingline Loan is requested.
(d) Swingline Loan Interest. Interest on the Swingline Loans
-----------------------
shall accrue at the Base Rate, except as provided in Subsection 2.08(c).
(e) Risk Participation. Upon the disbursement of each Swingline
------------------
Loan and without any further action by or on behalf of such Lender, each Lender
hereby agrees to purchase, upon the occurrence of an Event of Default, an
undivided full risk non-recourse participation in such Swingline Loan, in an
amount equal to (i) such Lender's Commitment Percentage (ii) multiplied by the
outstanding principal amount of such Swingline Loan on the date of the Event of
Default; provided however, no Lender shall participate in any Swingline Loan
-------- -------
which Swingline Loan is made after a notice of an Event of Default has been
given. If and to the extent any Swingline Lender receives payment of principal
or interest on a participated Swingline Loan, such Swingline Lender shall
deliver to each Lender such Lender's pro rata share of such payment.
2.14 Loan Account. The Agent shall open and maintain on its books a Loan
------------
Account in the name of the Borrower, with respect to (i) Revolving Credit Loans
and Swingline Loans made, repayments and prepayments of the principal thereof,
and the computation and payment of interest thereon, (ii) Letters of Credit
issued, or participated in, as the case may be, and draws and reimbursements
thereon or thereof, and (iii) the computation and payment of interest and the
Fees due hereunder to the Lenders, the L/C Issuer and the Agent, and the
computation of other amounts due and sums paid to the Agent hereunder. Upon the
request of the Borrower to Agent, the Agent shall promptly furnish to the
Borrower a statement of the Loan Account. The failure to record any such amount
shall not limit or otherwise affect the obligations of the Borrower hereunder or
under the Notes to repay all amounts owed hereunder and thereunder together with
all interest accrued thereon and all other fees and charges provided herein.
The Loan Account shall be conclusive evidence as to the amount at any time due
to the Lenders, the L/C Issuer and the Agent from the Borrower except in the
case of manifest error.
2.15. All Advances to Constitute One Loan. Notwithstanding the limitations
-----------------------------------
set forth herein, all Revolving Credit Loans by the Lenders to the Borrower
under this Agreement
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<PAGE>
and the other Loan Documents, including without limitation, the Revolving Credit
Loans, the Swingline Loans and all other Lender Obligations, shall constitute
one loan and all Indebtedness and obligations of the Borrower to the Lenders
under this Agreement and all other Loan Documents shall constitute a general
obligation of the Borrower, secured by a first priority lien on the Assigned
Collateral and the Subsidiary Assigned Collateral. The Lenders and the Borrower
agree that all of the rights of the Lenders and the Borrower set forth in this
Agreement and the other Loan Documents shall apply to any amendment or
modification of or supplement to this Agreement and the other Loan Documents.
2.16. Use of Proceeds. The proceeds of the Revolving Credit Loans shall be
---------------
used exclusively (i) to pay interest, Fees and other costs, and expenses
hereunder and under the other Loan Documents, (ii) to repay any Unreimbursed L/C
Draw, (iii) to fund the Tender Offer and (iv) to fund capital expenditures,
working capital and general corporate purposes of the Borrower.
2.17. Letter of Credit Subfacility.
----------------------------
(a) At the request of the Borrower, the L/C Issuer will issue for
the account of the Borrower, on the terms and conditions hereinafter set forth
(including without limitation Article V hereof), one or more Letters of Credit;
provided, however, no Letter of Credit shall have an expiry date later than the
earlier of one (1) year from the date of issuance or fifteen (15) days prior to
the Expiration Date; and provided, further, however, that in no event shall (i)
the Stated Amount of the Letters of Credit issued pursuant to this Section 2.17
exceed, at any one time, $15,000,000, or (ii) the sum of aggregate outstanding
principal balance of the Revolving Credit Loans, the aggregate unpaid balance of
outstanding Swingline Loans, the aggregate unpaid balance of any Unreimbursed
L/C Draws and the aggregate Stated Amount of the Letters of Credit issued by the
L/C Issuer under this Section 2.17 exceed, at any one time, the aggregate
Revolving Credit Commitments. Each Letter of Credit issued hereunder shall be
issued only to support performance obligations, bonding requirements and self-
insurance obligations of the Borrower arising in the ordinary course of its
business and other purposes approved by the Agent, the Required Lenders and L/C
Issuer.
(b) The Borrower shall pay (i) to the L/C Issuer for its own
account a fronting fee equal to 1/8 of 1% per annum (the "L/C Fronting Fee") on
the aggregate daily (computed at the opening of business and on the basis of a
year of 365 or 366 days, as the case may be, and actual days elapsed) Stated
Amount of the outstanding Letters of Credit for the period in question, and (ii)
to the Agent for the ratable account of the Lenders a fee (the "Letter of Credit
Fee") equal to the Applicable Letter of Credit Fee per annum, as determined
below, on the aggregate daily (computed at the opening of business and on the
basis of a year of 365 or 366 days, as the case may be, and actual days elapsed)
Stated Amount of the outstanding Letters of Credit for the period in question.
The Letter of Credit Fee and the L/C Fronting Fee shall be
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<PAGE>
payable (i) quarterly in arrears on the last Business Day of each Fiscal Quarter
occurring during the term of this Agreement thereafter, (ii) on the Expiration
Date or (iii) upon acceleration of the Notes. Any issuance of an amendment to
extend the stated expiration date of a Letter of Credit or an amendment to
increase the Stated Amount of a Letter of Credit shall be treated as an issuance
of a new Letter of Credit for purposes of calculation of Letter of Credit Fee
and the L/C Fronting Fee due and payable hereunder. The Borrower shall also pay
to the L/C Issuer the L/C Issuer's customary documentation fees payable with
respect to the Letters of Credit as the L/C Issuer may generally charge from
time to time. After the occurrence of an Event of Default (which continues after
the expiration of any cure period applicable thereto) and during the
continuation thereof, the rate at which the Letter of Credit Fee is calculated
shall be increased by two hundred (200) basis points (2%) above the pre-default
rate; the increase to be payable monthly during the continuation of the Event of
Default.
For purposes of this Agreement, the term "Applicable Letter of Credit Fee" shall
-------------------------------
mean the rate per annum set forth in the chart below which corresponds to the
range of ratios in which the Borrower's Consolidated Total Indebtedness to
EBITDA Ratio as at the end of the preceding fiscal quarter falls:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Consolidated Total Indebtedness to EBITDA Ratio Applicable Letter of
Credit Fee
- ------------------------------------------------------------------------------------
<S> <C>
Less than or equal to 1.5 to 1.0 1/2%
- ------------------------------------------------------------------------------------
Greater than 1.5 to 1.0 but less than or equal
to 2.0 to 1.0 5/8%
- ------------------------------------------------------------------------------------
Greater than 2.0 to 1.0 but less than or equal
to 2.5 to 1.0 3/4%
- ------------------------------------------------------------------------------------
Greater than 2.5 to 1.0 7/8%
- -----------------------------------------------------------------------------------
</TABLE>
All adjustments shall be determined as of the date the Borrower's quarterly
financial statements and Compliance Certificate are required to be delivered
pursuant to items (i) and (iii) of Section 6.02. The foregoing notwithstanding,
the Applicable Letter of Credit Fee from the Closing Date to and including the
October 1997 Delivery Date shall be 5/8%.
(c) Immediately upon the issuance of each Letter of Credit and each
increase or decrease in the Stated Amount thereof, each Lender hereby agrees to
irrevocably purchase and shall be deemed to have irrevocably purchased from the
L/C Issuer an undivided, full risk, non-recourse participation in such Letter of
Credit and drawings thereunder in an
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<PAGE>
amount equal to such Lender's Ratable Share of the maximum amount which is or at
any time may become available to be drawn thereunder. In the event that the L/C
Issuer is required for any reason to refund or repay to the Borrower, any
guarantor or any other Person all or any portion of any amount remitted to the
L/C Issuer pursuant to this Agreement, the Lenders shall promptly remit to the
L/C Issuer, upon three (3) Business Days' demand therefor, their respective
Ratable Share of the amount which is so refunded or repaid.
(d) In the event any restrictions are imposed upon the L/C Issuer
or any of the Lenders by any Law of any Official Body having jurisdiction over
the banking activities of the L/C Issuer or any Lender which would prevent the
L/C Issuer from issuing the Letters of Credit or amending the Letters of Credit
or would prevent any Lender from honoring its obligations under this Section
2.17, the commitment of the L/C Issuer to issue the Letters of Credit or enter
into any amendment with respect thereto shall be immediately suspended. If any
Lender believes any such restriction would prevent such Lender from honoring its
obligations under this Section 2.17, it shall promptly notify the Agent. The
Agent shall promptly notify the Borrower, the L/C Issuer and the other Lenders
of the existence and nature of (i) any restriction which would cause the
suspension of the commitment of the L/C Issuer to issue the Letters of Credit or
to enter into amendments with respect thereto and (ii) any restriction which
would prevent any Lender from honoring its obligations under this Section 2.17.
The Borrower will thereupon undertake reasonable efforts to obtain the
cancellation of all outstanding Letters of Credit; provided, however, that the
refusal of any beneficiary of a Letter of Credit to surrender such Letter of
Credit will not be an Event of Default hereunder, provided that the Borrower
shall undertake good faith efforts to obtain substitute letters of credit for
the then existing and outstanding Letters of Credit. Nothing contained in this
Section 2.17 shall be deemed a termination of the Revolving Credit Commitments
and, in the event of a suspension of the commitment of the L/C Issuer to issue
Letters of Credit as set forth above, the Borrower may continue to borrow under
the Revolving Credit Commitments provided the requirements of Section 5.02 are
complied with.
(e) On the Closing Date the Borrower shall execute and deliver to
the Agent the Reimbursement Agreement. When the Borrower desires the issuance of
a Letter of Credit, the Borrower shall deliver a duly completed Application and
Agreement for Letter of Credit to the L/C Issuer, with a copy to the Agent, no
later than 11:00 A.M. (Pittsburgh, Pennsylvania time) at least three (3)
Business Days, or such shorter period as may be agreed to by the L/C Issuer, in
advance of the proposed date of issuance. Upon satisfaction of the conditions
set forth in Section 5.01 and, if applicable, Section 5.02, the L/C Issuer shall
be obligated to issue the Letter of Credit and shall notify the Agent and each
Lender of such issuance. In determining whether to pay under a Letter of Credit,
the L/C Issuer shall be responsible only to determine that the documents and
certificates required to be delivered under the Letter of Credit have been
delivered and that they comply on their face with the requirements of the Letter
of Credit.
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<PAGE>
(f) In the event of any request for drawing under a Letter of
Credit by the beneficiary thereof, the L/C Issuer shall immediately notify the
Borrower and the Agent, and the Borrower shall reimburse, or cause the
reimbursement of, the L/C Issuer on demand as set forth in the applicable
Application and Agreement for Letter of Credit in an amount in same day funds
equal to the amount of such drawing; provided, however, that anything contained
in this Agreement to the contrary notwithstanding, unless the Borrower shall
have notified the Agent and the L/C Issuer prior to such time that the Borrower
intends to reimburse the L/C Issuer for all or a portion of the amount of such
drawing with funds other than the proceeds of Revolving Credit Loans, the
Borrower shall be deemed to have given a Loan Request to the Agent requesting
the Lenders to make Revolving Credit Loans on the first Business Day immediately
following the date on which such drawing is honored in an aggregate amount equal
to the excess of the amount of such drawing over the amount received by the L/C
Issuer from such other funds in reimbursement thereof (the "Unreimbursed L/C
----------------
Draw"), plus accrued interest on such amount at the rate set forth in Subsection
- ----
2.08. Any such Revolving Credit Loan shall be deemed advanced to the Borrower.
If the Borrower shall be deemed to have given a Loan Request, then, subject to
satisfaction or waiver of the conditions specified in Section 5.02, the Lenders
shall, all as set forth in Section 2.17(g) hereof, on the first Business Day
immediately following the date of such drawing, make Revolving Credit Loans in
the aggregate amount of the Unreimbursed L/C Draw plus accrued interest on such
amount at the applicable rate set forth in Section 2.08. The proceeds of any
such Revolving Credit Loans shall be applied directly by the Agent upon receipt
from the Lenders to reimburse the L/C Issuer for the Unreimbursed L/C Draw plus
accrued interest on such amount. The foregoing shall not limit or impair the
Credit by the beneficiary thereof, the L/C Issuer shall immediately notify the
Borrower and the Agent, and the Borrower shall reimburse, or cause the
reimbursement of, the L/C Issuer on demand as set forth in the applicable
Application and Agreement for Letter of Credit in an amount in same day funds
equal to the amount of such drawing; provided, however, that anything contained
in this Agreement to the contrary notwithstanding, unless the Borrower shall
have notified the Agent and the L/C Issuer prior to such time that the Borrower
intends to reimburse the L/C Issuer for all or a portion of the amount of such
drawing with funds other than the proceeds of Revolving Credit Loans, the
Borrower shall be deemed to have given a Loan Request to the Agent requesting
the Lenders to make Revolving Credit Loans on the first Business Day immediately
following the date on which such drawing is honored in an aggregate amount equal
to the excess of the amount of such drawing over the amount received by the L/C
Issuer from such other funds in reimbursement thereof (the "Unreimbursed L/C
Draw"), plus accrued interest on such amount at the rate set forth in Subsection
2.08. Any such Revolving Credit Loan shall be deemed advanced to the Borrower.
If the Borrower shall be deemed to have given a Loan Request, then, subject to
satisfaction or waiver of the conditions specified in Section 5.02, the Lenders
shall, all as set forth in Section 2.17(g) hereof, on the first Business Day
immediately following the date of such drawing, make Revolving Credit Loans in
the aggregate amount of the Unreimbursed L/C Draw plus accrued interest on such
amount at the applicable rate set forth in Section 2.08. The proceeds of any
such Revolving Credit Loans shall be applied directly by the Agent upon receipt
from the Lenders to reimburse the L/C Issuer for the Unreimbursed L/C Draw plus
accrued interest on such amount. The foregoing shall not limit or impair the
obligation of the Borrower to reimburse the L/C Issuer on demand.
(g) In the event that the Borrower shall fail to reimburse the L/C
Issuer on demand as provided in the applicable Application and Agreement for
Letter of Credit and Section 2.17(f) above in an amount equal to the amount of
any drawing honored by the L/C Issuer under a Letter of Credit plus accrued
interest, the L/C Issuer shall promptly notify the Agent and each Lender of the
Unreimbursed L/C Draw plus accrued interest on such amount of such drawing and
of such Lender's respective participation therein. Each Lender shall make
available to the L/C Issuer an amount equal to its respective participation in
same day funds, at the office of the L/C Issuer specified in such notice, not
later than 12:00 Noon (Pittsburgh, Pennsylvania time) on the Business Day after
the date specified in such notice by the L/C Issuer. In the event that any
Lender fails to make available to the L/C Issuer the amount of such Lender's
participation in such Letter of Credit as provided in this Section 2.17(g), the
L/C Issuer shall be entitled to recover such amount on demand from such Lender
together with interest at the Federal Funds Effective Rate for three (3)
Business Days and thereafter at the Base Rate. Nothing in this Section 2.17(g)
shall be deemed to prejudice the right of any Lender to recover its Ratable
Share of the Unreimbursed L/C Draw from the L/C Issuer pursuant to this Section
2.17(g) in the event that it is determined by a court of competent jurisdiction
that payment with respect to a Letter of
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<PAGE>
Credit by the L/C Issuer constituted gross negligence or willful misconduct on
the part of the L/C Issuer. The L/C Issuer shall distribute to each Lender which
has paid all amounts payable by it under this Section 2.17(g) with respect to a
Letter of Credit such other Lender's Ratable Share of all payments received by
the L/C Issuer from the Borrower in reimbursement of drawing honored by the L/C
Issuer under the Letter of Credit when such payments are received.
(h) The obligations of the Borrower under this Agreement to
reimburse the L/C Issuer for all drawings upon the Letters of Credit shall be
absolute, unconditional and irrevocable, and shall not be subject to any right
of set-off or counterclaim and shall be paid or performed strictly in accordance
with the terms of this Agreement, under all circumstances whatsoever, including
the following circumstances:
(i) any lack of validity or enforceability of this Agreement,
any Letter of Credit or any of the Loan Documents;
(ii) any amendment or waiver of any provision of all or any of
the Loan Documents;
(iii) the existence of any claim, set-off, defense or other
rights which the Borrower may have at any time against any beneficiary or
any transferee of any Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the L/C Issuer, the
Agent or any Lender (other than the defense of payment to the L/C Issuer in
accordance with the terms of this Agreement) or any other Person, whether
in connection with this Agreement, the Loan Documents or any transaction
contemplated hereby or thereby or any unrelated transaction;
(iv) any statement or document presented under any Letter of
Credit, appearing on its face to be valid and sufficient, but proving to be
forged or fraudulent in any respect or any statement therein being untrue
or inaccurate in any respect whatsoever;
(v) payment by the L/C Issuer under any Letter of Credit
against presentation of any document which does not comply with the terms
of the Letter of Credit, provided that such payment shall not have
constituted gross negligence or willful misconduct of the L/C Issuer; and
(vi) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, not resulting from gross negligence or
willful misconduct of the L/C Issuer.
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(i) This Agreement is intended to supplement each Application and
Agreement for Letter of Credit executed by the Borrower and delivered to the L/C
Issuer. Whenever possible this Agreement is to be construed as consistent with
each Application and Agreement for Letter of Credit but, to the extent that the
provisions of this Agreement and each Application and Agreement for Letter of
Credit conflict, the terms of this Agreement shall control.
(j) Outstanding Letters of Credit. As of the Closing Date, each of
-----------------------------
the letters of credit issued by the L/C Issuer and outstanding on such date for
the account of the Borrower and identified on Schedule 2.17(j) shall be deemed
----------------
to be Letters of Credit issued hereunder and shall be subject to all of the
terms and provisions of this Agreement. The Borrower is hereby deemed to be
account party with respect to each letter of credit listed on Schedule 2.17(j)
hereunder for all purposes thereunder and hereunder. Each Lender agrees that its
obligations with respect to Letters of Credit pursuant to this Agreement shall
include such outstanding letters of credit. With respect to each such
outstanding letter of credit, for the period commencing on the Closing Date the
Borrower shall pay all fees and commissions set forth in this Agreement at the
times and in the manner herein set forth. The obligations of the Borrower under
each application for letter of credit and reimbursement agreement (together with
any related amendments) executed by the Borrower with respect to the letters of
credit shown on Schedule 2.17(j) are hereby expressly assumed by the Borrower
----------------
and each such application for letter of credit and reimbursement agreement, as
amended, is hereby deemed an Application and Agreement for Letter of Credit. The
existing reimbursement agreements shall be superseded in their entirety by the
Reimbursement Agreement which shall apply to existing letters of credit set
forth on Schedule 2.17(j) as well as all Letters of Credit issued hereunder on
and after the date hereof.
(k) Obligations Absolute. Notwithstanding any other provision of
--------------------
this Agreement, each Lender hereby agrees that its obligation to participate in
each Letter of Credit issued in accordance herewith and its obligation to make
the payments to be made by it under this Section 2.17 is absolute, irrevocable
and unconditional and shall not be affected by any event, condition or
circumstance whatever. The failure of any Lender to make any such payment shall
not relieve any other Lender of its funding obligation hereunder on the date
due, but no Lender shall be responsible for the failure of any other Lender to
meet its funding obligations hereunder.
2.18. Taxes. Each Lender that is not incorporated under the laws of the
-----
United States of America or a state thereof agrees that it will deliver to the
Borrower and the Agent (i) two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224 or successor applicable form, as the case may
be (assuming that it is entitled to do so), and (ii) two duly completed copies
of Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each
such Lender also agrees to deliver to the Borrower and the Agent two further
copies
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of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms
or other manner of certification, as the case may be, on or before the date that
any such form expires or becomes obsolete or otherwise is required to be
resubmitted as a condition to obtaining an exemption from withholding tax or
after the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower and the Agent, and such extensions or
renewals thereof as may reasonably be requested by the Borrower or the Agent,
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the Agent.
Such Lender shall certify (i) in the case of Form 1001 or 4224, that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes (assuming that it is
entitled to do so) and (ii) in the case of Form W-8 or W-9, that it is entitled
to an exemption from United States backup withholding tax.
2.19. Payments. All payments and prepayments to be made in respect of
--------
principal, interest, Unreimbursed L/C Draws, Fees, or other amounts due from the
Borrower hereunder shall be payable prior to 11:00 A.M. (Pittsburgh,
Pennsylvania time) on the date when due without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived by each of the
Borrower, and without setoff, counterclaim or other deduction of any nature, and
an action therefor shall immediately accrue. Such payments shall be made to the
Agent at the Principal Office for the ratable accounts of the Lenders or L/C
Issuer, as the case may be, in Dollars and in immediately available funds, and
the Agent shall promptly distribute such amounts to the Lenders or L/C Issuer,
as the case may be, in immediately available funds in accordance with the terms
and provisions of Section 9.10 of this Agreement. The Agent's, the L/C Issuer's
and each Lender's statement of account, ledger or other relevant record shall,
in the absence of manifest error, be conclusive as the statement of the amount
of principal of and interest on the Revolving Credit Loans and the Unreimbursed
L/C Draws, Fees and other amounts owing under this Agreement and shall be deemed
an "account stated." Notwithstanding anything herein to the contrary, (i) any
Agent's Fees and the Underwriting Fee paid by the Borrower shall be solely for
the account of the Agent, (ii) any L/C Fronting Fees paid by the Borrower shall
be solely for the account of the L/C Issuer and (iii) any interest paid on any
Unreimbursed L/C Draw to the extent a Lender has not been required to honor or
has not honored its funding obligations pursuant to Section 2.17(g) hereof shall
be solely for the account of the L/C Issuer.
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ARTICLE III
SET-OFF, ACCOUNT, SECURITY INTERESTS
------------------------------------
3.01. Set-Off. To secure the repayment of the Lender Obligations, the
-------
Borrower hereby gives to each Lender (in any capacity hereunder) a lien and
security interest upon and in any and all of the Borrower's property, credits,
securities or money which may at any time be delivered to, or be in the
possession of, or owed by such Lender in any capacity whatever, including the
balance of any deposit account maintained by the Borrower with such Lender
(including without limitation the Loan Disbursement Account). The Borrower
hereby authorizes each Lender, at any time and from time to time upon the
occurrence and during the continuance of an Event of Default, at such Lender's
option, to apply, at the discretion of such Lender, to the payment of the Lender
Obligations, any and all such property, credits, securities or money now or
hereafter in the hands of such Lender or belonging or owed to the Borrower.
3.02. Loan Disbursement Account. The Borrower shall maintain at all times
-------------------------
during this Agreement with the Agent, at the Agent's office in Pittsburgh,
Pennsylvania, a demand deposit account (the "Loan Disbursement Account"), into
-------------------------
which proceeds of Revolving Credit Loans and other monies transferred to the
Borrower shall be deposited from time to time. The Loan Disbursement Account
shall be in the name of the Borrower and, subject to the other provisions of
this Agreement and the other Loan Documents, monies therein shall be disbursed
as directed by the Borrower, from time to time. To secure the payment and
performance of Lender Obligations, the Borrower hereby pledges and assigns, and
grants to the Agent for the benefit of the Agent, the L/C Issuer and the
Lenders, a lien on and security interest in the Loan Disbursement Account, all
funds from time to time deposited or held therein, all interest and other income
derived therefrom, and all proceeds of all the foregoing.
3.03. Assigned Collateral. The Borrower hereby agrees to grant and convey
-------------------
to Agent for the benefit of the Lenders and the L/C Issuer a Lien on any and all
Assigned Collateral now owned or hereafter acquired by the Borrower. To secure
the full and timely payment and performance of each of the Lender Obligations,
and to grant to the Agent for the benefit of the Agent, the Lenders and the L/C
Issuer a Lien on the right, title and interest of the Borrower in and to any
Assigned Collateral, the Borrower hereby agrees to execute and deliver to the
Agent, on or prior to the Closing Date, the Security Agreement, together with
all financing statements, supplements, amendments, certificates, documents and
notices as reasonably requested by the Agent to perfect such Liens, all duly
completed and executed to the reasonable satisfaction of the Agent.
3.04. Designation of Class A Subsidiary Guarantors; Subsidiary Assigned
-----------------------------------------------------------------
Collateral. (a) Each Subsidiary of the Borrower incorporated or organized in
- ----------
the United States of
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<PAGE>
America, whether now in existence or hereafter acquired, that owns Receivables
and Inventory (priced at the lower of cost or market) with a value at the time
of designation in excess of $5,000,000 shall be designated as a Class A
Subsidiary Guarantor by the Lenders. Any Subsidiary designated as a Class A
Subsidiary Guarantor shall continue as a Class A Subsidiary Guarantor until
released in writing by all Lenders. For the purposes of this Section 3.04, the
Subordinated Notes shall not be deemed Receivables.
(b) The Borrower hereby agrees to cause each Class A Subsidiary
Guarantor to grant and convey to Agent for the benefit of the Lenders and the
L/C Issuer a Lien on any and all Subsidiary Assigned Collateral now owned or
hereafter acquired by each such Class A Subsidiary Guarantor. To secure the full
and timely payment and performance of each of the Lender Obligations, and to
grant to the Agent for the benefit of the Agent, the Lenders and the L/C Issuer
a Lien on the right, title and interest of a Class A Subsidiary Guarantor in and
to any Subsidiary Assigned Collateral of such Class A Subsidiary Guarantor, the
Borrower hereby agrees to cause each Class A Subsidiary Guarantor to execute and
deliver to the Agent a Subsidiary Guaranty and a Security Agreement, together
with all financing statements, supplements, amendments, certificates, documents
and notices as reasonably requested by the Agent to perfect such Liens, all duly
completed and executed to the reasonable satisfaction of the Agent. Each other
Guarantor Subsidiary shall execute and deliver to the Agent for the benefit of
the Lenders and the Agent a Subsidiary Guaranty to guaranty the full and timely
payment and performance of each of the Lender Obligations.
3.05. Further Cooperation. (a) The Borrower shall perform, or cause a
-------------------
Subsidiary Guarantor to perform , on the reasonable request of the Agent and at
the Borrower's expense, such acts as may be necessary or advisable to carry out
the intent of this Agreement and the other Loan Documents. Without limiting the
generality of the preceding sentence, the Borrower shall take all steps
reasonably necessary or, in the reasonable opinion of Agent, advisable to grant
and convey, or cause the grant and conveyance by a Subsidiary Guarantor, to
Agent for the benefit of the Lenders, the L/C Issuer and the Agent a Lien on any
and all Assigned Collateral of the Borrower, whether now owned or hereafter
acquired, and any and all Subsidiary Assigned Collateral of a Class A Subsidiary
Guarantor, whether now owned or hereafter acquired, and to validate or protect
any Lien granted to the Agent for the benefit of the Lenders, the L/C Issuer and
the Agent in any Assigned Collateral or any Subsidiary Assigned Collateral, or
to defeat the assertion by any third parties of any adverse claim with respect
to any Assigned Collateral or any Subsidiary Assigned Collateral. Without
limiting the generality of the foregoing, from time to time, or at the request
of Agent, the Borrower will execute and file, and cause the execution and filing
of, as the case may be, such agreements, amendments, supplements, bailee's
waivers, landlord's waivers, financing statements, continuation statements,
amendments thereto and assignments thereof, and such other instruments and
notices, to grant Liens on any Assigned Collateral or any Subsidiary Assigned
Collateral, and to perfect, protect or
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<PAGE>
more fully evidence the rights of the Agent, the Lenders and the L/C Issuer
under any Security Documents.
(b) The Borrower hereby authorizes the Agent or any of its
designees, and does hereby constitute the Agent the attorney-in-fact of the
Borrower, to execute in the name of the Borrower, and to file, one or more
financing statements, continuation statements, amendments thereto and/or
assignments thereof, relative to all or any of the liens and security interests
in favor of the Agent in any of the Assigned Collateral, whether now existing or
hereafter created. If the Borrower fails to perform any of its respective
agreements or obligations under this Agreement, the Agent or its designee may
(but shall not be required to) itself perform, or cause the performance of, such
agreement or obligation, and the reasonable expenses of the Agent or its
designee or assignee incurred in connection therewith shall be payable by the
Borrower as provided in Section 10.03 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Representations and Warranties. The Borrower represents and warrants to the
------------------------------
Agent, each of the Lenders and the L/C Issuer as follows in Sections 4.01
through and including Section 4.26.
4.01. Organization and Qualification. (a) The Borrower is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware; the Borrower has the lawful power to own or lease its
properties and to engage in the business it presently conducts or proposes to
conduct; and the Borrower is duly licensed or qualified and in good standing in
each jurisdiction listed on Schedule 4.01 hereto and in all other jurisdictions
-------------
where the property owned or leased by it or the nature of the business
transacted by it makes such licensing or qualification necessary, except for
those jurisdictions where the Borrower's non-qualification would not cause there
to be a Material Adverse Change.
(b) Each Subsidiary of the Borrower is a corporation, business
trust or limited partnership, as the case may be, duly organized, validly
existing and in good standing under the laws of the state of its incorporation
or organization, as the case may be, shown on Schedule 4.01; each Subsidiary of
-------------
the Borrower has the lawful power to own or lease its properties and to engage
in the business it presently conducts or proposes to conduct; and each
Subsidiary of the Borrower is duly licensed or qualified and in good standing in
each jurisdiction listed on Schedule 4.01 hereto and in all other jurisdictions
-------------
where the property owned or leased by it or the nature of the business
transacted by it makes such licensing or qualification
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<PAGE>
necessary, except for those jurisdictions where such Subsidiary's non-
qualification would not cause there to be a Material Adverse Change.
4.02. Capitalization and Ownership. As of August 31, 1997, the authorized
----------------------------
Capital Stock of the Borrower consists of 18,000,000 shares of common stock of
which 8,632,272 shares were issued and outstanding and 2,000,000 shares of
preferred stock none of which was issued or outstanding. All of the Capital
Stock of the Borrower has been validly issued and is fully paid and
nonassessable. Except as set forth in Schedule 4.02, there are no options,
-------------
warrants or other rights outstanding to purchase any such Capital Stock.
4.03. Subsidiaries. Except for the Subsidiaries and investments in other
------------
Persons set forth in Schedule 4.03, the Borrower does not own directly or
-------------
indirectly any capital stock of any other Person, is not a partner (general or
limited) of any partnership, is not a party to any joint venture and does not
own (beneficially or of record) any equity interest or similar interest in any
other Person.
4.04. Power and Authority. The Borrower has full power to enter into,
-------------------
execute, deliver, carry out and perform this Agreement and the Loan Documents to
which it is a party, to incur the Indebtedness contemplated by the Loan
Documents and to perform its obligations under the Loan Documents to which it is
a party and all such actions have been duly authorized by all necessary
corporate proceedings on its part.
4.05. Validity and Binding Effect. This Agreement has been, and each Loan
---------------------------
Document, when executed and delivered by the Borrower, will have been, duly and
validly executed and delivered by the Borrower. This Agreement, each of the
other Loan Documents executed and delivered by the Borrower pursuant to the
provisions hereof and each of the other Loan Documents executed and delivered by
the Borrower will constitute legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective
terms, except to the extent that enforceability of any of the Loan Documents may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforceability of creditors' rights generally or
limiting the right of specific performance.
4.06. No Conflict. (a) Neither the execution and delivery by the Borrower
-----------
of this Agreement or the Loan Documents to which the Borrower is a party nor the
consummation of the transactions herein or therein contemplated nor compliance
with the terms and provisions hereof or thereof by the Borrower will (a)
conflict with, constitute a default under or result in any breach of (i) the
terms and conditions of the certificate of incorporation, by-laws or other
organizational documents of the Borrower or (ii) any Law or any agreement or
instrument or order, writ, judgment, injunction or decree to which the Borrower
is a party or by which it is bound or to which it is subject, which conflict,
default or breach would cause a Material Adverse
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<PAGE>
Change, or (b) result in the creation or enforcement of any Lien upon any
property (now or hereafter acquired) of the Borrower (other than the Permitted
Liens).
(b) Neither the execution and delivery by a Subsidiary Guarantor of
a Subsidiary Guaranty, a Subsidiary Security Agreement or the other Security
Documents to which such Subsidiary Guarantor is a party nor the consummation of
the transactions contemplated by this Agreement or the other Loan Documents nor
compliance with the terms and provisions hereof or thereof by such Subsidiary
Guarantor will (a) conflict with, constitute a default under or result in any
breach of (i) the terms and conditions of the articles of incorporation, by-laws
or other organizational documents of such Subsidiary or (ii) any Law or any
agreement or instrument or order, writ, judgment, injunction or decree to which
such Subsidiary is a party or by which it is bound or to which it is subject,
which conflict, default or breach would cause a Material Adverse Change, or (b)
result in the creation or enforcement of any Lien upon any property (now or
hereafter acquired) of such Subsidiary (other than the Permitted Liens).
4.07. Litigation. Except for the litigation set forth on Schedule 4.07,
---------- -------------
there are no actions, suits, proceedings or investigations pending or, to the
knowledge of the Borrower, threatened against the Borrower, or any Subsidiary of
the Borrower, at law or equity before any Official Body which individually or in
the aggregate, if adversely determined would be likely to result in any Material
Adverse Change. Neither Borrower nor any Subsidiary of the Borrower is in
violation of any order, writ, injunction or decree of any Official Body which
could be expected to result in any Material Adverse Change.
4.08. Financial Statements.
--------------------
(i) Financial Statements. The Borrower has delivered to the Agent
--------------------
the consolidated financial statements of the Borrower and its Subsidiaries for
the period ended July 31, 1997. All such financial statements are complete and
correct in all material respects and fairly present the consolidated financial
condition of the Borrower and its Subsidiaries in all material respects and the
results of their operations as of the dates and for the periods referred to, and
have been prepared in accordance with GAAP throughout the period included.
(ii) Accuracy of Financial Statements. The Borrower and its
--------------------------------
Subsidiaries have no liabilities, contingent or otherwise, that are not
disclosed in the financial statements referred to in clause (i) above and that
would be required to be disclosed in accordance with GAAP, except for those
incurred since the date of such financial statements in the ordinary course of
business.
4.09. Margin Stock. Neither the Borrower, nor any of its Subsidiaries,
------------
engage or intend to engage principally, or as one of its important activities,
in the business of incurring indebtedness or extending credit to others
(including, without limitation, any of the Subsidiaries
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<PAGE>
of the Borrower) for the purpose, immediately, incidentally or ultimately, of
purchasing or carrying margin stock (within the meaning of any Margin
Regulation). No part of the proceeds of any Revolving Credit Loan has been or
will be used, immediately, incidentally or ultimately, to purchase or carry any
margin stock or to extend credit to others (including, without limitation, any
of its Subsidiaries) for the purpose of purchasing or carrying any margin stock
or to refund or retire Indebtedness originally incurred for such purpose, or for
any purpose which entails a violation of or which is inconsistent with the
provisions of the Margin Regulations of the Board of Governors of the Federal
Reserve System. The Borrower does not intend to hold, and shall not permit its
Subsidiaries to hold, margin stock.
4.10. Full Disclosure. Neither this Agreement nor any Loan Document, nor
---------------
any certificate, statement, agreement or other document furnished to the Agent,
the L/C Issuer or any Lender in connection herewith or therewith, contains any
misstatement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which they were made, not misleading. There is no fact
known to the Borrower which materially adversely affects the business, property,
assets, financial condition, results of operations or prospects of the Borrower
and its Subsidiaries, taken as a whole, which has not been set forth in this
Agreement or the Loan Documents or in the certificates, statements, agreements
or other documents furnished in writing to the Agent, the Lenders or the L/C
Issuer prior to or at the date hereof in connection with the transactions
contemplated hereby and thereby.
4.11. Tax Returns and Payments. The Borrower is a member of an affiliated
------------------------
group of companies which file consolidated federal tax returns. All such
federal tax returns that are required by law to be filed, have been filed or
properly extended. All taxes, assessments and other governmental charges levied
upon members of such affiliated group or any of their respective properties,
assets, income or franchises which are due and payable have been paid in full
other than (i) those presently payable without penalty or interest, (ii) those
which are being contested in good faith by appropriate proceedings and (iii)
those which, if not paid, would not, in the aggregate, constitute a Material
Adverse Change; and as to each of items (i), (ii) and (iii) the affiliated group
has established reserves for such claim as have been determined to be adequate
by application of GAAP consistently applied. There are no agreements or waivers
extending the statutory period of limitations applicable to any consolidated
federal income tax return of the Borrower and its consolidated Subsidiaries for
any period, except as set forth on Schedule 4.11.
4.12. Consents and Approvals. No consent, approval, exemption, order or
----------------------
authorization of, or a registration or filing with any Official Body or any
other Person is required by any Law or any agreement in connection with the
execution, delivery and carrying out of this Agreement and the Loan Documents to
which the Borrower or any Subsidiary Guarantor is a party, except for the
financing statements requested to be filed by the Agent and the continuation
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statements with respect to such UCC financing statements which are not yet
required to be filed and except as listed on Schedule 4.12 attached hereto, all
-------------
of which items set forth on Schedule 4.12 shall have been obtained or made on or
-------------
prior to the Closing Date.
4.13. No Event of Default; Compliance with Instruments. No event has
------------------------------------------------
occurred and is continuing and no condition exists or will exist after giving
effect to the borrowings to be made on the Closing Date under the Loan Documents
which constitutes an Event of Default or a Default. Neither the Borrower nor
any of its Subsidiaries is in violation of (i) any term of its certificate of
incorporation, by-laws or other organizational documents or (ii) any material
agreement or instrument to which it is a party or by which it or any of its
properties may be subject or bound where such violation would constitute a
Material Adverse Change.
4.14. Compliance with Laws. The Borrower and its Subsidiaries are in
--------------------
compliance in all material respects with all applicable Laws (other than
Environmental Laws) in all jurisdictions in which the Borrower, and its
Subsidiaries, are presently or will be doing business except where the failure
to do so would not, individually or in the aggregate, constitute a Material
Adverse Change.
4.15. Investment Company; Public Utility Holding Company. Neither the
--------------------------------------------------
Borrower nor any Subsidiary Guarantor is an "investment company" registered or
required to be registered under the Investment Company Act of 1940 or under the
"control" of an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended from time to time, and shall not become such an
"investment company" or under such "control." Neither the Borrower nor any
Subsidiary Guarantor is a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" within the meaning
the Public Utility Holding Company Act of 1935, as amended from time to time.
The Borrower is not subject to any Law of any Official Body (in each case
whether United States federal, state or local, or other) having jurisdiction
over the Borrower, which purports to restrict or regulate its ability to borrow
money, or to extend or obtain credit, or to pledge any of the Assigned
Collateral or its interests in the Loan Disbursement Account. No Subsidiary
Guarantor is subject to any Law of any Official Body (in each case whether
United States federal, state or local, or other) having jurisdiction over such
Subsidiary Guarantor which purports to restrict or regulate its ability to
borrow money, or to extend or obtain credit, or to pledge its Subsidiary
Assigned Collateral.
4.16. Plans and Benefit Arrangements. Except as set forth on Schedule 4.16
------------------------------ -------------
hereto:
(i) The Borrower and each member of the ERISA Group are in
compliance in all material respects with any applicable provisions of ERISA with
respect to all Benefit Arrangements, Plans and Multiemployer Plans. There has
been no Prohibited
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<PAGE>
Transaction with respect to any Benefit Arrangement or any Plan (other than a
Multiemployer Plan) or, to the knowledge of the Borrower, with respect to any
Multiemployer Plan or Multiple Employer Plan, which could result in any material
liability of the Borrower or any other member of the ERISA Group. The Borrower
and all members of the ERISA Group have made when due any and all payments
required to be made under any agreement relating to a Multiemployer Plan or a
Multiple Employer Plan or any Law pertaining thereto. With respect to each Plan
and, to the knowledge of Borrower, each Multiemployer Plan, the Borrower and
each member of the ERISA Group (i) have fulfilled in all material respects their
obligations under the minimum funding standards of ERISA, (ii) have not incurred
any liability to the PBGC (other than for premiums not yet due) and (iii) have
not had asserted against them any penalty for failure to fulfill the minimum
funding requirements of ERISA.
(ii) To the best of the Borrower's knowledge, each Multiemployer
Plan and Multiple Employer Plan is able to pay benefits thereunder when due.
(iii) Neither the Borrower nor any other member of the ERISA Group
has instituted or intends to institute proceedings to terminate any Plan.
(iv) No event requiring notice to the PBGC under Section
302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with
respect to any Plan, and no amendment with respect to which security is required
under Section 307 of ERISA has been made or is reasonably expected to be made to
any Plan.
(v) Neither the Borrower nor any other member of the ERISA Group
has incurred or reasonably expects to incur any material withdrawal liability
under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the
Borrower nor any other member of the ERISA Group has been notified by any
Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan or
Multiple Employer Plan has been terminated within the meaning of Title IV of
ERISA and, to the knowledge of the Borrower, no Multiemployer Plan or Multiple
Employer Plan is reasonably expected to be reorganized or terminated, within the
meaning of Title IV of ERISA.
(vi) To the extent that any Benefit Arrangement is insured, the
Borrower and all members of the ERISA Group have paid when due all premiums
required to be paid for all periods ending through and including the Closing
Date. To the extent that any Benefit Arrangement is funded other than with
insurance, the Borrower and all members of the ERISA Group have made when due
all contributions, to the extent required by applicable Law or the terms of such
Benefit Arrangement to be paid for all periods ending through and including the
Closing Date.
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4.17. Title to Properties. The Borrower and each of its Subsidiaries have
-------------------
good title to, or a valid leasehold interest in, all their respective real and
personal property, except to the extent the failure to have such title or
leasehold interests is not reasonably likely, individually or in the aggregate,
to result in a Material Adverse Change, and none of such property is subject to
any Lien except Permitted Liens.
4.18. Insurance. There are in full force and effect for the benefit of the
---------
Borrower and its Subsidiaries insurance policies and bonds providing adequate
coverage from reputable and financially sound insurers in amounts sufficient to
insure the assets and risks of the Borrower and its Subsidiaries in accordance
with prudent business practice in the industry of the Borrower and its
Subsidiaries. No notice has been given or claim made and to the knowledge of
the Borrower, no grounds exist, to cancel or void any of such policies or bonds
or to reduce the coverage provided thereby.
4.19. Employment Matters. The Borrower and each Subsidiary of the Borrower
------------------
are in compliance with all employee benefit plans, employment agreements,
collective bargaining agreements and labor contracts (the "Labor Contracts") and
all applicable federal, state and local labor and employment Laws including, but
not limited to, those related to equal employment opportunity and affirmative
action, labor relations, minimum wage, overtime, child labor, medical insurance
continuation, worker adjustment and relocation notices, immigration controls and
worker and unemployment compensation, except where the failure to comply would
not constitute a Material Adverse Change. There are no outstanding grievances,
arbitration awards or appeals therefrom arising out of the Labor Contracts or
current or, to the knowledge of the Borrower, threatened strikes, picketing,
handbilling or other work stoppages or slowdowns at facilities of the Borrower
or any Subsidiary of the Borrower which in any case would constitute a Material
Adverse Change. All payments due from Borrower or any of its Subsidiaries on
account of employee health and welfare insurance which could reasonably be
expected to have a Material Adverse Change if not paid have been paid or accrued
as a liability on the books of Borrower or such Subsidiary.
4.20. Environmental Matters. Except as disclosed on Schedule 4.20 hereto:
--------------------- -------------
(i) The Borrower has not received any Environmental Complaint from
any Official Body or private person alleging that the Borrower, any Subsidiary
of the Borrower or any prior or subsequent owner of the Property is a
potentially responsible party under the Comprehensive Environmental Response,
Cleanup and Liability Act, 42 U.S.C. (S)9601, et seq., in connection with the
-- ---
Property which Environmental Complaint is reasonably expected to result in any
Material Adverse Change, and the Borrower has no reason to believe that such an
Environmental Complaint is reasonably likely to be received. There are no
pending or, to the knowledge of the Borrower, threatened Environmental
Complaints relating to the Borrower, any
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Subsidiary of the Borrower or, to the Borrower's knowledge, without any inquiry,
any prior or subsequent owner of the Property pertaining to, or arising out of,
any Environmental Conditions in connection with the Property, which
Environmental Complaints are reasonably expected to result in any Material
Adverse Change.
(ii) Except for conditions, violations or failures which
individually and in the aggregate are not reasonably likely to result in a
Material Adverse Change, there are no circumstances at, on or under the Property
that constitute a breach of or non-compliance with any of the Environmental
Laws, and there are no past or present Environmental Conditions at, on or under
the Property or, to the knowledge of the Borrower, without any inquiry at, on or
under adjacent property, that prevent compliance with the Environmental Laws at
the Property.
(iii) Neither the Property nor any structures, improvements,
equipment, fixtures, activities or facilities thereon or thereunder contain or
use Regulated Substances except in compliance with Environmental Laws, other
than such containment or use which individually and in the aggregate is not
reasonably likely to result in any Material Adverse Change. There are no
processes, facilities, operations, equipment or any other activities at, on or
under the Property, or, to the Borrower's knowledge, without any inquiry, at, on
or under adjacent property, that currently result in the release or threatened
release of Regulated Substances on to the Property in violation of the
Environmental Laws, except to the extent that such releases or threatened
releases are not likely to result in a Material Adverse Change.
(iv) There are no underground storage tanks, or underground piping
associated with such tanks, used for the management of Regulated Substances at,
on or under the Property that are not in compliance with all Environmental Laws,
other than those with respect to which the failure to comply with Environmental
Laws is not reasonably likely, either individually or in the aggregate, to
result in a Material Adverse Change, and there are no abandoned underground
storage tanks or underground piping associated with such tanks, previously used
for the management of Regulated Substances at, on or under the Property that
have not been either abandoned in place, or removed, in accordance with the
Environmental Laws, other than those with respect to which the failure to comply
with Environmental Laws is not reasonably likely, either individually or in the
aggregate, to result in a Material Adverse Change.
(v) The Borrower and each Subsidiary of the Borrower have all
material permits, licenses, authorizations and approvals necessary under the
Environmental Laws for the conduct of the respective businesses of the Borrower
and each Subsidiary of the Borrower as presently conducted, other than those
with respect to which the failure to comply with Environmental Laws is not
reasonably likely, either individually or in the aggregate, to result in a
Material Adverse Change. The Borrower and each Subsidiary of the Borrower have
submitted all notices, reports and other filings required by the Environmental
Laws to be submitted to an
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Official Body which pertain to past and current operations on the Property,
except for any failure to submit which would not be reasonably likely to result
in a Material Adverse Change.
(vi) Except for violations which individually and in the aggregate
are not likely to result in a Material Adverse Change, all past and present on-
site generation, storage, processing, treatment, recycling, reclamation or
disposal of Solid Waste at, on, or under the Property and all off-site
transportation, storage, processing, treatment, recycling, reclamation or
disposal of Solid Waste has been done in accordance with the Environmental Laws.
4.21. Senior Debt Status. The obligations of the Borrower under this
------------------
Agreement and the Notes rank at least pari passu in priority of payment with all
---- -----
other Indebtedness of the Borrower except Indebtedness of the Borrower to the
extent secured by Permitted Liens. The obligations of a Subsidiary Guarantor
under a Subsidiary Guaranty executed by such Subsidiary Guarantor rank at least
pari passu in priority of payment with all other Indebtedness of such Subsidiary
- ---- -----
Guarantor except Indebtedness of such Subsidiary Guarantor to the extent secured
by Permitted Liens. There is no Lien upon or with respect to any of the
properties or income of the Borrower or any of its Subsidiaries which secures
Indebtedness or other obligations of any Person except for Permitted Liens.
4.22. Solvency of Borrower. On the date hereof, and as of the date of each
--------------------
advance of the Revolving Credit Loan and issuance or renewal of any Letter of
Credit, as the case may be, and after giving effect to such advance or the
issuance or renewal of a Letter of Credit, each of the Borrower and each
Subsidiary Guaranty is, and will be, Solvent.
4.23. Burdensome Restrictions. No contract, lease, agreement or other
-----------------------
instrument to which Borrower or any of its Subsidiaries is a party or is bound
and no provision of applicable law or governmental regulation would reasonably
be expected to have a Material Adverse Change.
4.24. Brokers. No broker or finder acting on behalf of Borrower brought
-------
about the obtaining, making or closing of the loans made pursuant to this
Agreement, and Borrower has no obligation to any other Person in respect of any
finder's or brokerage fees in connection with the loans contemplated by this
Agreement.
4.25. Liens. Assuming the filing of all requisite financing statements,
-----
the Liens granted to the Agent for the benefit of the Agent, the Lenders and the
L/C Issuer pursuant to the Security Documents will at the Closing Date be fully
perfected first priority Liens in and to the collateral described therein.
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4.26. No Material Adverse Change. No event has occurred since July 31,
--------------------------
1997 and is continuing which has had or would reasonably be expected to have a
Material Adverse Change.
ARTICLE V
CONDITIONS OF LENDING OR ISSUANCE OF LETTER OF CREDIT
-----------------------------------------------------
The obligation of each Lender to make the Revolving Credit Loans hereunder,
or of the L/C Issuer to issue Letters of Credit hereunder, is subject to the
performance by the Borrower of its obligations to be performed hereunder at or
prior the making of any such Revolving Credit Loans, or the issuance of any such
Letter of Credit, as the case may be, and to the satisfaction of the following
further conditions.
5.01. Conditions to Initial Borrowings. On the Closing Date the following
--------------------------------
actions shall be completed or satisfied to the sole satisfaction of the Agent:
(a) The representations and warranties of the Borrower contained
in Article IV and in the other Loan Documents executed and delivered by the
Borrower or any of its Subsidiaries in connection with the Closing shall be true
and accurate in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date (except representations and warranties which relate solely to an
earlier date or time, which representations and warranties shall be true and
correct on and as of the specific date or times referred to therein), and the
Borrower, and each Subsidiary of the Borrower which has executed any Loan
Documents, shall have performed, observed and complied with all covenants and
conditions hereof and contained in the other Loan Documents; no Event of Default
or Default under this Agreement shall have occurred and be continuing or shall
exist; and there shall be delivered to the Agent, for the benefit of each
Lender, the L/C Issuer and the Agent, a certificate of the Borrower, dated the
Closing Date and signed by the chief executive officer and president or chief
financial officer of the Borrower, to each such effect.
(b) There shall be delivered to the Agent for the benefit of each
Lender and the L/C Issuer a certificate dated the Closing Date and signed by the
secretary or an assistant secretary of the Borrower, certifying as appropriate
as to:
(i) all corporate action taken by the Borrower in connection
with this Agreement and the other Loan Documents;
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(ii) the names, offices and titles of the Borrower's officer
or officers authorized to sign this Agreement and the other Loan Documents
and the true signatures of such officer or officers and the identities of
the Authorized Officers permitted to act on behalf of the Borrower for
purposes of this Agreement and the other Loan Documents and the true
signatures of such officers, on which the Agent, each Lender and the L/C
Issuer may conclusively rely;
(iii) (A) copies of the Borrower's organizational documents,
including its articles of incorporation as in effect on the Closing Date
certified by the Secretary of State of its incorporation as well as a copy
of the Borrower's by-laws, and (B) a certificate as to the continued
existence and good standing of the Borrower issued by the Secretary of
State of its incorporation, and (C) a certificate concerning the due
qualification of the Borrower as a foreign corporation authorized to due
business, and the good standing of the Borrower, issued by the Secretary of
State of each jurisdiction shown on Schedule 4.01;
-------------
(iv) all corporate or partnership action taken by each
Subsidiary Guarantor in connection with each Subsidiary Guaranty, each
Subsidiary Security Agreement and the other Loan Documents;
(v) the names, offices and titles of each Subsidiary
Guarantor's officer or officers authorized to sign each Subsidiary
Guaranty, each Subsidiary Security Agreement, if appropriate, and the other
Loan Documents and the true signatures of such officer or officers and the
identities of the Authorized Officers permitted to act on behalf of each
Subsidiary Guarantor for purposes of each Subsidiary Guaranty, each
Subsidiary Security Agreement, if appropriate, and the other Loan Documents
and the true signatures of such officers, on which the Agent, each Lender
and the L/C Issuer may conclusively rely; and
(vi) (A) copies of each Subsidiary Guarantor's organizational
documents, as in effect on the Closing Date certified, by the secretary of
state of the state of its organization and (B) a certificate as to the
continued existence and good standing of each Subsidiary Guarantor issued
by the secretary of state of the state of its organization, (C) a
certificate concerning the due qualification of each Subsidiary Guarantor
as a foreign Person authorized to due business, and the good standing of
such Subsidiary Guarantor, issued by the Secretary of State of each
jurisdiction shown on Schedule 5.01(b) to this Agreement and (D) if
----------------
appropriate, a certified copy of the filed fictitious name registration (if
required by applicable law).
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(c) This Agreement and the other Loan Documents required by the
Agent to be executed and delivered by the Borrower or a Subsidiary of the
Borrower at the Closing shall have been duly executed and delivered by the
Borrower to the Agent for the benefit of the Lenders, the L/C Issuer and the
Agent.
(d) There shall be delivered to the Agent for the benefit of each
Lender a written opinion of Morgan, Lewis and Bockius, LLP, special counsel for
the Borrower and the Subsidiary Guarantors dated the Closing Date and in form
and substance reasonably satisfactory to the Agent and its counsel as to the
matters set forth on Exhibit "G":
-----------
(e) All legal details and proceedings in connection with the
transactions contemplated by this Agreement and the other Loan Documents
(including without limitation the filing of all financing statements required to
perfect the Liens of the Agent in the Assigned Collateral and the Subsidiary
Assigned Collateral) shall be in form and substance satisfactory to the Agent
and its counsel, and the Agent shall have received all such other counterpart
originals or certified or other copies of such documents and proceedings in
connection with such transactions, in form and substance reasonably satisfactory
to the Agent and said counsel, as the Agent or said counsel may reasonably
request.
(f) No Material Adverse Change shall have occurred since July 31,
1997; and there shall be delivered to the Agent for the benefit of each Lender,
the L/C Issuer and the Agent a certificate of the Borrower dated the Closing
Date and signed by the Chief Executive Officer, President or Chief Financial
Officer of the Borrower to each such effect.
(g) The Borrower shall deliver evidence acceptable to the Agent
that adequate insurance in compliance with Section 6.05 hereof is in full
force and effect.
(h) All material consents required to effectuate the transactions
contemplated hereby as set forth on Schedule 4.12 shall have been obtained.
-------------
(i) The making and/or continuance of any Loan, or the issuance of a
Letter of Credit, or the pledge of any Lien in the Assigned Collateral or the
Subsidiary Assigned Collateral shall not contravene any Law applicable to the
Borrower, any Subsidiary Guarantor, any of the Agent, the Lenders or the L/C
Issuer.
(j) Except as set forth on Schedule 4.07, no action, suit,
proceeding, investigation, regulation or legislation shall have been instituted,
threatened or proposed before any court or other Official Body (i) with respect
to the Borrower or its Subsidiaries or this Agreement, the other Loan Documents
or the consummation of the transactions contemplated hereby or thereby to
enjoin, restrain or prohibit, or to obtain damages in respect of, their
performance under this Agreement or any other Loan Documents or the consummation
of the
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transactions contemplated hereby or thereby or (ii) which in the reasonable
opinion of Agent would have a Material Adverse Change.
(k) The Agent and its counsel shall have received UCC lien search
reports of filings against the Borrower and each Subsidiary Guarantor and tax
lien and judgment searches relating to the Borrower and each Subsidiary
Guarantor which are satisfactory in form and substance to the Lender.
(l) The Agent and its counsel shall have received executed
financing statements (Form UCC-1), on or prior to the Closing Date,
substantially in the form of Exhibit "H" or in such other form as the Agent may
-----------
reasonably request, naming Borrower as the debtor and Agent, for the benefit of
Agent, the Lenders and the L/C Issuer as the secured party, or other similar
instruments or documents, as may be necessary or, in the opinion of the Agent,
desirable under the UCC or any comparable law of all appropriate jurisdictions
to perfect Agent's interests in the Receivables originated and Inventory owned
by the Borrower and proceeds thereof; and the Agent and its counsel shall have
received executed financing statements (Form UCC-1), filed on or prior to the
Closing Date, substantially in the form of Exhibit "K" or in such other form as
-----------
the Agent may reasonably request, naming the Subsidiary Guarantor as the debtor
and Agent, for the benefit of Agent, the Lenders and the L/C Issuer as the
secured party, or other similar instruments or documents, as may be necessary
or, in the opinion of the Agent, desirable under the UCC or any comparable law
of all appropriate jurisdictions to perfect Agent's interests in the Receivables
originated and Inventory owned by the Subsidiary Guarantor and proceeds thereof.
(m) The Agent and its counsel shall have received duly executed
landlord waivers and bailee waivers, in form and substance satisfactory to
Agent, concerning locations at which Inventory of the Borrower or a Subsidiary
Guarantor is located; provided however; if such landlord waivers and bailee
----------------
waivers are not available on the Closing Date, the Borrower shall cause such
landlord waivers and bailee waivers to be delivered to the Agent not later than
ninety (90) days after the Closing Date.
(n) The Agent shall have received evidence that the Credit
Agreement dated as of December 1, 1995 among the Borrower, the financial
institution party thereto and PNC Bank, as agent has been terminated and all
amounts due thereunder have been paid in full.
(o) The Agent on its own behalf and on behalf of the Lenders and
the L/C Issuer shall be in receipt of all Fees due and payable on or prior to
the Closing Date and all reimbursable expenses incurred on or prior to the
Closing Date.
(p) All matters and circumstances set forth as qualifications,
limitations, exceptions, additional matters or other materials set forth in the
Schedules hereto
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provided by or on behalf of the Borrower or its Subsidiaries shall be acceptable
to the Agent, the L/C Issuer and the Lenders in their reasonable discretion.
5.02. Each Additional Revolving Credit Loan or Issuance of a Letter of
----------------------------------------------------------------
Credit. At the time of making any Revolving Credit Loans or the issuance of, or
- ------
renewal of, a Letter of Credit and after giving effect to the proposed
borrowings or issuance:
(a) the representations and warranties of the Borrower contained in
Article IV hereof and in the other Loan Documents shall be true and correct in
all material respects on and as of the earlier of: (x) the date of such
additional Revolving Credit Loan or issuance of a Letter of Credit or (y) the
specific dates or times referred to therein, with the same effect as though such
representations and warranties have been made on and as of such date;
(b) the Borrower shall have performed and complied in all material
respects with all covenants and conditions hereof;
(c) no Default or Event of Default shall have occurred and be
continuing or shall exist;
(d) the making of any Loan or the issuance of any Letter of Credit
shall not contravene any Law applicable to the Borrower, any of the Lenders or
the L/C Issuer;
(e) the Borrower shall have delivered to the Agent a duly executed
and completed Loan Request and with respect to the issuance of a Letter of
Credit, the Borrower shall have complied with the reasonable requirements of the
L/C Issuer not inconsistent with the terms hereof.
(f) Total Utilization shall not exceed the aggregate Revolving
Credit Commitments; provided, however, that prior to the advance of any Loan on
-------- -------
a Borrowing Date the proceeds of which will repay any Unreimbursed L/C Draw, for
the purpose of calculating Total Utilization and compliance with this Subsection
5.02(f) on such date, the existing Total Utilization immediately prior to such
advance shall be reduced pro tanto by the dollar amount of the Loans to be
--- -----
advanced on such Borrowing Date which will be used to repay any outstanding
Unreimbursed L/C Draws.
5.03. Location of Closing. The Closing shall take place at 11:00 A.M.,
-------------------
Pittsburgh time, on the Closing Date at the offices of Tucker Arensberg, P.C.,
1500 One PPG Place, Pittsburgh, Pennsylvania 15222, or at such other time and
place as the parties agree.
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ARTICLE VI
AFFIRMATIVE COVENANTS
---------------------
The Borrower covenants and agrees that, until payment in full of the Loans
and interest thereon, payment in full of all Letter of Credit reimbursement
obligations and interest thereon, satisfaction of all of the Borrower's other
obligations hereunder and termination of the Revolving Credit Commitments, and
the expiration and cancellation of all Letters of Credit issued hereunder, the
Borrower shall comply, or cause compliance, at all times with the affirmative
covenants set forth in Sections 6.01 through and including Section 6.14.
6.01. Preservation of Existence, etc. (a) The Borrower shall maintain its
-------------------------------
corporate existence and its license or qualification and its good standing in
the state of its incorporation and in each other jurisdiction in which its
ownership or lease of property or the nature of its businesses makes such
license or qualification necessary (except for such other jurisdictions in which
such failure to be so licensed or qualified individually and in the aggregate
would not result in a Material Adverse Change).
(b) Each Subsidiary of the Borrower shall maintain its corporate
existence and its license or qualification and its good standing in the state of
its incorporation and in each other jurisdiction in which its ownership or lease
of property or the nature of its businesses makes such license or qualification
necessary (except for such other jurisdictions in which such failure to be so
licensed or qualified individually and in the aggregate would not result in a
Material Adverse Change).
6.02. Reporting Requirements. The Borrower will maintain, and will cause
----------------------
its Subsidiaries to maintain, a system of accounting established and
administered in accordance with GAAP, and will set aside on its books all such
proper reserves as shall be required by GAAP. Further, the Borrower will:
(i) deliver to the Agent within forty-five (45) days after the end
of each Fiscal Quarter in each Fiscal Year of the Borrower, (A) consolidated
balance sheet as at the end of such period for the Borrower and its
Subsidiaries, (B) consolidated statements of income for such period for the
Borrower and its Subsidiaries and, in the case of the second, third and fourth
quarterly periods, for the period from the beginning of the current Fiscal Year
to the end of such quarterly period, (C) consolidated statements of cash flow
for such period for the Borrower and its Subsidiaries and, in the case of the
second, third and fourth quarterly periods, for the period from
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the beginning of the current Fiscal Year to the end of such quarterly period,
and (D) consolidated statements of shareholders equity for such period for the
Borrower and its Subsidiaries and, in the case of the second, third and fourth
quarterly periods, for the period from the beginning of the current Fiscal Year
to the end of such quarterly period; and with each financial statement described
in clauses (A) through (D) of this Section 6.02(i), each such statement shall
set forth, in comparative form, corresponding figures for the corresponding
period in the immediately preceding Fiscal Year; and all such statements shall
be prepared in reasonable detail and certified, subject to changes resulting
from year-end adjustments, by the chief financial officer of the Borrower;
(ii) deliver to the Agent within 90 days after the end of each
Fiscal Year of the Borrower, (A) consolidated balance sheets as at the end of
such year for the Borrower, (B) consolidated statements of income for such year
for the Borrower, (C) consolidated statements of cash flow for such year for the
Borrower, and (D) consolidated statements of shareholders equity for such year
for the Borrower; and with each financial statement described in clauses (A)
through (D) of this Section 6.02(ii), each such statement shall set forth, in
comparative form, corresponding figures for the immediately preceding Fiscal
Year for the Borrower; and all such financial statements shall present fairly in
all material respects the financial position of the Borrower and its
consolidated subsidiaries, as at the dates indicated and the results of its
operations and its cash flow for the periods indicated, in conformity with GAAP;
and the Borrower shall cause each of the consolidated financial statements
described in clauses (A) through (D) of the Section 6.02(ii) to be certified
without limitation as to scope by Coopers & Lybrand L.L.P. or other independent
certified public accountants acceptable to the Required Lenders;
(iii) deliver to the Agent, together with each delivery of financial
statements pursuant to items (i) and (ii) above, a Compliance Certificate of the
Borrower substantially in the form of Exhibit "F" hereto, properly completed,
-----------
(A) stating (1) that the Borrower has reviewed the terms of the Loan Documents
and has made, or caused to be made under his supervision, a review of the
transactions and condition of the Borrower and its Subsidiaries during the
accounting period covered by such financial statements and that such review has
not disclosed the existence during such accounting period, and (2) that the
Borrower does not have knowledge of the existence, as at the date of such
Compliance Certificate, of any condition or event which constitutes an Event of
Default or a Default, or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action the
Borrower has taken or is taking or proposes to take with respect thereto, and
(B) demonstrating in reasonable detail compliance as at the end of such
accounting period with the restrictions contained in Sections 7.12, 7.13, 7.14
and 7.15 hereof;
(iv) upon request of the Agent, deliver to the Agent as soon as it
becomes available, but in no event later than October 15 of each Fiscal Year of
the Borrower, a capital budget and financial forecast of the Borrower and its
Subsidiaries for such Fiscal Year of the Borrower; and promptly give written
notice to the Agent of the occurrence of any event or condition that has
resulted in a material variance from the capital budget or operating budget in
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effect for such Fiscal Year, but in no event shall any such notice be given
later than five (5) days after such determination is made;
(v) promptly give written notice to the Agent of the happening of
any event (which is known to the Borrower or should reasonably be known to the
Borrower) which constitutes an Event of Default or a Default hereunder, but in
no event shall any such notice be given later than five (5) days after the
Borrower knows or should have known of such event;
(vi) promptly give written notice to the Agent of any pending or, to
the knowledge of the Borrower, overtly threatened claim in writing, litigation
or threat of litigation which arises between the Borrower, or any of its
Subsidiaries, and any other party or parties (including, without limitation, any
Official Body) which claim, litigation or threat of litigation, individually or
in the aggregate, is reasonably likely to cause a Material Adverse Change, any
such notice to be given not later than five (5) days after any of the Borrower
becomes aware of the occurrence of any such claim, litigation or threat of
litigation;
(vii) promptly deliver to the Agent, but in no event later than ten
(10) days after the Borrower, or any of its Subsidiaries, receives, copies of
(A) all management letters and other reports submitted to the Borrower, or a
Subsidiary of the Borrower, by independent certified public accountants in
connection with an annual or interim audit of the books of the Borrower, or a
Subsidiary of the Borrower made by such accountants which sets forth issues
concerning material deviations by the Borrower and/or one or more of its
Subsidiaries from GAAP and/or generally accepted auditing standards, (B) all
reports, notices and proxy statements sent by the Borrower to its shareholders
and (C) all regular and periodic reports and definitive proxy materials
(including but not limited to Forms 10-K, 10-Q and 8-K) filed by the Borrower
with any securities exchange or the Federal Securities and Exchange Commission;
(viii) deliver to the Agent within forty-five (45) days after the
end of each fiscal quarter in each fiscal year of a Class A Subsidiary
Guarantor, (A) a balance sheet as at the end of such period for such Class A
Subsidiary Guarantor, (B) a statement of income for such period for such Class A
Subsidiary Guarantor and, in the case of the second, third and fourth quarterly
periods, for the period from the beginning of the current fiscal year to the end
of such quarterly period, (C) a statement of cash flow for such period for such
Class A Subsidiary Guarantor and, in the case of the second, third and fourth
quarterly periods, for the period from the beginning of the current fiscal year
to the end of such quarterly period, and (D) a statement of shareholders equity
(or similar statement for a partnership) for such period of such Class A
Subsidiary Guarantor and, in the case of the second, third and fourth quarterly
periods, for the period from the beginning of the current fiscal year to the end
of such quarterly period; and with each financial statement described in clauses
(A) through (D) of this Section 6.02(ix), each such statement shall set forth,
in comparative form, corresponding figures for the corresponding period in the
immediately preceding fiscal year of such Class A Subsidiary Guarantor; and all
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such statements shall be prepared in reasonable detail and certified, subject to
changes resulting from year-end adjustments, by the chief financial officer or
general partner, as the case may be, of such Class A Subsidiary Guarantor;
(ix) deliver to the Agent within 90 days after the end of each
fiscal year of each Subsidiary Guarantor, (A) a balance sheet as at the end of
such year for such Subsidiary Guarantor and for each Subsidiary Guarantor which
is a Class A Subsidiary Guarantor (B) a statement of income for such year for
such Class A Subsidiary Guarantor, (C) a statement of cash flow for such year
for such Class A Subsidiary Guarantor, and (D) a statement of shareholders
equity (or similar statement for a partnership) for such year of such Class A
Subsidiary Guarantor; and with each financial statement described in clauses (A)
through (D) of this Section 6.02(x), each such statement shall set forth, in
comparative form, corresponding figures for the immediately preceding fiscal
year for such Subsidiary Guarantor; and shall prepare, or cause to be prepared,
each of the financial statements described in clauses (A) through (D) of this
Section 6.02(x) in reasonable detail; and all such financial statements shall
present fairly in all material respects the financial position of such
Subsidiary Guarantor, as at the dates indicated and, where applicable, the
results of its operations and its cash flow for the periods indicated, in
conformity with GAAP; and
(x) such other reports and information as the Agent or the Required
Lenders may from time to time reasonably request.
6.03. Notices Regarding Plans and Benefit Arrangements.
------------------------------------------------
(a) Promptly upon becoming aware of the occurrence thereof, notice
(including the nature of the event and, when known, any action taken or
threatened by the Internal Revenue Service or the PBGC with respect thereto)
shall be given to the Agent by the Borrower of:
(i) any Reportable Event with respect to the Borrower or any
member of the ERISA Group,
(ii) any Prohibited Transaction which could subject the
Borrower or any member of the ERISA Group to a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Internal Revenue Code in connection with any Plan, Benefit Arrangement or
any trust created thereunder, if such tax and/or penalty is reasonably
likely to result in a Material Adverse Change,
(iii) any assertion of material withdrawal liability with
respect to any Multiemployer Plan,
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(iv) any partial or complete withdrawal from a Multiemployer
Plan by the Borrower or any member of the ERISA Group under Title IV of
ERISA (or assertion thereof), where such withdrawal is likely to result in
material withdrawal liability,
(v) any cessation of operations (by the Borrower of any
member or the ERISA Group) at a facility in the circumstances described in
Section 4062(e) of ERISA,
(vi) withdrawal by the Borrower or any member of the ERISA
Group from a Multiple Employer Plan,
(vii) a failure by the Borrower or any member of the ERISA
Group to make a payment to a Plan required to avoid imposition of a lien
under Section 302(f) of ERISA,
(viii) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA, or
(ix) any change in the actuarial assumptions or funding
methods used for any Plan, where the effect of such change is to materially
increase or materially reduce the unfunded benefit liability or obligation
to make periodic contributions.
(b) Promptly after receipt thereof, copies of (i) all notices
received by the Borrower or any member of the ERISA Group of the PBGC's intent
to terminate any Plan administered or maintained by the Borrower or any member
of the ERISA Group, or to have a trustee appointed to administer any such Plan;
and (ii) at the request of the Agent or any Lender each annual report (IRS Form
5500 series) and all accompanying schedules, the most recent actuarial reports,
the most recent financial information concerning the financial status of each
Plan administered or maintained by the Borrower or any member of the ERISA
Group, and schedules showing the amounts contributed to each such Plan by or on
behalf of the Borrower or any member of the ERISA Group in which any of their
respective personnel participate or from which such personnel may derive a
benefit, and each Schedule B (Actuarial Information) to the annual report filed
by the Borrower or any member of the ERISA Group with the Internal Revenue
Service with respect to each such Plan shall be given to the Agent by the
Borrower.
(c) Promptly upon the filing thereof, copies of any PBGC Form 200,
500, 600 or 601, or any successor form, filed with the PBGC in connection with
the termination of any Plan.
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6.04. Payment of Liabilities, Including Taxes, etc. The Borrower shall
---------------------------------------------
duly pay and discharge, and shall cause its Subsidiaries to pay and discharge
timely (subject, where applicable, to specified grace periods and, in the case
of trade payables, to normal payment practices), all liabilities which
singularly are in excess of $100,000 or which in the aggregate exceed $500,000
to which they are subject or which are asserted against them, promptly as and
when the same shall become due and payable, including all taxes, assessments and
governmental charges upon them or any of their properties, assets, income or
profits, prior to the date on which penalties attach thereto; provided however,
-------- -------
the Borrower may chose not to pay any such liabilities, including taxes,
assessments or charges, if the same are being contested in good faith and for
which such reserves (including reserves for any additional amounts which would
be payable as a result of the failure to discharge timely any such liabilities)
or other appropriate provisions, if any, as shall be required by GAAP shall have
been made.
6.05. Maintenance of Insurance. The Borrower shall insure, and shall cause
------------------------
its Subsidiaries to insure, their respective properties and assets against loss
or damage in such amounts as similar properties and assets are insured by
prudent companies in similar circumstances carrying on similar businesses, and
with reputable and financially sound insurers, including self-insurance to the
extent customary. The Borrower shall comply with all of the terms and
provisions of any Security Document executed by the Borrower concerning the
maintenance of insurance with respect to any collateral granted to or for the
benefit of the Lenders and the L/C Issuer thereunder. The Borrower will furnish
to the Agent on the Closing Date and thereafter simultaneously with the delivery
of the annual financial information delivered pursuant to Section 6.02(ii) a
certificate of the Borrower executed by an Authorized Officer of the Borrower
certifying that such insurance is in force, is adequate in nature and amount and
complies with the Borrower's obligations under this Section 6.05.
6.06. Maintenance of Properties and Leases. The Borrower, and its
------------------------------------
Subsidiaries, shall maintain in good repair, working order and condition
(ordinary wear and tear excepted) in accordance with the general practice of
other businesses of similar character and size, all of those properties useful
or necessary to their respective businesses, and from time to time, the Borrower
will make or cause to be made all appropriate repairs, renewals or replacements
thereof.
6.07. Maintenance of Permits and Franchises. The Borrower, and its
-------------------------------------
Subsidiaries, shall maintain in full force and effect all franchises, permits
and other authorizations necessary for the ownership and operation of their
respective properties and business if the failure so to maintain the same,
individually or in the aggregate, would constitute a Material Adverse Change.
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6.08. Visitation Rights. The Borrower shall permit, and shall cause its
-----------------
Subsidiaries to permit, any of the officers or authorized employees or
representatives of the Agent or any of the Lenders to visit and inspect any of
the properties of the Borrower, or a Subsidiary of the Borrower, and to examine
and make excerpts from its books and records and discuss its respective business
affairs, finances and accounts with its officers, all in such detail and at such
times and as often as any of the Lenders may reasonably request, provided that
each Lender shall provide the Borrower, or the Subsidiary of the Borrower, as
the case may be, and the Agent with reasonable notice prior to any visit or
inspection and only the Agent and its authorized employees or representatives
are permitted to conduct audits.
6.09. Keeping of Records and Books of Account. The Borrower, and its
---------------------------------------
Subsidiaries, shall maintain and keep proper books of record and account which
enable the Borrower to issue financial statements in accordance with GAAP and as
otherwise required by applicable Laws of any Official Body having jurisdiction
over the Borrower and its Subsidiaries, and in which full, true and correct
entries shall be made in all material respects of all their respective dealings
and business and financial affairs.
6.10. Plans and Benefit Arrangements. The Borrower shall, and shall cause
------------------------------
each member of the ERISA Group to, comply with ERISA, the Internal Revenue Code
and other applicable Laws applicable to Plans and Benefit Arrangements except
where such failure, alone or in conjunction with any other failure, would not
result in a Material Adverse Change. Without limiting the generality of the
foregoing, the Borrower shall cause all of its Plans and all Plans maintained by
any member of the ERISA Group to be funded in accordance with the minimum
funding requirements of ERISA and shall make, and cause each member of the ERISA
Group to make, in a timely manner, all contributions due to Plans, Benefit
Arrangements and Multiemployer Plans.
6.11. Compliance with Laws. The Borrower, and its Subsidiaries, shall
--------------------
comply with all applicable Laws (other than Environmental Laws) in all respects,
provided that they shall not be deemed to be a violation of this Section 6.11 if
any failure to comply with any Law would not result in fines, penalties, other
similar liabilities or injunctive relief which in the aggregate would constitute
a Material Adverse Change.
6.12. Use of Proceeds. The Borrower will use the proceeds of the Loans
---------------
only for lawful purposes in accordance with Section 2.16 hereof as applicable
and such uses shall not contravene any applicable Law or any other provision
hereof. The Borrower will permit the use of the Letters of Credit only for
lawful purposes in accordance with Section 2.17 hereof as applicable, and such
uses shall not contravene any applicable Law or any other provision hereof.
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6.13. Environmental Laws. (i) The Borrower and its Subsidiaries, shall
------------------
comply in all material respects, subject to the disclosure set forth in Schedule
4.20, with all Environmental Laws and shall obtain and comply in all material
respects with and maintain any and all licenses, approvals, registrations or
permits required by Environmental Laws;
(ii) The Borrower, and its Subsidiaries, shall conduct and complete
in all material respects all investigations, studies, sampling and testing, and
all remedial, removal and other actions required under Environmental Laws and
promptly comply in all material respects with all lawful orders and directives
of all Official Bodies respecting Environmental Laws, except to the extent that
the same are being contested in good faith by appropriate and lawful proceedings
diligently conducted and for which such reserves or other appropriate
provisions, if any, required by GAAP shall have been made; and
(iii) The Borrower shall defend, indemnify and hold harmless the
Agent and the Lenders, and their respective employees, agents, officers and
directors, from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to the
violation of or noncompliance with any Environmental Laws applicable to the real
property owned or operated by the Borrower or any of its Subsidiaries, or any
orders, requirements or demands of any Official Bodies related thereto,
including, without limitation, reasonable attorney's and consultant's fees,
investigation and laboratory fees, court costs and litigation expenses, except
to the extent that any of the foregoing arise out of the gross negligence or
willful misconduct of the party seeking indemnification therefor.
6.14. Senior Debt Status. The obligations of the Borrower under this
------------------
Agreement and the Notes will rank at least pari passu in priority of payment
---- -----
with all other Indebtedness of the Borrower except Indebtedness of the Borrower
to the extent secured by Permitted Liens. The obligations of a Subsidiary
Guarantor under the Subsidiary Guaranty, the Subsidiary Security Agreement and
other Security Documents executed by it will rank at least pari passu in
---- -----
priority of payment with all other Indebtedness of such Subsidiary Guarantor
except Indebtedness of such Subsidiary Guarantor to the extent secured by
Permitted Liens.
ARTICLE VII
NEGATIVE COVENANTS
------------------
The Borrower covenants and agrees that, until payment in full of the Loans
and interest
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thereon, payment in full of all Letter of Credit reimbursement obligations and
interest thereon, satisfaction of all of the Borrower's other obligations
hereunder and termination of the Revolving Credit Commitments, and the
expiration and cancellation of all Letters of Credit issued hereunder, the
Borrower shall comply, or cause the compliance, with the negative covenants set
forth in Sections 7.01 through and including Section 7.17.
7.01. Indebtedness. The Borrower, and its Subsidiaries, shall not at any
------------
time, create, incur, assume or suffer to exist any Indebtedness (including
Indebtedness secured by Permitted Liens), except:
(i) Indebtedness under the Loan Documents;
(ii) Existing Indebtedness as set forth on Schedule 7.01 hereto
-------------
(including any extensions or renewals thereof provided there is no increase
in the amount thereof or other significant change in the terms thereof);
(iii) Indebtedness of a Subsidiary of the Borrower to the Borrower
or to another Subsidiary of the Borrower or the Indebtedness of the
Borrower to a Subsidiary of the Borrower including, without limitation, the
Indebtedness evidenced by the Subordinated Notes;
(iv) Indebtedness with respect to foreign exchange hedging
transactions entered into in the ordinary course of business to manage
foreign currency risk for the Borrower and/or one or more of its
Subsidiaries;
(v) Indebtedness with respect to oil hedging contracts entered
into in the ordinary course of business to manage oil price risk for the
Borrower and/or one or more of its Subsidiaries;
(vi) Indebtedness incurred pursuant to Interest Hedge Agreements;
(vii) Other Indebtedness not covered by clauses (i) through (v)
above of this Section 7.01 provided that (A) the principal amount of such
indebtedness is not due and payable until after the Expiration Date in
effect when such Indebtedness is incurred, (B) the terms of such
Indebtedness are no more restrictive, taken as a whole, than the terms
hereof and (C) on the date such Indebtedness is incurred there is a
permanent reduction of the Revolving Credit Commitments in an amount equal
to the amount of such Indebtedness;
(viii) Other Indebtedness not covered by items (i) through (vii)
above, provided that the aggregate amount of such Indebtedness permitted by
this item (viii) shall not exceed $10,000,000 at any one time outstanding;
and
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<PAGE>
(ix) Indebtedness evidenced by the Senior Notes; provided that on
and after October 1, 1997, the principal amount of such Indebtedness shall
not exceed $3,000,000.
7.02. Liens. The Borrower, and its Subsidiaries, shall not at any time
-----
create, incur, assume or suffer to exist any Lien on any of their respective
property or assets, tangible or intangible, now owned or hereafter acquired, or
agree or become liable to do so, except Permitted Liens.
7.03. Loans, Acquisitions and Investments. The Borrower, and its
-----------------------------------
Subsidiaries, shall not at any time make any loan or advance to, or purchase or
otherwise acquire any stock, bonds, notes or securities of, or any partnership
interest (whether general or limited) in, or assets of, or any other investment
or interest in, or make any capital contribution to, any other person, or agree
to or become liable to do any of the foregoing, except:
(i) trade credit extended on usual and customary terms in the
ordinary course of business;
(ii) fixed assets, equipment or Inventory acquired in the ordinary
course of business;
(iii) loans and advances to employees to meet expenses incurred by
such employees in the ordinary course of business, including without
limitation relocation expenses;
(iv) Cash Equivalents;
(v) investments, capital contributions and advances by the
Borrower in existence as of the date hereof, which investments, capital
contributions and advances are set forth on Schedule 7.03 hereof;
-------------
(vi) investments and capital contributions by the Borrower in,
and loans and advances by Borrower to, a third Person so long as after
giving effect to each such investment or capital contribution the Borrower
shall not have caused a violation of Sections 7.01, 7.02, 7.08, 7.09, 7.12,
7.13, 7.14, 7.15 or 7.16;
(vii) loans, advances and capital contributions by a Subsidiary of
the Borrower to the Borrower or any of the Borrower's other Subsidiaries or
loan, advances and capital contributions by the Borrower to any of its
Subsidiaries; and
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<PAGE>
(viii) Borrower or any Subsidiary may acquire the assets
or voting securities of any other Person provided that (A) at the time of
such acquisition no Default or Event of Default shall have occurred and be
continuing or be caused by such acquisition, (B) the acquired Person, if
any, shall become a Guarantor Subsidiary and , if required pursuant to the
terms of Section 3.04 shall become a Class A Guarantor Subsidiary, and
shall execute all Loan Documents required of a Guarantor Subsidiary, (C)
the acquisition shall not be contested by such Person or the holders of its
equity securities and (D) the Borrower shall have provided the Agent with
pro forma historical financial information which demonstrate to the
reasonable satisfaction of the Lenders that such acquisition will not
violate any covenants of this Agreement.
7.04. Liquidations, Mergers and Consolidations. The Borrower shall not,
----------------------------------------
and shall not permit any Subsidiary of Borrower to, dissolve, liquidate or wind-
up its affairs, or become a party to any merger or consolidation, or sell,
lease, transfer, or otherwise dispose of, all or substantially all of its
assets, provided that:
--------
(i) any Subsidiary of Borrower may consolidate or merge into the
Borrower or another Subsidiary of the Borrower;
(ii) any Subsidiary of the Borrower may sell, lease, transfer or
otherwise dispose of all or substantially all of its assets (upon voluntary
liquidation or otherwise) to the Borrower or another Subsidiary of the
Borrower; and
(iii) the Borrower or any Subsidiary may consolidate or merge with
any Person, provided that (A) if the Borrower is a party to such merger or
consolidation, the Borrower be the surviving Person, (B) at the time of the
consolidation or merger no Default or Event of Default shall have occurred
and be continuing or be caused by such consolidation or merger, (C) the
surviving Person, if not the Borrower, shall become a Guarantor Subsidiary
and , if required pursuant to the terms of Section 3.04 shall become a
Class A Guarantor Subsidiary, (D) the consolidation or merger shall not be
contested by such Person or the holders of its equity securities and (E)
the Borrower shall have provided the Agent with pro forma historical
financial information which demonstrate to the reasonable satisfaction of
the Lenders that such merger or consolidation will not violate any
covenants of this Agreement.
7.05. Dispositions of Assets or Subsidiaries. Excluding the payment of
--------------------------------------
cash as consideration for assets purchased by, or services rendered to, the
Borrower or any Subsidiary, neither the Borrower nor any of its Subsidiaries
shall sell, convey, assign, lease, or otherwise transfer or dispose of,
voluntarily or involuntarily, any of its properties or assets, tangible or
intangible (including but not limited to sale, assignment, discount or other
disposition of accounts, contract rights, chattel paper, equipment or
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<PAGE>
general intangibles with or without recourse or of Capital Stock, shares or
beneficial interests or partnership interests in Subsidiaries), except:
(i) any sale, transfer or disposition of surplus, obsolete or worn
out assets of the Borrower or a Subsidiary;
(ii) any sale, transfer or lease of Inventory by the Borrower or
any Subsidiary of the Borrower in the ordinary course of business;
(iii) any sale, transfer or lease of assets by any Subsidiary of the
Borrower to the Borrower or any other Subsidiary of the Borrower or by the
Borrower to any Subsidiary of the Borrower;
(iv) any sale, transfer or lease of assets, other than those
specifically excepted pursuant to clauses (i) through (iii) above, which in
any one sale, transfer or lease of assets, or in any number of sales,
transfers or leases of assets occurring in any consecutive twelve month
period, involves the sale, transfer or lease of not more than 10% of the
Consolidated Net Worth of the Borrower (measured with respect to a series
of sales, transfers or leases of assets on the day of the first sale); or
(v) any absolute sale or assignment of accounts in connection
with a Securitization, provided that (A) such transaction, except for the
customary exceptions, is nonrecourse to the Borrower or its Subsidiaries,
(B) on the date of each such transaction the Revolving Credit Commitments
are permanently reduced by a Dollar amount equal to the Maximum Purchase
Commitment of such transaction and (C) such Securitization be "off balance
sheet" for financial reporting purposes in accordance with GAAP.
7.06. Affiliate Transactions. Except as set forth on Schedule 4.02 and as
---------------------- -------------
set forth on Schedule 7.06, neither the Borrower nor any Subsidiary of the
-------------
Borrower shall enter into or carry out any material transaction (including,
without limitation, purchasing property or services or selling property or
services) with an Affiliate unless such transaction is not otherwise prohibited
by this Agreement or the other Loan Documents, is entered into in the ordinary
course of business upon fair and reasonable arm's-length terms and conditions
which are fully disclosed to the Agent and is in accordance with all applicable
Law.
7.07. Subsidiaries, Partnerships and Joint Ventures. (i) Except as
---------------------------------------------
permitted by Section 7.03, neither the Borrower nor any Subsidiary of the
Borrower shall own or create any Subsidiaries other than those listed in
Schedule 4.03 or 7.03; and (ii) neither the Borrower nor any Subsidiary of the
- ---------------------
Borrower shall become or agree to become a general partner in any general or
limited partnership or a joint
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<PAGE>
venturer in any joint venture, without the consent of the Required Lenders, such
consent not to be unreasonably withheld.
7.08. Continuation of or Change in Business. Neither the Borrower nor any
-------------------------------------
Subsidiary of the Borrower shall engage in any business other than the business
activities of such Persons substantially as conducted and operated by the
Borrower and its Subsidiaries during the Fiscal Year ended July 31, 1997, and
the Borrower shall not permit any material change in such business.
7.09. Plans and Benefit Arrangements. The Borrower shall not, and shall
not permit any member of the ERISA Group to:
(i) fail to satisfy the minimum funding requirements of ERISA and
the Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver from the Internal Revenue
Service with respect to any Plan;
(iii) engage in a Prohibited Transaction with any Plan, Benefit
Arrangement or Multiemployer Plan which, alone or in conjunction with any
other circumstances or set of circumstances resulting in liability under
ERISA, would constitute a Material Adverse Change;
(iv) fail to make when due any contribution to any Multiemployer
Plan that the Borrower or any member of the ERISA Group may be required to
make under any agreement relating to such Multiemployer Plan, or any Law
pertaining thereto;
(v) withdraw (completely or partially) from any Multiemployer Plan
or be deemed under Section 4062(e) of ERISA to withdraw from any Multiple
---------------
Employer Plan, where any such withdrawal is likely to result in a material
liability of the Borrower or any member of the ERISA Group;
(vi) terminate, or institute proceedings to terminate, any Plan,
where such termination is likely to result in a material liability to the
Borrower or any member of the ERISA Group;
(vii) make any amendment to any Plan with respect to which security
is required under Section 307 of ERISA; or
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<PAGE>
(viii) fail to give any and all notices and make all disclosures and
governmental filings required under ERISA or the Internal Revenue Code,
where such failure is likely to result in a Material Adverse Change.
7.10. Fiscal Year. Neither the Borrower nor any Subsidiary of the Borrower
-----------
shall change its Fiscal Year from a period beginning August 1 and ending on the
immediately succeeding July 31.
7.11. Changes in Organizational Documents. The Borrower shall not, and
-----------------------------------
shall not permit any Guarantor Subsidiary of Borrower to, amend in any respect
its certificate or articles of incorporation without providing at least thirty
(30) calendar days' prior written notice to the Agent and the Lenders and, in
the event such change would be materially adverse to the Lenders as determined
by the Agent in its sole but reasonable discretion, obtaining the prior written
consent of the Required Lenders.
7.12. Minimum Consolidated Tangible Net Worth. The Borrower will not at
--------------------------------------- --
any time on and after November 1, 1997 permit its Consolidated Tangible Net
- --------
Worth to be less than an amount equal to the sum of (i) 85% of the Consolidated
Tangible Net Worth as of October 31, 1997, plus (ii) 50% of the positive net
income for each Fiscal Quarter ending after October 31, 1997 of the Borrower and
its Subsidiaries determined on a consolidated basis in accordance with GAAP
consistently applied, plus (iii) all increases to equity from the issuance by
the Borrower after July 31, 1997 of further equity securities or other equity
capital investments.
7.13. Interest Coverage. The Borrower shall not permit its ratio, measured
-----------------
on a rolling four Fiscal Quarter basis, of EBITDA to Cash Interest Expense as of
the end of each Fiscal Quarter to be less than 3.5 to 1.0.
7.14. Leverage Ratio. The Borrower shall not permit its Consolidated Total
--------------
Indebtedness to EBITDA Ratio to exceed 3.0 to 1.0.
7.15. Operating Leases. The Borrower and its Subsidiaries may not incur
----------------
operating leases which in the aggregate require rental payments in a Fiscal Year
to exceed $5,000,000.
7.16. Limitation on Negative Pledge Clauses. Neither the Borrower nor any
-------------------------------------
of its Subsidiaries shall enter into any agreement with any Person (other than
the Lenders pursuant hereto) which prohibits or limits the ability of the
Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired.
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<PAGE>
7.17. No Changes. The Borrower shall not, and shall not permit any
----------
Subsidiary Guarantor to change the name, identity or corporate or other
organizational structure of the Borrower or any Subsidiary Guarantor in any
manner which would make any financing statement or continuation statement filed
in connection with this Agreement or the Subsidiary Guaranty or the transactions
contemplated hereby or thereby seriously misleading within the meaning of
Section 9-402(7) of the UCC of any applicable jurisdiction or other applicable
Laws unless it shall have given the Agent prior thirty (30) day written notice
thereof, and unless prior thereto it shall have caused such financing statement
or continuation statement to be amended or a new financing statement to be filed
such that such financing statement or continuation statement would not be
seriously misleading as required by the Security Agreement or the Subsidiary
Security Agreement, as the case may be.
ARTICLE VIII
DEFAULT
-------
8.01. Events of Default. An "Event of Default" shall mean the occurrence
----------------- ----------------
or existence of any one or more of the following events or conditions (whatever
the reason therefor and whether voluntary, involuntary or effected by operation
of Law):
(a) (i) The Borrower shall fail to pay any principal of any Loan
(including scheduled installments, mandatory prepayments or the payment due at
maturity whether by acceleration or otherwise) when due, or (ii) the Borrower
shall fail to pay any Unreimbursed L/C Amount when due, or (iii) the Borrower
shall fail to pay any interest on any Loan, any Unreimbursed L/C Draw or any
other amount owing hereunder or under any other Loan Documents after such
interest, or other amount becomes due in accordance with the terms hereof or
thereof and such failure shall continue for a period of five (5) days;
(b) Any representation or warranty made at any time by the Borrower
herein or in any other Loan Document or by a Subsidiary Guarantor in any Loan
Document executed by such Subsidiary Guarantor, or in any certificate, other
instrument or statement furnished pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading in any material respect as of the
time it was made or furnished;
(c) The Borrower shall default in the observance or performance of
any covenant contained in Sections 6.13 or 6.14 or Article VII hereof;
(d) The Borrower shall default in the observance or performance of
any other covenant, condition or provision hereof, or of any other Loan Document
and, if
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remediable, such default shall continue unremedied for a period of thirty (30)
days after any officer of the Borrower becomes aware of the occurrence thereof;
or a Subsidiary Guarantor shall default in the observance or performance of any
other covenant, condition or provision contained in a Subsidiary Guaranty,
Subsidiary Security Agreement or any other Loan Document executed by such
Subsidiary Guarantor, and such default shall continue unremedied for a period of
thirty (30) days after any officer of such Subsidiary Guarantor becomes aware of
the occurrence thereof;
(e) A default or event of default shall occur at any time under the
terms of any agreements involving Indebtedness under which the Borrower or any
Subsidiary of the Borrower may be obligated as borrower, guarantor or otherwise
in excess of Five Million Dollars ($5,000,000) in the aggregate, and such
breach, default or event of default consists of the failure to pay (beyond any
period of grace permitted with respect thereto, whether waived or not) any
Indebtedness when due (whether at stated maturity, by acceleration or
otherwise) or if such breach or default causes the acceleration of any such
Indebtedness or such breach or default permits the acceleration of any
Indebtedness;
(f) Any judgments or orders for the payment of money in excess of
Two Million Dollars ($2,000,000) in the aggregate shall be entered against the
Borrower or any of its Subsidiaries, by a court having jurisdiction in the
premises which judgments are not satisfied, discharged, vacated, bonded or
stayed pending appeal within a period of thirty (30) days from the respective
date of entry;
(g) Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the party executing the same or such
party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof (except to the extent that
enforceability of any of the Loan Documents may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally or limiting the right of specific
performance) or shall in any way be terminated (except in accordance with terms)
or become or be declared ineffective or inoperative or shall in any way be
challenged or contested or cease to give or provide the respective rights,
titles, interests, remedies, powers or privileges intended to be created thereby
in all material respects;
(h) A notice of lien, levy or assessment in excess of Two Million
Dollars ($2,000,000) in the aggregate is filed of record with respect to all or
any part of the assets of the Borrower or a Subsidiary Guarantor by the United
States, or any department, agency or instrumentality thereof, or by any state,
county, municipal or other governmental agency, including, without limitation,
the PBGC, or if any taxes or debts in excess of Two Million Dollars ($2,000,000)
owing at any time or times hereafter to any one of these becomes payable and the
same is not paid within thirty (30) days after the same becomes payable, or if
such notice
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is filed or such payment is not so made, unless the Borrower or such Subsidiary
Guarantor (i) contests such lien, assessment, tax or debt in good faith by
appropriate and lawful proceedings diligently conducted but only so long as such
proceedings could not subject the Agent, the Lenders or the L/C Issuer to any
criminal penalties, or could not result in or involve any risk of loss, sale or
forfeiture of any Assigned Collateral or the Subsidiary Assigned Collateral, as
the case may be, or any risk of loss of the first priority interest of the Agent
in the Assigned Collateral or the Subsidiary Assigned Collateral, as the case
may be, (ii) establishes such reserves or other appropriate provisions, if any,
as shall be required by GAAP and (iii) pays such lien, assessment, tax or debt
in accordance with the terms of any final judgments or orders relating thereto
within thirty (30) days after the entry of such judgments or orders;
(i) The Borrower, or a Subsidiary Guarantor, ceases to be Solvent or
admits in writing its inability to pay debts as they mature;
(j) Any of the following occurs: (i) any Reportable Event, which
constitutes grounds for the termination of any Plan by the PBGC or the
appointment of a trustee to administer or liquidate any Plan, shall have
occurred and be continuing; (ii) proceedings shall have been instituted or other
action taken to terminate any Plan, or a termination notice shall have been
filed with respect to any Plan; (iii) a trustee shall be appointed to administer
or liquidate any Plan; (iv) the PBGC shall give notice of its intent to
institute proceedings to terminate any Plan or Plans or to appoint a trustee to
administer or liquidate any Plan and, in the case of the occurrence of (i),
(ii), (iii) or (iv) of this Section 8.01(j), the amount of Borrower's liability
or the liability of the other members of the ERISA Group is likely to exceed
five percent (5%) of the Consolidated Tangible Net Worth; (v) the Borrower or
any member of the ERISA Group shall fail to make any contributions when due to a
Plan or a Multiemployer Plan; (vi) the Borrower or any member of the ERISA Group
shall make any amendment to a Plan with respect to which security is required
under Section 307 of ERISA; (vii) the Borrower or any member of the ERISA Group
shall withdraw completely or partially from a Multiemployer Plan; (viii) the
Borrower or any member of the ERISA Group shall withdraw (or shall be treated
under Section 4062(e) of ERISA as having withdrawn) from a Multiple Employer
Plan; or (ix) any applicable Law is adopted, changed or interpreted by any
Official Body with respect to or otherwise affecting one or more Plans,
Multiemployer Plans or Benefit Arrangements and, with respect to any of the
events specified in (v), (vi), (vii), (viii) or (ix), any such occurrence would
be reasonably likely to materially and adversely affect the total enterprise
represented by the Borrower and the other members of the ERISA Group;
(k) The Borrower, or a Subsidiary Guarantor, is enjoined, restrained
or in any way prevented by court order from conducting all or any material part
of its business and such injunction, restraint or other preventive order is not
stayed or dismissed within thirty (30) days after the entry thereof;
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(l) (i) any person or group of persons (within the meaning of
Sections 13(g) or 14(d)(2) of the Securities Exchange Act of 1934, as amended),
shall have acquired beneficial ownership of (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under said Act) 35% or
more of the voting Capital Stock of the Borrower;
(ii) within a period of twelve (12) consecutive months,
individuals who were directors of the Borrower on the first day of such period
and/or individuals who become directors of the Borrower pursuant to a nomination
or election that was recommended or approved by the individuals who were
directors on the first day of such period shall cease to constitute a majority
of the board of directors of the Borrower; or
(iii) the Borrower or a Subsidiary shall own less than 100% of
the voting Capital Stock or voting partnership or other equity interest of any
Subsidiary Guarantor;
(m) A proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect of
the Borrower, or a Subsidiary Guarantor, in an involuntary case under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, or a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of the Borrower, or a Subsidiary
Guarantor, for any substantial part of such Person's property, or for the
winding-up or liquidation of such Person's affairs, and such proceeding shall
remain undismissed or unstayed and in effect for a period of thirty (30)
consecutive days or such court shall enter a decree or order granting any of the
relief sought in such proceeding;
(n) The Borrower, or a Subsidiary Guarantor, shall commence a
voluntary case under any applicable bankruptcy, insolvency, reorganization or
other similar law now or hereafter in effect, shall consent to the entry of an
order for relief in an involuntary case under any such law, or shall consent to
the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator, conservator (or other similar official) of
itself or for any substantial part of property or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay debts as
they become due, or shall take any action in furtherance of any of the
foregoing;
(o) any of the Security Documents shall cease to be in full force
and effect or shall be declared to be null and void by a court of competent
jurisdiction; or any Lien granted to the Agent for the benefit of the Lenders,
the L/C Issuer and the Agent pursuant to any such Security Document ceases to be
a Lien with the priority as represented and warranted in such Security Document;
or
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(p) any garnishment proceeding concerning a sum in excess of
Two Million Dollars ($2,000,000) shall be instituted by attachment, levy or
otherwise, against any deposit account maintained by the Borrower or a
Subsidiary Guarantor with any Lender.
8.02. Consequences of Event of Default.
--------------------------------
(a) If an Event of Default specified in any of items (a) through (l)
or item (o) or (p) of Section 8.01 hereof shall occur and be continuing, the
Lenders shall be under no further obligation to make Loans hereunder, the L/C
Issuer shall be under no further obligation to issue or amend Letters of Credit
hereunder and the Agent may, and upon the request of the Required Lenders shall,
by written notice to the Borrower, declare the unpaid principal amount of the
Notes then outstanding and all interest accrued thereon, any unpaid fees and all
other Indebtedness of the Borrower to the Lenders, the Agent and the L/C Issuer
hereunder and under the other Loan Documents to be forthwith due and payable,
and the same shall thereupon become and be immediately due and payable to the
Agent for the benefit of each Lender, the Agent and the L/C Issuer without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived; and
(b) If any Event of Default specified in item (m) or (n) of Section
8.01 hereof shall occur, the Lenders shall be under no further obligations to
make Loans hereunder, the L/C Issuer shall be under no further obligation to
issue or amend Letters of Credit hereunder and the unpaid principal amount of
the Notes then outstanding and all interest accrued thereon, any unpaid fees and
all other Indebtedness of the Borrower to the Lenders, the Agent and the L/C
Issuer hereunder and under the other Loan Documents shall be immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived; further, during the thirty (30) day period
referred to in item (m) the Lenders shall be under no further obligation to make
Loans and the L/C Issuer shall be under no further obligation to issue or amend
Letters of Credit hereunder; and
(c) If an Event of Default shall occur and be continuing, any Lender
to whom any obligation is owed by the Borrower hereunder or under any other Loan
Document, of such Lender and any branch, subsidiary or affiliate of such Lender
anywhere in the world shall each have the right, in addition to all other rights
and remedies available to it, without notice to the Borrower, to set-off against
and apply to the then unpaid balance of all the Revolving Credit Loans and all
other obligations of the Borrower hereunder or under any other Loan Document,
any debt owing to, and any other funds held in any manner for the account of,
the Borrower by such Lender or by such branch, subsidiary
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or affiliate, including, without limitation, all funds in all deposit accounts
(whether time or demand, general or special, provisionally credited or finally
credited, or otherwise) now or hereafter maintained by the Borrower for its own
account (but not including funds held in custodian or trust accounts) with such
Lender or such branch, subsidiary or affiliate. Such right shall exist in each
case whether or not any Lender or the Agent shall have made any demand under
this Agreement or any other Loan Document, whether or not such debt owing to or
funds held for the account of the Borrower is or are matured or unmatured and
regardless of the existence or adequacy of any other security, right or remedy
available to any Lender or the Agent; and
(d) In addition to all of the rights and remedies contained in this
Agreement or in any of the other Loan Documents, the Agent and the Lenders shall
have all of the rights and remedies of a creditor under applicable Law, all of
which rights and remedies shall be cumulative and non-exclusive, to the extent
permitted by Law. The Agent may, and upon the request of the Required Lenders
shall, exercise all post-default rights granted to the Agent and the Lenders
under the Loan Documents or applicable Law.
(e) Upon the occurrence of any Event of Default described in the
foregoing Sections 8.01(m) or (n) or upon the declaration by the Required
Lenders of any other Event of Default and the termination of the Revolving
Credit Commitments, the obligation of the L/C Issuer to issue or amend Letters
of Credit shall terminate, the L/C Issuer or the Agent may provide written
demand to any beneficiary of a Letter of Credit to present a draft against such
Letter of Credit, and an amount equal to the maximum amount which may at any
time be drawn under the Letters of Credit then outstanding (whether or not any
beneficiary of such Letters of Credit shall have presented, or shall be entitled
at such time to present, the drafts or other documents required to draw under
the Letters of Credit) shall automatically become immediately due and payable,
without presentment, demand, protest or other requirements of any kind, all of
which are hereby expressly waived by the Borrower; provided that the foregoing
shall not affect in any way the obligations of the Lenders to purchase from the
L/C Issuer participation in the unreimbursed amount of any drawings under the
Letters of Credit as provided in Section 2.17(c). So long as the Letters of
Credit shall remain outstanding, any amounts declared due pursuant to this
Section 8.02(e) with respect to the outstanding Letters of Credit when received
by the Agent shall be deposited and held by the Agent in an interest bearing
account denominated in the name of the Agent for the benefit of the Agent, the
Lenders and the L/C Issuer over which the Agent shall have sole dominion and
control of withdrawals (the "Cash Collateral Account") as cash collateral for
the obligation of the Borrower to reimburse the L/C Issuer in the event of any
drawing under the Letters of Credit and upon any drawing under such Letters of
Credit in respect of which the Agent has deposited in the Cash Collateral
Account any amounts declared due pursuant to this Section 8.02(e), the Agent
shall apply such amounts held by the Agent to reimburse the L/C Issuer for the
amount of such drawing. In the event that any Letter of Credit in respect of
which the Agent has deposited in the Cash Collateral Account any amounts
described above is cancelled or expires or in the event of any reduction in the
maximum amount available at any time for drawing under the
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Letters of Credit outstanding, the Agent shall apply the amount then in the Cash
Collateral Account designated to reimburse the L/C Issuer for any drawings under
the Letters of Credit less the maximum amount available at any time for drawing
under the Letters of Credit outstanding immediately after such cancellation,
expiration or reduction, if any, to the payment in full of the outstanding
Lender Obligations, and second, to the payment of any excess, to the Borrower.
ARTICLE IX
THE AGENT
---------
9.01. Appointment and Grant of Authority. (a) Each of the Lenders and the
----------------------------------
L/C Issuer hereby appoints PNC Bank, National Association, and PNC Bank,
National Association, hereby agrees to act, as the Agent under this Agreement
and the other Loan Documents. The Agent shall have and may exercise such powers
under this Agreement and the other Loan Documents as are specifically delegated
to it by the terms hereof or thereof, together with such other powers as are
incidental thereto. Without limiting the foregoing, the Agent, on behalf of the
Lenders and the L/C Issuer, is authorized to execute all of the Loan Documents
(other than this Agreement) and to accept all of the Loan Documents and all
other agreements, documents or instruments reasonably required to carry out the
intent of the parties to this Agreement.
(b) The Lenders and the L/C Issuer appoint and authorize the Agent,
and the Agent hereby accepts the appointment and authorization to act as agent
of, and bailee, for the Lenders and the L/C Issuer to hold for their collective
benefit the Assigned Collateral and the Subsidiary Assigned Collateral. The
Agent, in its capacity of agent and bailee as set forth in the immediately
preceding sentence, shall not commingle the proceeds realized from any
enforcement action against any of the Assigned Collateral or the Subsidiary
Assigned Collateral with any asset or account of the Agent, and such proceeds
shall be held in trust for the benefit of the Lenders and the L/C Issuer and
shall be applied pursuant to the terms hereof.
9.02. Delegation of Duties. The Agent may perform any of its duties
--------------------
hereunder by or through agents or employees (provided such delegation does not
constitute a relinquishment of duties as the Agent hereunder) and, subject to
Sections 9.07 and 10.03 hereof, shall be entitled to engage and pay for the
advice or services of any attorneys, accountants or other experts concerning all
matters pertaining to duties hereunder and to rely upon any advice so obtained.
9.03. Reliance by Agent on Lenders for Funding. Unless the Agent shall
----------------------------------------
have received notice from a Lender prior to any Borrowing Date that such Lender
will not make available to the Agent such Lender's portion of net disbursements
of Revolving Credit Loans, the Agent may assume that such Lender has made such
portion available to the Agent and the Agent may, in reliance upon such
assumption, make
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Revolving Credit Loans to the Borrower. If and to the extent that such Lender
has not made such portion available to the Agent on or prior to any Borrowing
Date, such Lender and the Borrower severally agree to repay to the Agent
immediately upon demand, in immediately available funds, such unpaid amount,
together with interest thereon for each day from the applicable Borrowing Date
until such amount is repaid to the Agent, at (i) in the case of the Borrower, at
the rate of interest then in effect for such loan and (ii) in the case of such
Lender, at the Federal Funds Effective Rate. If such Lender shall repay to the
Agent such corresponding amount, such amount shall constitute a Revolving Credit
Loan made by such Lender for purposes of this Agreement. The failure by any
Lender to pay its portion of a Revolving Credit Loan made by the Agent shall not
relieve any other Lender of the obligation to pay its portion of net
disbursements of Revolving Credit Loans on any Borrowing Date, but no Lender
shall be responsible for the failure of any other Lender to make its net share
of Revolving Credit Loans to be made by such other Lender on such Borrowing
Date.
9.04. Non-Reliance on Agent. Each Lender and the L/C Issuer agree that
---------------------
(i) it has, independently and without reliance on the Agent, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis of the Borrower and its Subsidiaries and decision to enter into this
Agreement and (ii) that it will, independently and without reliance upon the
Agent, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement. Except as otherwise provided herein or
under any other Loan Document, the Agent shall have no duty to keep the Lenders
or the L/C Issuer informed as to the performance or observance by the Borrower
of this Agreement or any other document referred to or provided for herein or to
inspect the properties or books of the Borrower or any of its Subsidiaries. The
Agent, in the absence of gross negligence or willful misconduct, shall not be
liable to any Lender or the L/C Issuer for its failure to relay or furnish to
the Lender any information.
9.05. Responsibility of Agent and Other Matters.
-----------------------------------------
(a) Ministerial Nature of Duties. As between the Lenders, the L/C
----------------------------
Issuer and itself, the Agent shall not have any duties or responsibilities
except those expressly set forth in this Agreement or in the other Loan
Documents, and those duties and responsibilities shall be subject to the
limitations and qualifications set forth in this Article IX. The duties of the
Agent shall be ministerial and administrative in nature.
(b) Limitation of Liability. As between the Lenders, the L/C Issuer
-----------------------
and itself, neither the Agent nor any of its respective directors, officers,
employees or agents shall be liable, in the absence of gross negligence or
willful misconduct, for any action taken or omitted (whether or not such action
taken or omitted is within or without the Agent's
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responsibilities and duties expressly set forth in this Agreement) under or in
connection with this Agreement or any other instrument or document in connection
herewith. Without limiting the foregoing, neither the Agent, nor any of its
directors, officers, employees or its agents, shall be responsible for, or have
any duty to examine (i) the genuineness, execution, validity, effectiveness,
enforceability, value or sufficiency of (A) this Agreement or any of the other
Loan Documents or (B) any other document or instrument furnished pursuant to or
in connection with this Agreement, (ii) the collectability of any amounts owed
by the Borrower to the Agent, the Lenders or the L/C Issuer, (iii) the
truthfulness of any recitals or statements or representations or warranties made
to the Agent or the Lenders in connection with this Agreement, (iv) any failure
of any party to this Agreement to receive any communication sent, including any
telegram, telex, teletype, telecopy, bank wire, cable, or telephone message or
any writing, application, notice, report, statement, certificate, resolution,
request, order, consent letter or other instrument or paper or communication
entrusted to the mails or to a delivery service, or (v) the assets or
liabilities or financial condition or results of operations or business or
creditworthiness of the Borrower or any of its Subsidiaries.
(c) Reliance. The Agent shall be entitled to act, and shall be
--------
fully protected in acting upon, any telegram, telex, teletype, telecopy, bank
wire or cable or any writing, application, notice, report, statement,
certificate, resolution, request, order, consent, letter or other instrument or
paper or communication believed by the Agent in good faith to be genuine and
correct and to have been signed or sent or made by a proper Person. The Agent
may consult counsel and shall be entitled to act, and shall be fully protected
in any action taken in good faith, in accordance with advice given by counsel.
The Agent may employee agents and attorneys-in-fact and shall not be liable for
the default or misconduct of any such agents or attorneys-in-fact selected by
the Agent with reasonable care. The Agent shall not be bound to ascertain or
inquire as to the performance or observance of any of the terms, provisions or
conditions of this Agreement or any of the other Loan Documents on the part of
the Borrower.
9.06. Actions in Discretion of Agent; Instructions from the Lenders. The
-------------------------------------------------------------
Agent agrees, upon the written request of the Required Lenders, to take or
refrain from taking any action of the type specified as being within the Agent's
rights, powers or discretion herein or under any Loan Documents, provided that
--------
the Agent shall not be required to take any action which exposes the Agent to
personal liability or which is contrary to this Agreement or any other Loan
Document or applicable Law. In the absence of a request by the Required
Lenders, the Agent shall have authority, in its sole discretion, to take or not
to take any such action, unless this Agreement specifically requires the consent
of the Required Lenders or all of the Lenders. Any action taken or failure to
act pursuant to such instructions or discretion shall be binding on the Lenders
and the L/C Issuer, subject to Section 9.05(b) hereof. Subject to the
provisions of Section 9.05(b), no Lender shall have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting hereunder in accordance with the instructions of the Required Lenders.
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9.07. Indemnification. To the extent the Borrower does not reimburse and
---------------
save harmless the Agent according to the terms hereof for and from all costs,
expenses and disbursements in connection herewith, such costs, expenses and
disbursements, shall be borne by the Lenders ratably in accordance with
respective Lender's Ratable Share. Each Lender hereby agrees on such basis (i)
to reimburse the Agent for such Lender's Ratable Share of all such reasonable
costs, expenses and disbursements on request and (ii) to the extent of each such
Lender's Ratable Share, to indemnify and save harmless the Agent against and
from any and all losses, obligations, penalties, actions, judgments and suits
and other costs, expenses and disbursements of any kind or nature whatsoever
which may be imposed on, incurred by or asserted against the Agent, other than
as a consequence of gross negligence or willful misconduct on the part of the
Agent, arising out of or in connection with this Agreement, the other Loan
Documents or any other agreement, instrument or document in connection herewith
or therewith, or any request of the Required Lenders, including without
limitation the reasonable costs, expenses and disbursements in connection with
defending itself against any claim or liability related to the exercise or
performance of any of its powers or duties under this Agreement, the other Loan
Documents, or any of the other agreements, instruments or documents delivered in
connection herewith or the taking of any action under or in connection with any
of the foregoing.
9.08. Agent's Rights as a Lender. With respect to the Revolving Credit
--------------------------
Commitment of the Agent as a Lender hereunder, any Revolving Credit Loans or
Swingline Loans of the Agent under this Agreement, the Agent's Ratable Share of
any Unreimbursed L/C Draws, the participation of PNC Bank as a Lender and as the
L/C Issuer under this Agreement the other Loan Documents and any other
agreements, instruments and documents delivered pursuant hereto, and the
issuance of any Letter of Credit under the terms hereof, the Agent shall have
the same rights and powers, duties and obligations under this Agreement, the
other Loan Documents or any other agreement, instrument or document as any
Lender and may exercise such rights and powers and shall perform such duties and
fulfill such obligations as though it were not the Agent, as the case may be.
The Agent may accept deposits from, lend money to, and generally engage, and
continue to engage, in any kind of business with the Borrower or any of its
Subsidiaries, as if PNC Bank were not the Agent.
9.09. Notice of Default. The Agent shall not be deemed to have knowledge
-----------------
or notice of the occurrence of an Event of Default unless the Agent has received
written notice from a Lender or the Borrower referring to this Agreement,
describing such Event of Default and stating that such notice is a "notice of
default".
9.10. Payment to Lenders. Except as otherwise set forth in Section 9.03
------------------
hereof, promptly after receipt from the Borrower of any principal repayment
of the Revolving Credit Loans or any Unreimbursed L/C Draw, interest due on
the Revolving Credit Loans or any Unreimbursed L/C Draws, and any Fees (other
than the
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Underwriting Fee, the Agent's Fee and the L/C Fronting Fee) or other amounts
due under any of the Loan Documents, the Agent shall distribute to each Lender
that Lender's Ratable Share of the funds so received except that funds received
from the Borrower or a Subsidiary Guarantor to reimburse the L/C Issuer for
drawings on Letters of Credit (other than a Lender's Ratable Share of such
reimbursement payment to the extent such Lender has complied fully with any
funding obligations under Section 2.17(g) hereof) or to fund any risk
participant in the Letters of Credit or to pay the L/C Fronting Fee shall be
paid solely for the account of L/C Issuer. If the Agent fails to distribute
collected funds received by 2:00 P.M. on any Business Day by the end of such
Business Day or collected funds received after 2:00 P.M. on any Business Day on
the next Business Day the funds shall bear interest until distributed at the
Federal Funds Effective Rate. The Agent agrees to make its best efforts to
provide telephonic notice to each Lender that it is in receipt of funds from the
Borrower and the day on which it will commence a wire transfer of such Lender's
share of such funds.
9.11. Holders of Notes. The Agent may deem and treat any payee of any Note
----------------
as the owner thereof for all purposes hereof unless and until written notice of
the assignment or transfer thereof shall have been filed with the Agent. Any
request, authority or consent of any person who at the time of making such
request or giving such authority or consent is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
9.12. Equalization of Lenders. Each borrowing and each payment or
-----------------------
prepayment by, or for the account of, the Borrower with respect to principal,
interest, Fees, or other amounts due from the Borrower hereunder to the Lenders
with respect to the Revolving Credit Loans, shall (except as provided in Section
2.10, 2.12, 2.17(b) or 9.03 hereof) be made in proportion to the Revolving
Credit Loans outstanding from each Lender or, if no such Revolving Credit Loans
are then outstanding, in proportion to the Ratable Share of each Lender. Each
payment of Unreimbursed L/C Draws shall be made for the account of the L/C
Issuer. The Lenders agree among themselves that, with respect to all amounts
received by any Lender (in its capacity solely as a Lender) or any such holder
for application on any obligation hereunder or under any Note or under any such
participation, whether received by voluntary payment, by realization upon
security, by the exercise of the right of set-off or banker's lien, by
counterclaim or by any other non-pro rata source, equitable adjustment will be
made in the manner stated in the following sentence so that, in effect, all such
excess amounts will be shared ratably among the Lenders and such holders in
proportion to their interest in payments under the Notes, except as otherwise
expressly provided herein. The Lenders or any such holder receiving any such
amount shall purchase for cash, from each of the other Lenders, an interest in
such Lender's Revolving Credit Loans in such amount as shall result in a ratable
participation by the Lenders and each such holder in the aggregate unpaid amount
under the Notes, provided that if all or any portion of such excess amount is
thereafter recovered from the Lender or the holder making such purchase, such
purchase shall be rescinded and the purchase price restored to the
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extent of such recovery, together with interest or other amounts, if any,
required by Law (including court order) to be paid by the Lender or the holder
making such purchase.
9.13. Successor Agent. The Agent may resign as the Agent upon 60 days'
---------------
written notice to the Lenders and the Borrower. If such notice shall be given,
the Lenders shall appoint from among the Lenders a successor agent for the
Lenders, during such 60-day period, which successor agent shall be reasonably
satisfactory to the Borrower, to serve as agent hereunder and under the several
documents, the forms of which are attached hereto as exhibits, or which are
referred to herein. If at the end of such 60-day period the Lenders have not
appointed such a successor, the Agent shall procure a successor reasonably
satisfactory to the Lenders and the Borrower, to serve as agent for the Lenders
hereunder and under the several documents, the forms of which are attached
hereto as exhibits, or which are referred to herein. Any such successor agent
shall succeed to the rights, powers and duties of the Agent. Upon the
appointment of such successor agent or upon the expiration of such 60-day period
(or any longer period to which the Agent has agreed), the former Agent's rights,
powers and duties as Agent shall be terminated, without any other or further act
or deed on the part of such former Agent or any of the parties to this
Agreement. After any retiring Agent's resignation hereunder as the Agent, the
provisions of this Article IX shall inure to the benefit of such retiring Agent
as to any actions taken or omitted to be taken by it while it was the Agent
under this Agreement.
9.14. Calculations. In the absence of gross negligence or willful
------------
misconduct, the Agent shall not be liable for any error in computing the amount
payable to any Lender whether in respect of the Revolving Credit Loans, fees or
any other amounts due to the Lenders or the L/C Issuer under this Agreement. In
the event an error in computing any amount payable to any Lender or the L/C
Issuer is made, the Agent, the Borrower and each affected Person shall,
forthwith upon discovery of such error, make such adjustments as shall be
required to correct such error, and any compensation therefor will be calculated
at the Federal Funds Effective Rate.
9.15. Beneficiaries. Except as expressly provided herein, the provisions
-------------
of this Article IX are solely for the benefit of the Agent, the Lenders and the
L/C Issuer, and the Borrower shall not have any rights to rely on or enforce any
of the provisions hereof. In performing its functions and duties under this
Agreement, the Agent shall act solely as agent of the Lenders and does not
assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for the Borrower.
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ARTICLE X
GENERAL PROVISIONS
------------------
10.01. Amendments and Waivers. The Required Lenders, or the Agent with the
----------------------
consent in writing of the Required Lenders, and the Borrower may, subject to the
provisions of this Section 10.01, from time to time enter into written
supplemental agreements to this Agreement and the other Loan Documents for the
purpose of adding or deleting any provisions or otherwise changing, varying or
waiving in any manner the rights of the Lenders, the Agent or the obligor
thereunder or the conditions, provisions or terms thereof or waiving any Event
of Default thereunder or consenting to an action of any of the Borrower or any
of its Subsidiaries, but only to the extent specified in such written
agreements; provided, however, that no such supplemental agreement shall,
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without the consent of all the Lenders:
(i) waive an Event of Default by the Borrower in any payment of
principal and/or interest due hereunder and under any of the Notes;
(ii) reduce the interest rate relating to the Revolving Credit
Loans or change the definition of the terms Base Rate, Prime Rate, Applicable
Euro-Rate Margin, Euro-Rate, Euro-Rate Interest Period, Euro-Rate Reserve
Percentage or Federal Funds Effective Rate so as to decrease the interest rate
relating to the Revolving Credit Loans;
(iii) change the Expiration Date;
(iv) release, other than as provided for herein and in the Security
Agreement, any Assigned Collateral securing the Indebtedness incurred hereunder,
or release, other than as provided for herein and in the applicable Subsidiary
Security Agreement, any Subsidiary Assigned Collateral securing the Indebtedness
incurred hereunder, or release and discharge any Subsidiary Guaranty;
(v) reduce the Commitment Fee, or any Letter of Credit Fee;
(vi) increase the maximum principal amount of the Revolving Credit
Commitment of any Lender, or increase the maximum Stated Amount of Letters of
Credit which may be issued and outstanding under the terms hereof;
(vii) change the definition of the term Required Lenders; or
(viii) amend or waive the provisions of this Section 10.01.
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Any such supplemental agreement shall apply equally to each of the Lenders
and the L/C Issuer and shall be binding upon the Borrower, the Lenders and the
Agent, all future holders of the Notes and all Participants. In the case of any
waiver, the Borrower, the Lenders, the L/C Issuer and the Agent shall be
restored to former positions and rights, and any Event of Default waived shall
be deemed to be cured and not continuing, but no such waiver shall extend to any
subsequent or other Event of Default, or impair any right consequent thereon.
10.02. Taxes. The Borrower shall pay any and all stamp, document, transfer
-----
and recording taxes, filing fees and similar impositions payable or hereafter
determined by the Agent, the Lenders or the L/C Issuer to be payable in
connection with this Agreement, the other Loan Documents and any other
documents, instruments and transactions pursuant to or in connection with any of
the Loan Documents. The Borrower agrees to save the Agent, the Lenders and the
L/C Issuer harmless from and against any and all present and future claims or
liabilities with respect to, or resulting from, any delay in paying or failure
to pay any such taxes or similar impositions.
10.03. Costs and Expenses, etc. (a) The Borrower shall:
-----------------------
(i) pay or reimburse the Agent for all reasonable out-of-pocket
costs and expenses incurred by the Agent in connection with (A) the
preparation, negotiation and execution of this Agreement, any other Loan
Documents or any instrument or document prepared in connection herewith or
therewith; (B) the completion of the Agent's "due diligence" permitted as a
condition of the closing set forth in Section 5.01(k); (C) the syndication
efforts of the Agent with respect to this Agreement and the commitments
hereunder; and (D) the consummation of the transactions contemplated hereby
and thereby (including, without limitation, in each case the reasonable
fees and out-of-pocket expenses of the counsel to the Agent) and
(ii) reimburse the Agent, the L/C Issuer and each Lender on demand,
for all reasonable out-of-pocket costs and expenses incurred by the Agent,
the L/C Issuer or such Lender in connection with the enforcement of or
preservation of any of its Liens, rights, powers, interests or remedies
under this Agreement or any other Loan Document (including, without
limitation, in each case the reasonable fees and out-of-pocket expenses of
the respective counsel to the Agent, the L/C Issuer and each Lender).
(b) All of such costs, expenses and indemnities shall be payable by the
Borrower to the Agent, the Lenders or the L/C Issuer as appropriate upon demand
or as otherwise agreed upon by the Agent, the Lenders or the L/C Issuer as
appropriate and the Borrower, and shall constitute Lender Obligations under this
Agreement.
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10.04. Notices.
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(a) Notice to the Borrower. All notices required to be delivered to
the Borrower pursuant to this Agreement shall be in writing and shall be sent to
the following address, by hand delivery, recognized national overnight courier
service with all charges prepaid, telex, telegram, telecopier or other means of
electronic data communication or by the United States mail, first class, postage
prepaid:
The Carbide/Graphite Group, Inc.,
One Gateway Center
19th Floor
Pittsburgh, Pennsylvania 15222
Attention: Stephen D. Weaver
Vice President-Finance and
Chief Financial Officer
Telephone: (412) 562-3700
Telecopier: (412) 562-3701
(b) Notice to the Agent. All notices required to be delivered to
-------------------
the Agent pursuant to this Agreement shall be in writing and shall be sent to
the following address, by hand delivery, recognized national overnight courier
service with all charges prepaid, telex, telegram, telecopier or other means of
electronic data communication or by the United States mail, first class, postage
prepaid:
PNC Bank, National Association
Multibank Loan Administration
One PNC Plaza, 4/th/ Floor Annex
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Arlene M. Ohler,
Vice President
Telephone: (412) 762-3672
Telecopier: (412) 762-8672
(c) Notice to L/C Issuer. All notices required to be sent to the
--------------------
L/C Issuer pursuant to this Agreement shall be in writing and shall be sent to
the following address by hand delivery, recognized national overnight courier
service with all charges prepaid, telex,
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telegram, telecopier or other means of electronic data communication or by
United States mail, first class postage prepaid:
PNC Bank, National Association
Multibank Loan Administration
One PNC Plaza, 4/th/ Floor Annex
249 Fifth Avenue
Pittsburgh, Pennsylvania 15265
Attention: Arlene M. Ohler
Vice President
Telephone: (412) 762-3672
Telecopier: (412) 762-8672
(d) Notice to Lenders. All notices required to be sent to the
-----------------
Lenders pursuant to this Agreement shall be in writing and shall be sent to the
notice address of each Lender as set forth on such Lender's signature page
hereto or such Lender's signature page to the Assignment and Assumption
Agreement executed by it as a Purchasing Lender, as the case may be, by hand
delivery, overnight courier service with all charges prepaid, telex, telegram,
telecopier or other means of electronic data communication or by the United
States mail, first class postage prepaid.
All such notices shall be effective three days after mailing, the date of
telecopy transmission or when received, whichever is earlier. The Borrower, the
Lenders, the L/C Issuer and the Agent may each change the address for service of
notice upon it by a notice in writing to the other parties hereto.
10.05. Participation and Assignment.
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(a) Sale of Participation. (i) Any Lender may, in the ordinary
---------------------
course of its commercial lending business and in accordance with applicable law,
and without the consent of the Borrower, at any time sell to one or more
Participants (which Participants may be Affiliates of such Lender) Participation
in the Revolving Credit Commitment of such Lender or any Revolving Credit Loan,
the Note, or other interest of such Lender hereunder. In the event of any such
sale of a Participation, such Lender's obligations under this Agreement to the
Borrower shall remain unchanged, such Lender shall remain solely responsible for
its performance under this Agreement, such Lender shall remain the holder of the
Note made payable to it for all purposes under this Agreement (including all
voting rights hereunder) and the Borrower shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents.
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(ii) As between a Participant and that Participant's selling
Lender only, the sole issues on which the Participant shall have a contractual
right to vote are: (A) an increase in such Lender's Revolving Credit Commitment,
(B) any change of the term Base Rate, Euro-Rate, Euro-Rate Reserve Percentage,
or Applicable Euro-Rate Margin so as to decrease the interest rate relating to
the Revolving Credit Loans, (C) extension of the term of the Revolving Credit
Commitment, or (D) postponement of the scheduled payment of interest or Fees due
hereunder.
(b) Assignments. Subject to the remaining provisions of this
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Section 10.05(b), any Lender may at any time, in the ordinary course of its
commercial lending business, in accordance with applicable law, sell to one or
more Purchasing Lenders (which Purchasing Lender may be affiliates of the
Transferor Lender), a portion of its rights and obligations under this Agreement
and the Note then held by it, pursuant to an Assignment and Assumption Agreement
substantially in the form of Exhibit "E" and satisfactory to the Agent, executed
-----------
by the Transferor Lender, such Purchase Lender, the Agent and the Borrower;
subject, however to the following requirements:
(i) The Agent and the Borrower must each give its prior consent
to any such assignment which consent shall not be unreasonably withheld; it
being agreed that it shall not be deemed unreasonable for the Borrower to
decline to consent to such assignment if (A) such assignment would result
in incurrence of additional costs to the Borrower under Section 2.10, 2.11
or 2.12, or (ii) the proposed assignee has not provided to the Borrower any
tax forms received under Section 10.05(d);
(ii) Each such assignment must be in a minimum amount of
$10,000,000, or, if in excess of $10,000,000, in integral multiples of
$1,000,000; and
(iii) each such assignment shall be of a constant, and not a
varying, percentage of the Transferor Lender's Revolving Credit Commitment,
outstanding Revolving Credit Loans and all other rights and obligations
under this Agreement and the other Loan Documents, and
(iv) The Transferor Lender shall pay to the Agent, for its own
account, a fee of $3,500 for each such assignment (the "Assignment Fee").
Upon the execution, delivery, acceptance and recording of any such
Assignment and Assumption Agreement, from and after the Transfer Effective Date
determined pursuant to such Assignment and Assumption Agreement, (i) the
Purchasing Lender thereunder shall be a party hereto as a Lender and, to the
extent provided in such Assignment and Assumption Agreement, shall have the
rights and obligations of a Lender hereunder with a Revolving Credit Commitment
as set forth therein, and (ii) the Transferor Lender thereunder shall, to the
extent
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provided in such Assignment and Assumption Agreement, be released from its
obligations under this Agreement as a Lender. Such Assignment and Assumption
Agreement shall be deemed to amend this Agreement to the extent, and only to the
extent, necessary to reflect the addition of such Purchasing Lender as a Lender
and the resulting adjustment of Ratable Share arising from the purchase by such
Purchasing Lender of all or a portion of the rights and obligations of such
Transferor Lender under this Agreement and the Notes. On or prior to the
Transfer Effective Date, the Borrower shall execute and deliver to the Agent, in
exchange for the surrendered Note held by the Transferor Lender, a new Note to
the order of such Purchasing Lender in an amount equal to the Revolving Credit
Commitment or the Revolving Credit Loans assumed by it and purchased by it
pursuant to such Assignment and Assumption Agreement, and a new Note to the
order of the Transferor Lender in an amount equal to the Revolving Credit
Commitment or the Revolving Credit Loans retained by it hereunder.
(c) Assignment Register. The Agent shall maintain at its address
-------------------
referred to in Section 10.04(b) a copy of each Assignment and Assumption
Agreement delivered to it and a register (the "Register") for the recordation of
the names and addresses of the Lenders and the amount of the Revolving Credit
Loans owing to each Lender from time to time. The entries in the Register shall
be conclusive, in the absence of manifest error, and the Borrower, the Agent,
the Lender and the L/C Issuer may treat each Person whose name is recorded in
the Register as the owner of the Revolving Credit Loans recorded therein for all
purposes of this Agreement. The Register shall be available at the office of the
Agent for inspection by the Borrower or any Lender at any reasonable time and
from time to time upon reasonable prior notice.
(d) Withholding of Income Taxes. At least five Business Days prior
---------------------------
to the first date on which interest or fees are payable hereunder for the
account of any Purchasing Lender or Participant, each Purchasing Lender or
Participant that is not incorporated under the laws of the United States or a
state thereof shall deliver to the Borrower and the Transferor Lender two duly
completed copies of United States Internal Revenue Service Form W-9, 4224 or
1001 or other applicable form prescribed by the Internal Revenue Service. Such
form shall certify that such Purchasing Lender or Participant is entitled to
receive payments under this Agreement and the Notes without deduction or
withholding of any United States Federal income taxes, or is subject to such tax
at a reduced rate under an applicable tax treaty or under United States Internal
Revenue Service Form W-8, or another applicable form or a certificate of such
Purchasing Lender or Participant indicating that no such exemption or reduced
rate is allowable with respect to such payments. Each Purchasing Lender or
Participant which delivers a Form W-8, W-9, 4224 or 1001 further undertakes to
deliver to the Borrower and its Transferor Lender two additional copies of such
form (or a successor form) on or before the date that such form expires or
becomes obsolete or otherwise is required to be resubmitted as a condition to
obtaining an exemption from withholding tax or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals
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thereof as may be reasonably required by the Borrower or its Transferor Lender,
either certifying that such Purchasing Lender or Participant is entitled to
receive payments under this Agreement and the Notes without deduction or
withholding of any United States Federal income taxes or is subject to such tax
at a reduced rate under an applicable tax treaty or stating that no such
exemption or reduced rate is allowable. The Borrower, in the case of a
Purchasing Lender or Transferor Lender in the case of a Participant shall be
entitled to withhold United States Federal income taxes at the full withholding
rate, unless the Purchasing Lender or Participant as the case may be establishes
an exemption, or at the applicable reduced rate, as established pursuant to this
provisions of this Section 10.05(d).
(e) Assignments to Federal Reserve Bank. In addition to the
-----------------------------------
assignments permitted above, any Lender may assign and pledge all or any portion
of its Loans and Notes to any Federal Reserve Bank as collateral security
pursuant to Regulation A of the Board of Governors of the Federal Reserve System
and any Operating Circular issued by such Federal Reserve Bank. No such
assignment shall release the assigning Lender from its obligations and duties
hereunder or under the other Loan Documents.
10.06. Successors and Assigns. This Agreement shall be binding upon the
----------------------
Borrower and the Agent, the Lenders, the L/C Issuer and their respective
successors and assigns, and shall inure to the benefit of the Borrower, the
Agent, the Lenders, the L/C Issuer and respective successors and assigns;
provided, however, that the Borrower shall not assign its rights or duties
- -----------------
hereunder or under any of the other Loan Documents without the prior written
consent of the Lenders.
10.07. No Implied Waivers; Cumulative Remedies; Writing Required. No
---------------------------------------------------------
course of dealing and no delay or failure of the Agent or any Lender in
exercising any right, power, remedy or privilege under this Agreement or any
other Loan Document shall affect any other or future exercise thereof or operate
as a waiver thereof; nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power, remedy or
privilege preclude any further exercise thereof or of any other right, power,
remedy or privilege. The rights and remedies of the Agent and the Lenders under
this Agreement and any other Loan Documents are cumulative and not exclusive of
any rights or remedies which they would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of any Lender of any
breach or default under this Agreement or any such waiver of any provision or
condition of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing.
10.08. Severability. Any provision of this Agreement which is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or enforceability without
invalidating the remaining
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portions hereof or affecting the validity or enforceability of such provision in
any other jurisdiction.
10.09. Indemnity. The Borrower hereby agrees to indemnify the Agent, the
---------
Lenders, the Issuing Bank, and the directors, officers, employees, attorneys,
agents and Affiliates or all of the foregoing (each of the foregoing an
"Indemnified Person") against, and hold each of them harmless from, any loss,
liabilities, damages, claims, costs and expenses (including reasonable
attorneys' fees and disbursements) suffered or incurred by any Indemnified
Person (except those caused by such Indemnified Person's gross negligence or
willful misconduct, ) arising out of, resulting from or in any manner connected
with, the execution, delivery and performance of each of the Loan Documents, the
Lender Obligations and any and all transactions related to or consummated in
connection with the Lender Obligations, including, without limitation, losses,
liabilities, damages, claims, costs and expenses suffered or incurred by any
Indemnified Person arising out of or related to investigating, preparing for,
defending against, or providing evidence, producing documents or taking any
other action in respect of any commenced or threatened litigation,
administrative proceeding or investigation under any Federal securities law or
by any Official Body of any jurisdiction, or at common law or otherwise, that is
alleged to arise out of or is based on (i) any untrue statement or alleged
untrue statement of any material fact of the Borrower or any Affiliate of the
Borrower in any document or schedule filed with the Securities and Exchange
Commission or any other Official Body, (ii) any omission or alleged omission to
state any material fact required to be stated in such document or schedule, or
necessary to make the statements made therein, in light of the circumstances
under which made, not misleading; (iii) any actual or alleged acts, practices or
omissions of the Borrower, any Subsidiary Guarantor, or any of their respective
directors, officers, partners, employees, attorneys, agents or Affiliates,
related to the making of any acquisition, purchase of shares or assets pursuant
thereto, financing of such purchases or the consummation of any other
transactions contemplated by any such acquisitions that are alleged to be in
violation of any Federal securities law or of any other statute, regulation or
other law of any jurisdiction applicable to the making of any such acquisition,
the purchase of shares or assets pursuant thereto, the financing of such
purchases or the consummation of the other transactions contemplated by any such
acquisition; or (iv) any withdrawals, termination or cancellation of any such
proposed acquisition for any reason whatsoever. The indemnity set forth in this
Section 10.9 shall be in addition to any other obligations or liabilities of the
Borrower to the Agent, the Lenders or the Issuing Bank, or at common law or
otherwise. The provisions of this Section 10.9 shall survive the payment of the
Lender Obligations and the termination of this Agreement and the other Loan
Documents.
10.10. Confidentiality. The Agent, the Lenders and the Issuing Bank shall
---------------
keep confidential and not disclose to any Person, other than to their respective
directors, officers, employees, Affiliates and agents, and to actual and
potential Purchasing Lenders and Participants, all non-public information
concerning the Borrower and the Borrower's Affiliates
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which comes into the possession of the Agent, the Lenders or the Issuing Bank
during the term hereof. Notwithstanding the foregoing, the Agent, the Lenders
and the Issuing Bank may disclose information concerning the Borrower (i) in
accordance with normal banking practices and the Agent's, such Lender's or the
Issuing Bank's policies concerning disclosure of such information in connection
with syndication or sales of Participations, subject to informing the recipient
of such information of the duties of confidentiality hereunder, (ii) pursuant to
what the Agent, such Lender or the Issuing Bank believes to be the lawful
requirements or request of any Official Body regulating banks or banking, (iii)
as required by governmental regulation or rule, judicial process or subpoena;
provided however, if permitted by law, the Agent or such Lender shall notify the
Borrower and permit the Borrower, at the Borrower's cost, to contest such
subpoena; and (iv) to their respective attorneys, accountants and auditors who
have been informed of the confidentiality hereunder.
10.11. Survival. All representations, warranties, covenants and agreements
--------
of the Borrower contained herein or in the other Loan Documents or made in
writing in connection herewith shall survive the issuance of the Notes and the
Letters of Credit and shall continue in full force and effect so long as the
Borrower may borrow hereunder and so long thereafter until payment in full of
all the Notes and the Lender Obligations is made. The obligations of the
Borrower under Sections 6.13, 10.02 and 10.03 shall survive the termination of
this Agreement and the discharge of the other obligations of the Borrower
hereunder, and any other Loan Documents, and shall also survive the payment in
full of all Lender Obligations, the termination of the Revolving Credit
Commitment in accordance with the provisions of this Agreement and the
termination or expiration of all Letters of Credit in accordance with their
respective terms.
10.12. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
-------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF
LAWS, EXCEPTING APPLICABLE FEDERAL LAW AND EXCEPT ONLY TO THE EXTENT PRECLUDED
BY THE MANDATORY APPLICATION OF THE LAW OF ANOTHER JURISDICTION.
10.13. FORUM. THE PARTIES HERETO AGREE THAT ANY ACTION OR PROCEEDING
-----
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS TO
WHICH THE BORROWER IS A PARTY MAY BE COMMENCED IN THE COURT OF COMMON PLEAS OF
ALLEGHENY COUNTY, PENNSYLVANIA OR IN THE DISTRICT COURT OF THE UNITED STATES FOR
THE WESTERN DISTRICT OF PENNSYLVANIA, AND THE PARTIES HERETO AGREE THAT A
SUMMONS AND COMPLAINT COMMENCING
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AN ACTION OR PROCEEDING IN EITHER OF SUCH COURTS SHALL BE PROPERLY SERVED AND
SHALL CONFER PERSONAL JURISDICTION IF SERVED PERSONALLY OR BY CERTIFIED MAIL TO
THE PARTIES AT THEIR ADDRESSES SET FORTH IN SECTION 10.04, OR AS OTHERWISE
PROVIDED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. FURTHER, THE
BORROWER HEREBY SPECIFICALLY CONSENTS TO THE PERSONAL JURISDICTION OF THE COURT
OF COMMON PLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA AND THE DISTRICT COURT OF THE
UNITED STATES FOR THE WESTERN DISTRICT OF PENNSYLVANIA AND WAIVES AND HEREBY
ACKNOWLEDGES THAT IT IS ESTOPPED FROM RAISING ANY OBJECTION BASED ON FORUM NON
---------
CONVENIENS, ANY CLAIM THAT EITHER SUCH COURT LACKS PROPER VENUE OR ANY OBJECTION
- ----------
THAT EITHER SUCH COURT LACKS PERSONAL JURISDICTION OVER THE BORROWER SO AS TO
PROHIBIT EITHER SUCH COURT FROM ADJUDICATING ANY ISSUES RAISED IN A COMPLAINT
FILED WITH EITHER SUCH COURT AGAINST THE BORROWER BY THE AGENT, THE LENDERS OR
THE L/C ISSUER CONCERNING THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR PAYMENT
TO THE LENDERS. THE BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT THE CHOICE OF
FORUM CONTAINED IN THIS SECTION 10.13 SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT OF ANY JUDGMENT OBTAINED IN ANY FORUM OR THE TAKING OF ANY ACTION
UNDER THE LOAN DOCUMENTS TO ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION.
10.14. Non-Business Days. Whenever any payment hereunder or under the
-----------------
Notes is due and payable on a day which is not a Business Day, such payment may
be made on the next succeeding Business Day, and such extension of time shall in
each such case be included in computing interest in connection with such
payment.
10.15. Integration. This Agreement and the other Loan Documents constitute
-----------
the entire agreement between the parties relating to this financing transaction
and they supersede all prior understandings and agreements, whether written or
oral, between the parties hereto relating to the transactions provided for
herein.
10.16. Headings. Article, Section and other headings used in this
--------
Agreement are intended for convenience only and shall not affect the meaning or
construction of this Agreement.
10.17. Counterparts. This Agreement and any amendment hereto may be
------------
executed in several counterparts and by each party on a separate counterpart,
each of which, when so executed and delivered, shall be an original, but all of
which together shall constitute but one and the same instrument. In proving
this Agreement, it shall not be necessary
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to produce or account for more than one such counterpart signed by the other
party against whom enforcement is sought. Delivery of an executed counterpart of
a signature page to this Agreement by telecopier shall be as effective as
delivery of a manually executed counterpart of this Agreement.
10.18. Funding by Branch, Subsidiary or Affiliate.
------------------------------------------
(a) Notional Funding. Each Lender shall have the right from time
----------------
to time, without notice to the Borrower, to deem any branch, subsidiary or
affiliate (which for the purposes of this Section 10.18 shall mean any
corporation or association which is directly or indirectly controlled by or is
under direct or indirect common control with any corporation or association
which directly or indirectly controls such Lender) of such Lender to have made,
maintained or funded any Revolving Credit Loan to which the Euro-Rate Option
applies at any time, provided that immediately following (on the assumption that
a payment were then due from the Borrower to such other office) and as a result
of such change the Borrower would not be under any greater financial obligation
to such Lender hereunder, pursuant to Section 2.08, 2.10, 2.11 or 2.12 hereof
than it would have been in the absence of such change. Notional funding offices
may be selected by each Lender without regard to a Lender's actual methods of
making, maintaining or funding the Revolving Credit Loans or any sources of
funding actually used by or available to such Lender.
(b) Actual Funding. Each Lender shall have the right from time to
--------------
time to make or maintain any Revolving Credit Loan by arranging for a branch,
subsidiary or affiliate of such Lender to make or maintain such Revolving Credit
Loan subject to the last sentence of this Section 10.18(b). If any Lender causes
a branch, subsidiary or affiliate to make or maintain any part of the Revolving
Credit Loans hereunder, all terms and conditions of this Agreement shall, except
where the context clearly requires otherwise, be applicable to such part of the
Revolving Credit Loans to the same extent as if such Revolving Credit Loans were
made or maintained by such Lender but in no event shall any Lender's use of such
a branch, subsidiary or affiliate to make or maintain any part of the Revolving
Credit Loans hereunder cause such Lender or such branch, subsidiary or affiliate
to incur any cost or expenses payable by the Borrower hereunder or require the
Borrower to pay any other compensation to any such Lender (including, without
limitation, any expenses incurred or payable pursuant to Section 2.08, 2.10,
2.11 or 2.12 hereof) which would otherwise not be incurred.
10.19. WAIVER OF JURY TRIAL. THE BORROWER, EACH LENDER, THE AGENT AND THE
--------------------
ISSUING BANK EACH HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY COURT AND IN
ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE BORROWER, THE LENDERS, THE
AGENT, THE ISSUING BANK OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS IS A
PARTY,
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AS TO ALL MATTERS AND THINGS ARISING OUT OF THIS AGREEMENT, THE NOTES OR
THE OTHER LOAN DOCUMENTS.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Revolving Credit and Letter of Credit Issuance
Agreement to be executed by their respective duly authorized officers as of the
date first written above.
Borrower:
THE CARBIDE/GRAPHITE GROUP, INC.,
a Delaware corporation
By: /s/ Stephen D. Weaver
--------------------------------------
Name: Stephen D. Weaver
Title: Vice President Finance and
Chief Financial Officer
Agent and L/C Issuer:
PNC BANK, NATIONAL ASSOCIATION,
in its capacity as the Agent and L/C Issuer
By: /s/ Mark W. Rutherford
--------------------------------------
Name: Mark W. Rutherford
Title: Vice President
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IN WITNESS WHEREOF, intending to be legally bound hereby, the undersigned
Lender has caused this Revolving Credit and Letter of Credit Issuance Agreement
by and among The Carbide/Graphite Group, Inc., the Lenders parties hereto, PNC
Bank, National Association, in its capacity as L/C Issuer, and PNC Bank,
National Association, in its capacity as Agent, to be executed by its duly
authorized officer as of the date first written above.
Lender:
Revolving Credit PNC BANK, NATIONAL ASSOCIATION
Commitment: $125,000,000
Ratable Share: 100%
By: /s/ Mark W. Rutherford
--------------------------------------
Name: Mark W. Rutherford
Title: Vice President
Address for notice purposes:
If by other means:
PNC Bank, National Association
Metals Group
One PNC Plaza, 2/nd/ Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Mark W. Rutherford
Vice President
Telephone: (412) 762-6278
Telecopier: (412) 762-6484
-99-
<PAGE>
EXHIBIT 10.18
C/G
The Carbide/Graphite Group, Inc.
- --------------------------------------------------------------------------------
One Gateway Center, 19th Floor
Pittsburgh, PA 15222-1416
(412) 562-3700
March 31, 1997
Mr. Nicholas T. Kaiser
The Carbide/Graphite Group, Inc.
One Gateway Center
Pittsburgh, Pennsylvania 15222
Dear Nick:
We refer to your restated employment contract with The
Carbide/Graphite Group, Inc. (the "Corporation") dated as of January 1, 1995
(the "Restated Employment Agreement"). In connection with the designation of a
successor as Chairman, President and Chief Executive Officer of the Corporation,
you and the Corporation desire to revise your contractual relationship with the
Corporation, as follows:
1. Salary and Severance. Your current base salary at an annual rate of
--------------------
$347,000 will be continued through December 31, 1997 (the "Remaining Employment
Period"). During the Remaining Employment Period you will have such duties of a
senior executive, nature as may be assigned to you from time to time by the
Board of Directors. Commencing January 1, 1998 and for 12 months thereafter you
will be paid as severance an amount equal to your current base salary in 24
equal semi-monthly installments. The consulting arrangement contemplated by
Sections 1 and 4 of the Restated Employment Agreement is hereby terminated and,
effective as of April 1, 1997, you will resign as Chairman, President and Chief
Executive Officer of the Corporation. It is anticipated that you will continue
as a director of the Corporation for at least the remainder of your current term
as a director, subject to the provisions of the Corporation's charter and by-
laws.
2. Insurance Benefits. You will be entitled to the continuation of medical
------------------
benefits at the Corporation's cost equivalent to those benefits which you are
receiving on the date hereof for the Remaining Employment Period and for the
three-year period commencing on
<PAGE>
March 31, 1997
Page 2
- -------------------------------------------------------------------------------
January 1, 1998 (or on any earlier date of termination of employment under
Section 4 hereof) and terminating three years thereafter. The term life
insurance in the amount of $1,000,000 on your life pursuant to Section 5 of the
Restated Employment Agreement shall terminate upon expiration of the current
policy in October 1997 and the Corporation will have no further obligation
thereafter with respect to such life insurance.
3. Bonus and Savings Investment Plans; Stock Options. In light of the
-------------------------------------------------
severance benefits provided in Section 1 hereof, you will not be entitled to
participate in the Corporation's Annual Incentive Bonus Compensation Plan for
the fiscal year ending July 31, 1997 ("Fiscal 1997") or thereafter but you will
be entitled to your profit sharing participation for Fiscal 1997 (but not
thereafter) under, and in accordance with the terms of, the Corporation's
Savings Investment Plan. You will also be entitled to retain the stock options
granted to you on July 31, 1996 to acquire 7,000 shares of the Corporation's
common stock subject to vesting on July 31, 1997 and the other terms and
provisions of the 1995 Stock Option Plan. The remaining stock options granted
to you under the 1995 Stock Option Plan which vest in July 1998 and 1999 will
terminate hereby. For the Remaining Employment Period, the Corporation will
provide you with an office and the use of a secretary. Until approximately
September 30, 1997 you will also be entitled to the use of your present company
car. All other ancillary benefits, such as club memberships and the like will
terminate as of April 1, 1997 in the light of the severance arrangements
provided for in Section 1 hereof.
4. Death or Disability. In the event of your Disability or death during the
-------------------
Remaining Employment Period, the salary provided for in Section 1 shall
terminate and the severance payments for a period of one year pursuant to
Section 1 (less the amount of any disability payments made by the Corporation or
any Corporation plan), shall commence at that time. The term "Disability" shall
have the meaning set forth in Section 6 of the Restated Employment Agreement.
5. Confidential Information; Non-Competition. The provisions of Section 8
-----------------------------------------
of the Restated Employment Agreement (relating to confidential information and
non-competition) shall be deemed incorporated in this letter agreement as though
set forth herein in their entirety.
6. Successors. (a) This letter agreement is personal to you and without the
----------
prior written consent of the Corporation shall not be assignable by you other
than by will or the laws of descent and distribution.
(b) This letter agreement shall inure to the benefit of and be binding
upon the Corporation and its successors.
<PAGE>
March 31, 1997
Page 3
- --------------------------------------------------------------------------------
7. Miscellaneous. (a) This letter agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to you:
Nicholas T. Kaiser
20 Myrtle Hill
Sewickley, Pennsylvania 15143
If to the Corporation:
The Carbide/Graphite Group, Inc.
One Gateway Center, 19th Floor
Pittsburgh, Pennsylvania 15222
Attention: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The Corporation may withhold from any amounts payable under this
letter agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(d) The Corporation's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision hereof. Your failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision hereof.
(e) This letter agreement embodies the entire agreement between the
parties with respect to the subject matter hereof and may not be changed or
terminated orally.
8. Termination of Restated Employment Agreement. The Restated Employment
--------------------------------------------
Agreement is hereby terminated as of March 31, 1997 in its entirety and is
superseded by this letter agreement.
<PAGE>
March 31, 1997
Page 4
- --------------------------------------------------------------------------------
If the foregoing correctly sets forth our understanding, please
execute one copy of this letter agreement and return it to the Corporation, at
which time it shall be a binding agreement between you and the Corporation.
Very truly yours,
THE CARBIDE/GRAPHITE GROUP, INC.
By: /s/ Walter B. Fowler
---------------------------------------
Accepted and Agreed:
/s/ Nicholas T. Kaiser
- --------------------------------
Nicholas T. Kaiser
<PAGE>
General Release
---------------
Notice: This is a very important legal document and you should carefully review
- ------
and understand the terms and effect of this document before signing it. By
signing this General Release you are agreeing to completely release the Company,
from all liability to you. Therefore, you should consult with an attorney
before signing the General Release. You have 21 days from the date of the
distribution of this document to consider this document. If you have not
returned a signed copy of the General Release by that time, we will assume that
you have elected not to sign the General Release. If you choose to sign the
General Release, you will have an additional 7 days following the date of your
signature to revoke the agreement and the agreement shall not become effective
or enforceable until the revocation period has expired.
In consideration of benefits to which I would not otherwise be
entitled offered to me by The Carbide/Graphite Group, Inc., I hereby release and
discharge The Carbide/Graphite Group, Inc., and their affiliates, parents,
subsidiaries, successors, and predecessors, and all of their employees, agents
officers and directors (hereinafter collectively referred to as "the Company")
from any and all claims and/or causes of action, known or unknown, which I may
have or could claim to have against the Company up to and including the date of
may signing of this General Release. This General Release includes, but is not
limited to, all claims arising from or during my employment or as a result of
the termination of my employment and all claims arising under federal, state or
local laws prohibiting employment discrimination based upon age, race, sex,
religion, handicap, national origin or any other protected characteristic,
including, but not limited, to, any and all claims arising under the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964,
and/or claims growing out of any legal restrictions, expressed or implied, on
the Company's right to control or terminate the employment of its employees.
By signing below, I acknowledge that I have carefully read and fully
understand the provisions of this General Release. I further acknowledge that I
am signing this General Release knowingly and voluntarily and without duress,
coercion or undue influence. I further agree that should I file a lawsuit in
court which is found to be barred in whole or part by this General Release, I
will pay the legal fees incurred by the Company in defending matter covered by
this General Release, and all other prior or contemporaneous written or oral
agreements or representations, if any, relating to the subject matter of this
General Release are null and void. It is also expressly understood and agreed
that the terms of this General Release may not be altered except in a writing
signed by both me and the Company.
INTENDING TO BE LEGALLY BOUND, I hereby set my hand below:
WITNESSED BY:
/s/ Nancy L. Feldbauer /s/ Nicholas T. Kaiser
- ------------------------------- -------------------------------------
Employee's signature
Dated: 4/15/97 Dated: 4/15/97
------------------------- -------------------------------
<PAGE>
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT between The Carbide/Graphite Group, Inc., a
Delaware corporation (the "Corporation") and Walter B. Fowler (the "Executive")
dated as of April 1, 1997 (the "Agreement").
WHEREAS, the Corporation and the Executive have entered into an
employment agreement dated March 1, 1995 which is superseded by this Agreement;
and
WHEREAS, the Corporation wishes to employ the Executive as Chairman,
President and Chief Executive Officer of the Corporation on the terms set forth
herein and the Executive wishes to be employed by the Corporation on such terms;
IT IS, THEREFORE, AGREED:
1. Employment. The Corporation hereby agrees to employ the Executive,
----------
and the Executive hereby agrees to be employed by the Corporation, for the
period commencing as of the date hereof and ending on March 31, 1999 as its
Chairman, President and Chief Executive Officer (the "Employment Period").
2. Duties. During the Employment Period, the Executive agrees to
------
devote his attention full time and during normal business hours to the business
and affairs of the Corporation and to use his best efforts to perform faithfully
and efficiently such responsibilities. The Executive shall, subject to the
supervision and control of the Board of Directors of the Corporation, perform
such duties and exercise such supervision and powers over and with regard to the
business of the Corporation as are contemplated to be performed by the Chairman,
President and Chief Executive officer pursuant to the By-laws of the
Corporation, and such additional duties as may from time to time
<PAGE>
be prescribed by the Board of Directors. Subject to the provisions of the
Corporation's Charter and By-laws and applicable law, it is the expectation of
the Corporation that the Executive will continue to serve as a member of the
Board of Directors of the Corporation during the Employment Period.
3. Base Compensation. During the Employment Period, the Executive
-----------------
shall receive a base salary at an annual rate of at least $300,000 with any
increase thereto to be determined by the Compensation Committee of the Board of
Directors from time to time. The Executive's next salary review is scheduled for
June 30, 1998.
4. Stock Options. As of April 1, 1997, the Corporation shall grant to
-------------
you a stock option to purchase 30,000 shares of the Corporation's Common Stock,
par value $.01 per share, pursuant to the Corporation's 1995 Stock Based
Incentive Option Plan (the "Stock Option Plan") at an exercise price equal to
the fair market value of the Corporation's Common Stock on April 1, 1997 as
determined by the Stock Option Plan Committee. In accordance with the provisions
of the Stock Option Plan, such option shall have a term of 10 years from the
date of grant and shall vest annually to the extent of 10,000 shares on each
July 31, 1997, July 31, 1998 and July 31, 1999 to the extent the Executive is
then employed by the Corporation on such date. The corporation and the Executive
shall enter into a stock option agreement in the form approved by the Stock
Option Plan Committee.
5. Annual Incentive Awards. Subject to the terms of the Corporation's
-----------------------
Annual incentive Bonus Plan, the Executive's participation in the Plan for the
fiscal year ending July 31, 1997 shall be at award levels equal to 30% of base
pay for the period from August 1, 1996 through March 31, 1997; at the rate of
50% of base pay for the period April 1, 1997 through July 31, 1997; and at the
-2-
<PAGE>
rate of 50% of base pay for the fiscal year ending July 31, 1998 and the eight
months ending March 31, 1999.
6. Termination. (a) Death or Disability. This Agreement shall
----------- -------------------
terminate automatically upon the Executive's death. The Corporation may
terminate this Agreement during the Employment Period after having established
the Executive's "Disability" (as defined below), by giving the Executive written
notice of its intention to terminate the Executive's employment. For purposes of
this Agreement, "Disability" means the Executive's inability to substantially
perform his duties and responsibilities to the Corporation by reason of a
physical or mental disability or infirmity (i) for a continuous period of six
months or (ii) at such earlier time as the Executive submits medical evidence
satisfactory to the Corporation that the Executive has a physical or mental
disability or infirmity that will likely prevent the Executive from
substantially performing his duties and responsibilities for six months or
longer, The date of Disability shall be the day on which the Executive receives
notice from the corporation pursuant to this Section 6(a).
(b) Cause. The Corporation shall have the right to terminate the
-----
Executive's employment for "Cause" during the Employment Period. For purposes of
this Agreement, "Cause" shall mean M the willful and continued failure by the
Executive to perform substantially his duties to the Corporation or its
subsidiaries (other than any such failure resulting from his Disability) within
a reasonable period of time after a written demand for substantial performance
is delivered to the Executive by the Board of Directors, which demand
specifically identifies the manner in which the Board of Directors believes that
the Executive has not substantially performed his duties, (ii) embezzlement or
theft from the Corporation or any subsidiary or affiliate by the Executive or
the commission or perpetration by the Executive of any act involving moral
-3-
<PAGE>
turpitude, or (iii) any material and willful violation by the Executive of
his obligations under Section 8 hereof.
(c) Change of Control. The Executive shall have the right to terminate
-----------------
this Agreement during the Employment Period upon thirty (30) days prior written
notice to the Corporation or a successor of the Corporation, as the case may be,
for "Good Reason" on or subsequent to the consummation of a "Change of Control".
For purposes of this Agreement, (A) "Good Reason" shall mean (1) a change in the
Executive's duties and responsibilities without his consent such that his duties
and responsibilities are materially reduced or altered in a manner unfavorable
to him or a decrease in the Executive's salary or a material decrease in his
benefits or (2) a change in the location at which the Executive's duties are
principally carried out or more than 20 miles from the Corporation's principal
executive offices in Pittsburgh, Pennsylvania; and (B) "Change of Control" shall
mean (i) a change in control of the Board of Directors of the Corporation
pursuant to which any single Person or two or more Persons acting in concert
acquires control of such Board of Directors or (ii) the Transfer of at least 51%
or more of the voting equity interests in the Corporation (or any parent of the
Corporation), whether by sale, merger, consolidation or otherwise, to any single
Person or two or more Persons acting in concert; provided that two or more
Persons shall be considered to be acting in concert for purposes of clauses (i)
and (ii) hereof only if such Persons would have been considered to be acting in
concert as a "group" for purposes of Section 13(d) of the Securities Exchange
Act of 1934, for such purposes treating voting equity interests of the
Corporation held or acquired by such Persons as if such voting equity interests
were equity securities in respect of which a Schedule 13D would be required to
be filed with the Securities and Exchange commission and as if the requisite
percentage and other threshold
-4-
<PAGE>
conditions to such filing were satisfied. "Person" means any individual,
------
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or governmental body. "Transfer" means,
--------
sell, transfer, convey, lease and/or deliver (other tenses of the term have
similar meaning) or sale, transfer, assignment, conveyance, lease and/or
delivery, as indicated by the context.
7. Effect of Termination. (a) Upon termination of the Executive's
---------------------
employment during the Employment Period, because of death or Disability as
provided in subsection 6(a), following termination of the Executive's employment
the Corporation shall continue to pay the Executive or his estate or other
personal representative as severance (x) the amount of the Executive's salary as
provided in Section 3 at the rate in effect immediately prior to termination of
his employment for a period of twenty-four months less the amount of any
disability payments made by the Corporation or any Corporation plan and (y) in
the case of a Disability termination will afford to the Executive at the
Corporation's expense, health insurance benefits (including medical and dental)
and life insurance equivalent to the benefits enjoyed by the Executive at the
date of termination (the "Insurance Benefits") for a period of twenty-four
months from the date of such termination.
(b) If the Executive's employment is terminated by the Corporation
during the Employment Period (other than for death, Disability or Cause or other
than by virtue of a Change of Control pursuant to subsection 6(c)), or in the
event the Corporation is unwilling to extend the Executive's employment at the
expiration of this Agreement upon terms at least as favorable to the Executive
as the terms set forth herein, the Corporation shall continue the Executive's
salary for the remainder of the Employment Period or twenty-four (24) months,
whichever is longer and shall continue to maintain the Insurance Benefits for
such period.
-5-
<PAGE>
(c) If the Executive's employment is terminated by the Executive
during the Employment Period pursuant to subsection 6(c), the Corporation shall
pay to the Executive a cash amount as severance in a lump sum equal to 2.99
times the Executive's base salary then in effect pursuant to Section 3; provided
that such payment under this subsection 7 (c) shall be limited to an amount
which would not constitute an "excess parachute payment" under section 280G of
the federal Internal Revenue Code. Such lump sum payment shall be paid within 45
days after the date of termination provided for in subsection 6 (c).
(d) Nothing herein shall be deemed to restrict or reduce the
Executive's vested benefits under the 1988 Stock Option Plan, the compensation
deferral plan, the Savings Incentive Plan or the Annual Incentive Bonus Plan as
determined in accordance with the provisions of such plans.
(e) No continued salary or severance shall be paid if the Executive's
employment terminates for any reason during the Employment Period other than as
set forth above in this Section 7. Upon the termination of employment with the
Corporation for any reason, the Executive shall offer to resign his position as
a director of the Corporation, effective as of the date of such termination.
8. Confidential Information; Non-Competition. (a) For a three year
-----------------------------------------
period commencing on the date on which the Executive's employment with the
Corporation, or any of its affiliates, terminates for whatever reason (the "Date
of Termination"), (i) the Executive shall hold in a fiduciary capacity for the
benefit of the Corporation all secret or confidential information, knowledge or
data relating to the Corporation or its affiliates, and their respective
businesses which shall not be public knowledge (other than information which
becomes public as a result of acts of the Executive or his
-6-
<PAGE>
representatives in violation of this Agreement), including without limitation,
customer lists, bid, proposals, contracts, matters subject to litigation,
technology or financial information of the Corporation or its subsidiaries and
other know-how, and (ii) the Executive shall not, without the prior written
consent of the Corporation, communicate or divulge any such information,
knowledge or data to anyone other than the Corporation and those designated by
it in writing.
(b) For a three year period commencing on the Date of Termination,
the Executive will not, directly or indirectly, (i) own, manage, operate,
control or participate in the ownership, management or control of, or be
connected as an officer, employee, partner, director, or consultant or
otherwise, with, or have any financial interest in (except for (A) ownership as
of the date hereof, (B) any ownership in the common stock of the Corporation, or
(C) any ownership of less than 5% of the outstanding equity interest in any
entity) (I) the manufacture of graphite electrodes, (II) the manufacture of
specialty carbon and graphite products, or (III) the refining of products
required for production of, or the production of, needle coke, or the
manufacture or marketing of calcium carbide and its direct derivatives, in each
case, in any market in which the Corporation or its affiliates conducts or
solicits business or (ii) solicit or contact any employee of the Corporation or
its affiliates with a view to inducing or encouraging such employee to leave the
employ of the Corporation or its affiliates for the purpose of being employed by
the Executive, an employer affiliated with the Executive, or any competitor of
the Corporation or any affiliate thereof; provided that the provisions of
subsection (b) (i) shall be limited to a period of two years in the event the
Corporation is unwilling to extend the Executive's employment at the expiration
of this Agreement upon terms at least as favorable to the Executive
-7-
<PAGE>
as set forth in this Agreement or the termination by the corporation of the
Executive's employment during the Employment Period other than for Cause or
Disability.
(c) The Executive acknowledges that the provisions of this Section 8
are reasonable and necessary for the protection of the Corporation and that the
Corporation will be irrevocably damaged if such provisions are not specifically
enforced. Accordingly, the Executive agrees that, in addition to any other
relief to which the Corporation may be entitled in the form of actual or
punitive damages, the Corporation shall be entitled to seek and obtain
injunctive relief from a court of competent jurisdiction (without the posting of
a bond therefor) for the purposes of restraining the Executive from any actual
or threatened breach of such provisions.
9. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the corporation shall not be assignable by
the Executive other than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Corporation and its successors.
(c) This Agreement supersedes the employment agreement dated March 1,
1995 between the Executive and the Corporation which prior agreement is no
longer in force.
10. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws.
(b) All notices and other communications here-under shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
-8-
<PAGE>
If to the Executive:
Walter B. Fowler
9953 Parkland Drive
Wexford, Pennsylvania 15090
If to the Corporation:
The Carbide/Graphite Group, Inc.
One Gateway Center, 19th Floor
Pittsburgh, PA 15222
Attention: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The Corporation may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(d) The Corporation's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision or any
other provision hereof. The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of such provision
or any other provision hereof.
(e) This Agreement embodies the entire agreement between the parties
with respect to the Executive's employment, and may not be changed or terminated
orally.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and
pursuant to the authorization from its Board of Directors the Corporation has
caused these presents to be executed in its name and on its behalf, all as of
the day and year first above written.
THE CARBIDE/GRAPHITE GROUP, INC.
-9-
<PAGE>
By: /s/ Nicholas T. Kaiser
------------------------------------------
Name:
Title:
/s/ Walter B. Fowler
------------------------------------------
Walter B. Fowler 4/10/97
-10-
<PAGE>
EXHIBIT 10.20
April 16, 1997
Mr. Ronald N. Clawson
The Carbide/Graphite Group, Inc.
One Gateway Center
Pittsburgh, Pennsylvania 15222
Dear Ron:
We refer to your employment agreement with The Carbide/Graphite Group,
Inc. (the "Corporation") dated March 31, 1995 (the "Employment Agreement"). This
letter will serve to confirm our understanding regarding the termination of your
employment with the Corporation, as follows:
1. Termination of Employment Agreement. The Employment Agreement is hereby
-----------------------------------
terminated in its entirety and shall no longer have any force or effect. You
hereby resign as an officer of the Corporation, its affiliates, subsidiaries and
business units, and as a director of the Corporation, effective as of April 30,
1997.
2. Severance; Consulting. For a period of 24 consecutive months commencing
---------------------
May 1, 1997, the Corporation shall pay to you on the first day of each such
month the sum $19,917, less any required withholding under applicable law. The
Corporation may make such payments on a bimonthly basis if it so elects. If
requested by the Corporation during such 24-month period and in consideration of
the payments provided for in this Section 2, you will be available for
consultation regarding the Corporation's operations and activities (including
the Carbide
<PAGE>
October 27, 1997
Page 2
Products business unit, from time to time at a mutually acceptable time and
place. You will be reimbursed for any out-of-pocket costs incurred by you and
necessitated by any travel.
3. Bonus; Profit Sharing. You shall not be entitled to a bonus pursuant to
---------------------
the Corporation's Annual Incentive Bonus Compensation Plan for the current
fiscal year ending July 31, 1997 (the "1997 Fiscal Year"), but you shall be
entitled to receive your pro rata profit sharing benefit for the current 1997
Fiscal Year under the Corporation's Savings Investment Plan for the period
through April 30, 1997. Of course, you shall be entitled to your vested benefits
under the Corporation's Compensation Deferral Plan in accordance with the terms
of such Plan.
4. Insurance Benefits. For a period of 24 months commencing May 1, 1997,
------------------
the Corporation shall afford to you at its expense health insurance benefits
(including medical and dental) and life insurance equivalent to the benefits
enjoyed by you on the date hereof.
5. Stock Options. You currently hold options to purchase 20,000 shares of
-------------
the Corporation's common stock at an exercise price of $2.00 per share pursuant
to the Corporation's 1991 Stock Option Plan, which options expire in September
1998 and are fully vested and exercisable. Pursuant to the provisions of the
Stock Option Plan such options shall terminate on the seventh anniversary of the
date of grant (September 23, 1998) and you shall be entitled to exercise such
options until such date. The stock options granted to you in 1996 pursuant to
the 1995 Stock Option Plan are hereby terminated.
6. Release. You acknowledge that, other than as set forth herein, you have
-------
no other claims against the Corporation, and you are concurrently herewith
executing the Release attached hereto as Attachment I.
<PAGE>
October 27, 1997
Page 3
7. Confidentiality; Non-Compete. You hereby agree to be bound by the
----------------------------
confidentiality provisions set forth in Attachment II (paragraphs (a), (c) and
(d)) for a period of three years from the date hereof and the non-competition
provisions set forth in Attachment II (paragraphs (b), (c) and (d)) for a period
of two years from the date hereof.
8. Successors. (a) This letter agreement is personal to you and without the
----------
prior written consent of the Corporation shall not be assignable by you other
than by will or the laws of descent and distribution.
b) This letter agreement shall inure to the benefit of and be binding upon
the Corporation and its successors.
9. Miscellaneous. (a) This letter agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to you:
Ronald N. Clawson
1703 Sturbridge Drive
Sewickley, Pennsylvania 15143
<PAGE>
October 27, 1997
Page 4
If to the Corporation:
The Carbide/Graphite Group, Inc.
One Gateway Center, 19th Floor
Pittsburgh, Pennsylvania 15222
Attention: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The Corporation may withhold from any amounts payable under this letter
agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(d) The Corporation's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision hereof.
Your failure to insist upon strict compliance with any provision hereof shall
not be deemed to be a waiver of such provision or any other provision hereof.
(e) This letter agreement embodies the entire agreement between the parties
with respect to the subject matter hereof and may not be changed or terminated
orally.
(f) At your request, the Corporation will pay, or reimburse you for, the
reasonable charges of an outplacement service.
10. Counsel. You acknowledge that you have consulted with independent legal
-------
counsel (other than counsel acting for the Corporation) or have had the
opportunity to consult such counsel but declined to do so, in connection with
the negotiation and execution of this agreement.
<PAGE>
October 27, 1997
Page 5
11. No Disparagement. The Corporation and you each agree not to disparage
----------------
the other; provided that the Corporation and its directors and you may take
such actions as may be required by applicable law or to enforce this Agreement
or to defend against a claim related thereto or, in the case of the directors
of the Corporation, to satisfy their fiduciary responsibilities.
12. Confidentiality. The parties hereto shall not divulge the terms of this
---------------
agreement to third parties generally, for any purpose detrimental to the
Corporation, except as required by applicable law or to enforce this Agreement
or to defend against a claim related thereto and except that the Corporation may
reveal such terms to its stockholders, financing sources, accountants, legal
counsel, directors and management employees and such other parties as the
Corporation's Board of Directors in good faith shall deem necessary or
desirable.
If the foregoing correctly sets forth our understanding, please
execute one copy of this letter agreement and return it to the Corporation, at
which time it shall be a binding agreement between you and the Corporation.
Very truly yours,
THE CARBIDE/GRAPHITE GROUP, INC.
By: /s/ Walter B. Fowler
--------------------------------------
Accepted and Agreed:
/s/ Ronald N. Clawson
- ----------------------------------
Ronald N. Clawson
<PAGE>
ATTACHMENT II
-------------
Confidential Information; Non-Competition
-----------------------------------------
(a) You agree that (i) you shall hold in a fiduciary capacity for the
benefit of the Corporation all secret or confidential information, knowledge or
data relating to the Corporation or its affiliates, and their respective or
former businesses which shall not be public knowledge (which term shall not
include information which becomes public as a result of your act or acts of your
representatives in violation of this Agreement), including, without limitation,
customer lists, bid proposals, contracts, matters subject to litigation,
technology or financial information of the Corporation or its subsidiaries,
confidential information received from third parties with whom the Corporation
has business relationships, and other know-how, and (ii) you shall not, without
the prior written consent of the Corporation, communicate or divulge any such
information, knowledge or data to anyone other than the Corporation and those
designated by it in writing.
(b) Without the prior written approval of the Corporation, you agree that
you will not, directly or indirectly, (i) own, manage, operate, control or
participate in the ownership, management or control of, or be connected as an
officer, employee, partner, director, or consultant or otherwise with, or have
any financial interest in (except for (A) ownership as of the date hereof, (B)
any ownership in the common stock of the Corporation, or (C) any ownership of
less than 5% of the outstanding equity interest) any entity engaged in (I) the
manufacture of graphite electrodes, (II) the manufacture of calcium carbide and
specialty graphite products, or (III) the refining of products required for the
production of, or the production of, needle coke, or the manufacture or
marketing of calcium carbide, calcium carbide desulfurizing products, calcium
carbide used in metallurgical applications and calcium hydrate or (IV) the
manufacture or marketing of any products which compete with any of the
Corporation's principle product lines currently offered for sale in the markets
in which the Corporation presently solicits business or (ii) solicit or contact
any employee of the Corporation or its affiliates with a view to inducing or
encouraging such employee to leave the employ of the Corporation or its
affiliates for the purpose of being employed by you, an employer affiliated with
you, or any competitor of the Corporation or any affiliate thereof.
(c) You acknowledge that the provisions of this Attachment II are
reasonable and necessary for the protection of the Corporation and that the
Corporation will be irrevocably damaged if such provisions are not specifically
enforced. Accordingly, you agree that, in addition to any other relief to which
the Corporation may be entitled in the form of actual or punitive damages, the
Corporation shall be entitled to seek and obtain injunctive relief from a court
of competent jurisdiction (without the posting of a bond therefor) for the
purposes of restraining you from any actual or threatened breach of such
provisions.
(d) Although the restrictions contained in this Attachment II are
considered by the parties hereto be fair and reasonable in the circumstances, it
is recognized that restrictions of
II-1
<PAGE>
the nature contained in this Attachment II may fail for technical reasons, and
accordingly if any of such restrictions shall be adjudged to be void or
unenforceable for whatever reason, but would be valid if part of the wording
thereof were deleted, or the period thereof reduced or the area dealt with
thereby reduced in scope, the restrictions contained in this Attachment shall
apply, at the election of the Corporation, with such modifications as may be
necessary to make them valid, effective and enforceable in the particular
jurisdiction in which such restrictions are adjudged to be void and
unenforceable.
II-2
<PAGE>
General Release
---------------
Notice: This is a very important legal document and you should
------
carefully review and understand the terms and effect of this document before
signing it. By signing this General Release you are agreeing to completely
release the Company from all liability to you. Therefore, you should consult
with an attorney before signing the General Release. You have 21 days from the
date of the distribution of this document to consider this document. if you have
not returned a signed copy of the General Release by that time, we will assume
that you have elected not to sign the General Release. If you choose to sign the
General Release, you will have an additional 7 days following the date of your
signature to revoke the agreement and the agreement shall not become effective
or enforceable until the revocation period has expired.
In consideration of benefits to which I would not otherwise be
entitled offered to me by The Carbide/Graphite Group, Inc., I hereby release and
discharge The Carbide/Graphite Group, Inc., and their affiliates, parents,
subsidiaries, successors, and predecessors, and all of their employees, agents,
officers and directors (hereinafter collectively referred to as "the Company")
from any and all claims and/or causes of action, known or unknown, which I may
have or could claim to have against the Company up to and including the date of
my signing of this General Release. This General Release includes, but is not
limited to, all claims arising from or during my employment or as a result of
the termination of my employment and all claims arising under federal, state or
local laws prohibiting employment discrimination based upon age, race, sex,
religion, handicap, national origin or any other protected characteristic,
including, but not limited to, any and all claims arising under the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964,
and/or claims growing out of any legal restrictions, expressed or implied, on
the Company's right to control or terminate the employment of its employees.
By signing below, I acknowledge that I have carefully read and fully
understand the provisions of this General Release. I further acknowledge that I
am signing this General Release knowingly and voluntarily and without duress,
coercion or undue influence. I further agree that should I file a lawsuit in
court which is found to be barred in whole or part by this General Release, I
will pay the legal fees incurred by the Company in defending those claims found
to be barred. This Agreement constitutes the total and complete understanding
between me and the Company relating to the subject matter covered by this
General Release, and all other prior or contemporaneous written or oral
agreements or representations, if any, relating to the subject matter of this
General Release are null and void. It is also expressly understood and agreed
that the terms of this General Release may not be altered except in a writing
signed by both me and the Company.
-1-
<PAGE>
INTENDING TO BE LEGALLY BOUND, I hereby set my hand below:
WITNESSED BY:
/s/ Walter E. Damian /s/ Ronald N. Clawson
- ---------------------------------- -------------------------------------
Dated: 4/25/97 Dated: 4/25/97
---------------------------- -------------------------------
-2-
<PAGE>
Exhibit 10.21
[LOGO OF CARBIDE/GRAPHITE GROUP, INC.]
================================================================================
To: From:
W. E. Damian W. B. Fowler
================================================================================
Date April 25, 1997
----------------
SUBJECT: TERMINATION, CONFIDENTIALITY &
NON-COMPETITION AGREEMENT
PERSONAL & CONFIDENTIAL
=======================
This letter confirms that in the event you are terminated from the
Company for a reason other than cause (as defined in the attached
Schedule A) that you will be granted one year of severance pay and one
year of medical coverage provided by the Company and in effect at the
time of termination.
This letter supersedes the letter termination agreement signed by N.
T. Kaiser dated 2/1/95 (copy attached). In addition, we request that
you sign the attached Confidentiality and Non-Competition Agreement
included as Schedule B. This agreement is an important protection for
the Company and is referred to in the definition of "Cause" relating
to the termination agreement.
If you are in agreement with the termination provisions, please sign
below. Also, please sign the Confidentiality and Non-Competition
Agreement separately at the bottom of Schedule B.
/s/ Walter B. Fowler
WBF:nlf Walter B. Fowler
Attachments
/s/ WALTER E. DAMIAN
- ------------------------------
Walter E. Damian
Date: April 25, 1997
-------------------------
<PAGE>
SCHEDULE A
CAUSE
For purpose of this Agreement, "Cause" shall mean (i) the willful and continued
failure by the Executive to perform substantially his duties to the Corporation
or its subsidiaries (other than any such failure resulting from his disability)
within a reasonable period of time after a written demand for substantial
performance is delivered to the Executive by the Chairman, which demand
specifically identifies the manner in which the Chairman believes that the
Executive has not substantially performed his duties, (ii) embezzlement or theft
from the Corporation or any subsidiary or affiliate by the Executive or the
commission or perpetration by the Executive of any act involving moral
turpitude, or (iii) any material and willful violation by the Executive of his
obligations under the Confidentiality and Non-Competition Agreement (Schedule B
attached).
- 1 -
<PAGE>
SCHEDULE B
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
(a) For a three-year period commencing on the date on which the Executive's
employment with the Corporation, or any of its affiliates, terminates for
whatever reason (the "Date of Termination"), (i) the Executive shall hold in a
fiduciary capacity for the benefit of the Corporation all secret or confidential
information, knowledge or data relating to the Corporation or its affiliates,
and their respective businesses which shall not be public knowledge (other than
information which becomes public as a result of acts of the Executive or his
representatives in violation of this Agreement), including without limitation,
customer lists, bids, proposals, contracts, matters subject to litigation,
technology or financial information of the Corporation or its subsidiaries and
other know-how, and (ii) the Executive shall not, without the prior written
consent of the Corporation, communicate or divulge any such information,
knowledge or data to anyone other than the Corporation and those designated by
it in writing.
(b) For a three-year period commencing on the Date of Termination, the
Executive will not, directly or indirectly, (i) own, manage, operate, control or
participate in the ownership, management or control of, or be connected as an
officer, employee, partner, director, or consultant or otherwise, with, or have
any financial interest in (except for (A) ownership as of the date hereof, (B)
any ownership in the common stock of the Corporation, or (C) any ownership of
less than 5% of the outstanding equity interest in any entity)
- 1 -
<PAGE>
SCHEDULE B (Cont'd)
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
(I) the manufacture or marketing of graphite electrodes, (II) the manufacture or
marketing of specialty carbon and graphite products, (III) the manufacture or
marketing of needle coke, or (IV) the manufacture or marketing of calcium
carbide and its direct derivatives, in each case, in any market in which the
Corporation or its affiliates conducts or solicits business or (ii) solicit or
contact any employee of the Corporation or its affiliates with a view to
inducing or encouraging such employee to leave the employ of the Corporation or
its affiliates with a view to inducing or encouraging such employee to leave the
employ of the Corporation or its affiliates for the purpose of being employed by
the Executive, an employer affiliated with the Executive, or any competitor of
the Corporation or any affiliate thereof.
(c) The Executive acknowledges that the provisions of this Schedule B are
reasonable and necessary for the protection of the Corporation and that the
Corporation will be irrevocably damaged if such provisions are not specifically
enforced. Accordingly, the Executive agrees that, in addition to any other
relief to which the Corporation may be entitled in the form of actual or
punitive damages, the Corporation shall be entitled to seek and obtain
injunctive relief from a court of competent jurisdiction (without the posting of
a bond therefor) for the purposes of restraining the Executive from any actual
or threatened breach of such provisions.
/s/ Walter E. Damian
- ------------------------------
Walter E. Damian
Date: April 25, 1997
-------------------------
<PAGE>
[LOGO OF CARBIDE/GRAPHITE GROUP, INC.]
================================================================================
To: From:
W. E. Damian N. T. Kaiser
================================================================================
Date February 1, 1995
------------------
SUBJECT: TERMINATION
It was agreed in a meeting with Mr. Paul Balser on January 23, 1995,
that in the event you are terminated from the Company for a reason
other than cause (as defined in the attached Schedule A) that you will
be granted one year of severance pay plus medical coverage provided by
the Company and in effect at the time of termination.
If you are in agreement, please sign below and return one copy to me.
/s/ N. T. Kaiser
N. T. Kaiser
NTK:nlf
Attachment
/s/ Walter E. Damian
- ------------------------------
Walter E. Damian
Date: 2/1/95
-------------------------
<PAGE>
Schedule A
----------
Cause. The Corporation shall have the right to terminate the Executive's
employment for "Cause." For purposes of this Agreement, "Cause" shall mean (i)
the willful and continued failure by the Executive to perform substantially his
duties to the Corporation or its subsidiaries (other than any such failure
resulting from his Disability) within a reasonable period of time after a
written demand for substantial performance is delivered to the Executive by the
Board of Directors, which demand specifically identifies the manner in which the
Board of Directors believes that the Executive has not substantially performed
his duties, (ii) the willful misconduct by the Executive in the performance of
his duties to the Corporation or its subsidiaries (including, without
limitation, the conviction by a court of competent jurisdiction of the Executive
of any offense, regardless of classification, related to the Executive's duties
and responsibilities to the Corporation or its subsidiaries), (iii) the grossly
negligent performance by the Executive of his duties to the Corporation or its
subsidiaries if such grossly negligent performance is determined by the Board of
Directors to have had or to be reasonably likely to have a material adverse
effect on the business, assets, prospects or financial condition of the
Corporation or the subsidiary employing the Executive, (iv) the conviction of
the Executive by a court of competent jurisdiction of a felony.
<PAGE>
Exhibit 10.22
[LOGO OF CARBIDE/GRAPHITE GROUP, INC.]
================================================================================
To: From:
J. Trigg, Jr. W. B. Fowler
================================================================================
Date April 25, 1997
----------------
SUBJECT: TERMINATION, CONFIDENTIALITY &
NON-COMPETITION AGREEMENT
PERSONAL & CONFIDENTIAL
=======================
It was agreed by the C/G Board of Directors that you will be granted
one year severance pay and one year of medical coverage (as provided
by the Company and currently in effect at the time of termination) in
the event you are terminated from the Company for a reason other than
cause as defined in the attached Schedule A.
In addition, we request that you sign the attached Confidentiality and
Non-Competition Agreement included as Schedule B. This agreement is an
important protection for the Company and is referred to in the
definition of "Cause" relating to the termination agreement.
If you are in agreement with the termination provisions, please sign
below. Also, please sign the Confidentiality and Non-Competition
Agreement separately at the bottom of Schedule B.
/s/ Walter B. Fowler
WBF:nlf Walter B. Fowler
Attachments
/s/ Jim Trigg, Jr.
- ------------------------------
Jim Trigg, Jr.
Date: 4/30/97
-------------------------
<PAGE>
SCHEDULE A
CAUSE
For purposes of this Agreement, "Cause" shall mean (i) the willful and continued
failure by the Executive to perform substantially his duties to the Corporation
or its subsidiaries (other than any such failure resulting from his disability)
within a reasonable period of time after a written demand for substantial
performance is delivered to the Executive by the Chairman, which demand
specifically identifies the manner in which the Chairman believes that the
Executive has not substantially performed his duties, (ii) embezzlement or theft
from the Corporation or any subsidiary or affiliate by the Executive or the
commission or perpetration by the Executive of any act involving moral
turpitude, or (iii) any material and willful violation by the Executive of his
obligations under the Confidentiality and Non-Competition Agreement (Schedule B
attached).
- 1 -
<PAGE>
SCHEDULE B
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
(a) For a three-year period commencing on the date on which the Executive's
employment with the Corporation, or any of its affiliates, terminates for
whatever reason (the "Date of Termination"), (i) the Executive shall hold in a
fiduciary capacity for the benefit of the Corporation all secret or confidential
information, knowledge or data relating to the Corporation or its affiliates,
and their respective businesses which shall not be public knowledge (other than
information which becomes public as a result of acts of the Executive or his
representatives in violation of this Agreement), including without limitation,
customer lists, bids, proposals, contracts, matters subject to litigation,
technology or financial information of the Corporation or its subsidiaries and
other know-how, and (ii) the Executive shall not, without the prior written
consent of the Corporation, communicate or divulge any such information,
knowledge or data to anyone other than the Corporation and those designated by
it in writing.
(b) For a three-year period commencing on the Date of Termination, the
Executive will not, directly or indirectly, (i) own, manage, operate, control or
participate in the ownership, management or control of, or be connected as an
officer, employee, partner, director, or consultant or otherwise, with, or have
any financial interest in (except for (A) ownership as of the date hereof, (B)
any ownership in the common stock of the Corporation, or (C) any ownership of
less than 5% of the outstanding equity interest in any entity)
- 1 -
<PAGE>
SCHEDULE B (Cont'd)
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
(I) the manufacture or marketing of graphite electrodes, (II) the manufacture or
marketing of specialty carbon and graphite products, (III) the manufacture or
marketing of needle coke, or (IV) the manufacture or marketing of calcium
carbide and its direct derivatives, in each case, in any market in which the
Corporation or its affiliates conducts or solicits business or (ii) solicit or
contact any employee of the Corporation or its affiliates with a view to
inducing or encouraging such employee to leave the employ of the Corporation or
its affiliates with a view to inducing or encouraging such employee to leave the
employ of the Corporation or its affiliates for the purpose of being employed by
the Executive, an employer affiliated with the Executive, or any competitor of
the Corporation or any affiliate thereof.
(c) The Executive acknowledges that the provisions of this Schedule B are
reasonable and necessary for the protection of the Corporation and that the
Corporation will be irrevocably damaged if such provisions are not specifically
enforced. Accordingly, the Executive agrees that, in addition to any other
relief to which the Corporation may be entitled in the form of actual or
punitive damages, the Corporation shall be entitled to seek and obtain
injunctive relief from a court of competent jurisdiction (without the posting of
a bond therefor) for the purposes of restraining the Executive from any actual
or threatened breach of such provisions.
/s/ Jim Trigg, Jr.
- ------------------------------
Jim Trigg, Jr.
Date: 4/30/97
-------------------------
<PAGE>
Exhibit 10.33
CARBIDE/GRAPHITE GROUP, INC.
ANNUAL INCENTIVE PLAN
I. Purpose. The purpose of the Carbide/Graphite Group, Inc. Annual Incentive
-------
Plan (the "Plan") is to provide a means whereby Carbide/Graphite Group, Inc.
And its designated subsidiaries may (i) provide incentives and rewards to
designated key employees by making part of each such individual's pay dependent
upon the financial success of the Company, as defined below, (ii) attract and
retain persons of outstanding executive ability as key employees of the Company
and motivate such key employees to exert their best efforts on behalf of the
Company, and (iii) make the Company's compensation programs competitive with
those of other similar employers.
II. Administration. The Plan shall be administered by the Committee. The
--------------
Committee shall have full power and authority to interpret the Plan, make
factual determinations, and to prescribe, amend and rescind any rules, forms or
procedures as it deems necessary or appropriate for the proper administration of
the Plan and to make any other determinations and take such other actions as it
deems necessary or advisable in carrying out its duties under the Plan. Any
determinations, decisions, actions or interpretations to be made under the Plan
by the Committee shall be made in its sole discretion, not in any fiduciary
capacity and need not be uniformly applied to similarly situated individuals.
All decisions and determinations by the Committee shall be final, conclusive and
binding on the Company, all Participants, and any other persons having or
claiming an interest hereunder.
III. Definitions.
-----------
3.1 "Award" means the actual percentage of Compensation that a Participant
earns for a Plan Year as determined in accordance with Article V.
3.2 "Board" means the Board of Directors of Carbide/Graphite Group, Inc.
3.3 "Company" means Carbide/Graphite Group, Inc. and each of its subsidiaries
designated by the Board, which has elected to cover its Employees hereunder by
resolution of its board of directors.
3.4 "Compensation" means an Executive's base salary rate as in effect on the
last day of a Plan Year without regard to any deferral of base salary under any
type of plan maintained by the Company.
3.5 "Committee" means the Compensation Committee of the Board.
3.6 "Effective Date" means August 1, 1996.
<PAGE>
3.7 "Executive" means any executive employee of the Company employed on a
regular, full-time basis. Individuals employed by the Company in a causal or
temporary capacity (i.e., those hired for a specific job of limited duration)
----
and individuals characterized as "leased employees," within the meaning of
Section 414 of the Internal Revenue Code of 1986, as amended, or persons
characterized by the Company as "independent contractors," no matter how
characterized by the Internal Revenue Service, other governmental agency or a
court, shall not be considered "Executives" for the purpose of the Plan. Any
change of characterization of an individual shall, unless determined otherwise
by the Board, take effect on the actual date of such change without regard to
any retroactive recharacterization. For the purposes of Section 6.3, only an
individual who is a member of select group of management or highly compensated
employees within the meaning of Sections 201, 301 and 401 of the Employee
Retirement Income Security Act of 1974, as amended shall be treated as an
"Executive."
3.8 "Participant" means an Executive that the Committee has designated as
eligible to participate in the Plan under Article IV.
3.9 "Plan" means the Carbide/Graphite Group, Inc. Annual Incentive Plan as set
forth herein and as it may be amended from time to time.
3.10 "Plan Year" means the calendar year commencing on January 1, 1997 and each
calendar year thereafter.
3.11 "Separates from Employment" means the Executive's termination of employment
from the Company for any reason other than death, retirement under a retirement
plan of the Company or disability as defined in the Company's long-term
disability plan. Except as otherwise provided herein, a Separation from
Employment shall be deemed to have occurred on the last day of the Employee's
service to the Company not taking into account any compensation continuation
arrangement or severance benefit arrangement that may be applicable.
3.12 "Target Award" means the theoretical percentage of Compensation that the
Committee determines a Participant may receive if the Company achieves exactly
its financial goals for a Plan Year.
IV. Participation. For each Plan Year, the Committee shall designate, taking
-------------
into account the recommendation of the Chief Executive Officer of the Company,
each Executive who will participate in the Plan. In determining whether to
recommend that an Executive become a Participant under the Plan, the Committee
shall take into consideration the Executive's present and potential contribution
to the success of the Company and such other factors as the Committee may deem
proper and relevant. The Committee may determine to recommend that an Executive
become a Participant after the beginning of a Plan Year in which case the
Executive shall be eligible for a prorated Award based on the number of complete
quarters
2
<PAGE>
during which the Participant was eligible for an Award, but all other terms of
the Plan shall apply.
V. Determination of Award.
----------------------
5.1 Financial Criteria. As soon as practicable, but in any event within 90
days after the start of each Plan Year, the Committee shall determine the
financial criteria which shall be the basis for determining the Awards for such
Plan Year and communicate such criteria to all Participants. The financial
criteria will be based on the Company's level of "earnings before interest,
taxes, depreciation and amortization" (such level shall be deemed to be achieved
only after taking into account the total amount of Awards to be paid under the
-----
Plan for such Plan Year) unless the Committee determines and announces to
Participants, that different criteria will be utilized. The financial criteria
and the method for determining individual Awards based upon that criteria will
be set forth on Exhibit A hereto. The Committee shall also announce the
threshold achievement of financial criteria below which no Award shall be paid
and the maximum Award, which shall not exceed 200% of a Participant's Target
Award.
5.2 Calculation of Award. For each Plan Year, the Committee shall
calculate the amount of aggregate Awards based upon the financial criteria and
the actual financial results.
5.3 Announcement of Award. Annual results will be announced by the
Committee to all Participants immediately following the announcement of the
Company's financial results for the Plan Year, normally 60 days following the
end of such Plan Year.
VI. Payment of Award
----------------
6.1 Awards. The Committee shall authorize Awards to be made for a Plan
Year if the financial criteria have been satisfied for the full Plan Year.
Except as provided in Section 6.3, any Award due shall be paid to each
Participant promptly after authorization.
6.2 Withholding Tax. Notwithstanding any other provision of this Plan, the
Company shall be entitled to withhold from, or in respect of, any Award to be
made an amount sufficient to satisfy all federal, state and local tax
withholding requirements relating thereto.
6.3 Deferrals. Each Executive may elect, in accordance with the terms of
the Company's Deferred Compensation Plan, to defer the receipt of an Award
hereunder if a timely election is made in accordance with the terms of that
plan.
VII. Separation from Employment. If prior to the date scheduled by the Committee
--------------------------
for payment of an Award for a Plan Year, a Participant incurs a Separation from
Employment, no payments shall be made in respect of that Participant's Award
unless the Committee
3
<PAGE>
determines otherwise; provided, however, that in the event the Participant
Separates from Employment in a Plan Year in which a Change of Control of the
Company occurs, a percentage of the Award payments, if any, for the full Plan
Year shall be made to such Participant equal to the percentage of the Plan Year
during which the Participant was in the employ of the Company. For the purposes
hereof, a "Change of Control of the Company" shall be deemed to have taken place
if an person, together with all affiliates and associates of such person
acquires more than 50% of the voting power of the Company's outstanding voting
securities, the Company liquidates or sells substantially all of its assets or a
merger in which the Company's then stockholders do not, immediately after the
merger, own or control at least 50% of the voting power of the Company's
outstanding voting securities.
VIII. General Provisions.
------------------
8.1 Transferability. No Award under this Plan shall be transferred,
assigned, pledged or encumbered by the Participant and any attempt to do so
shall be void. In addition, a Participant's rights hereunder are not subject, in
any manner, to attachment or garnishment by creditors of the Participant or the
Participant's estate. In the event of a Participant's death during employment
with the Company, payments of any unpaid Award(s) shall be made to the
Participant's estate.
8.2 Unfunded Arrangement. The Plan is an unfunded incentive compensation
arrangement. Nothing contained in the Plan, and no action taken pursuant to the
Plan, shall create or be construed to create a trust of any kind. A
Participant's right to receive an Award shall be no greater than the right of an
unsecured general creditor of the Company. All Awards shall be paid from the
general funds of the Company, and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of such
Awards.
8.3 No Rights to Employment. Nothing in this Plan, and no action taken
pursuant hereto, shall confer upon any Participant the right to continue in the
employ of the Company, or affect the right of the Company to terminate the
Participant's employment at any time for cause or for no cause whatsoever.
8.4 Adjustment for Non-Recurring Items, Etc. Notwithstanding anything
herein to the contrary, if the Company's financial performance is affected by
any event that is of a non-recurring nature, the Committee may make such
adjustments in the financial criteria as it shall determine to be equitable and
appropriate in order to make the calculations of Awards, as nearly as may be
practicable, equivalent to the calculation that would have been made without
regard to such event. In the event of a significant change of the business or
assets of the Company under circumstances involving an acquisition or a merger,
consolidation or similar transaction, the Committee shall, in good faith,
recommend to the Board for approval such revisions to the financial criteria and
the other terms and conditions used in calculating Awards
4
<PAGE>
for the then current Plan Year as it reasonably deems appropriate in light of
any such change.
8.5 Notices. Any notice hereunder to be given to the Company shall be in
writing and shall be delivered in person to the Secretary of the Company, or
shall be sent by registered mail, return receipt requested, to the Secretary of
the Company at the Company's executive offices, and any notice hereunder to be
given to the Participant shall be in writing and shall be delivered in person to
the Participant, or shall be sent by registered mail, return receipt requested,
to the Participant at his last address as shown in the employment records of the
Company. Any notice duly mailed in accordance with the preceding sentence shall
be deemed given on the date postmarked.
8.6 Applicable Law. The Plan shall be construed and governed in
accordance with the laws of the Commonwealth of Pennsylvania.
8.7 Termination and Amendment of the Plan. The Board reserves the right
to amend, suspend, or terminate the Plan at any time; provided, however, that
any amendment, suspension or termination shall not adversely affect the rights
of Participants to receive Awards calculated for a completed Plan Year.
8.8 Miscellaneous.
(a) If the Company shall find that any person to whom any payment is
payable under this Plan is unable to care for his affairs because of illness or
accident, or is a minor, any payment due (unless a prior claim therefor shall
have been made by a duly appointed guardian, committee or other legal
representative) may be paid to the spouse, a child, a parent, or a brother or
sister, or to any person deemed by the Company to have incurred expense for such
person otherwise entitled to payment, in such manner and proportions as the
Company may determine. Any such payment shall be a complete discharge of the
liabilities of the Company under this Plan.
(b) This Plan shall be binding upon and inure to the benefit of the
Company, its successors and assigns and the Participant and his heirs,
executors, administrators and legal representatives.
5
<PAGE>
EXHIBIT 10.40
[LOGO OF FOSTER WHEELER USA CORPORATION]
FOSTER WHEELER USA CORPORATION
2020 DAIRY ASHFORD . HOUSTON, TEXAS 77077 . PHONE 281-597-3000
September 25, 1997
Letter No.: 13-037624 - 2.1 - 104
File No.: 37624 - 2.1
Mr. Jim Trigg
General Manager
Seadrift Coke L.P.
P.O. Box 192
Port Lavaca, Texas 77979
SUBJECT: Seadrift Coke L.P.
Port Lavaca, Texas
Coker Expansion Project
SEADRIFT COKE L.P./FWUSA ENGINEERING, PROCUREMENT AND
-----------------------------------------------------
CONSTRUCTION AGREEMENT FOR COKER EXPANSION PROJECT
--------------------------------------------------
Dear Jim,
Please find attached one fully executed original of the subject Agreement for
your files.
Very truly yours,
/s/ Mike Veit
Mike Veit
Project Manager
MV:sw
cc: M. Autrey
I. Bremner
D. Pettit
J. Archambault, Esq.
<PAGE>
ENGINEERING, PROCUREMENT, AND
CONSTRUCTION AGREEMENT
BETWEEN
SEADRIFT COKE, L.P. AND
FOSTER WHEELER USA CORPORATION
FOR
COKER EXPANSION PROJECT
<PAGE>
INDEX
-----
ARTICLE DESCRIPTION
- ------- -----------
1 DEFINITIONS
2 SERVICES BY FWUSAC
3 SERVICES BY OWNER
4 PRICE
5 TERMS OF PAYMENT
6 RELATIONSHIP OF THE PARTIES
7 PRICE ADJUSTMENT
8 CHANGES IN THE WORK
9 TIME OF PERFORMANCE
10 INSURANCE
11 INDEMNIFICATION FOR BODILY INJURIES AND PROPERTY DAMAGES
12 TITLE AND RISK OF LOSS TO MATERIALS & EQUIPMENT
13 RECORDS AND ACCOUNTING
14 MECHANICAL ACCEPTANCE; COMPLETION OF THE WORK
15 GUARANTEES AND WARRANTIES
16 INDEMNIFICATION AGAINST PATENT INFRINGEMENT
17 INDUSTRIAL PROPERTY RIGHTS
18 LIEN INDEMNIFICATION
19 CONTINUOUS PROSECUTION OF THE WORK
20 FORCE MAJEURE
21 CONSEQUENTIAL DAMAGES
22 ASSIGNMENT OF AGREEMENT
23 SUBCONTRACTING
24 WAIVER
25 NOTICES
26 SUSPENSION OF THE WORE
27 TERMINATION OF THE WORK
28 CAPTIONS
29 CONTROLLING LAW
30 SEVERABILITY
31 ENTIRETY OF CONTRACT
2
<PAGE>
EXHIBIT DESCRIPTION
- ------- -----------
A SCOPE OF WORK
B COMPENSATION BASIS
C PROJECT SCHEDULE
D PLANT COMPLETION STANDARD
3
<PAGE>
THIS Agreement (hereinafter "Agreement") is made effective the 2nd day of
June, 1997, hereinafter ("EFFECTIVE DATE") between SEADRIFT COKE, L.P.
(hereinafter "OWNER"), a Texas limited partnership, with its principal offices
at Port Lavaca, Texas and FOSTER WHEELER USA CORPORATION (hereinafter "FWUSAC"),
a Delaware corporation, with its principal offices at Perryville Corporate Park,
Clinton, New Jersey.
WITNESSETH
WHEREAS, OWNER desires to have constructed a COKER EXPANSION PROJECT
(hereinafter referred to as the "Plant") on its real property located at the
OWNER's Seadrift, Texas facility;
WHEREAS, OWNER desires FWUSAC to undertake the performance of certain required
engineering, procurement, and construction work and services for the Plant; and
WHEREAS, FWUSAC desires to undertake the performance of said work and services
for the Plant;
NOW, THEREFORE, the parties hereto, in consideration of their respective
obligations, undertakings and commitments hereinafter set forth, covenant and
agree as follows:
1. DEFINITIONS
Wherever used in this Agreement or in the other Contract Documents,
hereinafter defined, the following terms have the meanings indicated which are
applicable to both the singular and plural thereof:
1.1 "Agreement" or "Contract" means the Agreement between the parties hereto
covering the Work to be performed as represented and constituted by the Contract
Documents, which are attached to the Agreement and made a part thereof.
1.2 "Completion of Construction" means FWUSAC has:
a) Provided erection in accordance with the drawings and
specifications;
b) Completed its portion of the pre-commissioning Work;
c) Completed final cleanup, painting and insulation Work; and
d) Delivered all required documentation to the OWNER.
1.3 "Construction Aids" means any or all materials, supplies, and temporary
facilities and such other items as are required for construction of the Plant,
but which are not intended to become a permanent part of the Plant.
1.4 "Contract Documents" means and includes this Agreement with all its
Exhibits, attachments and all Specifications, Drawings, Modifications and
Appendices hereto.
1.5 "Contract Price" means the total of the amounts to be paid to FWUSAC
pursuant to this Agreement.
1.6 "Drawings" means all drawings which show the character and scope of the
Work to be performed and which have been produced by or for FWUSAC in the
design, construction, and erection of the Plant.
1.7 "Equipment" means any and all material, supplies, equipment and facilities
of whatever nature designed or specified by FWUSAC hereunder and intended to
become a permanent part of the Plant.
4
<PAGE>
1.8 "Modification" means (1) a written amendment to the Contract Documents
signed by both parties hereto or (2) a Change Order as provided for in Article
8 herein.
1.9 "Plant" or "Project" means the COKER EXPANSION PROJECT and related
equipment and systems to be built at OWNER's Seadrift, Texas facility.
1.10 "Project Completion" means Final Acceptance of the Plant has been
achieved.
1.11 "Ready for Commissioning" means the Plant, unit, facility, or part thereof
has been erected in accordance with the drawings, specifications and applicable
codes, to the extent necessary to permit commissioning, and pre-commissioning
activities have been completed by FWUSAC as detailed in Exhibit E.
1.12 "Site" means the land and other places on, under, in or through which the
Plant is to be constructed which includes real property located at the OWNER's
Seadrift, Texas Facility.
1.13 "Specifications" means those portions of the Contract Documents consisting
of written technical descriptions of materials, equipment, construction systems,
standards and workmanship as applied to the Work and certain administrative
details applicable thereto produced by or for FWUSAC in furtherance of the
design, construction, and erection and maintenance of the Plant.
1.14 "Subcontractor" means an individual, firm or corporation having either a
direct contract with FWUSAC or a contract executed by FWUSAC as OWNER's agent,
or any other lower-tier Subcontractor who performs any part of the design or any
part of the Work at the Site.
1.15 "Vendor "means any third party supplying any Equipment or Construction
Aids to FWUSAC with or without the services of supervision of installation at
the Site, but without installation labor at the Site.
1.16 "Work" means the entire completed construction of the Plant or the various
separately identifiable parts thereof required to be furnished under the
Contract Documents and is the result of performing services, furnishing labor
and furnishing and incorporating materials and Equipment into the Plant all as
required by the Contract Documents.
1.17 "Mechanical Completion Date" shall mean the date of completion of erection
of the respective unit or section of the Plant, exclusive of insulation and
painting.
1.18 "Work in Progress" shall mean all portions of the Work and all equipment,
supplies, and materials to be incorporated into the Work, or intended or
earmarked for the Project, while in transit to the Site or while stored in and
off the Site.
1.19 "Mechanical Acceptance" has the meaning defined in Subarticle 14.1.
1.20 "Final Acceptance" has the meaning defined in Subarticle 14.2.
1.21 "FWCI" shall mean Foster Wheeler Constructors, Inc., which is FWUSAC's
construction subcontractor.
5
<PAGE>
2.0 SERVICES BY FWUSAC
FWUSAC shall exercise all reasonable skill, care and diligence in the
performance of the WORK under the Agreement and shall carry out all his
responsibilities in accordance with recognized professional standards in
the United States of America. FWUSAC shall in accordance with the
provisions of this Agreement perform the following services as required for
construction of the Plant, as defined in Exhibit A:
2.1 Furnish home office engineering services consisting of process and
equipment engineering, mechanical design, procurement and general
engineering services as, and to the extent, required for construction
of the Plant to be performed by FWUSAC, including the placement of the
subcontract for construction to FWCI
. FWUSAC procurement services shall include equipment inquiries, bid
evaluations and inspection services to the extent approved by OWNER.
2.1.1 Under FWUSAC's construction subcontract to FWCI, FWCI shall be
responsible for providing the required construction management
and supervisory personnel, craft personnel on a direct hire
basis, subcontract services as required, small tools,
construction equipment, construction procedures, and
construction of the Plant.
2.2 Inspect all Equipment required for the Plant to the extent FWUSAC
deems necessary,
2.3 Furnish required supervisory construction personnel and other required
personnel including construction subcontract services; Construction
Aids, small tools, construction equipment and the like, not furnished
by construction subcontractors; and construct the Plant.
2.4 Prior to Ready for Commissioning, supply OWNER with:
a) The final tracings, and electronic file copies prepared by
FWUSAC for the Plant.
b) Five (5) sets of Mechanical Catalogs containing bulletins,
information and data furnished by Vendors; key drawings and data
prepared by FWUSAC, all and to the extent set forth in attached
Engineering Standard of Exhibit A .
c) Five (5) sets of Process Technical Specifications.
2.5 Obtain all license and permits required to be obtained in FWUSAC's
name for performance of the Work.
2.6 Nothing in this Agreement shall operate to prevent FWUSAC carrying out
similar WORK for other clients.
2.7 Appoint one or more individuals who shall be authorized to act on
behalf of FWUSAC and with whom OWNER may consult at all reasonable
times, and whose instructions, requests, and decisions will be binding
upon FWUSAC as to all matters pertaining to the Services to be
rendered under this Agreement as defined below.
6
<PAGE>
3.0 SERVICES BY OWNER
OWNER shall perform the following services in connection with the work, without
cost to FWUSAC:
3.1 Provide all necessary basic design data and any other engineering
services except as otherwise provided herein. This shall include, but
not be limited to, necessary soil bearing data and foundation design
criteria, topographical surveys, benchmarks for design and
construction, and identification of any hazardous, latent, hidden or
other conditions not discoverable by visual inspection (walk-through)
of the property at grade level.
3.2 Procure all necessary permits, licenses, easements, rights of way, and
a clear and level site free of any above and below grade obstructions,
other than those obstructions identified on Owner's drawings of the
Site, provided to FWUSAC in the course of performing the Work as
required for construction and operation of the Plant other than the
permits and licenses to be obtained by FWUSAC pursuant to Article 2.
3.3 Issue all purchase orders in OWNER's name for all Equipment and
materials to be incorporated into the plant, based on requisitions and
/ or bills of materials prepared by FWUSAC and / or FWCI. Procure all
necessary know-how, engineering agreements and patent licenses
required for the Plant other than those to be obtained by FWUSAC
pursuant to Article 2.
3.4 Provide a clear, well-drained, fenced and policed security area for a
Construction Storage area, unloading area, and piping fabrication
area.
3.5 Provide a clear and well-drained Construction Parking area.
3.6 Provide a finished surface road from the construction parking area to
the main work road.
3.7 Grade and maintain the construction road and access roads to the Work
site within the OWNER's property.
3.8 Furnish, consistent with FWUSAC's construction schedule the completely
furnished and equipped existing building for (a) the control room
wherein FWUSAC shall install the instrumentation and interconnections
thereto for the instrumentation of the Plant; and (b) the existing
electrical control room wherein FWUSAC shall, receive the 5 kV and 480
kV power and install the electrical switch gear and motor control
centers and the interconnections thereof required for the Plant.
3.9 Provide, in a safe and ready for service condition, all new, and /or
modified existing equipment, piping and materials of OWNER and its
subcontractors and vendors to which FWUSAC must tie-in, or provide
interface connections, or incorporate in the Plant, in the performance
of FWUSAC's Work, including that performed by FWUSAC's Subcontractors.
3.10 Provide clear access to the Battery Limits, all temporary facilities
as required for construction of the Plant, and provide a location for
disposal of waste material.
7
<PAGE>
3.11 Furnish and install all fire-fighting equipment and piping and
controls for same. Furnish all Utilities and other materials at the
battery limits of the Plant at quantities and conditions as required
for construction and testing purposes, including any necessary fill
or dirt, compressed air, petroleum feedstocks, coke, natural gas,
fuel oil, electricity, testing water and potable water, and
telecommunication connections.
3.12 Furnish all tools, record sheets, log tables, laboratory and testing
facilities, instrument charts, spare parts, catalysts, chemicals,
solvents, feedstocks and any other consumable supplies for
maintenance and operation, including testing of the Plant.
3.13 OWNER shall assume care, custody and control of the Plant and parts
thereof after they are Ready for Commissioning. Thereafter, in
association with FWUSAC and its Subcontractors, and in accordance
with Exhibit D hereof, OWNER will provide all maintenance, labor,
materials and utilities necessary to maintain, operate and test the
Plant, and any unit, or parts thereof. Furnish all labor, including
standby labor during start-up; and materials and utilities required
for maintenance and operation of the Plant from the date of Ready
for Commissioning.
3.14 OWNER shall provide such approvals as are required under the terms of
this Agreement in such reasonable time as not to delay or disrupt the
performance of the WORK.
3.15 OWNER shall negotiate and obtain at its cost all necessary licenses
or other approvals that may be required in respect of the WORK from
the relevant Government and other Authorities, which are not
required to be obtained by FWUSAC under Article 2.6 above.
3.16 Appoint one or more individuals who shall be authorized to act on
behalf of OWNER, with whom FWUSAC may consult at all reasonable
times, and whose instructions, requests, and decisions will be
binding upon OWNER as to all matters pertaining to this Agreement and
to the performance of the parties hereunder.
4.0 PRICE
4.1 OWNER agrees to pay FWUSAC in the manner, and as designated in
Article 5.0 hereof as full and complete compensation for FWUSAC's
services under this Agreement, the sum of the following amounts;
all the costs and charges incurred in performance of the Work,
including but not limited to the costs of engineering services,
procurement services, funding of Equipment (if required), and
construction of the Plant in accordance with Exhibit B.
4.2 FWUSAC's rates and prices are exclusive of any taxes, duties and/or
levies whatsoever which may be or become payable outside the United
States in respect of the WORK or in connection therewith (such as,
but not limited to, corporate or personal income tax, withholding
tax, and any and all sales, export, import, VAT, and other similar
taxes and duties).
8
<PAGE>
5.0 TERMS OF PAYMENT
5.1 The amounts payable to FWUSAC pursuant to Subsection 4.1, as
adjusted, shall be due and payable in accordance with the basis
set forth in Exhibit B, including all reimbursable costs and fees
earned for Work performed during the previous month and chargeable to
OWNER under this Agreement, upon OWNER's receipt of FWUSAC's monthly
invoices therefor. Provided however, Invoices for field construction
labor shall be submitted on a weekly basis, and paid by OWNER on a
weekly basis though a zero balance account. Charges for home office
personnel and salaried personnel on the site will be invoiced on a
monthly basis. All payments shall be made, within 30 days of receipt
of invoice by OWNER and shall be made in US Dollars to FWUSAC's
designated bank in New Jersey. The invoice shall be accompanied by
itemization of all items of reimbursable costs, and other documents
to support invoices. Payment by OWNER to vendors and subcontractors
for purchase orders and subcontracts shall be in accordance with
their respective terms and approved by FWUSAC as being in conformity
therewith.
5.2 OWNER agrees that payments due to FWUSAC shall be paid in full,
free of any withholdings.
6.0 RELATIONSHIP OF THE PARTIES
6.1 For purposes of this Agreement and all services to be provided
hereunder, FWUSAC shall be considered an independent contractor.
6.2 Neither FWUSAC nor any subcontractor, nor the employees of either
shall be deemed to be the servants, employees, or otherwise the
agents of OWNER and is without power of authority to act on behalf
of OWNER to incur any liability on OWNER's account.
7.0 PRICE ADJUSTMENT
The Price specified in Subarticle 4.1 shall be adjusted as a change in
the Work, for the following causes:
7.1 Increases in the design capacity of the Plant by the addition of
and/or replacement of any major items of Equipment specified in the
attached Exhibit A.
7.2 Changes by OWNER to the design set forth in Exhibit A.
7.3 In the event OWNER requires the purchase of equipment other than
Equipment selected by FWUSAC.
7.4 Overtime work in FWUSAC's home or branch offices or at the job
site, including payroll taxes and insurance premiums computed on such
premiums; provided such overtime is undertaken by FWUSAC with
OWNER's written authorization.
7.5 Costs and charges resulting from a decrease in the length of the
work week required by law or area practices which become effective
after the effective date of this Agreement.
9
<PAGE>
7.6 Alterations in, additions to, or deletions from the Plant which are
requested by OWNER or required by the OWNER's Insurance Carriers, or
soil bearing data, foundation and earthwork or other design criteria
being at variance with that contained in Exhibit A.
7.7 Increases or decreases in the costs and charges to FWUSAC resulting
from any change in OWNER's safety or loss-prevention procedures.
7.8 Interferences with continuous prosecution of the Work or from
suspension of the Work by OWNER or Force Majeure causes except
strikes or other concerted acts of workmen or disputes with workmen.
7.9 Costs and charges for changes in the Work as set forth in the
Agreement but not above specified.
8.0 CHANGES IN THE WORK
8.1 OWNER shall have the right at any time prior to Mechanical
Acceptance of the Plant, to request alterations in, additions to or
deletions from the Work. In each case, FWUSAC shall promptly
prepare and submit to OWNER a detailed estimate of the net effect
of such change on the Contract Price, and on the reimbursable costs
set forth in Article 4 hereof and including the cost of preparation
of the estimate whether on a lump sum, time and material, or
reimbursable rate basis. Upon approval of the estimate by OWNER, the
said Contract Price shall be adjusted by the amounts set forth in
such estimate.
In the event that OWNER elects not to have the change effected
after FWUSAC's preparation of the estimate as set forth herein,
OWNER shall pay to FWUSAC the costs and charges occurred in
preparation of the estimate.
8.2 In the event any changes in laws, rules, regulations, (including
taxes) applicable FWUSAC's performance of the Work, occur after the
effective date of this Agreement, such changes shall result in a
Change in the Work for the benefit of FWUSAC.
8.3 In the event Changes in the Work affect FWUSAC's guarantees
hereunder and OWNER requires FWUSAC to implement such Changes,
FWUSAC's guarantee shall be modified accordingly.
8.4 If a Change in the Work causes a revision in the time required for
achieving Mechanical Completion of the Plant, the contemplated date
of completion shall be accordingly adjusted.
9.0 TIME OF PERFORMANCE
FWUSAC shall promptly commence the Work and with its best efforts, and
endeavor to attain Mechanical Completion of the Plant on or about
, 1998. If FWUSA fails to meet the mutually agreed upon
------------- --
Mechanical Completion Date, the sole remedy of the Owner and the sole
liability of FWUSAC, shall be that OWNER shall retain, and FWUSAC shall
forego receipt, of the schedule component of the at-risk fee associated
the achievement of agreed upon the Mechanical Completion Date.
10
<PAGE>
10.0 INSURANCE
10.1 FWUSAC shall obtain and maintain during the performance of the Work
hereunder the following insurance:
10.1.1 Workmen's Compensation Insurance and Employer's Liability
Insurance in accordance with the laws of the state in which
FWUSAC may be required to pay compensation, with limits for
Employer's Liability of $1,000,000 per accident or diseases,
aggregate as to disease.
10.1.2 Commercial General Liability including Contractual Liability,
Products, Completed Operations, covering claims for bodily
injury, including death, and damage to property, with
combined single limits of $1,000,000 for bodily injury and
property damage per occurrence /aggregate.
10.1.3 Automobile Liability Insurance with a combined single limit
for bodily injury and property damage of $1,000,000.
10.1.4 Excess Liability Insurance, in excess of the coverages under
Articles 10.1.2 and 10.1.3, which in combination with the
coverages under Articles 10.1.2 and 10.1.3 shall have a
combined single limit of US $5.000,000 per occurrence
/aggregate.
10.2 OWNER shall obtain and maintain during the performance of the Work
hereunder the following insurance:
10.2.1 Builder's All-Risk Insurance including inland transportation
covering all Equipment, material, machinery, and structures
intended to become a permanent part of the Plant and temporary
facilities used in or incidental to performance of the
Work, while in transit to the Job Site, awaiting and during
erection, and until Final Acceptance, shall be maintained by
the OWNER, with a deductible of (One-Hundred Thousand Dollars)
$100,000. FWUSAC shall be responsible for the deductible of
$100,000 under the OWNER's Builder's All-Risk Insurance for
claims due to the negligence of FWUSAC and its subcontractor,
Foster Wheeler Constructors, Inc. OWNER will waive its
insurer's rights of subrogation under this policy.
10.3 The insurance to be provided pursuant to Subarticle 10.1 and
Subarticle 10.2 shall be subject to the normal limitations and
exclusions applying to each type of policy of insurance. All
insurance to be carried pursuant to this Article 10.0 shall be
endorsed to require the insurer to furnish FWUSAC and OWNER with
thirty (30) days' written notice prior to the effective date of any
modification or cancellation of such insurance.
10.4 FWUSAC shall furnish OWNER with certificates showing that the
insurance policies to be carried by FWUSAC in accordance with
Subarticle 10.1 have been issued. FWUSAC shall reinstate the
aggregate of its Commercial General Liability or Excess Liability
policy in the event the required limits of (Five Million Dollars)
$5,000,000 per occurrence/ aggregate are impaired by losses not
relating to this Agreement, during the term of this Agreement.
11
<PAGE>
11.0 INDEMNIFICATION FOR BODILY INJURIES AND PROPERTY DAMAGES
11.1 FWUSAC shall hold harmless and indemnify OWNER against any claims
for bodily injury (including death) to employees of OWNER, FWUSAC,
and its subcontractors, and for damage to or loss of property of
OWNER, occurring or sustained during performance of the Work
hereunder, and to the extent caused by the negligent acts or
omissions of FWUSAC, and its Subcontractors in the performance of
the Work, provided FWUSAC's and its Subcontractor's liability for
damage to the property of OWNER shall be limited to the aggregate
total of amount of U.S. $100,000.
11.2 OWNER does hereby release and agrees to hold harmless and indemnify
FWUSAC and its Subcontractors from any claim, loss or liability
resulting from damage to the Plant, and for damage to other property
of OWNER and the property of OWNER'S personnel, in excess of the
aggregate total amount of $100,000. OWNER shall obtain from its
Business Interruption, Extra Expense and Property Damage insurers a
Waiver of Subrogation in favor of FWUSAC and its Subcontractors and
their respective affiliates for loss or damage to OWNER's property
in excess of the aggregate total amount of U.S. $100,000.
11.3 OWNER shall indemnify and hold harmless FWUSAC and its
subcontractors from and against any and all liability for death,
illness or injury to any third party or for loss or damage to any
third party's property and against all claims, demands, proceedings
and causes of action resulting from FWUSAC'S performance of Work
under this Agreement, except to the extent such third party claim
is caused by the negligence of FWUSAC.
12.0 TITLE AND RISK OF LOSS TO MATERIALS & EQUIPMENT
12.1 Title and Risk of Loss to all Equipment and Materials shall pass to
OWNER as and when title and Risk of Loss passes from the Vendor or
Supplier.
13.0 RECORDS & ACCOUNTING
13.1 FWUSAC shall keep full and detailed accounts and records in
accordance with its established accounting procedures.
13.2 FWUSAC shall permit OWNER to have access to and review and audit at
all reasonable time its records and accounts relating to any costs
reimbursable, to FWUSAC by OWNER, pursuant to this Agreement,
provided however, OWNER's audit rights shall not apply to
CONTRACTOR's fixed rates, overlays, multipliers, fixed mark-up
rates, and fixed percentage charges, fixed amounts, or lumpsum
amounts, such as but not limited to benefits, bond rates, tools,
insurance, overhead, and fee for profit. Such periodic reviews and
audits shall be made during the performance of the Work; final audits
shall be made within twelve (12) months after the Completion of the
Work.
14.0 MECHANICAL ACCEPTANCE; COMPLETION OF THE WORK
14.1 Upon completion of the erection of the Plant, or any part thereof
capable of being isolated by temporary physical boundaries from
uncompleted parts of the Plant and consisting of equipment and
facilities which can be properly and safely commissioned
independently from uncompleted parts of the Plant, except insulation
and painting, and upon completion of pre-commissioning work as
specified in attached Exhibit D [Plant Completion Standard 05A1],
FWUSAC shall give
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<PAGE>
OWNER written notice that the Plant or part thereof as herein defined
is Ready for Commissioning. Within five working days after the
receipt of said notice, OWNER shall give FWUSAC a letter of
Mechanical Acceptance or shall notify FWUSAC in writing of any items
requiring completion, correction or repair. Upon completion,
correction or repair of every item about which OWNER has notified
FWUSAC, FWUSAC shall give OWNER written notice of such completion,
correction or repair, and within five working days after receipt of
said notice, OWNER shall give FWUSAC the letter of Mechanical
Acceptance, or shall notify FWUSAC in writing of all items requiring
completion, correction or repair. The notification procedure shall
be repeated until OWNER issues the letter of Mechanical Acceptance.
If OWNER does not comply with the provisions of the preceding
notification procedure, OWNER shall be deemed to have Mechanically
Accepted the Plant, or part thereof, covered by said FWUSAC notice
as of the fifth working day after the receipt of said FWUSAC notice.
After Mechanical Acceptance, OWNER may start commissioning the Plant
or part thereof.
14.2 After Mechanical Acceptance, FWUSAC shall complete the painting and
insulation work and perform final clean-up of the Plant or part
thereof as heretofore defined. After completion of all painting,
all insulation work and final clean-up, FWUSAC shall notify OWNER
in writing that construction is complete. Within five working
days after the date of receipt of said FWUSAC notice, OWNER shall
give FWUSAC a letter of Final Acceptance stating that the work has
been completed and accepted, or shall notify FWUSAC in writing of any
painting, insulation or clean-up items requiring completion,
correction or repair. Upon completion, correction or repair of all
such items about which OWNER has notified FWUSAC, FWUSAC shall give
OWNER written notice of such completion, correction or repair.
Within five (5) working days after the receipt of said FWUSAC notice,
OWNER shall give FWUSAC the letter of Final Acceptance stating that
the work has been completed and accepted or shall notify FWUSAC
in writing of any painting, insulation or clean-up items requiring
completion, correction or repair. The notification procedure shall
be repeated until OWNER issues the letter of Final Acceptance. If
OWNER does not comply with the provisions of the preceding
notification procedure, OWNER shall be deemed to have issued said
letter of Final Acceptance as of the fifth working day after the
receipt of said FWUSAC notice. After Final Acceptance, OWNER may
start operating the Plant or part thereof.
15.0 GUARANTEES & WARRANTIES
15.1 If any part of the Plant designed by FWUSAC is found to be defective
in service by reason of FWUSAC's faulty mechanical design within
twelve (12) months after Mechanical Completion thereof, FWUSAC
shall, make such changes in the said Plant design as are required to
correct such deficiencies and OWNER shall reimburse FWUSAC for the
costs of such correction at the same compensation rates as set forth
in Exhibit B, exclusive however of any costs of reperforming FWUSAC
engineering services, which cost of reperformed engineering services
shall be for the account of FWUSAC.
15.2 Equipment
---------
On any Equipment or any part thereof furnished hereunder by FWUSAC,
FWUSAC shall endeavor to obtain from vendors and subcontractors the
most advantageous guarantees with respect to the Equipment. In all
cases, except with written contrary authorization from OWNER, FWUSAC
shall request from vendors and subcontractors, a guarantee period of
twelve (12) months from date of
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completion of their work, or eighteen months from the date of
shipment of vendor equipment, whichever occurs first. FWUSAC shall
assist OWNER in enforcing such guarantees, but OWNER shall be
responsible for the cost or expenses of FWUSAC relating to litigation
to enforce such guarantees.
15.3 Field Workmanship
If within twelve months from the date of Mechanical Acceptance of the
Plant any part of the Plant pursuant to Section 14.1 is found to be
defective as a result of faulty field workmanship performed,
directed or supervised by FWUSAC, or its subcontractor FWCI, FWUSAC
shall provide, and bear the cost of, supervision, construction
tools, and craft labor performed by FWUSAC and its subcontractor
FWCI, to correct such defective workmanship, and the cost of any
and all Equipment and materials required for such correction will
be the responsibility of OWNER and paid for by OWNER. FWUSAC shall
not be responsible for any repairs or replacements made by OWNER or
by others, without the prior written approval of FWUSAC to OWNER
for such repair or replacement.
15.4 FWUSAC's liability for all warranties and guarantees pursuant to
this Agreement is conditioned upon:
(a) Operation of the Plant in accordance with the designs,
drawings, specification, instructions, safety procedures, and
other information and data furnished by FWUSAC hereunder.
(b) OWNER giving FWUSAC prompt written notice upon discovery of
each and every defect.
Defects caused by normal corrosion, erosion, wear and tear, changes
or repairs not authorized by FWUSAC in writing, faulty or improper
maintenance or abnormal operating conditions or operating at
conditions more severe than design criteria are excluded.
15.5 THE REMEDIES AND WARRANTIES SET FORTH IN THIS CONTRACT ARE GIVEN IN LIEU
OF ALL OTHER WARRANTIES AND GUARANTEES, EXCEPT THAT OF TITLE, AND SHALL
APPLY ON AN EXCLUSIVE BASIS. FWUSAC EXPRESSLY DISCLAIMS ANY OTHER
WARRANTIES OR GUARANTEES ON THE REMEDIES AND WORK, EXPRESS OR IMPLIED
WHETHER WRITTEN OR ORAL OR IMPLIED IN THE FACT OR IN LAW, AND WHETHER
OR NOT BASED ON STATUTE, CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY
OR OTHERWISE, INCLUDING BUT NOT LIMITED TO, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR ANY WARRANTY
ARISING FROM COURSE OF DEALING OR USAGE OF TRADE. TO THE EXTENT THAT ANY
IMPLIED WARRANTIES MAY NOT BE DISCLAIMED UNDER THE APPLICABLE LAW, SUCH
WARRANTIES ARE EXPRESSLY LIMITED TO THE DURATION OF THE WARRANTY PERIODS
STATED IN THIS ARTICLE 15. WHERE A REMEDY IS NOT PROVIDED IN THIS
AGREEMENT, THE PARTIES WILL HAVE THE RIGHTS AND REMEDIES AVAILABLE AT LAW
OR EQUITY.
14
<PAGE>
15.6 FWUSAC shall not be liable for any defects in the Work to the extent
that they arise from inaccuracy of any information, and/or data
provided by, or on behalf of, OWNER to FWUSAC.
15.7 FWUSAC's cumulative overall liability to OWNER for entering into this
Agreement, whether under the provisions of the Agreement, contract,
statute, strict liability, tort (including negligence) or otherwise
at law, shall not exceed the amount paid by OWNER to FWUSAC
hereunder. FWUSAC, and its subcontractor FWCI, shall be released from
all liability for occurrences after the expiration of the warranty
period stated above.
16.0 INDEMNIFICATION AGAINST PATENT INFRINGEMENT
16.1 FWUSAC shall hold OWNER harmless from, and shall defend at its own
expense any suit instituted against OWNER because of OWNER's use of
any of FWUSAC's process designs or apparatus or Equipment specially
designed by FWUSAC, provided that:
16.1.1 the equipment has been operated in accordance with FWUSAC's
design specifications, drawing, and instructions;
16.1.2 suit is based upon a charge of infringement of a claim of any
patent granted prior to the effective date of this Agreement;
16.1.3 OWNER promptly notified FWUSAC in writing of any institution
of such suit or of any warning or claim of infringement;
16.1.4 OWNER complies with all reasonable requests for assistance
made by FWUSAC.
Subject to the limits of the provisions of Section 16.3 FWUSAC shall
pay judgment and court costs awarded against OWNER in such suit and
all compensation and expenses of FWUSAC's own counsel and experts.
OWNER may be represented by counsel of OWNER's selection at OWNER's
expense. Upon receiving such notice from OWNER or from third persons,
FWUSAC shall have the right to procure for OWNER at FWUSAC's expense
the right to continue using said process of Equipment, or in the
alternative, to replace said Equipment or process with a non-
infringing Equipment or process or to modify said process or
Equipment to the extent required to avoid infringement, provided such
replacement or modification does not adversely affect the ability of
the Plant to meet the guarantees set forth in this Agreement.
16.2 In connection with any Equipment purchased by OWNER for incorporation
into the Plant, OWNER shall obtain from Vendors and Subcontractors
protection against patent infringement to the extent as may be
reasonably obtainable.
16.3 FWUSAC's liability to OWNER for patent infringement is solely limited
to that stated in Sections 16.1 and monetary limits in the amount of
the purchase price of said Equipment designed and manufactured by
FWUSAC.
16.4 If OWNER select or licenses any process carried out by materials
including Equipment, apparatus and accessories or combinations
thereof included in the Work, or if OWNER supplies information
pursuant to this Agreement, and if as a
15
<PAGE>
result of the foregoing valid patents held by a third party are
infringed or claimed to be infringed, OWNER shall hold FWUSAC
harmless from any infringement, or any claim of infringement, of
such patents, provided that FWUSAC:
16.4.1 Promptly transmits to OWNER all papers received by
FWUSAC regarding possible infringement or served upon
FWUSAC in any suit alleging infringement; and
16.4.2 Permits OWNER to take complete charge of the defense
of such suit; and
16.4.3 Complies with all reasonable requests for assistance
made by OWNER
17.0 INDUSTRIAL PROPERTY RIGHTS
17.1 Title to all Contract Documents including but not limited to all
drawings, bills of material, flow diagrams, specifications, designs,
information and data and Contract Document prepared by FWUSAC
hereunder shall remain the property of FWUSAC. OWNER or its assigns
pursuant to Article 22.0 shall have the right to use the information
furnished it by FWUSAC solely for construction, reconstruction or
replacement in kind, operation, repair and maintenance, of the
Plant, and shall not disclose it to others except to the extent
necessary to accomplish the foregoing and provided the recipient
executes a confidentiality agreement in form and substance as set
forth in Section 17.2
17.2 OWNER agrees to hold in confidence any and all information
disclosed, directly or indirectly, to OWNER by FWUSAC or its
affiliates under this Agreement. OWNER shall not willfully disclose
any such information. Such obligation shall not apply to:
(a) information which at the time of disclosure is in the public
domain;
(b) information which after disclosure is published or otherwise
becomes part of the public domain through no fault of OWNER
(but only after, and only to the extent that, it is published
or otherwise becomes part of the public domain);
(c) information which OWNER can show was in its possession at the
time of disclosure and was not acquired, directly or
indirectly, from FWUSAC or its affiliates or from a third
party under an obligation of confidence; and
(d) information which OWNER can show was received by it after the
time of disclosure hereunder from a third party who did not
require OWNER to hold it in confidence and who did not acquire
it, directly or indirectly, from FWUSAC or its affiliates
under an obligation of confidence.
17.3 For the purpose of the provisions of Section 17.2 disclosures made to
OWNER under this Agreement which are specific, e.g., as to engineering and
design practices and techniques, equipment, products, operating conditions
and/or catalyst for treating specific feedstock, etc. shall not be deemed
to be within the foregoing exceptions merely because they are embraced by
general disclosures in the public domain or in the possession of OWNER. In
addition, any combination of features shall not be deemed to be within the
foregoing exceptions merely because individual features are in the public
domain or in the possession.
16
<PAGE>
of OWNER, but only if the combination itself and its principle of
operation are in the public domain or in the possession of OWNER.
17.4 OWNER agrees to promptly disclose to FWUSAC any inventories or improvements
which are conceived by any of OWNER's employees within a period of ten (10)
years from date of Final Acceptance of the Plant, which inventions or
improvements are based upon or derived from FWUSAC information required to
be maintained in confidence by OWNER pursuant to Section 17.2 hereof, and
OWNER agrees to grant and hereby grants to FWUSAC a non-exclusive
worldwide, irrevocable, royalty-free license, including the right to
sublicense others, under any and all such inventions and improvements,
whether patentable or not, which are based on or derived from such FWUSAC
information.
17.5 In the event OWNER desires to file a patent application on any invention or
improvement in which any technical information furnished by FWUSAC is to be
disclosed, OWNER agrees to provide FWUSAC prior to filing, with a copy of
that part of the application which contains such information. If FWUSAC
advises OWNER that the technical information included in the application is
information to be held in confidence by OWNER under Section 17.2 hereof and
OWNER is unable to prove otherwise to the reasonable satisfaction of
FWUSAC, OWNER agrees not to permit the publication in any country of a
patent based on such application; FWUSAC agrees, however, that such consent
shall not be unreasonably withheld.
18.0 LIEN INDEMNIFICATION
FWUSAC shall indemnify and save OWNER harmless from and against all claims,
liens, attachments or charges, in the nature of mechanics or materialmen's
liens, in favor of FWUSAC or any party performing services pursuant to this
Agreement, payments to whom will be processed through or made by FWUSAC,
provided OWNER (a) has paid FWUSAC all amounts then due and payable in
accordance with this Agreement and (b) notifies FWUSAC promptly of any
claim, lien attachment or charge of which it receives notice and (c)
permits FWUSAC to defend any such claim, lien, attachment or charge, or
post bond.
In the event FWUSAC fails to discharge it s obligations within this
paragraph OWNER may interplead any disputed funds in its possession into
the registry of the appropriate state court in Calhoun County, Texas and
shall be indemnified and held harmless from and against any liability,
claim, demand, costs and expenses, including attorney fees and litigation
costs relating to any claim or liens for labor performed or material
furnished or relating to any security interest or any other kind of lien,
charge or encumbrance arising directly or indirectly out of or in
connection with the Work.
19.0 CONTINUOUS PROSECUTION OF THE WORK
This Agreement contemplates continuous prosecution of the Work and all
additional costs and charges incurred by FWUSAC resulting from
interferences beyond FWUSAC's control or resulting from any Force Majeure
causes shall be paid to FWUSAC by OWNER as a Change in the Work pursuant to
Article 8.0 hereof.
17
<PAGE>
20.0 FORCE MAJEURE
Any delay in or failure of performance by FWUSAC shall not constitute
default hereunder as and to the extent such delay or failure is caused by
an occurrence beyond the control of FWUSAC, including: acts of God or the
public enemy; expropriation or confiscation of facilities; compliance with
any order of any governmental authority; acts of war, rebellion or sabotage
or damage resulting therefrom; fires; floods; explosions; accidents; riots;
strikes or other concerted acts of workmen or disputes with workmen; or any
occurrence, whether or not of the same class or kind as those specifically
above mentioned, which is not within the control of FWUSAC, and which by
the exercise of reasonable diligence, FWUSAC is unable to prevent.
21.0 CONSEQUENTIAL DAMAGES
21.1 Each party hereto, does hereby release the other party hereto, and
such other party's respective Subcontractors and their respective
affiliates, of liability for any and all consequential, special,
incidental, and indirect damages such as, but not limited to, loss of
anticipated profits or revenue, loss of use of revenue, cost of
capital, extra cost or increased cost of production, cost of
replacement production, failure to achieve, or delay in achieving
anticipated profits, or other damages of any nature sustained in
connection with or as a result of the Work to be performed hereunder,
whether based upon contract, tort, negligence, strict liability or
otherwise.
21.2 For any such loss or damages within the contemplation of Section
21.1, each party shall obtain a Waiver of Subrogation rights of its
Business Interruption, Extra Expense and Property Damage insurers in
favor of other party hereto, and such other party's respective
Subcontractors and their respective affiliates.
22.0 ASSIGNMENT OF AGREEMENT
22.1 The Agreement shall not be assigned by either party without the prior
written consent of the other party hereto, except that it may be
assigned without such consent to the successor of either party or to
a person, firm or corporation acquiring all, or substantially all, of
the business and assets of such party and except that OWNER hereby
agrees that FWUSAC may assign in whole or in part, any of FWUSAC's
rights and obligations under the Agreement to any affiliates or
subsidiaries of Foster Wheeler Corporation. No assignment of the
Agreement shall be valid until and unless the potential assignee
shall agree to assume it. When duly assigned in accordance with the
foregoing, the Agreement shall be binding upon, and shall inure to
the benefit of, the assignee.
23. SUBCONTRACTING
FWUSAC may subcontract any portions of the Work which in FWUSAC's opinion
may be subcontracted to the advantage of the Work, including the subcontract
to FWCI for the construction portion of the Work. Such subcontracting shall
not relieve FWUSAC of any of its obligations or warranties under this
Agreement.
18
<PAGE>
24.0 WAIVER
The failure of either party to enforce at any time any of the provisions of
this Agreement or any rights in respect thereto, or to exercise an election
herein provided, shall in no way be considered a waiver of such provisions,
rights, or election or in any way affect the validity of this Agreement.
25.0 NOTICES
Any written notices hereunder may be given by either party, either by
personal delivery (delivery by Express Mail, or by courier such as DHL, or
Federal Express, shall be considered personal delivery) or by facsimile
addressed to the other party at the address specified below or to such
other address as may be specified in writing from time to time. The
effective date of such notices shall be the date of receipt.
In the case of OWNER:-
SEADRIFT COKE, L.P.
An Affiliate of the Carbide/Graphite Group. Inc.
P.O. Box 192
Port Lavaca, Texas 77979
Facsimile 1 512 552 8327
For the attention of: Mr. Jim Trigg, General Manager
In the case of FWUSAC:-
Foster Wheeler USA Corporation,
Perryville Corporate Park,
Clinton, New Jersey 08809-4000,
Facsimile 1 908 730 5315
For the attention of Mr. Carl Bartoli, President
26.0 SUSPENSION OF THE WORK
OWNER may at any time stop the Work or any part thereof by written notice
to FWUSAC. Performance shall be resumed by FWUSAC within ten (10) days
after the date of resumption fixed in a written notice from OWNER to
FWUSAC and all additional costs and charges incurred by FWUSAC resulting
from such suspension of the Work or part thereof, shall be paid to FWUSAC
by OWNER as a Change in the Work pursuant to Article 7.10 hereof.
27.0 TERMINATION OF THE WORK
27.1 OWNER shall have the right at any time to terminate the Work upon
thirty (30) days written notice to FWUSAC. FWUSAC shall have the
right to terminate the Work or any part thereof in the event that
OWNER repeatedly suspends the Work or has suspended the Work or such
part thereof under Section 26.0 above and OWNER does not within
thirty (30) days after the date of suspension give written notice
to FWUSAC to resume performance within such thirty (30) day period.
19
<PAGE>
27.2 In the event of termination of the Work as set forth in Section 27.1
above, OWNER shall pay to FWUSAC for amounts invoiced through the
date of termination, plus those costs and charges incurred through
orderly termination as follows:
(a) The cost of FWUSAC's salaries and wages plus an agreed upon
overlay of 100% to cover burdens and overhead, plus
(b) All FWUSAC's costs and charges for items identified in the
attached Exhibit B, except for costs and charges covered
in (a) above, plus
(c) A termination charge of 10% of the sum of (a) and (b) above
OWNER shall not be liable to FWUSAC for any consequential or
indirect damages, such as loss of anticipated profits, loss of use
of revenue, or other special or incidental damages of any nature on
account of such termination.
27.3 FWUSAC agrees, upon payments by OWNER as required in Section 27.2
above, to execute and deliver to OWNER all documents, in form
satisfactory to OWNER and to take all steps necessary to fully vest
in OWNER the right and benefits of FWUSAC under existing commitments
to suppliers and others.
28.0 CAPTIONS
Captions and headings of the Articles and other portions of the Agreement
have been inserted for convenience of reference only and shall not in any
manner affect the construction, meaning, or effect of anything herein
contained, nor govern the rights and liabilities of the parties hereto.
29.0 CONTROLLING LAW
This AGREEMENT shall be construed and interpreted in accordance with the
laws of the State of Texas, United States of America.
30.0 SEVERABILITY
If any provision of this Agreement is found to be illegal or unenforceable,
such provision shall be deemed not to be a part of this Agreement, and the
remaining provisions of this Agreement shall continue in full force and
effect, but shall be interpreted to give effect to the extent feasible to
the original written intent of the parties.
31.0 ENTIRETY OF AGREEMENT
This Agreement together with the Exhibits referred to herein and other
documents incorporated by reference, constitute the entire understanding between
the parties hereto concerning the Work and services and there are not other
representations, promises, contracts, guarantees, remedies or warranties
affecting the Work and services; all previous figures, proposals,
representations and agreements are hereby superseded and canceled. Any changes,
alterations or additions to this Agreement shall be in writing, dated subsequent
hereto and signed by duly authorized representatives of the parties. In the
event of any conflict between this Agreement and any Exhibit, the terms of this
Agreement shall govern. In the event of any conflict among Exhibits, the Exhibit
of latest date shall govern. The following Exhibits are attached hereto and
incorporated herein:
20
<PAGE>
EXHIBIT A - SCOPE OF WORK
EXHIBIT B - COMPENSATION BASIS
EXHIBIT C - PROJECT SCHEDULE
EXHIBIT D - PLANT COMPLETION STANDARD
IN WITNESS where the parties hereto have caused this Agreement to be signed by
their respective duly authorized representatives.
ACCEPTED AND AGREED: ACCEPTED AND AGREED:
SEADRIFT COKE, L.P. FOSTER WHEELER USA CORPORATION
By: /s/ Jim Trigg By: /s/ Gasper P. Tiranno
---------------------------- -------------------------------
General Manager General Manager
Executive Vice President
- -------------------------------- ----------------------------------
(Title) (Title)
<PAGE>
[LOGO OF FOSTER WHEELER USA CORPORATION]
FOSTER WHEELER USA CORPORATION
SEADRIFT COKE L.P.
FW CONTRACT 13-037624
COKER EXPANSION PROJECT
EXHIBIT A
SCOPE OF WORK
<PAGE>
SCOPE OF WORK
-------------
Scope of Services
- -----------------
The scope of FWUSAC services includes provision of engineering, design,
inspection and construction services for expansion of an existing needle
coker facility. The scope of services are outlined as follows:
2.1.1 Engineering and Design
----------------------
. Review of Process Flow Diagrams and process design basis for
establishing requirements for expansion of the plant as established
by Seadrift Coke
. Completion of basic process engineering, existing systems interfaces
. Process safety and environmental compliances as defined by Seadrift
Coke
. Project specifications and standards
. Detailed engineering and design of facilities encompassing areas of:
- Civil/Structural
- Piping
- Electrical
- Instrumentation
- Equipment
. Constructibility studies
. Equipment and material requisitions for procurement by Seadrift Coke
. Equipment drawings review for compliance with purchase requisitions
and project specifications
. Field design and interface with construction management team of FWCI
EXHIBIT A
Page 1
<PAGE>
2.1.2 Procurement Services for Equipment and Materials
------------------------------------------------
. Standards and specifications
. Development of vendor list for approval
. Issue of inquiries for equipment and materials as required by Seadrift
Coke
. Commercial and technical evaluation of vendor quotations
. Bid clarification meetings
. Bid tabulations for equipment and material
. Vendor recommendation for purchase by Seadrift Coke
. Inspection Plan
. Traffic coordination for delivery of equipment and materials as
required by Seadrift Coke.
. Equipment Status reports
2.1.3 Project Management
------------------
. Project management to insure engineering design and construction
coordination
. QA/QC Program to insure compliance with engineering practices of
FWUSAC
. Project control system covering the following areas:
- Engineering
- Design
- Vendor Coordination
- Inspection
- Construction
The project control system will cover all aspects of planning,
scheduling, cost control, progress measurement, and document
management.
. Monthly progress and cost reports for services by FWUSAC
Page 2
<PAGE>
2.1.4 Construction
------------
. Constructibility studies
. Construction execution plan
. Detail construction schedule and cost control
. Coordination with project management for engineering and design
deliverables.
. Staffing of construction management and direct hire labor.
. Early mobilization of field team for interface with engineering
design.
. Temporary facilities for piping fabrication and construction utilities
as required to incorporate the work.
. Materials and Equipment warehousing and laydown coordination for
receipt of equipment and materials purchased directly by Seadrift Coke.
. Field QA/QC program to insure full compliance with safety and proper
construction procedures.
. Installation of new equipment, foundations, structures, instrument
controls and electrical distribution as required by design of the
facility expansion.
. Modification of existing equipment and facilities as defined by
Seadrift Coke.
. NDE and testing of equipment and installed material.
2.2 List of Deliverables
--------------------
FWUSAC documents and drawings deliverables are listed below:
. Project engineering and management
- Coordination procedure
- Project specifications
- Overall project master schedule - EPC
- Front-end and detailed schedules
- Engineering
- Design
- Procurement Services
- Construction
- Updated Process Flow Diagrams
- Heat and Material Balances
- Design Pressure/Temperature Diagrams
- Materials of Construction Diagrams
- Updated P&ID's
Page 3
<PAGE>
- Line list for P&ID's
- Utility summaries
- Header and utility flow diagrams
- Effluent summary
- Flare load summary
- Relief valve list/design basis/calculations
- Control valve data sheets and specifications
- Flow element data sheets
- Functional description for DCS system
- Shutdown and interlock sequence logic
- Requisition Index
- Equipment List for all new and modified equipment
- Drawing Index
- Instrument Index
- Vendor document Index
- Specifications Index
. Equipment engineering - mechanical/electrical/instruments
- Inquiry requisitions for Mechanical Equipment
- Towers/drums/tanks
- S/T Exchangers/Air Coolers
- Compressors/Pumps
- Mechanical Package Equipment
- Electrical equipment requisitions
- Control Valve and Relief Valve Requisitions
- Tagged instruments requisitions
- Certified vendor drawings
- Mechanical catalogs
- Spare Parts List
. Civil/Structural
- Criteria for foundation/structure/underground and trench designs
- Design drawings showing plans, elevations, sections, details, MTO,
and rebar quantities as required for the following:
- Underground systems
- Concrete foundations and structures
- Steel structures
- Pipe racks
- Platforms/ladders/circular platforms
- Electrical/instrument buildings
- MCC buildings
- Package equipment
Page 4
<PAGE>
. Piping
- Piping design schematics
- Mechanical and material specifications for all piping and valves
- Requisitions for valves
- Requisitions for alloy pipe materials
- Underground piping drawings
- Key plot plans
- Equipment location plans
- Piping plans and sections
- Piping isometrics for all lines 3/4" and larger
- Pipe support location plans
- Fire water piping loop diagram and isometrics
- Bulk material requisitions
- Alloy steel piping material
- Carbon steel piping material
- Spring hangers and special pipe supports
- Specialty piping items
- Steam tracing tabulation with material summaries
. Instrumentation
- Instrument location plans
- Instrument wiring drawings/cable tray layout
- Instrument installation details
- Instrument loop diagrams
- Bulk material requisitions
- Instrument fittings
- Field instrument cable
- Junction boxes
- Installation materials
. Electrical
- Electrical load summary
- One-line diagram
- Area classification drawing
- Power/lighting layout drawings
- Motor control schematics
- Grounding details drawings
- Cable and raceway schedules
- Bulk material requisitions for electrical items
Page 5
<PAGE>
. Insulation/fireproofing/steam tracing/painting
- Insulation requirements including quantities summary
- Fireproofing requirements for vessel skirts and structures
- Steam tracing requirements and material summary
- Painting requirements including quantities summary
Page 6
<PAGE>
[LOGO OF FOSTER WHEELER USA CORPORATION]
FOSTER WHEELER USA CORPORATION
SEADRIFT COKE L.P.
FW CONTRACT 13-037624
COKER EXPANSION PROJECT
EXHIBIT B
COMPENSATION BASIS
<PAGE>
COMMERCIAL BASIS OF COMPENSATION
--------------------------------
ENGINEERING AND PROCUREMENT SERVICES
------------------------------------
SECTION 1
- ---------
1.1 Basis of Reimbursement
----------------------
1.1.1 Bare Salaries and Mark-Up of Straight-Time Reimbursable Labor
Foster Wheeler shall be reimbursed for all the time devoted to the
work by its personnel at the rate of wages and salaries, plus an
overlay of 75% of bare wages and salaries to cover payroll burdens,
benefits, and overhead expenses. This rate applies to all
management, technical, and support personnel of Foster Wheeler USA's
Houston Engineering Center. The range of bare salary rates and
salary policies applicable to reimbursable personnel is shown in
Commercial Appendix 3D.
1.1.2 Miscellaneous Home Office Expenses
In addition to the reimbursement of labor, Foster Wheeler shall be
reimbursed for miscellaneous home office expenses associated with
the work, such as long-distance communication, technical computer
applications, reproduction and others, at $6.50 per manhour.
1.1.3 Travel and Living
Travel and Living expenses will be reimbursed as follows:
1. Actual reasonable expenses incurred for meals, lodging and
rental car for Foster Wheeler personnel in travel status
away from the office in connection with the project business
2. Travel by personal automobile at $0.30 per mile.
3. Air travel at economy class fare
1.1.4 Rental of Site Trailer
It is understood and agreed that Seadrift Coke, L.P. will provide
gratis a 14' x 70' trailer on site furnished per Foster Wheeler's
requirements. Utilities for the trailer will be paid for by Seadrift
Coke. L.P.
Page 1 of 2
<PAGE>
COMMERCIAL BASIS OF COMPENSATION
--------------------------------
ENGINEERING AND PROCUREMENT SERVICES
------------------------------------
1.1.5 Fixed Fee
In addition to reimbursement of labor, miscellaneous home office
expenses, and travel and living expenses, Foster Wheeler will be
reimbursed a fixed fee of $150,000 for profit.
1.1.6 Earned Fee
In addition to the above, a further $150,000 may be earned based on
meeting mutually agreed objectives relating to schedule, cost, and
quality in equal $50,000 portions.
1.1.7 Shared Cost Underrun
In addition to the above cost reimbursements, fixed fee, and earned
fee, Foster Wheeler will share with Seadrift Coke, L.P. on a 50/50
basis any underrun of the Target Price to be established upon
completion of the definitive estimate and schedule.
Page 2 of 2
<PAGE>
Commercial Appendix 3D
Rev. 4
February 1997
SALARY RATE RANGES - REIMBURSABLE PERSONNEL
-------------------------------------------
FOSTER WHEELER USA CORPORATION
------------------------------
HOUSTON ENGINEERING CENTER
--------------------------
<TABLE>
<CAPTION>
January 1997
Salary Ranges
Position Classification U.S. $1/Hour
- ------------------------------ -----------------
<S> <C> <C> <C>
FLOWSHEET DRAFTING 12.77 - 18.34
DESIGN AND DRAFTING 11.22 - 37.50
PROJECT ENGINEERING 19.58 - 50.41
PROJECT MANAGEMENT 43.04 - 63.09
SPECIALTY ENGINEERING 12.98 - 44.84
ENGINEERING SUPPORT SERVICES 11.00 - 16.39
PROCUREMENT SERVICES 14.51 - 34.13
PROCESS ENGINEERING 19.23 - 42.12
ESTIMATING 14.32 - 42.86
PROJECT CONTROL 11.58 - 44.75
DOCUMENT CONTROL 10.93 - 33.55
COMPUTER SERVICES 14.64 - 39.15
WORD PROCESSORS 12.35 - 15.11
PROJECT ACCOUNTING 8.54 - 30.35
SECRETARIAL & CLERICAL 9.00 - 18.62
SUPERVISORS/CHIEFS/
DESIGN ENGINEERS 18.02 - 59.13
DEPARTMENT HEADS 44.71 - 64.85
</TABLE>
See applicable notes on tile following page.
<PAGE>
Commercial Appendix 3D
Rev. 4
February 1997
SALARY RATE RANGES - REIMBURSABLE PERSONNEL
-------------------------------------------
FOSTER WHEELER USA CORPORATION
------------------------------
HOUSTON ENGINEERING CENTER
--------------------------
NOTES:
- -----
1. Salaries and wages are calculated for straight-time only and are exclusive
of company benefits, payroll burdens, and overhead. Rates are applicable to
personnel of Foster Wheeler USA Corporation, Houston payroll only.
2. Hourly rates are calculated on tile basis of 2,080 hours per year, 173 1/3
hours per month, or 40 hours per week.
3. The standard workweek is 40 hours per week. In accordance with Foster
Wheeler's salary policies, overtime is defined as work in excess of eight
hours a day or forty hours a week, and will be invoiced to the client as
follows:
a. Overtime hours worked by exempt employees shall be invoiced at zero
percent premium.
b. Overtime hours worked by nonexempt employees shall be invoiced at 50
percent premium.
c. Overtime hours worked by Design and Flowsheet Drafting employees shall
be invoiced at 50 percent premium for overtime work on Monday
through Saturday, and at 100 percent premium for overtime work on
Sundays and holidays.
4. Salary ranges are valid as of January 1997.
5. Actual salaries reimbursable on a particular contract will vary according
to personnel assignments. During contract execution, tile actual salaries
of the personnel assigned may fall outside the ranges shown as a result of
individual merit increases, promotions, addition of personnel, or economic
changes. Billings will be made on the basis of actual salaries.
<PAGE>
COMMERCIAL BASIS OF COMPENSATION
--------------------------------
CONSTRUCTION SERVICES
---------------------
COMMERCIAL TERMS
----------------
FOR
---
COST REIMBURSABLE CONSTRUCTION SERVICES
---------------------------------------
I. Introduction
------------
The Contractor shall be compensated for work performed on a cost
reimbursable basis through the payment of field costs. Wage rates are
subject to escalation upon mutual agreement between the client and FWCI.
II. Reimbursable Field Costs
------------------------
The Contractor shall be reimbursed for the following costs at the rates
specified or, if no rate is specified, at actual cost to the Contractor.
1. Field Labor - The Contractor shall be reimbursed for all field payroll
-----------
labor costs of personnel employed on the jobsite such as craft
supervisor, foremen, craftsmen, helpers, laborers, field clerks,
technicians, etc.
Field labor will be reimbursed at actual straight time wages of all
hours worked plus a mark-up of forty-six (46%) percent to include the
following items:
a. Wages - Including straight time, show-up time and overtime.
(Premium portion of overtime shall be reimbursed at cost without
mark-up.)
b. Fringe benefits - Covers the cost of medical, life insurance,
vacation, retirement savings, holiday pay, and administrative
cost for our benefit program for field hired employees.
c. Taxes and insurance - Imposed by federal, state or local
governmental authorities on field payrolls such as FICA Tax
(Social Security), federal unemployment insurance, state
unemployment insurance and workmen's compensation. Also included
is an allowance to cover liability insurance coverage by FWCI.
Page 1 of 3
<PAGE>
COMMERCIAL BASIS OF COMPENSATION
--------------------------------
CONSTRUCTION SERVICES
---------------------
d. Small tools and consumables valued under $1000.00.
The field hire craft labor rates (inclusive of the above) will be
established through mutual agreement between FWCI and Seadrift for
this project. Straight time rate is payable for the first forty (40)
hours in the work week and overtime rate is payable for all hours over
forty (40) in the work week at a rate of time and one half and all
company holidays at a rate of double the straight time wage.
2. Contractor's Salaried Employees - The Contractor shall be reimbursed
-------------------------------
for all of Contractor's salaried personnel who are employed on the
project (both home office and field) on the basis of actual salary
plus sixty-five (65%) percent for all hours worked.
In addition to the above, Purchaser shall reimburse all travel
expenses incurred in traveling to and returning from the jobsite (if
required), and all living expenses (such as local transportation, food
and lodging) incurred while on assignment at actual cost without mark-
up in accordance with FWCI's travel and relocation allowance policy
which is included herein.
3. Subcontracts - The Contractor shall be reimbursed for all subcontract
------------
cost for work or services entered into by the Contractor at the price
charged to the Contractor by the Subcontractor.
4. Capital Tools - The Contractor may provide capital tools owned by the
-------------
Contractor when such capital tools are available and time permits
their shipment to the jobsite. The Contractor shall be reimbursed for
such capital tools at the monthly rates and terms specified in the
attached Capital Tool List and Small Tool List.
The Contractor shall be reimbursed for all capital tools rented or
leased by the Contractor from others at the price charged to the
Contractor.
5. Small Tools and Consumables - A listing of typical small tools and
---------------------------
consumables is attached hereto. Small Tools and Consumables are
included in the base wage mark-up as noted in Section II.1.d.
Page 2 of 3
<PAGE>
COMMERCIAL BASIS OF COMPENSATION
--------------------------------
CONSTRUCTION SERVICES
---------------------
6. Miscellaneous Field Materials - Miscellaneous field materials are
-----------------------------
materials required for the work which are not considered as
consumables under Item II.5 (Small Tools & Consumables) and are not
provided by the Contractor under Item II.3 (Subcontracts). The
Contractor shall be reimbursed for all such field materials at the
price charged to the Contractor.
7. Field Office Expenses - Field office expenses are items required for
---------------------
the operation of the Contractor's field office such as telephone, fax,
postage, stationary, post office box rental, reproduction, electrical,
etc. The Contractor shall be reimbursed for all field office expenses
at the price charged to the Contractor.
8. Intangible Items The Contractor shall be reimbursed at actual cost for
----------------
permits, fees and royalties, and all sales, use, property, gross
receipts, gross income, excise or other similar taxes which the
Contractor's may be required to pay.
9. Other Field Expenses - The Contractor shall be reimbursed at actual
--------------------
cost for all other field expenses not covered by the above
reimbursable items.
10. Safety Related Costs - The Contractor will be reimbursed for safety
--------------------
related costs including but not limited to:
A. Safety Training required by the owner or Federal, State or local
law.
B. Specialized safety equipment including Nomex suits, Scott air
packs, monitoring equipment, medical examinations, etc.
Labor costs will be billed at the employers rate plus burdens and
benefits. All other safety related costs will be billed at actual
cost.
11. Terms of Payment - FWCI has not included in its rates consideration
----------------
for cost of money associated with payment terms. FWCI mutually agreed
with Seadrift Coke a payment schedule which minimizes out of pocket
costs. FWCI will be paid weekly for field labor. Monthly invoicing
with thirty (30) day payment for home office expenses including
salaried supervisory costs and third party purchases.
Page 3 of 3
<PAGE>
CONFIDENTIAL
------------
02/02/97
FOSTER WHEELER CONTRUCTORS INC
1997
REIMBURSABLE BARE SALARIES AND CLASSIFICATIONS
----------------------------------------------
SALARY RATE RANGES
------------------
<TABLE>
<CAPTION>
===============================================================================================
COST $/MO $/MO $/MO $/HR $/HR $/HR
CODE DESCRIPTION HIGH LOW AVE HIGH LOW AVE
===============================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
FIELD SUPERVISORY POSITIONS
- ---------------------------
8811 CONST MANGR/PROJECT SUPT $9,900 $5,000 $7,300 $57.12 $28.85 $42.12
8812 FIELD & AREA SUPT $8,000 $4,800 $5,800 $48.15 $27.69 $33.46
8831 CONSTRUCTION ENGINEERING $7,000 $2,600 $4,500 $40.38 $15.00 $25.96
8841 PROJECT CONTROL $7,500 $2,500 $4,000 $43.27 $14.42 $23.08
8851 MATERIAL MANAGER $6,000 $3,600 $4,600 $34.62 $20.77 $26.54
8861 GENERAL ADMINISTRATION $6,500 $2,000 $4,700 $37.50 $11.54 $27.12
8862 SAFETY SUPERVISION $6,000 $3,500 $4,700 $34.62 $20.19 $27.12
8871 SUBCONTRACT ADMIN $8,500 $3,500 $5,800 $49.04 $20.19 $33.46
8813 GENERAL CRAFT SUPV $6,500 $3,500 $4,900 $37.50 $20.19 $28.27
8832 QUALITY CONTROL $6,500 $4,300 $4,900 $37.50 $24.81 $28.27
8833 WELD TECHNICIANS $5,500 $3,800 $4,900 $31.73 $21.92 $28.27
HOME OFFICE POSITIONS
- ---------------------
8461 ADMINISTRATION $9,900 $1,900 $3,280 $57.12 $10.96 $18.92
8411 CONST DIRS & MANAGERS $9,900 $6,900 $7,680 $57.12 $39.81 $44.31
8431 CONST ENG & QA/QC $6,900 $3,900 $5,300 $39.81 $22.50 $30.58
8441 PROJECT CONTROL $7,500 $3,200 $5,500 $43.27 $18.46 $31.73
8471 SUBCONTRACTS & PURCH. $8,500 $1,700 $5,300 $49.04 $9.81 $30.58
8421 PROPOSALS & ESTIMATING $8,500 $2,850 $6,100 $49.04 $16.44 $35.19
8451 CONST TOOLS & EQUIP NJ $6,500 $2,100 $3,900 $37.50 $12.12 $22.50
8452 CONST TOOLS & EQUlP TX $5,600 $1,500 $2,600 $32.31 $8.65 $15.00
===============================================================================================
</TABLE>
<PAGE>
COMMERCIAL BASIS OF COMPENSATION
--------------------------------
CONSTRUCTION SERVICES
---------------------
REIMBURSABLE CONSTRUCTION COST WITH AT-RISK PROFIT FEE
------------------------------------------------------
Foster Wheeler Constructors, Inc. (FWCI) agrees to perform construction services
for the Seadrift Coke, L.P. Coker Expansion Project located at Port Lavaca,
Texas on a Cost Reimbursable basis with an At-Risk Fee for profit and general
and administrative expenses based on meeting mutually agreed target budget and
project schedule.
FWCI is committed to the use of incentives because of our strong belief that
incentive programs develop team spirit and overall project excellence with an
emphasis on safety. FWCI is proposing that our profit is entirely at risk and
based upon criteria specified below. FWCI will distribute a twenty (20%) percent
share of its earned incentive as a bonus pool to site project supervision and
labor. Seadrift Coke will also contribute a share of the bonus pool based upon a
savings resulting from an underrun of the target manhours established for the
project. The criteria for this employee distribution is that the individual must
either be reassigned to another FWCI project or receive a reduction in force at
Seadrift Coke. Employees who quit or are terminated for cause are not eligible.
Bonus money to employees is determined by using a formula based on a percentage
applied to the individuals gross wages.
The At-Risk Profit Fee is earned by achieving or surpassing performance targets
set through mutual agreement between Seadrift Coke and FWCI.
The components of the overall profit fee be structured in three parts as
follows:
1. Budget
------
A construction cost budget for the project will be established by late
September, 1997 through mutual agreement between FWCI and Seadrift.
If FWCI completes the project within the set budget, $250,000 will be
paid to cover general administrative, overhead and profit.
2. Schedule
--------
A construction schedule for the project will be established by late
September, 1997 through mutual agreement between FWCI and Seadrift
If FWCI completes the project within the scheduled time period, an
additional $250,000 will be paid as an additional incentive fee.
Page 1 of 2
<PAGE>
COMMERCIAL BASIS OF COMPENSATION
--------------------------------
CONSTRUCTION SERVICES
---------------------
3. Budget Underrun
---------------
As an incentive to complete the project for less than the established
cost budget, FWCI and Seadrift will share in the cost underrun.
If FWCI underruns the budget by more than $250,000, 50% of cost underrun
greater than $250,000 will be paid to FWCI as additional fee for general
and administrative expenses and profit.
4. Manhour Underrun
----------------
Seadrift Coke will contribute to the bonus pool to site project
supervision and field hired labor $7.00 per hour for each hour. The
actual hours expended (direct and indirect) are under the mutually
agreed target. 100% of these savings will be distributed to the above
employees.
FWCI is proposing this structure as we are confident that we have the
supervisory and craft talent available to execute the project in a highly
satisfactory manner. In addition, we have unique expertise in constructability,
safety, planning, scheduling and cost control. We also feel that by including
all of our personnel into project goals and rewards the project will achieve our
mutual objectives. To this end, we will communicate our joint objectives to our
workforce throughout the project.
Attached for your ease in reviewing this incentive plan, is a sample calculation
assuming certain project results.
Page 2 of 2
<PAGE>
COMMERCIAL BASIS OF COMPENSATION
--------------------------------
CONSTRUCTION SERVICES
---------------------
SEADRIFT COKE L.P., SEADRIFT TEXAS
LABOR RATES TO APPLY TO THE ABOVE REFERENCED PROJECT
<TABLE>
<CAPTION>
- --------------------------------------------
Classification Wage
- --------------------------------------------
<S> <C>
Craft Supervisor 19.00-24.00
- --------------------------------------------
Foreman 17.50
- --------------------------------------------
Mechanic A - Inst. Tech 16.00
- --------------------------------------------
Mechanic A - Comb Welder 15.50
- --------------------------------------------
Mechanic A 15.00
- --------------------------------------------
Mechanic B 14.50
- --------------------------------------------
Helper I 12.00
- --------------------------------------------
Helper II 10.00
- --------------------------------------------
Helper III 8.50
- --------------------------------------------
Laborer/Fire Watch/Hole Watch 8.00
- --------------------------------------------
Technician 13.50
- --------------------------------------------
Secretary 10.00
- --------------------------------------------
Timekeeper/Clerk 8.00
- --------------------------------------------
</TABLE>
The above listed will receive time and half pay for working on approved
holidays.
<PAGE>
COMMERCIAL BASIS OF COMPENSATION
--------------------------------
CONSTRUCTION SERVICES
---------------------
SAMPLE CALCULATION
INCENTIVE FEE AND BONUS POOL DISTRIBUTION
-----------------------------------------
BASIS OF CALCULATIONS
- ---------------------
. Construction Cost budget: $10,000,000
. Construction Labor Hours Budget (Direct/Indirect): 160,000
. Final Project Cost: $750,000 under Budget
. Project Completed within Target Schedule
. Labor Hours (Direct/Indirect): 15,000 Hours under Budget
INCENTIVE FEE EARNINGS FOR FWCI
- -------------------------------
. Final Project Costs within Budget: $250,000
. Project Completed within Project Schedule $250,000
. Final Project Costs Underrun $250,000
(500,000 x 50%)
--------
. Total FWCI Incentive Fee Earned $750,000
BONUS POOL DISTRIBUTED TO PROJECT SUPERVISION AND ALL FIELD HIRED EMPLOYEES
- ---------------------------------------------------------------------------
. FWCI Share: 20% of $750,000 $150,000
. Seadrift Share: (15,000 hrs x $7.00/hr) $105,000
--------
TOTAL Bonus Pool Distribution $255,000
Page 1 of 1
<PAGE>
[LOGO OF FOSTER WHEELER USA CORPORATION]
FOSTER WHEELER USA CORPORATION
SEADRIFT COKE L.P.
FW CONTRACT 13-037624
COKER EXPANSION PROJECT
EXHIBIT C
PRELIMINARY PROJECT SCHEDULE
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
1997
----------------------------------------------------------------------------------------------------
MAY JUN JUL AUG SEP OCT
----------------------------------------------------------------------------------------------------
Description Start 8, 5, 12, 19, 26 2, 9, 16, 23 30, 7, 14, 21, 28 4, 11, 18, 25 1, 8, 15, 22 29, 6, 13 20 27
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ENGINEERING
Process Design 05MAY97A
Retail Engineering
& Procurement 01JUL97A
Equipment
Deliveries 03NOV97*
[GRAPH APPEARS HERE]
CONSTRUCTION
- ------------------------------
Field Mobilization 08SEP97*
Civil 15SEP97*
Piping 29SEP97*
Equipment Erection 27OCT97*
Electrical 10NOV97*
Instrumentation 01DEC97*
Insulation/Painting 15DEC97*
Equipment Relocation 26JAN98*
Work Commences 16FEB98*
Mechanical
Completion (T/A) 26FEB98*
Mechanical
Completion
(Post T/A Work) 31MAR98*
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Start 01MAY97 ------------- Early Bar Sheet 1 of1
Finish 31MAR98 ------------- Progress Bar Seadrift Coke L.P.
Date 01SEP97 Seadrift Coker Expansion EXHIBIT C
Date 05SEP97 Preliminary Project Schedule
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
1997 1998
----------------------------------------------------------------------------------------------
NOV DEC JAN FEB MAR
----------------------------------------------------------------------------------------------
Description Start 3, 10, 17, 24 1, 8, 15, 22,29 5, 12, 19, 26 2, 9, 16, 23 2, 9, 16, 23, 3
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
ENGINEERING
Process Design 05MAY97A
Retail Engineering
& Procurement 01JUL97A
Equipment
Deliveries 03NOV97*
[GRAPH APPEARS HERE]
CONSTRUCTION
- ------------------------------
Field Mobilization 08SEP97*
Civil 15SEP97*
Piping 29SEP97*
Equipment Erection 27OCT97*
Electrical 10NOV97*
Instrumentation 01DEC97*
Insulation/Painting 15DEC97*
Equipment Relocation 26JAN98*
Work Commences 16FEB98*
Mechanical
Completion (T/A) 26FEB98*
Mechanical
Completion
(Post T/A Work) 31MAR98*
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Start 01MAY97 ------------- Early Bar Sheet 1 of1
Finish 31MAR98 ------------- Progress Bar Seadrift Coke L.P.
Date 01SEP97 Seadrift Coker Expansion EXHIBIT C
Date 05SEP97 Preliminary Project Schedule
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[LOGO] PROJECT SPECIFICATION 37624-05A1
FOSTER WHEELER PLANT COMPLETION PAGE 1
USA CORPORATION REV 1
DATE September 4, 1997
CONTENTS
PARA.NO. SUBJECT PAGE
- -------- ------- ----
I. SCOPE 2
II. REFERENCES 2
A. API PUBLICATION 700 2
B. ISA RECOMMENDED PRACTICE 7.1 2
III. DEFINITIONS 2
A. PRE-COMMISSIONING 2
B. READY FOR COMMISSIONING 2
C. COMMISSIONING 2
D. COMPLETION OF CONSTRUCTION 3
IV. GENERAL PROCEDURES 4
A. MANUFACTURER OR VENDOR SERVICE 4
B. PERMITS 4
C. INSTRUCTION 4
D. PACKING AND SEALS 5
E. REMOVAL OF TEMPORARY BRACING 5
F. ROTATION AND ALIGNMENT 5
G. TIE-INS AT UNIT LIMITS 6
H. LEAK AND PRESSURE TESTS 6
I. INSPECTION 7
J. PRESSURE/VACUUM SAFETY RELIEF DEVICES 8
K. FLUSHING AND CHEMICAL/MECHANICAL CLEANING 8
L. TEMPORARY SCREENS, STRAINERS AND BLINDS 9
M. PURGING/INSERTING 9
N. DRYING OUT 9
0. VESSEL PACKING AND FIXED BEDS 10
P. HOUSEKEEPING 10
Q. MAINTENANCE, SPARE PARTS AND SPECIAL TOOLS 10
V. SPECIFIC PROCEDURES 11
A. VESSELS 11
B. SHELL AND TUBE EXCHANGERS 11
C. AIR-COOLED EXCHANGERS 12
D. FIRED HEATERS 12
E. PUMPS, COMPRESSORS AND DRIVERS 13
F. TANKS 13
G. PIPING SYSTEMS 14
H. ELECTRICAL POWER AND LIGHTING SYSTEMS 14
I. INSTRUMENT SYSTEMS 17
J. WATER SYSTEMS (SERVICE WELLS, COOLING
TOWERS, FIRE WATER, SEA WATER) 19
EXHIBIT D
<PAGE>
[LOGO] PROJECT SPECIFICATION 37624-05A1
FOSTER WHEELER PLANT COMPLETION PAGE 2
USA CORPORATION REV 1
DATE September 4, 1997
I. SCOPE
This standard is intended to define the transfer of responsibility
from Foster Wheeler to the Constructor, if applicable; and to Owner
for the care, custody and control of various units, systems or
facilities of a plant. A tabulation of the specific work
performance responsibilities required to place process equipment or
systems into operation is presented.
The responsibilities of the Constructor are included on this listing
or if the Constructor is contracted by FW USA then the Constructor's
responsibilities are contractually those of FW USA.
II. References
A. API Publication 700, Second Edition, September, 1980. The
preceding content of this standard is derived from API 700. The
major difference is that it indicates which items Foster Wheeler
expects to undertake versus those which the Owner is expected to
complete.
B. ISA Recommended Practice 7.1
III. DEFINITIONS
This section presents definitions which, along with the General and
Specific Procedures given in Sections IV. and V., serve to clarify
the basic principles associated with the transfer of responsibility
from Foster Wheeler to the Owner at commissioning time.
A. Pre-commissioning: Pre-commissioning activities are the
nonoperating adjustments and cold alignment checks made by Foster
Wheeler as detailed in Sections IV. and V.
B. Ready for Commissioning: The plant, or part thereof, is "ready
for commissioning" when the plant, unit, or facility, or any part
thereof, has been erected in accordance with drawings,
specifications, and applicable codes, to the extent necessary to
permit commissioning, and when the pre-commissioning activities
detailed in Sections IV. and V. have been completed.
C. Commissioning: The commissioning period follows the completion
of the precommissioning activities performed by Foster Wheeler.
Commissioning activities are associated with the operation of
items of equipment or facilities in preparation for plant startup
and may continue through the initial operation of the plant.
These activities are the Owner's responsibilities unless the
contract specifically provides otherwise.
<PAGE>
[LOGO] PROJECT SPECIFICATION 37624-05A1
FOSTER WHEELER PLANT COMPLETION PAGE 3
USA CORPORATION REV 1
DATE September 4, 1997
D. Completion of Construction: Completion of construction means
that Foster Wheeler has:
1. Erected the Plant.
2. Completed pre-commissioning work.
3. Completed all special commissioning activities. Special
commissioning activities are defined as those activities not
specifically covered herein and dictated by contractual
agreements as being specifically required.
4. Completed final cleanup, painting, and thermal insulation
work.
<PAGE>
[LOGO] PROJECT SPECIFICATION 37624-05A1
FOSTER WHEELER PLANT COMPLETION PAGE 4
USA CORPORATION REV 1
DATE September 4, 1997
<TABLE>
<CAPTION>
WORK
RESPONSIBILITY
FW HEC FWCI Seadrift
Coke
<S> <C> <C> <C>
IV. GENERAL PROCEDURES
The general work procedures listed below outline the work to be
performed by Foster Wheeler and by the Owner. Procedures
applicable to specific systems or items of equipment are covered
separately in Section V.
A. Manufacturer or Vendor Service Assistance
X X
1. Obtain the assistance of the manufacturer or vendor when
necessary to make a satisfactory installation as agreed
upon by Foster Wheeler and the Owner.
2. Obtain the assistance of the manufacturer or vendor, as X
required, for technical assistance during run-in by the
Owner's operating and maintenance personnel, for training,
or for informational and operating purposes.
3. Furnish names and telephone numbers, including contacts, X
of manufacturer's and vendors; technical service
representatives for use by the Owner.
B. Permits
1. Make applications for all permits issued in the Owner's X
name that are required for plant installation, use,
occupancy, and operation.
C. Instructions
1. Maintain an adequate vendor instruction file so that X
information may be readily retrieved throughout plant
commissioning.
</TABLE>
<PAGE>
[LOGO] PROJECT SPECIFICATION 37624-05A1
FOSTER WHEELER PLANT COMPLETION PAGE 5
USA CORPORATION REV 1
DATE September 4, 1997
<TABLE>
<CAPTION>
WORK
RESPONSIBILITY
FW HEC FWCI Seadrift
Coke
<S> <C> <C> <C>
2. Transmit to the Owner all applicable vendor's or X
manufacturer's instructions and drawings.
3. Provide the Owner with any special X X
instructions.
D. Packing and Seals
1. Install mechanical seals and accessories, as required X
2. Install permanent packing and accessories, as required. X
3. Adjust and replace mechanical X
seals, packing, and accessories, as
necessary, during the commissioning
period.
E. Removal of Temporary Bracing
1. Remove all temporary supports, bracing, or other foreign X
objects that were installed in vessels, transformers,
rotating machinery, or other equipment to prevent damage
during shipping, storage, and erection and repair any
damage sustained.
2. Remove other items as specified in items V.C.1, V.G.8 and X
V.J.1 for the appropriate equipment type.
F. Rotation and Alignment
1. Check rotating machinery for correct direction of rotation X
and for freedom of moving parts before connecting driver.
2. Perform cold alignment to the X
manufacturer's tolerances.
3. Perform hot alignment. X
4. Perform any doweling required. X
</TABLE>
<PAGE>
[LOGO] PROJECT SPECIFICATION 37624-05A1
FOSTER WHEELER PLANT COMPLETION PAGE 6
USA CORPORATION REV 1
DATE September 4, 1997
<TABLE>
<CAPTION>
WORK
RESPONSIBILITY
FW HEC FWCI Seadrift
Coke
<S> <C> <C> <C>
5. Obtain the services of a factory representative to witness X
installation of equipment, as required.
G. Tie-ins at Unit Limits
1. Identify each tie-in location and tag. X
2. Prepare all Systems for safe tie-ins. X
3. Obtain approval and make the necessary tie-ins at the unit X
limits, as required by the specifications and as directed
by the Owner.
4. Remove blinds, car seals and so X
forth, as required.
H. Leak and Pressure Tests
1. Provide Test pressures on isometrics. X
2. Notify the Owner of the schedule for non-operating field X
leak tests or field pressure tests on piping and field
fabricated equipment, unless otherwise directed by the
Owner.
3. Provide any special media for test purposes and facilities X
for their disposal.
4. Conduct all tests in accordance with applicable codes, X
specifications and regulations.
5. Witness tests. X
6. Maintain records, as required. X X
7. Dispose of test media in accordance X
with the Owner's instructions.
</TABLE>
<PAGE>
[LOGO] PROJECT SPECIFICATION 37624-05A1
FOSTER WHEELER PLANT COMPLETION PAGE 7
USA CORPORATION REV 1
DATE September 4, 1997
<TABLE>
<CAPTION>
WORK
RESPONSIBILITY
FW HEC FWCI Seadrift
Coke
<S> <C> <C> <C>
8. Conduct all operational tightness tests. X
Note: Individual items of equipment of the following
types, if pressure tested in the fabricator's shop,
will not require retesting in the field, unless specified
by the Owner. Such individual items of equipment shall be
included in the testing of attendant piping systems
whenever practical and approved by the Owner.
1. Vessels
2. Shell and tube exchangers
3. Air cooled exchangers
I. Inspection
1. Conduct flow diagram check of installed systems. X X
2. Provide inspection of the plant to verify that erected X
facilities conform to flow diagrams, construction
drawings, vendor prints, and specifications.
3. Verify that specified materials have been installed in the X
plant and document verification to the extent required by
the Contract.
4. Verify and approve the plant check. Note any exceptions on X
a separate work order list (punch list).
5. Provide for special inspections, such as those required by X X
insurance or governmental agencies.
6. Perform and report routine shop X
inspection and witness tests.
7. Perform shop inspection and witness X
tests, as desired.
</TABLE>
<PAGE>
[LOGO] PROJECT SPECIFICATION 37624-05A1
FOSTER WHEELER PLANT COMPLETION PAGE 8
USA CORPORATION REV 1
DATE September 4, 1997
<TABLE>
<CAPTION>
WORK
RESPONSIBILITY
FW HEC FWCI Seadrift
Coke
<S> <C> <C> <C>
8. Witness final shop inspections, as X
desired.
NOTE: Shop inspected equipment will not be reopened for
inspection in the field except as specifically noted in
Section V.A.
J. Pressure/Vacuum Safety Relief Devices
1. Provide the Owner with a list of X
proper pressure settings.
2. Transfer relief devices to and from the Owner's specified X
testing facility.
3. Test, adjust and tag all safety devices and seal wherever X
necessary or desirable.
4. Install all devices after testing, X
adjusting and tagging.
5. Maintain records, as required. X
K. Flushing and Chemical/Mechanical Cleaning
1. Except as noted in IV.P, V.D, V.E, V.F, V.J, V.K and V.M:
a. Conduct all flushing, blowing, and chemical/mechanical X
cleaning operations where such operations can be
accomplished without using permanently installed
equipment.
b. Conduct all flushing and blowing operations where X
permanently installed equipment must be used to obtain
proper line velocities.
c. Provide any special media for X
flushing and/or cleaning
purposes.
</TABLE>
<PAGE>
[LOGO] PROJECT SPECIFICATION 37624-05A1
FOSTER WHEELER PLANT COMPLETION PAGE 9
USA CORPORATION REV 1
DATE September 4, 1997
<TABLE>
<CAPTION>
WORK
RESPONSIBILITY
FW HEC FWCI Seadrift
Coke
<S> <C> <C> <C>
d. Dispose of all media in X
accordance with the Owner's
instructions.
2. Turn systems over to the client X
free of trash and construction
debris (not necessarily free of
welding slag).
3. Maintain records, as required. X
L. Temporary Screens, Strainers, and Blinds
1. Provide and install all required temporary strainers. X
2. Clean strainers, as required, X
during circulation.
3. Remove strainers when system is X
adequately cleaned.
4. Provide, install, and remove all X
blinds required for flushing.
5. Provide, install and remove all X
blinds required for isolation.
M. Purging/Inserting
1. Install purge/inserting connections. X
2. Provide purge materials and conduct X
necessary purge operations.
3. Provide inserting materials and X
introduce where specified.
N. Drying Out
1. Dry out facilities, as required to prevent contamination X
of catalysts, operating materials and/or product.
2. Dry out systems, refractories and linings when this drying X
operation is to be accomplished with temporary facilities
such as in refractory lined ducts and vessels.
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3. Dry out systems, refractories, and linings when this X
drying can be accomplished by means of permanently
installed equipment such as fired heaters.
O. Vessel Packing and Fixed Beds
1. Install all inert materials such as sand, gravel, balls, X
rings, and saddles.
2. Install all materials other than the materials X
specifically noted in Section V.
3. Install all mixed beds involving combinations of materials X
covered 1. and 2. above.
4. Inspect vessel interior before and during loading to X
ensure proper installation.
5. Maintain records as required. X
P. Housekeeping
1. At completion of construction, remove excess materials, X
temporary facilities, and scaffolding; rough sweep or rake
the area; and pick up trash. Washing or further cleanup
is not included.
2. After completion of construction, maintain adequate X
housekeeping practices, as required for safe operation.
Q. Maintenance, Spare Parts and Special Tools
1. Before and during precommissioning, protect equipment from X
normal weather conditions, corrosion or damage.
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2. After precommissioning is complete, provide adequate maintenance X
for equipment, including the cleaning of strainers and the
repairing of steam traps.
3. Provide the Owner with spare parts lists as recommended by the X
manufacturers.
4. After precommissioning, maintain adequate spare parts and supplies. X
V. Specific Procedures
In addition to the work responsibilities described in Section IV, the
detailed procedures outlined below further define the work
responsibilities of Foster Wheeler and the Owner for specific systems
and items of equipment.
A. Vessels
1. Open vessels after erection and put in place any internals X
requiring field installation. These internals will be inspected
before and after installation.
2. Open both internal and external manways for inspection of vessel X
by the Owner, unless otherwise specified.
3. Witness inspections to the extent desired. X
4. Head up after proper execution of closure permits. X
B. Shell and Tube Exchangers
1. Perform field inspection, if required, of exchangers that have X
been shop tested.
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C. Air-Cooled Exchangers
1. Inspect exchangers to ensure that temporary shipping X
supports and erection material have been removed.
2. Adjust fan assemblies to obtain X
specified tip clearance and test.
3. Check operation of louvers and X
operating linkage.
D. Fired Heaters
1. Perform pressure test in accordance with the applicable X
codes and specifications.
2. Provide all nonoperating prefiring checks in accordance X
with manufacturer's instructions.
3. Blow fuel lines, check them for cleanliness, and connect X
burner piping.
4. Check operation of registers and dampers, and verify X
position of indicators.
5. Check operation of air preheaters, blowers and soot X
blowers.
6. Dry refractories during initial firing by following the X
manufacturer's temperature cycles.
7. Conduct boilout, chemical cleaning, X
and flushing operations as
required. Dispose of wastes and
cleaning media.
8. Obtain and charge liquid heat X
transfer media, if required.
9. Conduct lightoff, drying, and X
purging operations.
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10. Obtain service engineer for technical assistance during X
installation or startup, if desired.
E. Pumps, Compressors, and Drivers
1. Level baseplates and soleplates grout all bearing X
surfaces.
2. Alleviate any excess piping stresses that may be imposed X
on pipes, compressors, and drivers.
3. Chemically clean any completed lube X
and seal oil system, when
specified. Dispose of wastes and
cleaning media in accordance with
the Owner's instructions.
4. Charge the lube oil, seal oil, and X
oil cooling systems with flushing
oil.
5. Circulate flushing oil through lube oil, seal oil and oil X
cooling systems for cleaning purposes. Dispose of any
flushing oil.
6. Charge the lube oil, seal oil, and oil cooling systems X
with the operating oil recommended by the manufacturer.
7. Operate equipment and make vibration, trip, governor, and X
safety device checks, and any operating tests and
adjustments required.
8. Obtain the assistance of a service engineer for technical X
advise during installation or startup, if desired.
9. Maintain records as required. X
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F. Tanks
1. After erection and installation, install any internals X
which require field installation.
2. Test tank and internals, as required. Dispose of test X
water in accordance with the Owner's instructions.
3. Conduct chemical cleaning or flushing operations, as X
required. Dispose of wastes and cleaning media.
4. Witness test and inspections to the X
extent desired.
5. Close after proper execution of X
closure permits.
G. Piping Systems
1. Notify the Owner of test schedule. X
2. Hydrostatically or pneumatically X
test all piping as required by the
codes and specifications.
3. Witness field pressure tests when X
noticed.
4. Drain system and install orifice plates. Orifice plates X
should not be installed before testing. If installed,
they will be removed as necessary. (See Section V.J. for
the removal or isolation of other inline components.)
5. Remove blinds and perform tightness X
tests, as required.
6. Insulate or paint flanges, threaded joints, or field welds X
after the specified testing of each item has been
completed unless instructed otherwise by the Owner.
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7. Leave exposed all welded joints (longitudinal, girth, and X
nozzle) in underground piping that have not been shop
tested until the specified testing has been completed.
This does not apply to the longitudinal fabrication joint
in ERW pipe. After final testing of these joints, cover
the system.
8. Check pipehangers, supports, guides, and pipe specialties X
for the removal of all shipping and erection stops and for
the correctness of cold settings for the design service.
Also, provide the Owner with instructions for hot
settings.
9. Check pipehangers, supports, guides, and pipe specialties X
for hot settings and make minor adjustments as necessary.
10. Install permanent filter elements as required. X
11. Verify that specified valve packing has been provided on X
valves installed in the plant.
12. Install car seals or chain locks on valves where required X
by Engineering Flow Diagrams.
13. Check and record position of all car-sealed or chain- X
locked valves; identify valves as specified.
14. Correct support, vibration, and thermal expansion problems X
detected during commissioning.
15. Retorque all hot and cold service bolting during X
commissioning as required.
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H. Electrical Power and Lighting Systems
1. Notify the Owner of the test schedule. X
2. Witness tests when notified and record test data if X
desired.
3. Using a megohmmeter, make insulation tests on all wiring X
except lighting wiring.
4. Using a megohmmeter, make insulation tests on motor and X
transformer windings from phase to phase and phase to
ground.
5. Make grounding system tests to determine the continuity of X
connections and the value of resistance to ground.
6. Arrange for breakdown tests on oil samples from oil X
insulated transformers larger than 100 kva absolute.
7. Charge electrical gear with oil and/or other media, when X
required.
8. Perform trials and adjustments on all switchgear, motor X
control equipment and generators.
9. Test and set switchgear and circuit breaker relays for X
proper coordination as required by ENG STD 70A2.
10. Obtain local inspector's approval X
where required.
11. Energize all substations, with approval of the Owner, X
after completion of all tests.
12. Check phase sequence and polarity. X
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13. Check installation of emergency power and lighting X
systems, including light intensity.
14. Provide the Owner with a record of X
work completed.
15. Measure light intensity if X
required.
I. Instrument Systems
1. Conduct any nonoperating checks to ensure instrument X
operability, e.g., remove all shipping stops; check
pointer travels; and verify instrument capability to
measure, operate, and stroke in the direction and manner
required by the process application.
2. As directed by the Owner's practice, bench or field X
calibrate instruments with standard test equipment and
make all required adjustments and control point settings.
3. Clean all transmission and control tubing by blowing with X
cooled and filtered clean air before connecting to
instrument components.
4. Clean all air-supply headers by blowing with clean air and X
check them for tightness.
5. Leak test pneumatic control circuits in accordance with X
the latest edition of ISA Recommended practice 7.1:
Pneumatic Control Circuit Pressure Test.
6. Check piping from instruments to X
process piping for tightness.
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7. Install and connect all system hardware and verify their X
conformance to specifications and design criteria for
function and range.
8. Check all electrical signals and alarm wiring for X
continuity, correct source of power, and polarity.
9. Check thermocouples for proper joining of wires, position X
of elements in wells, proper polarity, and continuity of
receiving instruments.
10. Identify orifice plates by tagging and deliver to the X
Owner.
11. Check and record bores of orifice plates and install after X
completion of flushing operations.
12. Isolate or remove, if necessary, inline components such as X
control valves, positive displacement meters, and turbine
meters for pressure testing. Reinstall these items after
testing the system with the components removed or
isolated.
13. Isolate or remove inline components for flushing X
operations and reinstall them on the completion of these
operations.
14. Install any sealing fluids, as X
required.
15. Fully pressurize and energize the transmitting and control X
signal system(s) by opening process connections at primary
sensors and final regulators, and by making control mode
settings for automatic operation of equipment as the
process unit is charged and brought on stream.
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16. Provide a schedule of recorder X
charts.
J. Water Systems (Service Wells, Cooling X
Towers, Fire Water Systems, and Sea Water Systems)
1. Inspect for completeness and X
correctness of installation and make any
nonoperating checks that may be required.
2. Clean the cooling tower basin and X
install screens in the suction pit before
water circulation.
3. Provide test pump for wells; test X
well delivery; and flush wells when wells
are provided by Foster Wheeler.
4. Flush, drain, and clean the cooling tower basins. X
5. Clean intake screens after flushing. X
6. Adjust cooling tower fans to obtain X
specified tip clearance and test.
7. Operate fire pumps to check output of systems. X
8. Head up reservoirs, vessels, tanks, and other water X
systems equipment as required, fill with water, check for
leaks, and flush to clean.
9. Provide insurance company inspection of the fire system as X
required.
10 Obtain and install all required fire fighting chemicals X
and portable equipment such as hoses, fire extinguishers,
and related equipment.
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11. Establish water treatment program. X
12. Obtain the services of a water consultant to advise and X
monitor the water treatment.
X
X
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<PAGE>
EXHIBIT 10.48
Contract
[LOGO]
C/G The Carbide/Graphite Group, Inc.
- --------------------------------------------------------------------------------
Plant 3 Modernization Project
Engineering, Procurement and Construction
Management Services
St. Marys, Pennsylvania
June 1996
- -------------------------------------------- Process & Manufacturing Industries
[LOGO OF BROWN & ROOT]
<PAGE>
[LOGO OF BROWN & ROOT]
Brown & Root Post Office Box 3
Power And Manufacturing Houston, TX 77001-0003
- --------------------------------------------------------------------------------
Y. F. Boutros (713) 676-8727
General Manager FAX: (713) 676-3239
Engineering
June 5, 1996
Mr. Arthur Martin
Project Manager
The Carbide/Graphite Group, Inc.
800 Theresia Street
St. Marys, Pennsylvania 15857
Subject: Contract to Provide Engineering, Procurement, and Construction
Management Services for the Plant 3 Modernization Project
Dear Mr. Martin
Brown & Root is pleased to submit this contract document to provide engineering,
procurement, and construction management services for the subject project per a
verbal agreement reached between Brown & Root and Mr. Mike Supon per a telephone
conversation on June 4, 1996.
The contract document includes a project description, scope of work, plan of
work, and a commercial offering outlining an Incentive Program to achieve the
project completion within the overall project budget and schedule.
Please return an original signed copy of the Terms and Conditions attached to
this document to authorize Brown & Root to proceed with the work.
Very truly yours,
/s/ Y. F. Boutros
for Y. F. Boutros DNA
YFB /kls:2801-004
A Halliburton Company
<PAGE>
THE CARBIDE/GRAPHITE GROUP, INC.
PLANT 3 MODERNIZATION PROJECT
ST. MARYS, PENNSYLVANIA
CONTRACT TO PROVIDE
ENGINEERING, PROCUREMENT, AND CONSTRUCTION MANAGEMENT
SERVICES
BROWN & ROOT, INC.
4100 Clinton Drive
Houston, Texas 77020-6299
[LOGO OF BROWN & ROOT]
2801-006
<PAGE>
TABLE OF CONTENTS
1.0 PROJECT DESCRIPTION
2.0 SCOPE OF WORK BY BROWN & ROOT
3.0 PLAN OF WORK
4.0 SCOPE OF SERVICES BY THE CARBIDE/GRAPHITE GROUP, INC.
5.0 COMMERCIAL OFFERING
6.0 TERMS AND CONDITIONS
ATTACHMENTS
. Engineering, Procurement, and Construction Management Organization
. Division of Responsibilities - Construction Management
. EPC Schedule
. Terms and Conditions
2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 1 of 8
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1.0 PROJECT DESCRIPTION
The C/G Group, Inc.'s (C/G's) Plant 3 Modernization Project at St. Marys,
Pennsylvania, includes the following:
. 48-inch press system will have a complete redesign of coke screening and
sizing, automatic batch weighing and carbon paste mixing, cooling, and
pollution controls systems for this project. The equipment arrangement for
an alternate case which uses a continuous bucket conveyor to convey coke
fractions to the mixer system will be used as outlined in Brown & Root's
study titled Conceptual Design and Capital Cost Estimate dated April 19,
-------------------------------------------
1996.
. The equipment arrangement will be generally in accordance to Drawing Nos.
350-085-01A, Revision B, and 350-085-02A, Revision A, indicating the plan
and sections through the Mill Mix Building.
. 25-inch press system - The existing milling and screening system for the 48-
inch press will be used for the 25-inch press once a new mill mix facility
for the 48-inch press is commissioned.
. New Plant air compressors which will have new air dryers, air receivers, and
other miscellaneous components required to replace the plant's compressed
air system which was sold to SGL.
2.0 SCOPE OF WORK BY BROWN & ROOT
Brown & Root will provide the following Engineering, Procurement, and
Construction Management (EPCM) services for C/G's Plant 3 Modernization Project
at St. Marys, Pennsylvania.
2.1 Engineering Services
--------------------
During this phase of the contract to provide EPCM services, the following
discipline engineering deliverables will be prepared.
. Process
- Block Flow Diagrams
- Process Flow Diagrams with Material Balances
- Engineering Flow Diagrams
- Utility Flow Diagrams
- Major Equipment List
- Description of Facilities
- Process Descriptions
. Mechanical Layout/Piping Design
- Plot Plan
- General Arrangement Drawings with Plan and Sections
- Piping Layout Drawings and Sections
2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 2 of 8
<PAGE>
. Mechanical
- Mechanical Equipment Specifications with Data Sheets
- Piping Specification
- Insulation Specification
- Coating Specification
. Electrical
- Electrical Equipment Specifications
- Electrical Load List
- Cable, Conduit, and Termination Schedule
- Electrical Installation, Legends, and Symbols Drawings
- Motor Elementary Diagrams
- One Line Diagram for New Additions
- One Line Diagrams for New MCCs and Switchgears
- Underground Duct Bank Drawing
- Cable Tray Plan Drawings for Mill Building
- Grounding and Lighting Plan Drawings
- Power and Instrument Conduit Plan Drawings
- Short Circuit, Motor Starting, and Load Flow Studies
- Fire Protection System Plan Drawings
. Instrumentation and Control
- PLC Control System Specifications
- Instrument Specifications/Data Sheets
- Instrument Index
- Instrument Location Plans
- Instruments Installation Details
- Loop Diagrams, Interconnect Diagrams, and Wire Lists
- Control Room Layout Plan
- Logic Diagrams
. Architecture
- Architectural Specifications
_ Architectural Drawings
. Civil
- Civil Specifications
- Civil Drawings
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. Concrete
- Concrete and Reinforcing Steel Specifications
- Foundation Drawings
. Structural
- Structural Specifications
- Structural Drawings
. HVAC/Plumbing
- Heating, Ventilating, and Air Systems Specifications
- Ventilating Equipment Specification
- HVAC Drawings
. Plumbing
- Plumbing System Specifications
- Plumbing Drawings
. Environmental
- Ductwork Specification
- Baghouse Specification
- Induced Draft Fan Specification
- Fume Incinerator Specification
- Ductwork Process Flow Diagram
. Fire Protection
- Fire Protection Design Criteria
- Fire Pumps Specification
- Fire Detection and Alarm System Specification
- FM2OO Systems Specification for Control Room Fire Protection
- Dry Pipe Sprinkler and Standpipe System Specification
- Underground Firewater Piping Specification
2.2 Procurement Services
--------------------
Procurement activity will be based in Houston. Procurement activity will be
based on the equipment list and specifications prepared by Brown & Root
engineers. Procurement personnel will be assigned to the project staff to
inquire, evaluate, and place purchase orders after review and approval by the
originating engineer and C/G's designee. Procurement personnel will also
expedite the delivery of equipment/supplies in accordance with the project
schedule.
Procurement personnel will also issue subcontract purchase orders and provide
the required expediting services.
2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 4 of 8
<PAGE>
2.3 Construction Management Services
--------------------------------
Brown & Root proposes to provide an experienced team of construction management
professionals to provide complete project construction management services for
C/G's modernization project at the St. Marys' facility.
To assist C/G's project personnel as to how we envision the responsibilities of
all parties that will be involved in this project, we are providing a Division
of Responsibilities matrix which is attached.
This matrix is the most appropriate method of establishing a baseline to clearly
define the services that Brown & Root proposes to provide C/G for the
construction management requirements for this project.
Our estimate is based on a reasonable contracting approach using a lump sum
approach for major discipline packages. Our plan is also based on using our
Construction Manager and Technical Services Manager for constructability reviews
and coordination with engineering needs and activities. Our experience shows
that the familiarity of the engineer's activities and personnel by these two key
people will greatly enhance communications during the life of the project.
We have marked-up the matrix with our understanding of C/G's needs and are
prepared to meet and discuss this in more detail.
3.0 PLAN OF WORK
For this project, Brown & Root will assume the role of EPCM contractor reporting
to C/G's Project Manager who will be available full time with authority to make
decisions and approve all the work. The engineering and procurement work other
than construction management will be performed in our Houston offices where the
project team will be assembled. Refer to the attached organization chart
indicating the project team.
Immediately upon C/G's approval to proceed with the project, Brown & Root will
commence planning the sequential activities to complete engineering,
procurement, construction, start-up, and commissioning of the proposed process
facilities within a 20-month schedule.
Brown & Root recommends that the following subcontracts be issued immediately to
support engineering and the overall schedule:
. Jenike-Johanson's Report (physical properties testing for coke fractions)
. Geotechnical survey
. Site survey
Engineering and procurement items requiring long lead-time will have priority to
provide momentum to the engineering and procurement schedule. The 12-month
delivery items, such as Eirich's mixer system and automatic batch weighing
system, will be placed on order within the first month.
Brown & Root and C/G personnel will meet with Eirich Machines Company to
finalize the requisition for the scope of supply and reconfirm the pricing of
the mixer system. Evaluation
2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 5 of 8
<PAGE>
of Eirich's capability to engineer and supply an automatic batch weighing
system will also be important before issuing the purchase order to Eirich.
Purchase orders will be issued for the mixer system and automatic batch
weight system within the first month since early receipt of supplier's
process and engineering data and drawings will be essential in achieving the
overall schedule.
Next, the flour mill and the electrical substation equipment items will be
placed on order since their delivery schedule will be seven to eight months.
Other equipment will be placed on order and expedited in accordance with the
attached EPC schedule.
For construction of this facility and through obtaining competitive bids, the
following three major subcontractors specialized in performing the work
efficiently, on schedule, and under the budget will be selected:
. Civil/Architectural (C/A)
. Mechanical/Piping/Insulation/Structural (M/S)
. Electrical/Instrumentation (E/I)
Also, specialized construction work in engineering, equipment/material supply,
and construction capability will be awarded to selected subcontractors
through bids for turnkey installation basis for the following:
. Fire protection
. Elevator
. Electrical substation and switchgear building
. Impedance heating
The above subcontract activities are depicted on the EPC schedule included in
our Conceptual Design and Capital Cost Estimate Study dated April 19, 1996.
4.0 SCOPE OF SERVICES BY THE CARBIDE/GRAPHITE GROUP, INC.
C/G will assign a full time Project Manager who will review and approve our
work and will be authorized to make timely decisions for C/G. We will need
ready access to this individual at all times during the working hours.
Brown & Root will prepare technical documents necessary to perform site survey
and geotechnical investigation. Purchase orders for these services will be
issued to surveying and geotechnical engineering firms in order to obtain these
reports within the first month.
C/G will obtain necessary environmental and construction permits for this
project. Brown & Root understands C/G's environmental department is handling
permitting for the project. We would like to point out that Brown & Root has an
Environmental Engineering staff that could provide assistance to the C/G. The
cost of these services are not included in this proposal.
C/G will prepare operation instructions and training manuals which are not
included in our estimate.
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<PAGE>
C/G will provide timely access to all current facilities and provide the
necessary data on existing facilities.
5.0 COMMERCIAL OFFERING
Brown & Root offers to provide engineering, procurement, and construction
management services for performance of the scope of work set forth within this
proposal on the basis described in this Section.
Brown & Root will provide all supervision, labor, equipment, materials, tools,
and all other services necessary for complete engineering, procurement, and
construction management services for C/G's Plant 3 Modernization Project at St.
Marys, Pennsylvania, as more fully described in Brown & Root's Conceptual Design
and Capital Cost Estimate Report dated April 19, 1996 (the Report).
---------------------------
5.1 Project Budget
--------------
The budget estimate as set forth in the Report for engineering, procurement, and
construction management (EPCM) services is as follows:
<TABLE>
<S> <C>
Engineering and Procurement $3,000,000
Construction Management $ 606,000
Construction Management Fee $ 200,000
----------
Total Budget Estimate $3,806,000
(original from Basic Design Study)
</TABLE>
The estimated TIC Project Budget as set forth in the Report, including the EPCM
estimate above, is $26,400,000.
Since this estimated total installed cost (TIC) for the project budget set forth
in Report does not include any Contractor's contingency, this budget amount
henceforth will be termed "Total Project Challenge Budget."
It is proposed that the following two budgets be established to provide
incentives to control total project costs:
. Target Budget for EPCM Services - $3,500,000 + $73,278
. Total Project Challenge Budget - $26,400,000 + $439,528
5.2 Incentive Program
-----------------
Brown & Root proposes an Incentive Program in conjunction with the initial mark-
up of 85% applied to direct engineering, procurement, and home office service
manhours and mark-up of 55% applied to the field construction management
personnel. The object of the Incentive Program is to encourage Brown & Root to
perform quality engineering, procurement, and construction management work on
time and within budget, and, at the same time, for the project outcome to be
successful in the estimation of C/G. The available incentive awards
2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 7 of 8
<PAGE>
shall be in accordance with the four independent provisions below and shall be
determined within 30 days following mechanical completion.
The Incentive Program will consist of four components: quality, EPCM budget
control, Total Project Challenge Budget control, and project completion
schedule. Each of these components will be worth the amount shown in the
following paragraphs.
5.2.1 Quality
The incentive award amount for Quality will be $50,000.
This portion of the Incentive Program is entirely subjective and depends solely
on C/G's evaluation of the quality of Brown & Root's efforts, including work
product quality, responsiveness, and effectiveness on the project.
5.2.2 EPCM Budget Control
The incentive award amount for budget control will be $100,000.
The full incentive award for this portion of the Incentive Program will be
earned in the event Brown & Root's total charges for the EPCM services at the
conclusion of the project are at or below $3,500,000 plus approved budget
variances. Maximum limit on total charges for B&R's EPCM services will be at
$3,806,000, plus approved budget variances.
If the EPCM services at the conclusion of the project fall between the
$3,500,000 (Target EPCM budget) and $3,806,000 plus approved budget variances,
the incentive amount will be prorated.
5.2.3 Total Project Challenge Budget
At the conclusion of the project, if the total project costs fall below the
$26,400,000 Total Project Challenge Budget plus approved budget variances, then
these savings will be shared 70% to C/G and 30% to Brown & Root.
5.2.4 Project Completion Schedule
The incentive award amount for project completion schedule will be $150,000.
The full incentive for this component will be earned in the event the start-up
of the new facility for the 48-inch press occurs on or before January 1, 1998 or
as rescheduled due to approved schedule variances.
This incentive amount will be prorated to the start-up date of February 15, 1998
or as rescheduled due to approved schedule variances.
6.0 TERMS AND CONDITIONS
Attached is the Terms and Conditions under which which Brown & Root offers to
perform EPCM services.
2801-006 (Revised 06/05/96) [LOGO OF BROWN & ROOT] Page 8 of 8
<PAGE>
TERMS AND CONDITIONS
FOR
ENGINEERING, PROCUREMENT AND CONSTRUCTION MANAGEMENT SERVICES
Engineering, Procurement and Construction Management services for The
Carbide/Graphite Group, Inc. ("Owner") will be performed by Brown & Root, Inc.,
("B&R"), within the requirements of the Scope of Work defined in EPCM
Contractor's Proposal dated May 10, 1996, on and subject to the following terms
and conditions:
1. COMPENSATION
------------
1.1 Owner will pay B&R for engineering and procurement services an amount
equal to (i) the product of "Direct Salary Cost" (as defined below)
multiplied by a multiplier of 1.85 (to cover "Direct Salary Cost", payroll
burden allowance, general office overhead and profit), plus (ii) "All
Other Expenses" (as defined below).
1.2 Owner will pay B&R for construction management services an amount equal to
(i) the product of "Direct Salary Cost" (as defined below) multiplied by a
multiplier of 1.55 (to cover B&R's "Direct Salary Cost", and payroll
burden allowance), plus (ii) "All Other Expenses" (as defined below).
In addition Owner will pay B&R a Fee of $200,000 for provision of
Construction Management Services, payable in equal monthly installments
during construction of project.
Owner and B&R agree to participate in an Incentive Program as described in
our Commercial Offering, Section 5.0 of the Proposal Document.
a) DIRECT SALARY COST
------------------
"Direct Salary Cost" shall mean the direct salary and wages, including
premium pay, actually earned by all personnel for time actually engaged in the
services. Personnel whose time is chargeable to the services include
engineers, designers, drafters, technicians, secretaries, clerks, purchasing
and expediting personnel, estimators, construction managers and construction
management site personnel and all other necessary employees, who are employed
by B&R or by any other entities affiliated with B&R, for time directly engaged
in the services. Payroll burden includes social
Carbide/Graphite Group, Inc. 6/5/96 Page 1 of 8
MCP2
<PAGE>
security taxes, unemployment and other payroll taxes, workers' compensation
insurance, basic liability insurance, medical, life and accident insurance, sick
leave, vacations, holiday pay, jury duty, and all other fringe benefits
presently in effect. Salaries and wages payable to B&R's employees shall be as
set forth in B&R's "Job Classification and Salary Grade Structures" tables and
"Exempt and Non-Exempt Salary Range Structure" tables, as modified from time to
time, relevant portions of which are available on request. The basic work week
is 40 hours, but the actual work week will be determined by project requirements
to obtain effective overall utilization of personnel. Hourly paid employees
receive 1 and 1/2 times their regular rate for hours worked in excess of 40
hours per week or 8 hours per day as required by local, state or federal law.
b) ALL OTHER EXPENSES
------------------
"All Other Expenses" include all costs and expenses directly attributable
to performance of the services, which are in good accounting practice direct
costs of the services and not covered by the allowances for payroll burden and
general office overhead and profit. In-house services provided in the
performance of the services such as reprographic services, microfilm services,
automated design and drafting services, graphic and text processing services,
purchasing and expediting services, computer services, automobile and
transportation services, and such others as may be applicable will be charged at
the rates published in B&R's Standard Pricing Schedules in effect at the time of
performance of the services. Some of the in-house services may be subcontracted
to affiliates of B&R. The Pricing Schedules shall apply regardless of whether
the service is provided by B&R or by an affiliate of B&R. Copies of current
applicable Pricing Schedules are available on request. Costs of outside services
will be charged at actual invoice cost and include: consultants; subcontracted
services; equipment rental; purchased plant equipment and materials; travel
expenses; outside computer services; long distance telephone and telegraph
charges; mailing and courier services; and others. Expenses for site based
construction management services include: temporary facilities; transportation
for management personnel; utilities for temporary facilities (power, water,
sanitation); office supplies and equipment; travel expenses for site personnel;
telephones, fax and job related communications; mobilization and per diem for
site based personnel; home office services directly related to the project site
maintenance; general business expenses; and fencing and parking lot expenses.
Outside services are subject to a service charge of 3%.
2. BILLING, PAYMENT AND FUNDING
----------------------------
B&R will submit periodic billings, not more frequently than weekly, with
complete supporting documentation meeting Owner's reasonable requirements for
all charges. In the event Owner does not approve an entire billing, payment of
the approved portion shall be made. Payment, without retainage shall be due 15
days from the date of any such billing. Payments not received 15 days after the
due date shall be subject to interest charges in an amount equal to 1.0% per
month.
Carbide/Graphite Group, Inc. 6/5/96 Page 2 of 8
MCP2
<PAGE>
3. AUDIT, RECORD RETENTION
-----------------------
B&R shall retain all pertinent records relating to services performed
hereunder for a period of 2 years after completion. Owner's approval and payment
of periodic invoices shall not affect Owner's audit rights. Owner shall have
access at all reasonable times until expiration of the retention period, and the
right to audit, all records pertaining to direct salaries and wages, other costs
reimbursable at actual cost, and usage of services chargeable pursuant to
published Rate Schedules. Actual cost of items chargeable at stipulated markup
allowances or by published Rate Schedules are not subject to audit.
4. INDEPENDENT CONTRACTOR
----------------------
In performing services, B&R will act as an independent contractor and will
control the detailed manner and means of performance of the services. However,
project management services, and procurement services will be performed as agent
of Owner. Owner will furnish information required of it as expeditiously as
necessary for orderly progress and B&R may rely on its accuracy and
completeness.
5. EXTRA SERVICES
--------------
Extra services shall not be performed, nor shall the scope of the services
be increased or decreased, unless authorized by Owner and agreed to by B&R. The
cost of studies and analyses required to determine scope changes shall be
reimbursable and additive to any previous manhour targets or budgets based on
the original scope.
6. PROPRIETARY INFORMATION, PATENTS
--------------------------------
B&R shall accept proprietary information in confidence in accordance with
the terms set forth in B&R's Standard Secrecy Agreement. A copy of this
Agreement is available upon request. B&R will advise Owner of any patents or
proprietary rights and any royalties, licenses, or other charges which B&R knows
to be involved in the design performed by B&R, and obtain Owner's approval
before proceeding. B&R does not perform patent searches or evaluation of claims,
but will assist Owner in this regard if requested, on the basis set forth
herein. All royalties, license fees, or infringement costs or expenses shall be
paid by Owner as a cost of the services and reimbursed to B&R if paid by B&R.
Carbide/Graphite Group, Inc. 6/5/96 Page 3 of 8
MCP2
<PAGE>
7. STANDARD OF PERFORMANCE AND WARRANTY
------------------------------------
a) B&R'S SERVICES
--------------
B&R's services will conform to the requirements defined in B&R's proposal
in accordance with sound and generally accepted industry standards. If during
performance B&R's services fail to meet the foregoing standard, B&R shall
perform such corrective services as may be requested by Owner, or Owner may
terminate B&R's services for unsatisfactory performance on 10 days' written
notice. Any corrective services requested by Owner shall be paid for on the
same basis as other services performed hereunder. In the event Owner terminates
B&R's services for unsatisfactory performance, Owner shall assume all
obligations, commitments, and claims that B&R may have theretofore in good faith
undertaken or incurred in connection with the services and Owner shall pay B&R
for services performed to date of termination and all costs of closing out the
services.
b) B&R'S WARRANTY
--------------
B&R warrants that if any of its completed services are defective in that
they fail to conform to the requirements defined in B&R's Proposal and are not
in accordance with sound and generally accepted industry standards, B&R will
perform such corrective services of the type originally performed as may be
necessary to correct any such defective services brought to B&R's attention in
writing by Owner within one year from completion of the services. Owner will
compensate B&R for such corrective services on the same basis as other services
performed hereunder. B&R shall not be responsible for corrective construction
or repair work.
c) ASSIGNED WARRANTIES
-------------------
To the extent B&R procures materials and services in B&R's name, it will
assign to Owner the warranty or guarantee of the manufacturer and supplier of
items of machinery, equipment, materials or products manufactured or sold by
others, and the warranty of construction contractors and subcontractors,
consultants or specialized services of others and cooperate and assist Owner in
Owner's enforcement thereof. B&R's responsibility with respect thereto is
limited to such assignment, cooperation and assistance.
d) LIMITATION
----------
Except as provided in this paragraph 7, B&R MAKES NO OTHER WARRANTY,
EXPRESS OR IMPLIED, AND B&R SHALL HAVE NO OTHER LIABILITY TO OWNER FOR ITS
DEFECTIVE SERVICES, WHETHER CAUSED BY B&R'S ERROR, OMISSION, NEGLIGENCE
(CONCURRENT OR SOLE) OR OTHERWISE.
Carbide/Graphite Group, Inc. 6/5/96 Page 4 of 8
MCP2
<PAGE>
8. INSURANCE AND ALLOCATION OF RISKS
---------------------------------
a) GENERAL
-------
This section allocates as between B&R and Owner the duty to obtain
insurance for the benefit of both parties, their affiliated companies and their
officers, agents and employees against liability for bodily injury (including
death) of persons and for loss of or damage to property which result from or are
related to the performance of B&R's services.
b) B&R'S OPERATIONS
----------------
B&R shall fully insure for the benefit of the Owner and B&R:
(1) all risks of liability for bodily injury and property damage to
employees of B&R engaged in employment related to this performance of
B&R's services, and
(2) all risks of liability for bodily injury and property damage to third
parties, including employees of Owner, related to the performance of
B&R's services which occur in or about B&R's established engineering
home offices,
INCLUDING ALL LIABILITY WHICH FOR ANY REASON OWNER IS ALLEGED TO BE LEGALLY
LIABLE, INCLUDING LIABILITY BASED ON OWNER'S SOLE OR CONCURRENT NEGLIGENCE.
c) CONSTRUCTION AND OPERATION OF FACILITIES
----------------------------------------
Owner shall fully insure for the benefit of Owner and B&R and any
subcontractor of B&R engaged in the performance of B&R's services, or shall
arrange for one or more of the participants engaged in the construction of the
project to fully insure:
(1) all risks of liability for property damage to the construction
project related to the performance of B&R's services and to any
facilities of Owner at or near the project site, and
(2) all risks of liability for bodily injury and property damage to third
parties, including employees of Owner and employees of other
participants engaged in the construction of the project which occur
(a) during construction or (b) during operation of the facilities
constructed as a part of the project,
Carbide/Graphite Group, Inc. 6/5/96 Page 5 of 8
MCP2
<PAGE>
INCLUDING ALL LIABILITY WHICH FOR ANY REASON B&R, OR ANY OF ITS SUBCONTRACTORS,
IS ALLEGED TO BE LEGALLY LIABLE, INCLUDING LIABILITY BASED ON B&R'S ERROR,
OMISSION OR SOLE OR CONCURRENT NEGLIGENCE.
d) SELF INSURANCE
--------------
Either party may elect to self insure any risk it has agreed to insure
hereunder, and in that event it agrees to indemnify the parties who would have
been beneficiaries of such insurance against any loss, liability or expense
resulting from its election not to insure the risk. These reciprocal indemnities
are given specifically in consideration for each other.
e) SUBROGATION
-----------
B&R shall obtain endorsements on all insurances obtained or maintained by
it against risks assumed under this Agreement which shall waive all rights of
subrogation against Owner, its affiliated companies and their officers, agents
and employees. Owner shall obtain endorsements on all insurances obtained or
maintained by it against risks assumed under this Agreement which shall waive
all rights of subrogation against B&R, its affiliated companies, its
subcontractors engaged in the performance of B&R's services, and their officers,
agents and employees. Owner shall manage the allocation and insurance of risks
among the participants in the construction of the project so as to obtain from
the participants and their insurers waivers of subrogation, contribution and
indemnity in favor of B&R, its affiliated companies, its said subcontractors,
and their officers, agents and employees.
f) INSURANCE
---------
Unless otherwise agreed in writing by the parties, B&R shall provide Owner
with certificates evidencing insurances in the following coverages and amounts:
Workers' Compensation - Statutory
Employer's Liability - $500,000
Comprehensive General Liability
(including Contractual Liability but not including B&Rs' Errors
& Omissions Liability) with combined single limit of $1,000,000
per occurrence for Bodily Injury and Property Damage.
Comprehensive Automobile Liability
with combined single limit of $1,000,000 per occurrence for
Bodily Injury and Property Damage.
Carbide/Graphite Group, Inc. 6/5/96 Page 6 of 8
MCP2
<PAGE>
g) COOPERATION
-----------
In the event any claim is asserted which is subject to this Agreement for
bodily injury or property damage, Owner and B&R agree to cooperate with each
other, and to require their respective insurers and contractors to cooperate in
order that such claims are resolved in a manner consistent with the allocation
of risks provided herein.
9. LIABILITY LIMITATIONS
---------------------
This Article shall apply notwithstanding any other provision of this
Agreement.
1) B&R shall not be liable to Owner or its affiliates in any action or
claim for loss of profit, loss of product, loss of use or for indirect,
consequential or special damages, EVEN IF CAUSED BY THE SOLE OR CONCURRENT
NEGLIGENCE OF B&R.
2) ANY LIMITATION ON OR EXCULPATION FROM LIABILITY AFFORDED B&R BY THIS
AGREEMENT SHALL BE APPLICABLE REGARDLESS OF WHETHER THE ACTION OR CLAIM IS BASED
IN CONTRACT, TORT, STATUTE, STRICT LIABILITY OR OTHERWISE AND SHALL LIKEWISE
LIMIT THE LIABILITY OF B&R'S AFFILIATES, SUBCONTRACTORS AND VENDORS OF ANY TIER
AND THEIR RESPECTIVE OFFICERS, AGENTS AND EMPLOYEES. For purposes of this
Article an "affiliate" of a party includes any parent, subsidiary or affiliated
corporation, partnership or other legal entity, and its and their officers,
agents, employees and insurers.
3) Except as expressly provided in this Article, there are no third-
party beneficiaries of this Agreement. This Agreement does not create or confer
any legal claim or cause of action in favor of any party not a signatory to this
Agreement and the obligations and legal duties imposed on any party by this
Agreement are owed exclusively to the other party or parties and are not owed to
any party not a signatory to this Agreement.
10. TERMINATION
-----------
Owner may, at its discretion, terminate the services under this Agreement
at any time by giving 10 days WRITTEN notice. In such event, Owner shall assume
all obligations, commitments, and claims that B&R may have theretofore in good
faith undertaken or incurred in connection with the services, and Owner shall
pay B&R for services performed to date of termination and all costs of closing
out of the services, plus a reasonable termination charge.
Carbide/Graphite Group, Inc. 6/5/96 Page 7 of 8
MCP2
<PAGE>
11. ENTIRE AGREEMENT
----------------
The foregoing and the B&R's Proposal constitute the entire agreement
between the parties and supersede any representations, warranties, or agreements
heretofore made. This Agreement may be amended only by a document in writing
signed by the parties.
12. GOVERNING LAW
-------------
This Agreement shall be governed by the laws of the State of Texas.
13. B&R SERVICES
------------
Any engineering services required herein will be performed by Brown & Root
Technical Services, Inc., an affiliated company of B&R.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the day and year indicated below:
CARBIDE/GRAPHITE GROUP, INC. BROWN & ROOT, INC.
By: /s/ Michael F. Supon* By: /s/ John W. Redmon
--------------------------- ---------------------------
Title: Director of Engineering Title: President
--------------------------- ---------------------------
Date: 6/11/96 Date: 6/18/96
--------------------------- ---------------------------
Attest: /s/ D. Arthur Martin Attest: /s/ William C. Brending
--------------------------- ---------------------------
* Note Addition to Contract
in Section 5.2.2.
Carbide/Graphite Group, Inc. 6/5/96 Page 8 of 8
MCP2
<PAGE>
Division of Responsibilities - Construction Management
- --------------------------------------------------------------------------------
LEGEND
- ------
Own - C/G; Engr./Proc. - B&R; CM - B&R; CC - Construction Contractors
R - Responsible I - Input A - Approval
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Required
--------- Eng/
WORK ACTIVITIES Yes No Own Proc CM CC
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A. CONSTRUCTION BID PACKAGES
Identify Packages to be Contracted X A I R
- -------------------------------------------------------------------------------------
Prepare List of Potential Contractors X I I R
- -------------------------------------------------------------------------------------
Pre-qualify Potential Contractors X R
- -------------------------------------------------------------------------------------
Approve List of Qualified Contractors X A I R
- -------------------------------------------------------------------------------------
Package Schedule X R I
- -------------------------------------------------------------------------------------
Instructions to Bidders X A R I
- -------------------------------------------------------------------------------------
Bid Form X A R
- -------------------------------------------------------------------------------------
Contracts Form X A R
- -------------------------------------------------------------------------------------
Scope of Work X R I
- -------------------------------------------------------------------------------------
General Conditions X I R I
- -------------------------------------------------------------------------------------
Special Conditions X I R I
- -------------------------------------------------------------------------------------
Clarifications X I R I
- -------------------------------------------------------------------------------------
Addenda X I R I
- -------------------------------------------------------------------------------------
Pre-bid Meeting X I I R
- -------------------------------------------------------------------------------------
Conduct Site Visits X I I R I
- -------------------------------------------------------------------------------------
Technical Evaluation X I R I
- -------------------------------------------------------------------------------------
Commercial Evaluation X A I R
- -------------------------------------------------------------------------------------
Bonding X R
- -------------------------------------------------------------------------------------
Insurance Certificates (Current) X A R R
- -------------------------------------------------------------------------------------
Recommendation for Award X A I R
- -------------------------------------------------------------------------------------
Pre-award Meeting X I I R
- -------------------------------------------------------------------------------------
Approval to Issue Contract X R I
- -------------------------------------------------------------------------------------
Contract Award X R I
- -------------------------------------------------------------------------------------
Contractor Kickoff Meeting X I I R I
- -------------------------------------------------------------------------------------
Issued Revised Drawings X R I
- -------------------------------------------------------------------------------------
Receive Vendor Drawings and Cut Sheets X I R
- -------------------------------------------------------------------------------------
Review/Approve Vendor Drawings and Cut Sheets X I R
- -------------------------------------------------------------------------------------
Expedite Vendor Drawings X I R
- -------------------------------------------------------------------------------------
Monitor Contractor Work X I R
- -------------------------------------------------------------------------------------
Contractor Request for Extras X A I I R
- -------------------------------------------------------------------------------------
Issue Change Orders X A I R
- -------------------------------------------------------------------------------------
Contractor Request for Payment X A I I R
- -------------------------------------------------------------------------------------
Issue Progress Payment to Contractor X R I
- -------------------------------------------------------------------------------------
Evaluate Contractor Performances & Closeout Contracts X I I R
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
2801-002 [LOGO OF BROWN & ROOT] Page 1 of 2
<PAGE>
Division of Responsibilities - Construction Management
- --------------------------------------------------------------------------------
LEGEND
- ------
Own - C/G; Engr./Proc. - B&R; CM - B&R; CC - Construction Contractors
R - Responsible I - Input A - Approval
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Required
--------- Eng/
WORK ACTIVITIES Yes No Own Proc CM CC
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B. CONSTRUCTION SUPERVISION
Management/Supervision X R
- -------------------------------------------------------------------------------------
Administration X R
- -------------------------------------------------------------------------------------
Safety Program X I I R
- -------------------------------------------------------------------------------------
Security X I I R
- -------------------------------------------------------------------------------------
Temporary Facilities X R R R
- -------------------------------------------------------------------------------------
Utilities X R R R
- -------------------------------------------------------------------------------------
Construction Management Manual X
- -------------------------------------------------------------------------------------
QA/QC Monitoring X I I R R
- -------------------------------------------------------------------------------------
NDE X I R
- -------------------------------------------------------------------------------------
QA/QC Reporting X R R
- -------------------------------------------------------------------------------------
Field Accounting X I I R
- -------------------------------------------------------------------------------------
Cost Reporting X R R
- -------------------------------------------------------------------------------------
Purchasing - Process Equipment X R I
- -------------------------------------------------------------------------------------
Expediting X R I
- -------------------------------------------------------------------------------------
Traffic X R
- -------------------------------------------------------------------------------------
Receiving X R R
- -------------------------------------------------------------------------------------
Purchasing - Field Bulks X A I I R
- -------------------------------------------------------------------------------------
Warehousing X I R
- -------------------------------------------------------------------------------------
Preventative Maintenance in Storage X I R R
- -------------------------------------------------------------------------------------
Project Schedule X A I R
- -------------------------------------------------------------------------------------
Weekly Work Schedules X I I R R
- -------------------------------------------------------------------------------------
Document Distribution X I R
- -------------------------------------------------------------------------------------
As-builts X I R R
- -------------------------------------------------------------------------------------
Inspections X I I R R
- -------------------------------------------------------------------------------------
Preventative Maintenance in Installation X R
- -------------------------------------------------------------------------------------
Identify Process and Utility Systems X I I R I
- -------------------------------------------------------------------------------------
Initial Start-up Requirements by System X R I I I
- -------------------------------------------------------------------------------------
Component Identification X I I R I
- -------------------------------------------------------------------------------------
Progress Components X I R
- -------------------------------------------------------------------------------------
Punchlist Preparation X I I I R
- -------------------------------------------------------------------------------------
Flush and Run System X I I I R
- -------------------------------------------------------------------------------------
Notice of Completion X R R
- -------------------------------------------------------------------------------------
Care, Custody, and Control X R I
- -------------------------------------------------------------------------------------
Start-up/Commissioning X R I
- -------------------------------------------------------------------------------------
Operations and Maintenance Manuals X R I
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
2801-002 [LOGO OF BROWN & ROOT] Page 2 of 2
<PAGE>
THE C/G GROUP, INC.
EPC SCHEDULE PLANT 3 MODERNIZATION PROJECT, ST. MARYS, PA.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
----------- 1996 ------------ ------------------- 1997 ------------------- ------ 1998 -------
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR 1996-1998 MONTHS Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRACT AWARD MONTH 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ENGINEERING
- ------------------------------------------------------------------------------------------------------------------------------------
DESIGN CRITERIA LEGEND
- -------------------------------------------------------------------------------------------------------
BFD/PFD/P&ID's a SPECIFICATION START DATE
- -------------------------------------------------------------------------------------------------------
EQUIPMENT LIST b BID INQUIRY START DATE
- -------------------------------------------------------------------------------------------------------
EQUIPMENT ARRANGEMENTS c P.O. AWARD
- -------------------------------------------------------------------------------------------------------
PLOT PLAN d DELIVERY DATE
- -------------------------------------------------------------------------------------------------------
SPECIFICATIONS e EQUIPMENT INSTALLED/
- ------------------------------------------------------------------------------------------------------- TASK COMPLETE
DETAIL ENGINEERING
- ------------------------------------------------------------------------------------------------------------------------------------
JENIKE/JOHANSON REPORT acd
- ------------------------------------------------------------------------------------------------------------------------------------
GEOTECHNICAL REPORT ab cd
- ------------------------------------------------------------------------------------------------------------------------------------
SURVEY ab cd
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PROCUREMENT
- ------------------------------------------------------------------------------------------------------------------------------------
MIXER SYSTEM c d
- ------------------------------------------------------------------------------------------------------------------------------------
AUTO-BATCH WEIGHING SYSTEM c d
- ------------------------------------------------------------------------------------------------------------------------------------
FLOUR MILL a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
ENGINEERED BUILDING STEEL a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
SERVICE BINS/BINS a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
STEARIC ACID PUMPS a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
COAL TAR PITCH PUMPS a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
ROTARY FEEDERS a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
SCREENERS a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
BELT CONVEYORS a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
SCREW CONVEYORS a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
BUCKET ELEVATORS a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
CAGE PAKTOR a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
ROLL CRUSHER a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
PLC's a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
(less than) 4 MONTHS DELIVERY ITEMS a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
25" PRESS
- ------------------------------------------------------------------------------------------------------------------------------------
MATERIALS HANDLING EQUIPMENT a b c d
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
THE C/G GROUP, INC.
EPC SCHEDULE PLANT 3 MODERNIZATION PROJECT, ST. MARYS, PA.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
----------- 1996 ------------ ------------------- 1997 ------------------- ----- 1998 -------
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR 1996-1998 MONTHS Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRACT AWARD MONTH 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSTRUCTION
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & S/C
MOBILIZATION
- ------------------------------------------------------------------------------------------------------------------------------------
S/C# (1) SITE CLEARING
- ------------------------------------------------------------------------------------------------------------------------------------
(1) EXCAVATION/BLASTING
- ------------------------------------------------------------------------------------------------------------------------------------
(1) CONCRETE FOUNDATIONS
& BLDGS a b c e
- ------------------------------------------------------------------------------------------------------------------------------------
(1) U/G UTILITIES
WATER/AIR/SEWER
- ------------------------------------------------------------------------------------------------------------------------------------
** (2) STRUCTURAL ERECTION a b c d e
- ------------------------------------------------------------------------------------------------------------------------------------
(2) ARCHITECTURAL a b c d e
- ------------------------------------------------------------------------------------------------------------------------------------
** (2) EQUIPMENT/PIPING
ERECTION a b c e
- ------------------------------------------------------------------------------------------------------------------------------------
(3) ELECTRICAL/
INSTRUMENTATION a b c U/G DUCT e E/I e
- ------------------------------------------------------------------------------------------------------------------------------------
(4) FIRE PROTECTION a b c e
- ------------------------------------------------------------------------------------------------------------------------------------
(5) ELEVATOR a b c d e
- ------------------------------------------------------------------------------------------------------------------------------------
(6) ELECTRICAL SUBSTATION a b c d e
- ------------------------------------------------------------------------------------------------------------------------------------
(7) IMPEDANCE HEATING a b c e
- ------------------------------------------------------------------------------------------------------------------------------------
START-UP
- ------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE TEST
- ------------------------------------------------------------------------------------------------------------------------------------
25" PRESS
- ------------------------------------------------------------------------------------------------------------------------------------
** (2) SCREENING SYSTEM
MODIFICATIONS a b c d e
- ------------------------------------------------------------------------------------------------------------------------------------
START-UP
- ------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE TEST
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
** STRUCTURAL/MECHANICAL/PIPING/INSULATION/PAINTING (SUBCONTRACT)
S/C SUBCONTRACTS
Page 2
<PAGE>
[LOGO OF CARBIDE/GRAPHITE]
The Carbide/Graphite Group, Inc. [LOGO OF BROWN & ROOT] Brown & Root, Inc.
Plant 3 Modernization Project Minerals & Metals Group
St. Marys, Pennsylvania
Engineering, Procurement, and Construction Management Organization
Senior Construction C/G
Manager Project Manager Project Manager
------------------- ------------------- ---------------
D. Griswold D.N. Assar A. Martin
Construction Manager Procurement
-------------------- ---------------
To Be Named T.O. Moore
Scheduling
---------------
Technical Services To Be Named
Manager Administrative Clerk
-------------------- ----------------------
To Be Named To Be Named
Process Mechanical Electrical Instrument Civil/Structural
Engineer Engineer Engineer Engineer Engineer
- ------------- --------------- ------------- ------------ ----------------
D.A. Parikh L.M. O'Quinn M. Crawford S. Holcomb M. Gonzalez
Environmental Mechanical/Piping
Engineer Designer/Plant Layout
- ------------- ---------------------
R. D'Olier To Be Named
2801-003 (Revised 06/05/96) Page 1 of 1
<PAGE>
EXHIBIT 11.5
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
For the Fiscal Year and Each of the Quarters
in the Fiscal Year ended July 31, 1997
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Fiscal 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Earnings Information:
- ---------------------
Income from continuing operations............. $3,523 $4,621 $4,748 $5,536 $18,428
Extraordinary loss on early
extinguishment of debt, net................ - - - (126) (126)
----------- ----------- ----------- ----------- -----------
Net income applicable to Common Stock......... $3,523 $4,621 $4,748 $5,410 $18,302
=========== =========== =========== =========== ===========
Common and Common Equivalent Shares:
- ------------------------------------
Weighted average shares outstanding........ 8,335,522 8,493,855 8,606,439 8,632,272 8,517,022
Common shares issuable upon exercise
of outstanding stock options:
Primary................................. 441,659 303,616 218,485 208,603 305,684
Fully diluted........................... 441,696 317,640 223,536 235,556 348,718
----------- ----------- ----------- ----------- -----------
Common and common equivalent
shares outstanding for the period:
Primary................................. 8,777,181 8,797,471 8,824,924 8,840,875 8,822,706
Fully diluted........................... 8,777,218 8,811,495 8,829,975 8,867,828 8,865,740
=========== =========== =========== =========== ===========
Earnings per Share Information:
- -------------------------------
Income from continuing operations:
Primary................................. $0.40 $0.53 $0.54 $0.63 $2.09
Fully diluted........................... $0.40 $0.52 $0.54 $0.62 $2.08
Net income applicable to Common Stock:
Primary................................. $0.40 $0.53 $0.54 $0.61 $2.07
Fully diluted........................... $0.40 $0.52 $0.54 $0.61 $2.06
</TABLE>
<PAGE>
EXHIBIT 13.1
Management's Discussion & Analysis
The Carbide/Graphite Group, Inc.
- -------------------------------------------------------------------------------
Overview of Results
-------------------
Income from continuing operations for the fiscal year ended July 31, 1997 was
$18.4 million, or $2.09 per share, versus $14.3 million, or $1.67 per share, for
the fiscal year ended July 31, 1996 and $12.3 million, or $1.59 per share, for
the fiscal year ended July 31, 1995. Weighted average common and common share
equivalents outstanding were 8,822,706, 8,577,451 and 7,747,756 for the fiscal
years ended July 31, 1997, 1996 and 1995, respectively. In September 1995, the
Company completed an initial public offering of its $0.01 par value common stock
(Common Stock) in an underwritten secondary offering (the Initial Offering). In
connection with the Initial Offering, the underwriters exercised an option to
purchase 806,363 shares of Common Stock to cover over-allotments, resulting in
the increase in weighted average common and common equivalent shares outstanding
during fiscal 1997 and 1996.
Extraordinary losses resulting from the early retirement of the Company's
11.5% Senior Notes due 2003 (the Senior Notes) during the fiscal years ended
July 31, 1997 and 1996 reduced the Company's net income in those years to $18.3
million, or $2.07 per share, and $12.1 million, or $1.42 per share,
respectively. Also, during the fiscal year ended July 31, 1995, the Company sold
substantially all of its graphite specialty products line of business (Specialty
Products) to SGL Carbon Corporation (SGL Corp.) for $62 million, less certain
Specialty Products working capital items retained by the Company (the Specialty
Products Sale). The $15.7 million net gain from the Specialty Products Sale and
the net operating results of Specialty Products, classified as a discontinued
operation in the Company's consolidated statement of operations, increased the
Company's net income to $28.7 million, or $3.71 per share, for the fiscal year
ended July 31, 1995.
The Company's businesses include graphite electrode products, which
includes graphite electrodes, needle coke and other graphite specialty products,
and calcium carbide products, which includes pipeline acetylene, metallurgical
applications and calcium carbide for fuel gas applications. The following table
sets forth certain financial information for the periods discussed below and
should be read in conjunction with the consolidated financial statements,
including the notes thereto, appearing elsewhere in this report:
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
(dollar amounts in thousands)
<S> <C> <C> <C>
Net sales:
Graphite electrode products $210,045 $179,925 $160,610
Calcium carbide products 79,541 79,469 80,846
- ------------------------------------------------------------------------------------------------------
Total net sales $289,586 $259,394 $241,456
- ------------------------------------------------------------------------------------------------------
Percentage of net sales:
Graphite electrode products 72.5% 69.4% 66.5%
Calcium carbide products 27.5 30.6 33.5
- ------------------------------------------------------------------------------------------------------
Total net sales 100.0% 100.0% 100.0%
- ------------------------------------------------------------------------------------------------------
Gross profit as a percentage of segment net sales:
Graphite electrode products 19.9% 16.2% 16.9%
Calcium carbide products 15.6 19.9 20.0
Percentage of total net sales:
Total gross profit 18.7% 17.3% 17.9%
Selling, general and administrative 5.0 4.9 5.8
Operating income before other compensation 13.3 12.5 13.6
Operating income 12.8 11.8 12.6
Income from continuing operations 6.4 5.5 5.1
Net income 6.3 4.7 11.9
- ------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
Fiscal 1997 versus Fiscal 1996
------------------------------
Net sales for fiscal 1997 were $289.6 million versus $259.4 million in fiscal
1996, an 11.6% increase. Graphite electrode product sales increased 16.7% over
the prior year to $210.0 million, while calcium carbide product sales were
unchanged at $79.5 million.
Within the graphite electrode products segment, graphite electrode net
sales for fiscal 1997 were $147.2 million, a 9.9% increase over fiscal 1996 as a
result of a 4.8% increase in shipments and a 4.7% increase in the average net
sales price of graphite electrodes. Graphite electrode shipments in fiscal 1997
totaled 110.3 million pounds. Domestic and foreign electrode shipments as a
percentage of total electrode shipments for fiscal 1997 were 53.2% and 46.8%,
respectively, versus 49.6% and 50.4% in fiscal 1996. A domestic price increase
during fiscal 1997 resulted in the increase in the average net sales price of
graphite electrodes. The majority of foreign electrode sales are denominated in
local currencies, most of which were weaker in relation to the U.S. dollar. As a
result, net price realizations on foreign sales were lower for fiscal 1997
versus fiscal 1996, partially offsetting the benefits of the domestic price
increase. Needle coke sales for fiscal 1997 were $28.6 million versus $16.5
million in fiscal 1996. Needle coke sales were up substantially over fiscal 1996
due to increased production capacity at the Company's needle coke facility. The
Company estimates that as a result of capital expenditures during the first
quarter of fiscal 1997, its current effective annual capacity of this facility
is approximately 130,000 tons of needle coke, up approximately 20% over previous
levels. In addition, the average net price for needle coke was 14.6% higher
during fiscal 1997 as compared to fiscal 1996. Graphite specialty product sales
during fiscal 1997 totaled $34.2 million versus $29.5 million for fiscal 1996.
Included in graphite specialty product sales for fiscal 1997 and 1996 were $16.7
million and $15.6 million, respectively, of sales of large graphite rods and
plates and other processing sales to SGL Corp. at cost under a supply agreement
which expires in January 1998 (the SGL Supply Agreement). The SGL Supply
Agreement was entered into in connection with the Specialty Products Sale. The
increase in graphite specialty product sales during fiscal 1997 was the result
of increased sales under the SGL Supply Agreement, as well as increased
shipments of bulk and granular graphite.
Within the calcium carbide products segment, pipeline acetylene sales were
$27.6 million, a 1.8% decrease from fiscal 1996 on a 1.0% decrease in shipments
and 0.8% decrease in prices. Offsetting this decline was a 1.4% increase in
sales of calcium carbide for fuel gas applications which totaled $21.2 million.
Also, carbide lime sales were up 8.9% to $3.1 million. The increases noted were
primarily the result of increased shipments. Sales of calcium carbide for
metallurgical applications were essentially unchanged at $24.7 million for
fiscal 1997. All other calcium carbide product sales were also unchanged at $2.9
million.
Gross profit as a percentage of graphite electrode product sales for
fiscal 1997 was 19.9% versus 16.2% in fiscal 1996. The increase in the gross
margin resulted from increased shipments and net selling prices for both needle
coke and graphite electrodes, as well as increased needle coke production during
the current fiscal year. Partially offsetting these benefits were the negative
effects of increased feedstock costs at the Seadrift needle coke facility, which
were 11.6% higher during fiscal 1997.
Gross profit as a percentage of calcium carbide product sales for fiscal
1997 was 15.6% versus 19.9% for fiscal 1996. During fiscal 1996, the Company
received a $1.0 million favorable settlement from a utility rate dispute with
one of its electric power suppliers. The $1.0 million payment received was
reflected as a reduction in cost of goods sold for fiscal 1996. Excluding this
settlement, gross profit as a percentage of calcium carbide product sales for
fiscal 1996 was 18.6%. The decrease in the calcium carbide gross margin was due
primarily to lower sales of pipeline acetylene and higher raw material and labor
costs during fiscal 1997.
Selling, general and administrative expenditures for fiscal 1997 were
$14.4 million versus $12.8 million in fiscal 1996. The increase was primarily
the result of the settlement of a lawsuit in the fiscal 1997 first quarter,
costs associated with the search for a new chief executive officer for the
Company and an increase in employee-related costs in fiscal 1997.
<TABLE>
<CAPTION>
GRAPHITE ELECTRODE PRODUCT CALCIUM CARBIDE
NET SALES PRODUCT NET SALES
dollars in millions dollars in millions
<S> <C>
Fiscal 1995 $160.6 Fiscal 1995 $80.8
Fiscal 1996 $179.9 Fiscal 1996 $79.5
Fiscal 1997 $210.0 Fiscal 1997 $79.5
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
Other compensation for fiscal 1997 was $1.6 million and included $1.4
million in charges associated with an incentive bonus plan for executives and
certain key employees of the Company. The bonus payment was determined by the
Company's Board of Directors. Other compensation for fiscal 1997 also included
$0.2 million in charges associated with the Company's incentive or
non-qualified, compensatory stock option plans or agreements (the MSOP). Other
compensation for fiscal 1996 was $1.8 million and included $1.3 million for
benefits earned under a non-qualified incentive compensation plan for eligible
employees (PUP II). Other compensation for fiscal 1996 also included $0.5
million in payroll taxes and vesting charges associated with the MSOP.
Early retirement/severance charges for fiscal 1997 represent costs
associated with the retirement of two executives of the Company during fiscal
1997.
In October 1994, the Company formally entered into a long-term contract
with an engineering design and consulting firm to provide process design
expertise and training services related to the construction of a graphite
electrode plant in the People's Republic of China (the China Contract). Revenue
related to the contract was recognized as services were performed for the
process design expertise portion of the contract, and using a percentage of
contract completed approach for the training services stage of the contract.
Other income in fiscal 1996 represents revenues earned under the process design
expertise portion of the contract, less applicable expenses. Total revenues
under the contract were expected to be approximately $5.2 million, $4.1 million
of which has been recognized as of July 31, 1997. At this time, the project has
been delayed by the Chinese government, and management cannot determine whether
the balance of the revenue expected under the contract will be realized.
Net interest expense for fiscal 1997 was $7.9 million, including $9.4
million of interest expense and $0.3 million in amortization expense associated
with the Senior Notes, less $1.5 million of interest income and $0.5 million in
capitalized interest associated with a substantial modernization program in the
Company's graphite electrode production facilities which is expected to result
in approximately $34 million in facility improvements during fiscal 1997 and
fiscal 1998 (the Modernization Program). The average outstanding balance of
Senior Notes during fiscal 1997 was $81.6 million. Net interest expense for
fiscal 1996 was $9.1 million, including $10.5 million of interest expense and
$0.4 million in amortization expense associated with the Senior Notes, less
$1.8 million of interest income. The average outstanding balance of Senior Notes
during fiscal 1996 was approximately $91 million.
Special financing expenses in fiscal 1996 represent charges for
accounting, legal, printing and other fees related to the Company's public stock
offerings in fiscal 1996.
The Company's effective income tax rate for fiscal 1997 was 36.8% versus
30.9% for fiscal 1996. The Company's effective tax rate differs from the federal
statutory rate primarily due to state taxes, less the benefits of its foreign
sales corporation. Fiscal 1996's effective rate was unusually low due to
adjustments to prior year estimates of the benefit from the Company's foreign
sales corporation.
Fiscal 1996 versus Fiscal 1995
------------------------------
Net sales for fiscal 1996 were $259.4 million, versus $241.5 million in fiscal
1995, a 7.4% increase. Graphite electrode product sales increased 12.0% over the
prior year to $179.9 million for fiscal 1996, while calcium carbide product
sales decreased 1.7% to $79.5 million for fiscal 1996.
Within the graphite electrode products segment, graphite electrode net
sales for fiscal 1996 were $134.0 million versus $119.4 million in fiscal 1995,
a 12.2% increase. Graphite electrode sales were higher due to a 7.6% increase in
the average net sales price of graphite electrodes which resulted
<TABLE>
<CAPTION>
GRAPHITE OUTSIDE EQUIVALENT
ELECTRODE NEEDLE COKE CALCIUM CARBIDE
SHIPMENTS SHIPMENTS SHIPMENTS
pounds in millions short tons in thousands short tons in thousands
<S> <C> <C>
Fiscal 1995 100.8 Fiscal 1995 48.0 Fiscal 1995 164.5
Fiscal 1996 105.3 Fiscal 1996 39.3 Fiscal 1996 160.2
Fiscal 1997 110.3 Fiscal 1997 59.5 Fiscal 1997 159.3
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
from price increases that took effect during the second half of fiscal 1996.
Also, graphite electrode shipments for fiscal 1996 increased to 105.3 million
pounds, a 4.5% increase over fiscal 1995. Domestic and foreign electrode
shipments as a percentage of total electrode shipments for fiscal 1996 were
49.6% and 50.4%, respectively. Needle coke sales for fiscal 1996 were $16.5
million versus $18.6 million in fiscal 1995, an 11.3% decrease. The decline in
needle coke sales was the result of the Company using more needle coke
internally for electrode production. The effect of lower shipments was partially
offset by an 8.3% increase in needle coke prices, which resulted from price
increases implemented in January 1996. Other graphite specialty sales increased
30.2% in fiscal 1996 to $29.5 million, principally due to increased sales of
bulk graphite to SGL Corp. under the SGL Supply Agreement. Sales to SGL Corp.
were $15.6 million in fiscal 1996 versus $9.9 million in fiscal 1995.
Within the calcium carbide products segment, pipeline acetylene sales
were $28.1 million, an increase of 3.2% compared to fiscal 1995, on a 3.1%
increase in shipments. Metallurgical application sales decreased 3.9% to $24.7
million due to a 2.6% decrease in shipments and a 1.7% decrease in the net sales
price, which were due to increased competition in this market. In addition,
sales of electrically calcined anthracite coal in fiscal 1996 decreased 20.8% to
$2.6 million due to a 24.1% decrease in shipments. Calcium carbide sales for
fuel gas applications of $20.9 million were essentially unchanged from fiscal
1995.
Gross profit as a percentage of graphite electrode product sales for
fiscal 1996 was 16.2%, versus 16.9% in fiscal 1995. Benefits derived from
increased graphite electrode shipments and higher selling prices for graphite
electrodes and needle coke were offset by sales under the SGL Supply Agreement,
lower needle coke shipments and higher operating costs in the graphite electrode
products business, principally decant oil costs. The SGL Supply Agreement, which
was entered into in connection with the Specialty Products Sale, requires the
Company to supply certain graphite products at prices which approximate the
Company's manufacturing costs, which negatively impacted the graphite electrode
product gross margin to a larger degree during fiscal 1996. Also, feedstock
costs for needle coke, on average, were approximately 11.4% higher during fiscal
1996. Gross profit as a percentage of calcium carbide product sales for fiscal
1996 was 19.9%, versus 20.0% in fiscal 1995. During fiscal 1996, the Company
received a $1.0 million favorable settlement from a utility rate dispute with
one of its electric power suppliers. The $1.0 million payment received has been
reflected as a reduction to cost of goods sold for fiscal 1996. Exclusive of
this settlement, gross profit as a percentage of calcium carbide product sales
for fiscal 1996 was 18.6%. Calcium carbide products' gross margin was lower in
fiscal 1996 due primarily to the decreases in shipments and prices of calcium
carbide for metallurgical applications and the lower shipments of electrically
calcined anthracite coal.
Selling, general and administrative costs for fiscal 1996 were $12.8
million, versus $13.9 million in fiscal 1995. The decrease was principally due
to lower employee, marketing and consulting expenditures, as well as a $0.3
million reduction in amortization expense associated with intangibles.
Other compensation for fiscal 1996 was $1.8 million and included $1.0
million in charges for the vesting of benefits earned under PUP II. Other
compensation for fiscal 1996 also includes a $0.3 million non-cash charge for
the revaluation of PUP II in connection with the Initial Offering. The
revaluation resulted from the increase in the fair market value of the Company's
Common Stock which was a result of the Initial Offering. Other compensation for
fiscal 1996 also includes $0.5 million in payroll taxes and vesting charges
associated with the MSOP. Other compensation in fiscal 1995 includes a $1.7
million non-cash charge representing a pro rata accrual for vested benefits
earned under PUP II and $0.6 million in charges for the repurchase of stock
options granted under the MSOP.
Other income for fiscal 1996 and fiscal 1995 represents revenues earned
under the process design expertise portion of the China Contract, less
applicable expenses.
Net interest expense for fiscal 1996 was $9.1 million, including $10.5
million of interest expense associated with the Senior Notes and $0.4 million of
debt issue cost amortization, less $1.8 million in interest income associated
with the Company's cash, cash equivalents and short-term investments.
<TABLE>
<CAPTION>
OPERATING EBITDA
INCOME (see page 19)
dollars in millions dollars in millions
<S> <C>
Fiscal 1995 30.4 Fiscal 1995 37.7
Fiscal 1996 30.7 Fiscal 1996 41.3
Fiscal 1997 37.1 Fiscal 1997 50.9
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
The average outstanding balance of Senior Notes during fiscal 1996 was
approximately $91 million. On a consolidated basis, interest expense for fiscal
1995 was $12.6 million and included $12.9 million of interest expense associated
with Senior Notes and $0.8 million of debt issue cost amortization, less $1.4
million in interest income. The average outstanding balance of Senior Notes
during fiscal 1995 was approximately $112 million. In fiscal 1995, $2.0 million
in net interest expense was allocated to discontinued operations. Interest
expense was allocated to discontinued operations based on the ratio of net
assets of the discontinued business to consolidated equity plus corporate
indebtedness.
Special financing expenses in fiscal 1996 and 1995 represent charges for
accounting, legal, printing and other fees related to the Company's public stock
offerings.
The Company's effective income tax rate for fiscal 1996 was 30.9%, versus
36.9% in fiscal 1995. The decrease in the 1996 effective rate was due primarily
to benefits derived from the Company's foreign sales corporation and adjustments
to prior year estimates.
Recently Issued Accounting Pronouncements
-----------------------------------------
On August 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) #121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" (SFAS #121). The adoption of SFAS #121
had no impact on the Company's consolidated financial statements.
On August 1, 1996, the Company adopted SFAS #123, "Accounting for
Stock-Based Compensation" (SFAS #123). SFAS #123 establishes compensation
measurement and recognition alternatives and disclosure requirements for stock-
based compensation plans. The Company elected to continue to use the
compensation measurement and recognition principles set forth in Accounting
Principles Board Opinion #25, "Accounting for Stock Issued to Employees," to
account for its stock-based compensation plans, an alternative available under
SFAS #123. See Note 11 to the Company's consolidated financial statements
appearing elsewhere in this report.
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS #128, "Earnings per Share" (SFAS #128). The Company will be required to
adopt SFAS #128 for its fiscal year ending July 31, 1998. SFAS #128 requires the
presentation of "basic" and "diluted" earnings per share, versus primary and
fully diluted earnings per share currently disclosed. Under SFAS #128, basic
earnings per share will be computed utilizing only the weighted average common
shares outstanding during the relevant period. As a result, basic earnings per
share will be materially higher than primary earnings per share for certain
periods restated in connection with the implementation of SFAS #128. Diluted
earnings per share will be computed utilizing both the weighted average shares
and common stock equivalents outstanding. Diluted earnings per share will not
differ materially from either primary or fully diluted earnings per share
amounts previously disclosed. On a pro forma basis, basic earnings per share
from continuing operations calculated in accordance with SFAS #128 were $2.16,
$1.90 and $2.00 for the fiscal years ended July 31, 1997, 1996 and 1995,
respectively.
In June 1997, the FASB issued SFAS #130, "Reporting Comprehensive Income"
(SFAS #130), and SFAS #131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS #131). The Company is required to adopt both
accounting standards for its fiscal year ending July 31, 1999. The Company has
not yet evaluated the effects of these new reporting standards.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity needs are primarily for debt service, capital
expenditures and working capital. The Company has undertaken the Modernization
Program and several other major capital projects expected to result in
expenditures of approximately $65 million in fiscal 1998 and $30 million in
fiscal 1999. The Company believes that its liquid assets, capital resources and
cash flows from operations will be sufficient to fund all of its liquidity
needs, including the Modernization Program and the other major capital projects,
at least through the expiration of its new revolving credit facility with PNC
Bank, which expires on September 25, 2002 (See below).
On September 26, 1997, the Company completed a tender offer for $79.9
million of its Senior Notes (the Tender). The tender price paid to holders of
the Senior Notes was $1,086.20 for each $1,000 in Senior Note principal. Also,
most holders received an additional $15.00 per $1,000 in Senior Note principal
in exchange for their consent to eliminate substantially all of the restrictive
covenants and certain default provisions in the indenture under which the Senior
Notes were issued (the Senior Note Indenture) other than the covenants to pay
interest on and principal of the Senior Notes and the default provisions related
to such covenants. Consents were received by holders of more than a majority of
the outstanding Senior Notes, resulting in the elimination of such restrictive
covenants and default provisions. After the Tender, $0.1 million in Senior Notes
were outstanding.
15
<PAGE>
- --------------------------------------------------------------------------------
In connection with the Tender, the Company entered into an agreement with
PNC Bank for a five-year, $125 million revolving credit facility with a $15
million sub-limit for standby letters of credit (the 1997 Revolving Credit
Facility). This new revolving credit facility replaces the 1995 Revolving Credit
Facility (described below). Interest under this new facility is based on, at the
option of the Company, either PNC Bank's prime rate or a floating LIBOR rate
plus a spread (currently 0.625%) based on a leverage calculation. Repayment of
funds borrowed under the new credit agreement are not required until the
expiration of the facility on September 25, 2002. The new facility can be
extended under certain conditions. The restrictive covenants under the new
credit agreement are substantially similar to those in the 1995 Revolving Credit
Facility, although more restrictive in certain circumstances. Also, the Company
has pledged all receivables and inventory as collateral under the new credit
agreement.
As a result of the Tender and revolving credit facility refinancing, the
Company will record a pre-tax charge of approximately $10 million as an
extraordinary loss on the early extinguishment of debt in the quarter ended
October 31, 1997. The extraordinary charge is for the premiums paid to Senior
Note holders in connection with the Tender and the write-off of unamortized
deferred financing fees associated with the Senior Notes tendered and the 1995
Revolving Credit Facility.
In the event that the Company's cash flows from operations and working
capital are not sufficient to fund the Company's capital expenditures (including
cash needs for the Modernization Program and its other major capital projects),
service its indebtedness and pay any other obligation including those that may
arise from legal proceedings, the Company would be required to obtain additional
funding. There can be no assurance that sources of funds would be available in
amounts sufficient for the Company to meet its obligations or on terms favorable
to the Company.
On December 1, 1995, the Company entered into an agreement with PNC Bank
for the 1995 Revolving Credit Facility. The 1995 Revolving Credit Facility
provided a $25 million line of credit, with a $10 million sub-limit for letters
of credit. Borrowings under the 1995 Revolving Credit Facility were
collateralized by the Company's accounts receivable and inventory. Interest
under the 1995 Revolving Credit Facility was calculated, at the option of the
Company, based upon either the greater of PNC Bank's prime rate, or an adjusted
Eurodollar Rate, which was adjusted based upon the Company's interest coverage
ratio. The most restrictive financial covenants under the 1995 Revolving Credit
Facility included a minimum Consolidated Tangible Net Worth, as defined in the
agreement, a minimum Interest Coverage Ratio (earnings before interest, taxes,
depreciation and amortization to interest expense) of 2.25 to 1 and a minimum
liquidity (working capital less borrowings under the facility) of $30.0 million.
Cash, cash equivalents and short-term investments were $23.8 million as of
July 31, 1997 versus $26.7 million as of July 31, 1996. Also, the Company had
approximately $18 million of availability under the 1995 Revolving Credit
Facility as of July 31, 1997. No borrowings were outstanding under the 1995
Revolving Credit Facility; however, approximately $7 million of letters of
credit were outstanding.
During fiscal 1997, total assets increased $23.0 million. The majority of
the increase was the result of $33.8 million in capital expenditures, less $10.9
million in depreciation. Total liabilities increased $1.6 million during fiscal
1997. An increase in trade accounts payable was partially offset by a reduction
in deferred tax and pension liabilities. Stockholders' equity increased $21.4
million during fiscal 1997 as a result of $18.3 million of net income and a $3.0
million increase, $0.4 million of which was a cash increase, resulting from
option exercises during fiscal 1997. $1.9 million of the increase in
stockholders' equity during fiscal 1997 resulted from tax benefits derived from
the exercise of stock options during the period.
Net cash provided by operations for fiscal 1997 was $32.2 million versus
$17.5 million for fiscal 1996. Operating cash inflows for fiscal 1997 included
$28.4 million in net income before adjustments to reconcile net income to cash
provided by operations, plus $3.8 million in net cash inflows from changes in
working capital items. Interest and income taxes paid in fiscal 1997 were $8.9
million and $5.9 million, respectively.
<TABLE>
<CAPTION>
TOTAL DEBT TO
ASSETS EQUITY
dollars in millions RATIO
<S> <C>
Fiscal 1995 214.4 Fiscal 1995 2.6
Fiscal 1996 212.9 Fiscal 1996 1.1
Fiscal 1997 235.9 Fiscal 1997 0.8
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
The Company's investing activities have historically included capital
expenditures ranging from $10.5 million in fiscal 1995 to $33.8 million in
fiscal 1997, including capital expenditures for Specialty Products in fiscal
1995. The substantial increase in capital expenditures in fiscal 1997 is due
primarily to the Modernization Program and other significant capital projects
initiated in fiscal 1997. The Company believes that most of its future investing
activity cash flow requirements will be for capital expenditures, including the
Modernization Program. The Modernization Program is being funded with a
substantial portion of the net proceeds from the Specialty Products Sale, such
proceeds being included in investing activities in the consolidated statement of
cash flows for fiscal 1995. The Company believes that cash flow provided by
operations, together with borrowings under available credit facilities, will be
adequate to fund the balance of its current investing needs.
The Company's financing activities have principally represented short-term
draw downs and repayments on its revolving credit facilities, as well as
periodic repurchases of Senior Notes in open market transactions and cash
inflows from exercises of stock options. Also, during fiscal 1996 financing
activities included the effects of the Initial Offering, and a redemption of
$9.0 million in Senior Notes.
The Company regularly enters into forward foreign currency contracts to
help mitigate foreign currency exchange rate exposure on customer accounts
receivable and firm sales commitments denominated in foreign currencies. These
contracts generally mature within 12 months and are principally unsecured
exchange contracts with commercial banks. Gains and losses related to forward
foreign currency contracts are deferred and recognized in income at the same
time as the sale of the product. Gains and losses deferred as of July 31, 1997
and 1996 were not material. The cash flows from these contracts are classified
in a manner consistent with the underlying nature of the transactions. See Note
4 to the consolidated financial statements for a detailed description of the
Company's foreign currency exposure, including customer accounts receivable
denominated in foreign currencies and forward foreign currency contracts
outstanding.
<TABLE>
<CAPTION>
CASH FLOW
FROM CAPITAL
OPERATIONS EXPENDITURES
dollars in millions dollars in millions
<S> <C>
Fiscal 1995 7.5 Fiscal 1995 10.5
Fiscal 1996 17.5 Fiscal 1996 15.7
Fiscal 1997 32.2 Fiscal 1997 33.8
</TABLE>
The Company also periodically enters into crude oil and heating oil
futures contracts and swap agreements. Such contracts and agreements are
accounted for as hedges of the Company's decant oil purchases, the primary raw
material of its needle coke facility. Gains and losses and the associated
activity related to these contracts and agreements are not material.
Environmental and Legal Matters
-------------------------------
The Company has investigated the regulatory requirements related to closing a
pond located on its Louisville, Kentucky facility which was used to store
non-hazardous production waste. In November 1993, the Company contacted the
Kentucky Department of Environmental Protection (the Agency) and informed the
Agency that, based on the Company's investigations of the historical facts
related to the pond, the Company does not believe that any further remedial
actions are required. At this point, the Company believes that the matter is
closed with no further action required.
The Company operated a permitted landfill for the disposal of residual
wastes at its St. Marys facility. In July 1997, the Company closed the landfill
and contracted outside of the Company for disposal services. The Company's
closure plan was approved by the Pennsylvania Department of Environmental
Resources during fiscal 1995. Costs related to the landfill closure and a
15-year monitoring commitment are expected to be approximately $0.8 million
which have been recorded as of July 31, 1997. The timing of payments related to
these activities, including payments for disposal services, is not expected to
materially impact the Company's cash flow in the future.
During fiscal 1995, the Company was named as a third-party defendant in a
Superfund action in United States District Court in New Jersey relating to waste
disposal at a landfill located in Sayreville, New Jersey (the Sayreville
Litigation). Carbon/Graphite Group, Inc. was named as successor to Airco-Speer
Company (Airco-Speer). Since this landfill was closed prior to the organization
of the Company in 1988, the Company's only possible connection with the
Sayreville Litigation would be if it were a successor to Airco-Speer, a claim
which it disputes. Furthermore, in the purchase agreement by which the Company
acquired its operating assets (the Asset Purchase Agreement) from The BOC Group
plc (BOC), BOC agreed to provide an
17
<PAGE>
- --------------------------------------------------------------------------------
indemnification for certain environmental matters. BOC has assumed and commenced
the defense of the Sayreville Litigation and has agreed to indemnify the Company
for certain losses associated therewith in accordance with the terms of the
Asset Purchase Agreement. BOC in turn is being indemnified by certain plaintiffs
in the litigation pursuant to a 1992 agreement. In addition, BOC asserts that
the liability in this matter was settled by the 1992 agreement with the
plaintiffs in the present case. As a result of a motion for summary judgement,
the Court has substantially reduced the scope of claims which may be asserted
against the Company. Based on the above, management does not believe that the
Company will incur a material loss with respect to the Sayreville Litigation.
In May 1997, the Company was served with a subpoena issued by a Grand Jury
empaneled by the United States District Court for the Eastern District of
Pennsylvania. The Company was advised by attorneys for the Antitrust Division of
the United States Department of Justice (the DOJ) that the Grand Jury is
investigating price fixing by producers of graphite products in the United
States and abroad during the past five years. The Company is cooperating with
the DOJ in the investigation. The DOJ has granted the Company and certain former
and present senior executives the opportunity to participate in its Corporate
Leniency Program, and the Company has entered into an agreement with the DOJ
under which the Company and such executives who cooperate will not be subject to
criminal prosecution with respect to the investigation if charges are issued by
the Grand Jury. Under the agreement, the Company has agreed to use its best
efforts to provide for restitution to its domestic customers for actual damages
if any conduct of the Company which violated the Federal Antitrust Laws in the
manufacture and sale of such graphite products caused damage to such customers.
As far as the Company is aware, the DOJ has not made a finding that any person
or company violated the law with respect to the subject matter of the Grand Jury
proceeding. The proceeding is in its preliminary stages. At this time,
management cannot determine whether a material loss will be incurred as a result
of the proceeding. No provision for any liability related to such matters has
been made in the consolidated financial statements.
Four civil cases have been filed in the United States District Court for
the Eastern District of Pennsylvania in Philadelphia asserting claims on behalf
of purchasers for violations of the Sherman Act. Those cases have been
consolidated. The consolidated case names the Company, UCAR International, Inc.,
SGL Carbon Corporation and SGL Carbon AG as defendants and seeks treble damages.
The Company intends to vigorously defend against this consolidated action. The
case is in its preliminary stages. At this time, management cannot determine
whether a material loss will be incurred as a result of the case. No provision
for liability related to such matters has been made in the consolidated
financial statements.
The Company is also party to various legal proceedings considered
incidental to the conduct of its business or otherwise not material in the
judgement of management. Management does not believe that its loss exposure
related to these cases is materially greater than amounts provided in the
consolidated balance sheet as of July 31, 1997. As of July 31, 1997, a $0.4
million reserve has been recorded to provide for estimated exposure on claims
for which a loss is deemed probable.
Forward-Looking Statements
--------------------------
With the exception of the historical information contained in this report, the
matters described herein are forward-looking statements concerning the future
operations of the Company. Such statements are typically identified by the words
"believe," "expect," "anticipate," "estimate" and other similar expressions.
These statements involve risk and uncertainties which could be affected by
factors such as changing worldwide economies and competitive conditions,
availability of raw materials and demand for products, the resolution of
outstanding legal proceedings and technological risks and other risks associated
with the completion, start-up and on-going operation of major capital projects.
Such statements are made pursuant to safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and are based on the information
available to the Company at the time the statement is made. Changes in the above
identified risks could have a material impact on such forward-looking
statements.
18
<PAGE>
- --------------------------------------------------------------------------------
Selected Consolidated Financial and Operating Information
---------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts,
percentages and pricing information)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data(1):
Net sales $289,586 $259,394 $241,456 $207,536 $193,918
Cost of goods sold 235,401 214,396 198,160 172,323 167,475
Selling, general and administrative 14,440 12,837 13,932 15,959 15,678
Other compensation(2) 1,591 1,772 2,315 5,471 900
Early retirement/severance charges(3) 1,100 - - - 1,389
Other income(4) - (308) (3,358) - -
- -------------------------------------------------------------------------------------------------------------------------------
Operating income 37,054 30,697 30,407 13,783 8,476
Interest expense, net 7,894 9,073 10,518 9,604 3,374
Special financing expenses - 889 357 - -
Provision for income taxes 10,732 6,416 7,206 1,644 1,712
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 18,428 $ 14,319 $ 12,326 $ 2,535 $ 3,390
- -------------------------------------------------------------------------------------------------------------------------------
Per share income (loss) from continuing
operations applicable to common stock(5): $ 2.09 $ 1.67 $ 1.59 $ (0.17) $ 0.34
Balance Sheet Data (at period end)(6):
Working capital $100,825 $104,825 $106,449 $ 77,456 $ 70,028
Property, plant and equipment, net 87,653 65,177 58,370 64,350 63,803
Total assets 235,860 212,870 214,409 192,434 171,870
Long-term debt 80,035 81,763 110,000 115,000 67,750
Convertible redeemable preferred stock - - - - 5,000
Stockholders' equity 96,209 74,808 43,012 15,439 51,556
Other Operating Data:
Gross profit margin percentage 18.7% 17.3% 17.9% 17.0% 13.6%
Operating income margin percentage,
before other compensation 13.3 12.5 13.6 9.3 4.8
Operating income margin percentage 12.8 11.8 12.6 6.6 4.4
EBITDA(7) $ 50,945 $ 41,332 $ 37,686 $ 28,259 $ 19,393
Depreciation and amortization(7) 11,200 9,171 8,322 9,004 8,616
Capital expenditures(8) 33,765 15,670 10,526 8,950 7,738
Quantity of graphite electrodes sold
(in thousands of pounds) 110,293 105,279 100,775 96,659 100,101
Graphite electrode average
net price per pound $ 1.34 $ 1.28 $ 1.19 $ 1.09 $ 0.97
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes the historical operating results of Specialty Products, which have
been classified as income from operations of discontinued business, net of
the related income tax effects. See the consolidated financial statements,
including the notes thereto, appearing elsewhere in this report.
(2) Represents other compensation expense related to the MSOP, various
incentive bonus plans and a $5.1 million special bonus paid to certain
key employees in fiscal 1994.
(3) Represents costs associated with the retirement of two executives in
fiscal 1997 and costs associated with a Company-wide early retirement/
severance program in fiscal 1993.
(4) Represents income related to the China Contract. See "Management's
Discussion and Analysis."
(5) Loss per share from continuing operations applicable to common stock for
fiscal 1994 includes the after-tax effect of the $5.1 million special bonus
paid to certain key employees. Loss per share from continuing operations
applicable to common stock in fiscal 1994 was adjusted for the redemption
of convertible redeemable preferred stock and warrants in excess of
carrying value. Dividends on convertible redeemable preferred stock were
excluded from income applicable to common stock for fiscal 1993. Fully
diluted earnings per share were not presented, as the dilution was not
material.
(6) July 31, 1994 and 1993 amounts include working capital items, property,
plant and equipment and assets related to Specialty Products.
(7) EBITDA is defined as operating income before depreciation and
amortization, other compensation, early retirement/severance charges and
other income. EBITDA is not presented as a measure of operating results
under generally accepted accounting principles. However, management
believes that EBITDA is an appropriate measure of the Company's ability to
service its cash requirements. Depreciation and amortization included in
the computation of EBITDA includes amortization of certain intangibles and
does not include depreciation and amortization related to Specialty
Products.
(8) Prior to fiscal 1996, includes capital expenditures related to Specialty
Products.
19
<PAGE>
- --------------------------------------------------------------------------------
Quarterly Stock Information
---------------------------
<TABLE>
<CAPTION>
Year Ended July 31, 1997 High Low
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First $19 1/2 $15 1/4
Second 22 1/2 15 7/8
Third 25 19 3/4
Fourth 29 1/2 21 1/2
- ------------------------------------------------------------------------------------------------------------
Fiscal Year $29 1/2 $15 1/4
- ------------------------------------------------------------------------------------------------------------
Year Ended July 31, 1996 High Low
- ------------------------------------------------------------------------------------------------------------
First* $17 1/4 $12 3/4
Second 16 1/4 12 1/4
Third 19 1/2 13 1/2
Fourth 19 3/4 15 1/4
- ------------------------------------------------------------------------------------------------------------
Fiscal Year $19 3/4 $12 1/4
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* The Company's Common Stock began trading on the NASDAQ National Market System
on September 14, 1995.
No Common Stock dividends were declared during fiscal 1997 or fiscal 1996. The
Company estimates that as of September 26, 1997, there were 70 record holders
and approximately 2,500 beneficial holders of its Common Stock.
- -------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Directors of
The Carbide/Graphite Group, Inc.:
We have audited the accompanying consolidated balance sheets of The
Carbide/Graphite Group, Inc. and Subsidiaries (the Company) as of July 31, 1997
and 1996 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended July 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of July 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
July 31, 1997 in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Pittsburgh, PA 15219
September 10, 1997, except for Note 16
as to which the date is September 26, 1997
20
<PAGE>
Consolidated Statements of Operations
The Carbide/Graphite Group, Inc.
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share information)
<S> <C> <C> <C>
Net sales $289,586 $259,394 $241,456
Operating costs and expenses:
Cost of goods sold 235,401 214,396 198,160
Selling, general and administrative 14,440 12,837 13,932
Other compensation (Note 11) 1,591 1,772 2,315
Early retirement/severance charge (Note 14) 1,100 - -
Other income (Note 14) - (308) (3,358)
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income 37,054 30,697 30,407
Other costs and expenses:
Interest expense, net (Note 8) 7,894 9,073 10,518
Special financing expenses (Note 2) - 889 357
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes, discontinued operations
and extraordinary loss 29,160 20,735 19,532
Provision for taxes on income from continuing operations (Note 6) 10,732 6,416 7,206
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 18,428 14,319 12,326
Discontinued operations (Note 3):
Gain on Specialty Products Sale, net of $9,069 tax provision - - 15,723
Income from operations of discontinued business,
net of $387 tax provision - - 659
- ---------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss 18,428 14,319 28,708
Extraordinary loss on early extinguishment of debt, net of
tax benefit of $84 in 1997 and $1,451 in 1996 (Note 8) (126) (2,177) -
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 18,302 $ 12,142 $ 28,708
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings per share information (Note 1):
Income from continuing operations $ 2.09 $ 1.67 $ 1.59
Gain on Specialty Products Sale, net - - 2.03
Income from operations of discontinued business, net - - 0.09
Extraordinary loss on early extinguishment of debt, net (0.02) (0.25) -
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 2.07 $ 1.42 $ 3.71
- ---------------------------------------------------------------------------------------------------------------------------------
Common and common equivalent shares 8,822,706 8,577,451 7,747,756
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
Consolidated Balance Sheets
The Carbide/Graphite Group, Inc.
<TABLE>
<CAPTION>
July 31, 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share and per share information)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 1) $ 7,935 $ 16,586
Commercial paper (Note 4) 15,912 10,138
Accounts receivable - trade, net of allowance for doubtful
accounts: $2,029 in 1997 and $1,896 in 1996 (Note 4) 49,088 45,392
Inventories (Note 5) 59,445 54,779
Income taxes receivable (Note 6) - 4,228
Deferred income taxes (Note 6) 4,687 4,704
Other current assets 6,269 5,107
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 143,336 140,934
Property, plant and equipment, net (Note 7) 87,653 65,177
Other assets 4,871 6,759
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $235,860 $212,870
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade $ 21,036 $ 17,171
Income taxes payable (Note 6) 610 -
Accrued expenses:
Interest (Note 8) 3,835 3,920
Vacation 3,780 3,305
Workers' compensation 4,769 3,972
Other 8,481 7,741
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 42,511 36,109
Long-term debt (Notes 4 and 8) 80,035 81,763
Deferred income taxes (Note 6) 7,161 8,834
Retirement benefit plans and other (Note 10) 7,294 8,571
Deferred revenue (Note 1) 2,650 2,785
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 139,651 138,062
- ---------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 9)
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common Stock, $0.01 par value; 18,000,000 shares authorized;
shares issued: 9,752,272 in 1997 and 9,397,670 in 1996 (Note 2) 97 94
Additional paid-in capital, net of equity issue costs of $1,398 (Note 2) 34,163 30,153
Treasury stock, at cost: 1,120,000 shares (4,895) (4,895)
Retained earnings 66,683 48,381
Common Stock to be issued under options (Note 11) 161 1,151
Unfunded pension obligation (Note 10) - (76)
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 96,209 74,808
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $235,860 $212,870
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
Consolidated Statements of Cash Flows
The Carbide/Graphite Group, Inc.
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net income $ 18,302 $ 12,142 $ 28,708
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 10,882 8,853 8,213
Amortization of debt issuance costs 341 422 764
Amortization of intangible assets 318 318 642
Deferred revenue (135) (135) (135)
Provision for Common Stock to be issued under options 47 86 632
Adjustments to deferred taxes (1,656) 2,870 (3,154)
Provision for loss-accounts receivable 120 120 166
Gain on disposition of discontinued business - - (24,792)
Extraordinary loss on early extinguishment of debt 210 3,628 -
Increase (decrease) in cash from changes in:
Accounts receivable (3,816) (265) (148)
Inventories (4,666) (3,758) (6,689)
Income taxes 2,921 (4,890) 175
Other current assets 2,908 3,746 (1,107)
Accounts payable and accrued expenses 6,467 (3,729) 3,066
Net change in other non-current assets and liabilities (37) (1,937) 1,126
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 32,206 17,471 7,467
- ---------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Capital expenditures (33,765) (15,670) (10,526)
Proceeds from disposition of discontinued business - - 56,371
Payments for purchases of short-term investments (5,550) (10,000) -
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (39,315) (25,670) 45,845
- ---------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Payments on revolving credit facilities - - (13,800)
Proceeds from revolving credit facilities - - 13,800
Repurchase or redemption of Senior Notes,
including premiums of $168 in 1997 and $2,604 in 1996 (1,896) (30,841) (5,000)
Net change in cash overdraft - - (3,451)
Proceeds from exercise of stock options under benefit plans 354 1,864 158
Repurchase of stock options - - (1,323)
Purchase of treasury stock - - (1,020)
Issuance of Common Stock, net of equity issue costs of $990 - 11,106 -
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (1,542) (17,871) (10,636)
- ---------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash - - (20)
Net change in cash and cash equivalents (8,651) (26,070) 42,656
Cash and cash equivalents, beginning of period 16,586 42,656 -
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 7,935 $16,586 $42,656
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
Consolidated Statements of Stockholders' Equity
The Carbide/Graphite Group, Inc.
<TABLE>
<CAPTION>
Common
Stock to Foreign
Additional be Issued Currency Unfunded
Common Stock Paid-In Treasury Retained Under Translation Pension
Shares Amount Capital Stock Earnings Options Adjustments Obligation
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except
share information)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1994 7,200,000 $72 $ 7,220 $(3,875) $ 7,531 $ 5,194 $(197) $(506)
Net income 28,708
Stock option compensation 632
Elimination of
translation adjustment 197
Purchase of treasury stock (1,020)
Repurchase of stock options (1,323)
Exercise of stock options 49,375 160 (2)
Tax benefit on exercise
of stock options 180
Decrease in unfunded
pension obligation 41
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1995 7,249,375 72 7,560 (4,895) 36,239 4,501 - (465)
Net income 12,142
Stock option compensation 86
Issuance of Common Stock 806,363 8 11,098
Exercise of stock options 1,341,932 14 6,650 (3,436)
Tax benefit on exercise
of stock options 4,845
Decrease in unfunded
pension obligation 389
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1996 9,397,670 94 30,153 (4,895) 48,381 1,151 - (76)
Net income 18,302
Stock option compensation 47
Exercise of stock options 354,602 3 2,093 (1,037)
Tax benefit on exercise
of stock options 1,917
Decrease in unfunded
pension obligation 76
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1997 9,752,272 $97 $34,163 $(4,895) $66,683 $ 161 - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
Financial Notes
The Carbide/Graphite Group, Inc.
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
---------------------------------------------
Basis of Consolidation
The consolidated financial statements include the accounts of The
Carbide/Graphite Group, Inc. and its wholly owned subsidiaries. Intercompany
accounts and transactions have been eliminated.
The preparation of the consolidated financial statements in accordance with
generally accepted accounting principles requires management to make certain
estimates and assumptions. These may affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the
date of the financial statements. They may also affect the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates upon resolution of certain matters.
Organization
The Company was formed on August 1, 1988 through the leveraged buyout of certain
assets and liabilities of the carbide and graphite business units and a wholly
owned Canadian subsidiary, Speer Canada, Inc. (Speer Canada), of The BOC Group
plc (BOC), a British corporation, and named The Carbon/Graphite Group, Inc. The
name of the Company was subsequently changed to The Carbide/Graphite Group, Inc.
in May 1992.
Recently Issued
Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) #128, "Earnings per Share"
(SFAS #128). See "Earnings Per Share" below.
In June 1997, the FASB issued SFAS #130, "Reporting Comprehensive Income"
(SFAS #130) and SFAS #131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS #131). The Company is required to adopt both
accounting standards for its fiscal year ending July 31, 1999. The Company has
not yet evaluated the effects of these new reporting requirements.
Inventories
Substantially all inventories are stated at the lower of cost or market, with
cost determined under the last-in, first-out (LIFO) method. The supplies
inventories are valued at the lower of average cost or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost and depreciated on a straight-
line basis over the estimated useful service lives of the related assets.
Interest costs associated with the construction of major capital additions are
capitalized as part of the cost of the related assets. Gains or losses from the
sale or retirement of assets are included in income. Repairs and maintenance are
expensed as incurred.
Revenue Recognition
Net sales to customers are recognized when products are shipped.
Deferred Revenue
The Company has entered into a long-term supply contract to deliver carbide lime
to a customer for which it has received the contract amount in advance. The
Company is recognizing revenue associated with the agreement over the life of
the contract.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Environmental Expenditures
The Company expenses or capitalizes environmental expenditures that relate to
current operations, as adjusted for indemnity claims against BOC, as
appropriate. Expenditures which do not contribute to future revenues and that
relate to existing conditions caused by past operations are expensed.
Liabilities are recorded when remedial efforts are probable and the costs can be
reasonably estimated. See Note 9.
Earnings Per Share
Primary earnings per share were computed by dividing net income applicable to
Common Stock by the common and common equivalent shares outstanding during the
respective periods. The dilutive effect of common stock equivalents was
considered in the primary earnings per share computation utilizing the treasury
stock method. Fully diluted earnings per share were not presented since the
dilution was not material.
The Company will be required to adopt SFAS #128 for its fiscal year ending
July 31, 1998. SFAS #128 requires the presentation of "basic" and "diluted"
earnings per share versus primary and fully diluted earnings per share currently
25
<PAGE>
- --------------------------------------------------------------------------------
disclosed. Under SFAS #128, basic earnings per share will be computed utilizing
only the weighted average common shares outstanding during the relevant period.
Primary earnings per share currently disclosed is computed utilizing both the
weighted average common shares outstanding and common stock equivalents
outstanding during the period. As a result, basic earnings per share will be
materially higher than primary earnings per share for certain periods restated
in connection with the implementation of SFAS #128. Under SFAS #128, diluted
earnings per share will be computed utilizing both the weighted average shares
and common stock equivalents outstanding. Diluted earnings per share will not
differ materially from either primary or fully diluted earnings per share
amounts previously disclosed.
Intangibles and Deferred Charges
Deferred charges and intangibles are recorded at historical cost and amortized
on a straight-line basis over the estimated economic life of the agreement or
contract underlying the assets.
- --------------------------------------------------------------------------------
2. Public Offerings of Common Stock
-----------------------------------
On September 19, 1995, the Company completed the Initial Offering during which
5,375,750 shares were sold to the public by certain selling stockholders in a
secondary underwritten offering. The initial public offering price was $15.00
per share. The underwriters also exercised an option to purchase 806,363 primary
shares of Common Stock to cover over-allotments, which resulted in $11.1 million
in net proceeds to the Company. The majority of these proceeds were used to
complete a redemption of the Company's Senior Notes (see Note 8), with the
balance being used for general corporate purposes. In connection with the
Initial Offering, 455,000 Common Stock options were exercised, resulting in $0.6
million in cash proceeds to the Company.
On March 12, 1996, the Company completed a secondary offering, during which
1,032,236 shares of Common Stock were sold to the public by certain management
and former management stockholders in an underwritten offering. In connection
with this offering, 590,000 Common Stock options were exercised by certain
selling stockholders, resulting in $0.8 million in cash proceeds to the Company.
During the fiscal years ended July 31, 1996 and 1995, the Company recorded
$0.9 million and $0.4 million, respectively, of charges for accounting, legal,
printing and other fees related to its public stock offerings. These charges
have been reflected as "special financing expenses" in the consolidated
statements of operations for those years.
- --------------------------------------------------------------------------------
3. Sale of Graphite Specialty Products Business
-----------------------------------------------
On January 17, 1995, the Company and SGL Corp. consummated the Specialty
Products Sale.
The gain on the Specialty Products Sale and the operating results of the
business sold have been reclassified as a discontinued operation in the
consolidated statement of operations for the fiscal year ended July 31, 1995.
Net sales applicable to discontinued operations were $24.9 million for the year
ended July 31, 1995. Interest expense allocated to discontinued operations was
$2.0 million for the year ended July 31, 1995. The Company received $56.4
million in cash from SGL Corp. in connection with the Specialty Products Sale.
Also, the Company paid approximately $10.2 million in taxes and $0.9 million in
other costs and fees associated with the Specialty Products Sale, both of which
were classified as operating cash outflows in the consolidated statement of cash
flows for the fiscal year ended July 31, 1995.
- --------------------------------------------------------------------------------
4. Financial Instruments
------------------------
The Company's financial instruments as of July 31, 1997 and 1996 include its
Senior Notes, with a carrying value of $80.0 million and $81.8 million,
respectively, and an estimated fair value of $87.6 million and $87.5 million,
respectively, as determined by an investment banking and trading company. As of
July 31, 1997 and 1996, the Company held $15.8 million and $10.0 million,
respectively, of GE Capital Corporation commercial paper with a maturity value
of $16.2 million and $10.4 million, respectively. The commercial paper
outstanding as of July 31, 1997 has maturities ranging from August 1997 to
January 1998.
In addition, the Company purchases and currently holds certain derivative
financial instruments as hedging vehicles, as more fully described below.
26
<PAGE>
- --------------------------------------------------------------------------------
The Company regularly enters into forward foreign currency contracts to help
mitigate foreign currency exchange rate exposure on customer accounts receivable
and firm sales commitments denominated in foreign currencies. The Company's
accounts receivable as of July 31, 1997 and 1996 included the following foreign
currency balances (in thousands):
<TABLE>
<CAPTION>
July 31, 1997 1996
- -------------------------------------------
<S> <C> <C>
Japanese Yen $ 3,354 $ 5,915
British Sterling 3,371 4,401
French Francs 1,208 3,797
German Marks 3,134 1,548
Belgian Francs 334 1,220
Italian Lira 1,978 859
Other 923 1,949
- -------------------------------------------
Total Foreign
Accounts Receivable $14,302 $19,689
- -------------------------------------------
</TABLE>
As of July 31, 1997 and 1996, the Company held forward foreign currency
contracts in the following foreign denominations (in thousands):
<TABLE>
<CAPTION>
1997 1996
Contract Fair Contract Fair
July 31, Value Value Value Value
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen $ 8,592 $ (375) $13,191 $(642)
French Francs 5,044 (570) 9,193 30
German Marks 6,483 (581) 6,839 64
British Sterling 7,390 108 6,316 77
Italian Lira 4,350 (512) 4,326 172
Belgian Francs 1,701 (200) 2,761 9
Other 1,508 (145) 1,125 6
- --------------------------------------------------------------------
Total Foreign
Currency
Contracts $35,068 $(2,275) $43,751 $(284)
- --------------------------------------------------------------------
</TABLE>
These contracts generally mature within 12 months and are principally
unsecured exchange contracts with commercial banks. Gains and losses related to
forward foreign currency contracts are deferred and recognized in income at the
same time as the sale of the product. Gains and losses deferred as of July 31,
1997 and 1996 were not material. The cash flows from these contracts are
classified in a manner consistent with the underlying nature of the
transactions.
The Company also periodically enters into crude oil and heating oil futures
contracts and swap agreements. Such contracts and agreements are accounted for
as hedges of the Company's decant oil purchases, the primary raw material of its
needle coke facility. Gains and losses and the associated activity related to
these contracts and agreements are not material.
- --------------------------------------------------------------------------------
5. Inventories
--------------
Inventories were as follows (in thousands):
<TABLE>
<CAPTION>
July 31, 1997 1996
- -------------------------------------------
<S> <C> <C>
Finished Goods $13,990 $11,986
Work in Process 33,074 29,880
Raw Materials 11,256 9,132
- -------------------------------------------
58,320 50,998
LIFO Reserve (9,434) (6,602)
- -------------------------------------------
48,886 44,396
Supplies 10,559 10,383
- -------------------------------------------
$59,445 $54,779
- -------------------------------------------
</TABLE>
As of July 31, 1997 and 1996, approximately 68.7% and 83.1%, respectively, of
the Company's inventory was valued on a LIFO basis. If valued on a current cost
basis, total inventories would be $9.4 million and $6.6 million higher as of
July 31, 1997 and 1996, respectively.
During fiscal 1996, the Company received a $1.0 million favorable settlement
from a utility rate dispute with one of its electric power suppliers. The $1.0
million payment received has been reflected as a reduction to cost of goods sold
for the fiscal year ended July 31, 1996.
27
<PAGE>
6. Income Taxes
---------------
The components of the provision (benefit) for income taxes related to continuing
operations included the following (in thousands):
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $11,581 $3,360 $ 8,239
State 807 186 490
- --------------------------------------------------------------------------------
12,388 3,546 8,729
Deferred (1,656) 2,870 (1,523)
- --------------------------------------------------------------------------------
$10,732 $6,416 $7,206
- --------------------------------------------------------------------------------
</TABLE>
A reconciliation of the federal statutory income tax rate to the effective
tax rate for continuing operations follows:
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Statutory Rate 35.0% 35.0% 35.0%
Effect of:
State Income Taxes, Net of Federal Benefit 1.5 1.5 1.0
Current Year Foreign Sales Corporation Benefit (2.4) (3.2) (1.8)
Prior Year Foreign Sales Corporation Adjustment 1.3 (1.9) -
Non-Deductible Expenses 0.4 0.3 0.7
Other 1.0 (0.8) 2.0
- --------------------------------------------------------------------------------
Effective Tax Rate 36.8% 30.9% 36.9%
- --------------------------------------------------------------------------------
</TABLE>
The components of deferred tax assets and liabilities follow (in thousands):
<TABLE>
<CAPTION>
1997 1996
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
July 31, Assets Liabilities Assets Liabilities
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation - $9,979 - $10,371
Employee Retirement Benefits $1,257 - $1,034 -
Inventory Adjustments 1,096 - 1,154 -
Workers' Compensation 1,885 - 1,570 -
Allowance for Doubtful Accounts 834 - 753 -
Vacation Reserve 963 - 872 -
Other 1,470 - 858 -
- -----------------------------------------------------------------------------------------------
$7,505 $9,979 $6,241 $10,371
- -----------------------------------------------------------------------------------------------
</TABLE>
All federal tax returns prior to fiscal 1995 have been settled with the
Internal Revenue Service. Management does not believe that the settlement of its
open tax years will have a material adverse effect on the Company's future
operating results.
28
<PAGE>
- --------------------------------------------------------------------------------
7. Property, Plant and Equipment
--------------------------------
Property, plant and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
July 31, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Buildings and Improvements $ 29,862 $ 27,691
Machinery and Equipment 210,729 195,951
- --------------------------------------------------------------------------------
240,591 223,642
Accumulated Depreciation (183,840) (173,882)
- --------------------------------------------------------------------------------
56,751 49,760
Land 7,711 7,683
Construction in Progress 23,191 7,734
- --------------------------------------------------------------------------------
$ 87,653 $ 65,177
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
8. Long-Term Debt
-----------------
As more fully described in Note 16, the Company has completed a tender offer
with respect to its Senior Notes and refinanced its revolving credit facility.
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
July 31, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
11.5% Senior Notes Due 2003 (a) $80,035 $81,763
The 1995 Revolving Credit Facility (b) - -
- --------------------------------------------------------------------------------
$80,035 $81,763
- --------------------------------------------------------------------------------
</TABLE>
(a) In fiscal 1994, the Company issued its Senior Notes. Interest payments on
the Senior Notes are due semi-annually on March 1 and September 1, with the
principal due in August 2003. Under the indenture governing the Senior Notes
(the Senior Note Indenture), the Company is precluded from paying dividends
and making other restricted payments, as defined in the Senior Note
Indenture, unless certain conditions exist at the time of such payment. In
addition, the Company is precluded from selling, assigning, transferring,
leasing, conveying or otherwise disposing of all or substantially all of its
properties or assets in one or more related transactions unless certain
conditions stipulated in the Senior Note Indenture are met. Also, the
Company is limited in the amount of additional indebtedness it may assume,
it may not enter into certain transactions with affiliates of the Company,
as defined in the Senior Note Indenture, and, with certain exceptions set
forth in the Senior Note Indenture, it may not incur any liens on any assets
presently owned or acquired in the future or any income or profits
therefrom. The Company may redeem or may be required to redeem Senior Notes
prior to their maturity at various premium rates up to 11.5% of the face
amount of the Senior Notes, depending on the date and the conditions under
which the redemption takes place.
During the fiscal year ended July 31, 1997, the Company repurchased $1.7
million in Senior Notes in an open market transaction. This repurchase
resulted in a $0.1 million net extraordinary charge for the payment of the
premium associated with the repurchase and the write-off of unamortized
deferred financing fees associated with the original issuance of the Senior
Notes.
During fiscal 1996, the Company repurchased $19.2 million in aggregate
principal amount of Senior Notes in open market transactions. These
repurchases resulted in a $1.4 million net extraordinary charge for the
fiscal year ended July 31, 1996 for the payment of the premiums associated
with the repurchases and the write-off of unamortized deferred financing
fees related to the original issuance of the Senior Notes.
Also in fiscal 1996, the Company completed a redemption which resulted in
a $9.0 million reduction in Senior Notes. The redemption was initiated
pursuant to the Senior Note Indenture which permits the redemption of a
limited amount of Senior Notes with proceeds obtained from the Initial
Offering. The redemption resulted in a
29
<PAGE>
- --------------------------------------------------------------------------------
$0.8 million net extraordinary charge recorded during the fiscal year ended
July 31, 1996 for the payment of the premium associated with the redemption
and the write-off of unamortized deferred financing fees related to the
original issuance of the Senior Notes. The Company paid $4.2 million in debt
issuance costs related to the issuance of the Senior Notes and the
establishment of the 1995 Revolving Credit Facility, $1.6 million and $1.9
million of which have been included in other assets in the July 31, 1997 and
1996 consolidated balance sheets, respectively.
(b) On December 1, 1995, the Company entered into the 1995 Revolving Credit
Facility. The 1995 Revolving Credit Facility, which expires on December 1,
1998, provides a $25 million line of credit with a $10 million sub-limit for
letters of credit. Borrowings under the 1995 Revolving Credit Facility are
collateralized by the Company's accounts receivable and inventory. Interest
under the 1995 Revolving Credit Facility is calculated, at the option of the
Company, based upon either the greater of PNC Bank's prime rate, or an
adjusted Eurodollar Rate, which is adjusted based upon the Company's
interest coverage ratio. The most restrictive financial covenants under the
1995 Revolving Credit Facility include a minimum Consolidated Tangible Net
Worth, as defined in the agreement, a minimum Interest Coverage Ratio
(earnings before interest, taxes, depreciation and amortization to interest
expense) of 2.25 to 1 and a minimum liquidity (working capital less
borrowings under the facility) of $30.0 million.
As of July 31, 1997, scheduled principal payments under all long-term debt
instruments for the next five fiscal years are as follows: 1998 through 2002 --
$0; thereafter -- $80.0 million.
A portion of interest expense previously classified as a reduction of income
from continuing operations has been reclassified to discontinued operations
within the Company's consolidated statement of operations for the fiscal year
ended July 31, 1995. See Note 3.
Interest expense for the fiscal years ended July 31, 1997, 1996 and 1995 was
reduced by $1.5 million, $1.8 million and $1.4 million, respectively, of
interest income earned on cash, cash equivalents and short-term investments.
Also, during fiscal 1997 the Company capitalized $0.5 million in interest costs
associated with capital expenditures.
- --------------------------------------------------------------------------------
9. Commitments and Contingencies
--------------------------------
The Company leases various types of machinery, equipment and real estate, which
are accounted for as operating leases. Future minimum rental payments under non-
cancellable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
July 31,
- ------------------------------------------------
<S> <C>
1998 $1,427
1999 1,814
2000 1,388
2001 1,009
Thereafter 3,220
- ------------------------------------------------
</TABLE>
Consolidated rent expense for the years ended July 31, 1997, 1996 and 1995
amounted to approximately $2.3 million, $2.4 million and $2.6 million,
respectively, and included rent expense of $0.1 million related to discontinued
operations during the fiscal year ended July 31, 1995.
The Company purchases electricity from various local producers under long-
term contracts which expire at various dates through 2007. These contracts
require the Company to make future minimum payments aggregating approximately
$4.0 million through the end of the contracts, whether or not the Company takes
power in the future.
The Company has investigated the regulatory requirements related to closing a
pond located on its Louisville, Kentucky facility which was used to store non-
hazardous production waste. In November 1993, the Company contacted the Kentucky
Department of Environmental Protection (the Agency) and informed the Agency
that, based on the Company's investigations of the historical facts related to
the pond, the Company does not believe that any further remedial actions are
required. At this point, the Company believes that the matter is closed with no
further action required.
The Company operated a permitted landfill for the disposal of residual wastes
at its St. Marys facility. In July 1997, the Company closed the landfill and
contracted outside of the Company for disposal services. The Company's closure
plan was approved by the Pennsylvania Department of Environmental Resources
during fiscal 1995. Costs related to the landfill closure and a 15-year
monitoring commitment are expected to be approximately $0.8 million which have
been recorded as of July 31, 1997. The timing of payments related to these
activities, including payments for disposal services, is not expected to
materially impact the Company's cash flows in the future.
30
<PAGE>
- --------------------------------------------------------------------------------
During fiscal 1995, the Company was named as a third-party defendant in a
Superfund action in United States District Court in New Jersey relating to waste
disposal at a landfill located in Sayreville, New Jersey (the Sayreville
Litigation). Carbon/Graphite Group, Inc. was named as successor to Airco-Speer
Company (Airco-Speer). Since this landfill was closed prior to the organization
of the Company in 1988, the Company's only possible connection with the
Sayreville Litigation would be if it were a successor to Airco-Speer, a claim
which it disputes. Furthermore, in the Asset Purchase Agreement by which the
Company acquired its operating assets from BOC, BOC agreed to provide an
indemnification for certain environmental matters. BOC has assumed and commenced
the defense of the Sayreville Litigation and has agreed to indemnify the Company
for certain losses associated therewith in accordance with the terms of the
Asset Purchase Agreement. BOC in turn is being indemnified by certain plaintiffs
in the litigation pursuant to a 1992 agreement. In addition, BOC asserts that
the liability in this matter was settled by the 1992 agreement with the
plaintiffs in the present case. As a result of a motion for summary judgement,
the Court has substantially reduced the scope of claims which may be asserted
against the Company. Based on the above, management does not believe that the
Company will incur a material loss with respect to the Sayreville Litigation.
In May 1997, the Company was served with a subpoena issued by a Grand Jury
empaneled by the United States District Court for the Eastern District of
Pennsylvania. The Company was advised by attorneys for the Antitrust Division of
the DOJ that the Grand Jury is investigating price fixing by producers of
graphite products in the United States and abroad during the past five years.
The Company is cooperating with the DOJ in the investigation. The DOJ has
granted the Company and certain former and present senior executives the
opportunity to participate in its Corporate Leniency Program, and the Company
has entered into an agreement with the DOJ under which the Company and such
executives who cooperate will not be subject to criminal prosecution with
respect to the investigation if charges are issued by the Grand Jury. Under the
agreement, the Company has agreed to use its best efforts to provide for
restitution to its domestic customers for actual damages if any conduct of the
Company which violated the Federal Antitrust Laws in the manufacture and sale of
such graphite products caused damage to such customers. As far as the Company is
aware, the DOJ has not made a finding that any person or company violated the
law with respect to the subject matter of the Grand Jury proceeding. The
proceeding is in its preliminary stages. At this time, management cannot
determine whether a material loss will be incurred as a result of the
proceeding. No provision for any liability related to such matters has been made
in the consolidated financial statements.
Four civil cases have been filed in the United States District Court for the
Eastern District of Pennsylvania in Philadelphia asserting claims on behalf of
purchasers for violations of the Sherman Act. Those cases have been
consolidated. The consolidated case names the Company, UCAR International, Inc.,
SGL Carbon Corporation and SGL Carbon AG as defendants and seeks treble damages.
The Company intends to vigorously defend against this consolidated action. The
case is in its preliminary stages. At this time, management cannot determine
whether a material loss will be incurred as a result of the case. No provision
for liability related to such matters has been made in the consolidated
financial statements.
The Company is also party to various legal proceedings considered incidental
to the conduct of its business or otherwise not material in the judgement of
management. Management does not believe that its loss exposure related to these
cases is materially greater than amounts provided in the consolidated balance
sheet as of July 31, 1997. As of July 31, 1997, a $0.4 million reserve has been
recorded to provide for estimated exposure on claims for which a loss is deemed
probable.
31
<PAGE>
- --------------------------------------------------------------------------------
10. Employee Retirement Benefit Plans
-------------------------------------
Pension Benefits
The Company maintains defined benefit pension plans covering substantially all
of its hourly employees. The benefits under these plans are based primarily on
years of service and benefit rates established by union contracts. The Company's
funding policy is to contribute annually the amount recommended by its
consulting actuary, subject to statutory provisions. Net periodic pension cost
included the following components (in thousands):
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost -- Benefits Earned During the Year $ 831 $ 697 $ 736
Interest Cost on Projected Benefit Obligation 1,273 1,009 940
Actual Return on Plan Assets (2,821) (797) (1,190)
Deferral of Asset Gain 1,946 87 602
Net Amortization 375 237 390
- --------------------------------------------------------------------------------
Total Pension Cost 1,604 1,233 1,478
Less: Pension Cost in Discontinued Operations - - 88
- --------------------------------------------------------------------------------
Pension Cost in Continuing Operations $1,604 $1,233 $1,390
- --------------------------------------------------------------------------------
</TABLE>
The funded status of the plans is reconciled to accrued pension cost as
follows (in thousands):
<TABLE>
<CAPTION>
July 31, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated Benefit Obligation, Including Vested Benefits
of $14,987 for 1997 and $13,102 for 1996 $17,643 $15,435
Benefit Obligations for Estimated Future Service 1,111 1,752
- --------------------------------------------------------------------------------
Projected Benefit Obligation 18,754 17,187
Less: Plan Assets at Fair Value 15,971 12,044
- --------------------------------------------------------------------------------
Projected Benefit Obligation in Excess of Plan Assets 2,783 5,143
Unrecognized Transition Obligation (710) (821)
Unrecognized Net Actuarial (Loss) Gain 1,356 (407)
Unrecognized Prior Service Cost (4,508) (4,883)
Additional Minimum Liability 2,751 4,359
- --------------------------------------------------------------------------------
Accrued Pension Cost $ 1,672 $ 3,391
- --------------------------------------------------------------------------------
</TABLE>
Components of each plan's assets include primarily U.S. government
obligations and common stocks. Significant assumptions used in determining net
periodic pension cost and the related pension obligation as of and for the years
ended July 31, 1997, 1996 and 1995 were:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Discount Rate 7.5%
Expected Long-Term Rate of Return on Plan Assets 8.0
- --------------------------------------------------------------------------------
</TABLE>
The Company has recognized in the consolidated balance sheets a liability
equal to the excess of the accumulated benefit obligation over the fair value
of plan assets in accordance with SFAS #87, "Employers' Accounting for Pensions"
(SFAS #87). The additional minimum liability was $2.8 million and $4.4 million
at July 31, 1997 and 1996, respectively. The offset to this liability was a
charge to an intangible asset equal to the unrecognized prior service cost. The
intangible asset has been classified within other assets in the consolidated
balance sheets. Any excess additional minimum liability over the intangible
asset has been reported as a reduction of stockholders' equity.
As a result of the Specialty Products Sale, the St. Marys defined benefit
pension plan was partially curtailed, resulting in a pre-tax charge of $0.8
million. This charge has been classified as a reduction of the gain on the
Specialty Products Sale in the consolidated statement of operations for the
fiscal year ended July 31, 1995.
32
<PAGE>
- --------------------------------------------------------------------------------
Postretirement Benefits
The Company provides postretirement health care and life insurance benefits to
substantially all of its hourly employees. The plans under which these benefits
are provided are currently unfunded and require the employee to pay a portion of
the benefit cost. Postretirement benefit expense for the years ended July 31,
1997, 1996 and 1995 included the following components (in thousands):
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost $105 $105 $111
Interest Cost 215 187 216
Prior Service Cost (4) (4) (4)
Amortization of Actuarial Gain (17) (37) (15)
- --------------------------------------------------------------------------------
$299 $251 $308
- --------------------------------------------------------------------------------
</TABLE>
Postretirement benefit expense related to discontinued operations for fiscal
1995 was not material.
A reconciliation of the accumulated postretirement benefit obligation to
accrued postretirement benefit expense follows (in thousands):
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Retirees $1,400 $1,038
Other Fully Eligible Plan Participants 782 884
Other Active Plan Participants 1,111 1,043
- --------------------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation 3,293 2,965
Unrecognized Prior Service Cost 39 42
Unrecognized Actuarial Gains 342 553
- --------------------------------------------------------------------------------
Accrued Postretirement
Benefit Expense $3,674 $3,560
- --------------------------------------------------------------------------------
</TABLE>
For estimated expense and liability measurement purposes, the health care
cost trend rate was assumed to increase 7.5% in fiscal 1998, with the rate of
increase declining evenly each year to 5% in fiscal 2002 and thereafter. The
assumed discount rate for the valuation of the accumulated postretirement
benefit obligation at July 31, 1997 and 1996 was 7.5%. For the estimation of
postretirement benefit expense for each of the fiscal years presented, the
discount rate was 7.5%. If the assumed health care cost trend rate was increased
by one percent, the fiscal 1997 net periodic postretirement benefit cost would
have increased 3.0%, while the accumulated postretirement benefit obligation as
of July 31, 1997 would have increased approximately 2.5%.
Savings Investment Plan
The Company has a defined contribution savings investment plan for substantially
all salaried employees. Employee contributions up to a maximum of 6% of employee
compensation are matched 50% by the Company. Additional employer contributions
may be made at the discretion of the Board of Directors based on the Company's
current year performance. The cost of these Company contributions was $2.0
million, $1.6 million and $1.8 million for the fiscal years ended July 31, 1997,
1996 and 1995, respectively.
33
<PAGE>
- --------------------------------------------------------------------------------
11. Other Compensation
----------------------
Management Stock Option Plans
The Company adopted SFAS #123 for its fiscal year ended July 31, 1997. The
Company adopted the disclosure requirements of SFAS #123. The measurement
alternatives of SFAS #123 were not adopted.
The Company has adopted the MSOP. The MSOP are incentive or non-qualified,
compensatory stock option plans or agreements, participation in which is limited
to officers, directors and/or key employees of the Company. Options granted
under the MSOP generally vest over three years and expire ten years from the
date of grant. The table below summarizes option activity for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Options Outstanding, Beginning of Year:
Number 617,500 1,745,000 2,079,375
Weighted-Average Exercise Price $4.52 $1.54 $1.56
Granted:
Number 176,500 125,000 -
Weighted-Average Exercise Price $24.16 $15.75 -
Weighted-Average Fair Value* $8.58 $5.57 -
Exercised:
Number (311,750) (1,252,500) (49,375)
Weighted-Average Exercise Price $1.23 $1.49 $3.22
Forfeited or Expired:
Number (36,000) - -
Weighted-Average Exercise Price $15.75 - -
Repurchased:
Number - - (285,000)
Weighted-Average Exercise Price - - $1.37
- --------------------------------------------------------------------------------
Options Outstanding, End of Year:
Number 446,250 617,500 1,745,000
Weighted-Average Exercise Price $13.67 $4.52 $1.54
- --------------------------------------------------------------------------------
</TABLE>
* The weighted-average fair value disclosed was computed utilizing the
measurement alternatives suggested in SFAS #123. Such alternatives were
not adopted by the Company for compensation measurement purposes.
The following is a summary of the characteristics of the options outstanding
as of July 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding, July 31, 1997 Range 1 Range 2 Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number 180,750 265,500 446,250
Weighted-Average Exercise Price $2.41 $21.34 $13.67
Range of Exercise Prices $2.00-$3.50 $15.75-$28.875 $2.00-$28.875
Remaining Weighted-Average Contractual Life (in months) 27 114 79
Number of Options Currently Exercisable 173,250 67,167 240,417
Weighted-Average Exercise Price of Options Exercisable $2.37 $18.23 $6.80
- ------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
As of July 31, 1997, 601,250 shares were reserved for issuance under the
MSOP. Options granted under the MSOP for the fiscal years ended July 31, 1997
and 1996 were granted at the fair market value of the Company's Common Stock as
quoted on the NASDAQ National Market System on the date of grant.
The total compensation charge associated with the MSOP for the fiscal years
ended July 31, 1997, 1996 and 1995 was $0.2 million, $0.5 million and $0.6
million, respectively.
SFAS #123 requires the disclosure of pro forma net income and earnings per
share amounts calculated as if the measurement alternatives suggested by SFAS
#123 had been adopted. The following table summarizes the required pro forma
disclosures for the fiscal year ended July 31, 1997 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1997
Actual Pro Forma
- -------------------------------------------------------
<S> <C> <C>
Net Income $18,302 $18,023
Earnings Per Share $2.07 $2.04
- -------------------------------------------------------
</TABLE>
Significant assumptions used in determining fair value and compensation cost
for stock options in accordance with SFAS #123 included the following:
<TABLE>
- -------------------------------------------------------
<S> <C>
Risk-Free Rate of Return 6.3%
Expected Life of Option 4 to 5 years
Expected Volatility 31.1%
Expected Dividend Yield 0.0%
- -------------------------------------------------------
</TABLE>
Bonus Plans
In addition to the compensation expense recorded for the MSOP, the Company also
recorded $1.4 million in compensation expense for the fiscal year ended July 31,
1997 associated with a bonus for executives and certain key employees of the
Company. The bonus payment was determined by the Company's Board of Directors.
During the fiscal years ended July 31, 1996 and 1995, the Company recorded
compensation expense of $1.3 million and $1.7 million, respectively, associated
with PUP II. All benefits under PUP II have been paid and the plan has been
canceled. In connection with the payout of the benefits under PUP II, the
Company issued 132,284 shares of Common Stock to certain participants.
- --------------------------------------------------------------------------------
12. Business Segment Information
--------------------------------
The Company's operations consist of two segments: graphite electrode products
and calcium carbide products.
The graphite electrode products segment manufactures and markets graphite
electrodes, primarily to electric arc furnace steel producers. In addition, this
segment manufactures needle coke, the principal raw material used in the
manufacture of graphite electrodes, as well as certain other graphite specialty
products. The calcium carbide products segment manufactures and markets calcium
carbide and its direct derivatives, primarily acetylene gas, that are used in
the further manufacturing of specialty chemicals, cutting and welding
applications, and metallurgical applications such as desulfurization in the
ductile iron and steel industries. This segment also manufactures electrically
calcined anthracite coal used in the aluminum industry.
Sales of graphite electrodes and calcium carbide for metallurgical
applications to customers in the steel and ductile iron industries accounted for
approximately 60% of customer net sales from continuing operations for the
fiscal years presented. Amounts due from customers in the steel industry at July
31, 1997 and 1996 were $34.0 million and $34.3 million, respectively.
35
<PAGE>
- --------------------------------------------------------------------------------
Segment information is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to Customers:
Graphite Electrode Products $210,045 $179,925 $160,610
Calcium Carbide Products 79,541 79,469 80,846
Intersegment Sales, at Prevailing Market Prices:
Graphite Electrode Products 248 308 206
Eliminations (248) (308) (206)
- --------------------------------------------------------------------------------
Total Net Sales $289,586 $259,394 $241,456
- --------------------------------------------------------------------------------
Operating Income:
Graphite Electrode Products $ 36,346 $ 24,026 $ 21,225
Calcium Carbide Products 10,616 13,623 13,655
Unallocated Corporate Expenses (9,908) (6,952) (4,473)
- --------------------------------------------------------------------------------
Total Operating Income $ 37,054 $ 30,697 $ 30,407
- --------------------------------------------------------------------------------
Identifiable Assets:
Graphite Electrode Products $171,643 $141,019 $130,541
Calcium Carbide Products 27,695 27,768 26,142
- --------------------------------------------------------------------------------
199,338 168,787 156,683
Corporate Assets 36,522 44,083 57,726
- --------------------------------------------------------------------------------
Total Assets $235,860 $212,870 $214,409
- --------------------------------------------------------------------------------
Depreciation and Amortization:
Graphite Electrode Products $ 9,377 $ 7,472 $ 6,449
Calcium Carbide Products 1,505 1,381 1,240
- --------------------------------------------------------------------------------
10,882 8,853 7,689
Discontinued Operations - - 524
- --------------------------------------------------------------------------------
Total Depreciation and Amortization $ 10,882 $ 8,853 $ 8,213
- --------------------------------------------------------------------------------
Capital Expenditures:
Graphite Electrode Products* $ 31,701 $ 12,883 $ 8,231
Calcium Carbide Products 2,064 2,787 2,295
- --------------------------------------------------------------------------------
Total Capital Expenditures $ 33,765 $ 15,670 $ 10,526
- --------------------------------------------------------------------------------
Sales Information:
Total Net Sales to Geographic Areas:
United States $199,895 $173,948 $156,086
Other Americas 23,943 19,382 20,567
Europe 40,465 36,072 38,310
Asia/Far East 25,283 29,992 26,493
- --------------------------------------------------------------------------------
Total Net Sales $289,586 $259,394 $241,456
- --------------------------------------------------------------------------------
</TABLE>
* Includes capital expenditures from a discontinued business in fiscal 1995.
See Note 3.
36
<PAGE>
- --------------------------------------------------------------------------------
13. Cash Flow Information
-------------------------
Net cash payments for interest and income taxes were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended July 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest $8,913 $10,284 $13,706
Income Taxes 5,926 2,882 17,957
- --------------------------------------------------------------------------------
</TABLE>
Included in income tax payments for fiscal 1995 were payments totaling
approximately $10.2 million associated with the Specialty Products Sale.
- --------------------------------------------------------------------------------
14. Other Items
---------------
Early Retirement/Severance Charge
Early retirement/severance charges for the year ended July 31, 1997 represent
costs associated with the retirement of two executives of the Company.
Other Income
In October 1994, the Company formally entered into the China Contract. Total
revenues under the contract were expected to be approximately $5.2 million, $4.1
million of which has been recognized through July 31, 1997. Other income for the
fiscal years ended July 31, 1996 and 1995 represents revenues earned under the
process design expertise portion of the contract, less applicable expenses. At
this time, the project has been delayed by the Chinese government, and
management cannot determine whether the balance of the revenue expected under
the contract will be realized.
- --------------------------------------------------------------------------------
15. Quarterly Results (Unaudited)
---------------------------------
The following table sets forth certain unaudited consolidated quarterly
operating information of the Company (in millions, except per share
information):
<TABLE>
<CAPTION>
Year Ended July 31, 1997: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Fiscal Year
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $67.7 $75.1 $74.9 $71.9 $289.6
Gross Profit 11.8 13.3 14.3 14.8 54.2
Operating Income 7.5 9.2 9.5 10.9 37.1
Income from Continuing Operations 3.5 4.6 4.7 5.6 18.4
Extraordinary Loss* - - - 0.1 0.1
Net Income 3.5 4.6 4.8 5.4 18.3
Per Share:
Income from Continuing Operations 0.40 0.53 0.54 0.63 2.09
Net Income 0.40 0.53 0.54** 0.61 2.07
- -----------------------------------------------------------------------------------------------------------------
Year Ended July 31, 1996:
- -----------------------------------------------------------------------------------------------------------------
Net Sales $63.9 $64.4 $65.2 $65.9 $259.4
Gross Profit 10.7 11.2 11.7 11.4 45.0
Operating Income 7.3 7.8 8.0 7.6 30.7
Income from Continuing Operations 2.7 3.7 4.0 3.9 14.3
Extraordinary Loss* 0.9 1.1 0.1 0.1 2.2
Net Income 1.8 2.6 3.9 3.8 12.1
Per Share:
Income from Continuing Operations 0.33 0.43 0.46 0.46 1.67
Net Income 0.22 0.30*** 0.45 0.44 1.42
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents net charges associated with the early retirement of Senior
Notes. See Note 8.
** Includes a $1.1 million pre-tax charge for early retirement/severance
benefits. See Note 14.
*** Includes a $1.0 million pre-tax favorable settlement from a utility rate
dispute. See Note 5.
37
<PAGE>
- --------------------------------------------------------------------------------
16. Subsequent Event
--------------------
On September 26, 1997, the Company completed a tender offer for $79.9 million of
its Senior Notes (the Tender). The tender price paid to holders of the Senior
Notes was $1,086.20 for each $1,000 in Senior Note principal. Also, most holders
received an additional $15.00 per $1,000 in Senior Note principal in exchange
for their consent to eliminate substantially all of the restrictive covenants
and certain default provisions in the Senior Note Indenture other than the
covenants to pay interest on and principal of the Senior Notes and the default
provisions related to such covenants. Consents were received by holders of more
than a majority of the outstanding Senior Notes, resulting in the elimination of
such restrictive covenants and default provisions. After the Tender, $0.1
million in Senior Notes were outstanding.
In connection with the Tender, the Company entered into an agreement with PNC
Bank for the 1997 Revolving Credit Facility, a five-year, $125 million revolving
credit facility with a $15 million sub-limit for standby letters of credit. This
new revolving credit facility replaces the 1995 Revolving Credit Facility.
Interest under the 1997 Revolving Credit Facility is based on, at the option of
the Company, either PNC Bank's prime rate or a floating LIBOR rate plus a spread
(currently 0.625%) based on a leverage calculation. Repayment of funds borrowed
under the new credit agreement are not required until the expiration of the
facility on September 25, 2002. The new facility can be extended under certain
conditions. The restrictive covenants under the new credit agreement are
substantially similar to those in the 1995 Revolving Credit Facility, although
more restrictive in certain circumstances. Also, the Company has pledged all
receivables and inventory as collateral under the new credit agreement.
As a result of the Tender and revolving credit facility refinancing, the
Company will record a pre-tax charge of approximately $10 million as an
extraordinary loss on the early extinguishment of debt in the quarter ended
October 31, 1997. The extraordinary charge is for the premiums paid to Senior
Note holders in connection with the Tender and the write off of unamortized
deferred financing fees associated with the Senior Notes tendered and the 1995
Revolving Credit Facility.
38
<PAGE>
EXHIBIT 21.1
The subsidiaries or affiliates of the Company are:
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Carbide/Graphite Management Corporation Delaware Corporation
C/G Specialty Products Management Corporation Delaware Corporation
Carbon/Graphite International Barbados Foreign Sales Corporation
Seadrift Coke, L.P. Texas Limited Partnership
Carbide/Graphite Business Trust Delaware Business Trust
</TABLE>
<PAGE>
Coopers Coopers & Lybrand L.L.P.
& Lybrand a professional services firm
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of The Carbide/Graphite Group, Inc. on Form S-8 (Registration No. 333-570) of
our reports dated September 10, 1997, except for Note 16 as to which the date
is September 26, 1997, on our audits of the consolidated financial statements
and financial statement schedule of The Carbide/Graphite Group, Inc. and
Subsidiaries as of July 31, 1997 and 1996 and for each of the three years in the
period ended July 31, 1997, which reports are incorporated by reference or
included in this Form 10-K.
Pittsburgh, Pennsylvania
October 28, 1997
Coopers & Lybrand L.L.P., is a member of Coopers & Lybrand International,
a limited liability association incorporated in Switzerland.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY INCLUDED UNDER ITEM 8 OF THIS
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 7,935
<SECURITIES> 0
<RECEIVABLES> 51,117
<ALLOWANCES> (2,029)
<INVENTORY> 59,445
<CURRENT-ASSETS> 143,336
<PP&E> 271,493
<DEPRECIATION> (183,840)
<TOTAL-ASSETS> 235,860
<CURRENT-LIABILITIES> 42,511
<BONDS> 80,035
0
0
<COMMON> 97
<OTHER-SE> 96,112
<TOTAL-LIABILITY-AND-EQUITY> 235,860
<SALES> 289,586
<TOTAL-REVENUES> 289,586
<CGS> 235,401
<TOTAL-COSTS> 249,721
<OTHER-EXPENSES> 2,691
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 7,894
<INCOME-PRETAX> 29,160
<INCOME-TAX> 10,732
<INCOME-CONTINUING> 18,428
<DISCONTINUED> 0
<EXTRAORDINARY> (126)
<CHANGES> 0
<NET-INCOME> 18,302
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 2.08
</TABLE>
