-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DFlUL7mqI/dY3oKFL6YuJ5uZ2nC8U8hSdX4+O56zpGLURw/AXuEb2mrniaU9uQTs s0vCyl8+HD21e/tgsVhhtA== /in/edgar/work/0000950128-00-001330/0000950128-00-001330.txt : 20001115 0000950128-00-001330.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950128-00-001330 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000731 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARBIDE GRAPHITE GROUP INC /DE/ CENTRAL INDEX KEY: 0000888918 STANDARD INDUSTRIAL CLASSIFICATION: [3620 ] IRS NUMBER: 251575609 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-15055 FILM NUMBER: 763489 BUSINESS ADDRESS: STREET 1: ONE GATEWAY CTR STREET 2: 19TH FL CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4125623700 MAIL ADDRESS: STREET 1: ONE GATEWAY CTR STREET 2: 19TH FL CITY: PITTSBURGH STATE: PA ZIP: 15222 10-K405 1 j8492301e10-k405.txt PERIOD YEAR ENDED 7/31/2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-20490 THE CARBIDE/GRAPHITE GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 25-1575609 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Code) One Gateway Center, 19th Floor Pittsburgh, PA 15222 (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 562-3700 ----------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: ----------------------- None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, par value $0.01 per share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the Registrant as of the close of business on September 22, 2000 was $14,518,462. As of the close of business on September 22, 2000 there were 8,331,342 shares of the Registrant's $0.01 par value Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: NONE 2 PART I ITEM 1 BUSINESS OVERVIEW The Carbide/Graphite Group, Inc. (the Company or Registrant) is a major U.S. manufacturer of graphite electrode products and calcium carbide products. Graphite electrodes are used as consumable conductors of electricity 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. The Company also sells needle coke to its competitors in the graphite electrode business. Net sales for the Company's graphite electrode products segment and calcium carbide products segment represented 76.6% and 23.4%, respectively, of consolidated net sales for fiscal 2000. Refer to Note 10 to the Company's consolidated financial statements for its fiscal year ended July 31, 2000 (incorporated by reference under Item 8 of this Form 10-K) for information regarding sales (including export sales), operating results and identifiable assets by reportable business segment. During fiscal 2000, the Company's net prices for graphite electrodes declined as a result of weaker transactional prices in the United States and in most export markets, coupled with a significant decline in the value of the Euro relative to the U.S. dollar. During fiscal 2000, the value of the Euro declined approximately 13% in U.S. dollar terms. As virtually all of the Company's costs are denominated in U.S. dollars, this trend had a significant negative impact on profitability during fiscal 2000. The Company's foreign currency hedging policy partially mitigated the impact of the negative Euro value trend during fiscal 2000. Also during fiscal 2000, the demand for needle coke declined as major electrode producers lowered production and implemented inventory reduction programs in response to weaker global demand. Shipments and prices fell during fiscal 2000 as a result of this lower level of demand and increased price competition in the needle coke market. These negative factors, coupled with a 61% increase in the gross cost of decant oil, the primary raw material in the production of premium needle coke, had a significant negative impact on the Company's operating results in fiscal 2000. The Company's commodity hedging program partially mitigated the impact of the higher decant oil costs incurred in fiscal 2000. During fiscal 2000, the Company implemented a working capital improvement program to help offset the negative effects of the trends described above. In connection with this program, the Company temporarily reduced graphite electrode and needle coke production in order to reduce inventory levels and further improve the Company's cash flow and cost structure. This program had a positive effect on operating cash flows as cash outflows for raw materials, labor and utilities were reduced during the period of lower production. However, the program had a negative impact on the Company's operating results during the period of reduced production, as the Company did not benefit from operating efficiencies and fixed cost absorption typical of higher levels of production. This situation significantly contributed to the Company reporting a net loss from operations for fiscal 2000. The Company estimates that the working capital improvement program negatively impacted net operating results by approximately $6.5 million during fiscal 2000. In fiscal 2000 and in connection with the working capital improvement program, the Company began to scale back electrode sales volumes in Europe and focus on markets where the net pricing was more attractive. As an extension of this initiative, the Company, effective October 2000, has reduced its graphite electrode production to approximately 90 million pounds a year, a 15% reduction from the Company's production capacity in fiscal 2000. The 90 million production level represents the Company's most efficient, lowest cost electrode production and the Company expects to generate additional cost and working capital savings by operating at this lower level of production. The Company also implemented an early retirement/severance program under which 35 salaried employees agreed to early retirement or severance packages during fiscal 2000. In April 2000, the Company recorded a $2.0 million pre-tax charge to provide for payments to be made under the early retirement/severance program. The Company estimates that it will realize approximately $3.0 million in annual savings as a result of this program. 1 3 See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" for information on the impact of the above factors on the Company's revolving credit facility, as well as information on various amendments and waivers required to be obtained by the Company in connection with the revolving credit facility. 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 Department of Justice (DOJ) that the Grand Jury is investigating price fixing by producers of graphite products in the United States and abroad during the period 1992 to 1997. 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. 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. Subsequent to the initiation of the DOJ investigation, four civil cases were filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia asserting claims on behalf of a class of purchasers for violations of the Sherman Act. These cases, which have been consolidated, name the Company, UCAR International Inc. (UCAR), SGL Carbon Corporation (SGL Corp.) and SGL Carbon AG (SGL) as defendants (together, the Named Defendants) and seek treble damages. On March 30, 1998, a number of purchasers who were previously included in the purported class of plaintiffs covered by the consolidated case initiated a separate action in the same District Court which asserts substantially the same claims and seeks the same relief as the consolidated case and names the Named Defendants, as well as Showa Denko Carbon, Inc. (Showa Denko). Thereafter, seven additional groups of purchasers who were previously included in the purported class of plaintiffs covered by the consolidated case instituted their own actions against the Named Defendants, Showa Denko and, in several cases, certain present or former related parties of UCAR and Showa Denko, asserting substantially the same claims and seeking the same relief as in the consolidated case. Four such actions were filed in the United States District Court for the Eastern District of Pennsylvania on April 3, 1998, May 14, 1998, May 28, 1998 and March 31, 1999, respectively. One action was filed in the United States District Court for the Northern District of Ohio on April 17, 1998 but was transferred to the Eastern District of Pennsylvania for pre-trial proceedings. Another action was filed in the United States District Court for the Western District of Pennsylvania on June 17, 1998 but was transferred to the Eastern District of Pennsylvania for pre-trial proceedings. Another action was filed in the United States District Court of the Middle District of Pennsylvania on April 10, 2000, but was transferred to the Eastern District of Pennsylvania for pre-trial proceedings. The complaints or amended complaints in some of the cases have also named as defendants other companies including Mitsubishi Corporation, Tokai Carbon U.S.A., Inc. and related companies. On December 7, 1998, the Company was served with a complaint filed by Chaparral Steel Company against the Named Defendants, Showa Denko and parties related to Showa Denko and UCAR in state court in Ellis County, Texas alleging violations of various Texas state antitrust laws and seeking treble damages. Chaparral Steel Company has filed an amended complaint adding two additional related plaintiffs, a second amended complaint adding additional defendants Nippon Carbon Co., Ltd., SEC Corporation, Tokai Carbon Company, Ltd., Tokai Carbon USA, Inc., VAW Aktiengesellscheft and VAW Carbon GMBH, and third, fourth and fifth amended complaints. The Company has reached settlement agreements representing approximately 96% of domestic antitrust claims with the class plaintiffs and the plaintiffs that filed lawsuits on March 30, 1998, April 3, 1998, April 17, 1998, May 14, 1998, May 28, 1998, June 17, 1998 and March 31, 1999 and other purchasers who had yet to file lawsuits. The settlement agreement with the class has been approved by the Court. Although various of the settlements are unique, in the aggregate they consist generally of current and deferred cash payments and, in a number of cases, provisions which provide for additional payments under certain circumstances ("most favored nations" provisions). In addition to the settlements discussed above, the Company may also settle with various additional purchasers. 2 4 On February 10, 1999, a U.S. corporation which allegedly made purchases on behalf of two foreign entities and a group of 22 foreign purchasers which are based in several foreign countries filed a complaint against the Company, UCAR, SGL, Tokai Carbon Co., Ltd., Tokai Carbon U.S.A., Inc., Nippon Carbon Co., Ltd., SEC Corporation and certain present and former related parties of UCAR in United States District Court for the Eastern District of Pennsylvania. This complaint has been amended to add four additional defendants. On September 24, 1999, three Australian companies and one New Zealand company filed a complaint against the same parties as are named in the lawsuit filed on February 10, 1999. These cases assert substantially the same claims and seek the same relief as the consolidated case. Other foreign purchasers have also made similar claims against the Company but have not filed lawsuits. The Company understands that defendants UCAR, SGL and Showa Denko have reached settlement agreements with the class action plaintiffs, which have been approved by the court, and have also settled claims brought by various individual purchasers. The Company further understands that UCAR, Robert P. Krass, Robert J. Hart, SGL, Robert J. Koehler, Showa Denko, Tokai, SEC Corporation and Nippon Carbon Co. have pled guilty to antitrust conspiracy charges filed by the DOJ and have agreed to pay fines and, in the cases of Messrs. Krass and Hart, to serve prison sentences, in connection with those guilty pleas. The Company also understands that the DOJ has indicted Mitsubishi Corporation and Georges Schwegler, a former UCAR employee. The Company has also advised the Commission of the European Communities (the European Commission) that it wishes to invoke its Leniency Notice. Generally under these guidelines, the European Commission may reduce fines and other penalties if a company sufficiently cooperates with the European Commission. On January 24, 2000, the European Commission adopted a Statement of Objections against the Company, SGL, UCAR, VAW Aluminum AG, Showa Denko KK, Tokai Carbon Co. Ltd., Nippon Carbon Co. Ltd. and SEC Corporation. The Company has prepared and submitted to the European Commission a response to the Statement of Objections and has appeared at a hearing regarding the imposition of fines. The Company understands that the European Commission will determine fines, if any, at the completion of its proceedings. On June 18, 1998, a group of Canadian purchasers filed a lawsuit in the Ontario Court (General Division) claiming a conspiracy and violations of the Canadian Competition Act. The Canadian lawsuit names the Named Defendants and Showa Denko, as well as several present or former parents, subsidiaries and/or affiliates of UCAR, SGL and Showa Denko. The Canadian Competition and Consumer Law Division (Canadian Division) has initiated an inquiry and the Company is cooperating fully with the authorities conducting that inquiry pursuant to an agreement with the Director of Research and Investigation of the Canadian Division under which the Company and its present and former officers, directors and employees will not be subject to criminal prosecution. During fiscal 1998, the Company recorded a $38 million pre-tax charge ($25 million after expected tax benefits) for potential liabilities resulting from civil lawsuits, claims, legal costs and other expenses associated with the pending antitrust matters (the Initial Antitrust Charge). During fiscal 1999, the Company recorded an additional $7 million charge ($4.5 million after expected tax benefits) for such potential liabilities (the Supplemental Antitrust Charge). The combined $45 million charge (the Antitrust Charge) represents the Company's estimate, based on current facts and circumstances, of the expected cost to resolve pending antitrust claims. The Company understands that defendants UCAR, SGL and Showa Denko have reached settlements with the class action plaintiffs and various individual purchasers at amounts substantially higher than the levels contemplated in the Antitrust Charge. In light of these and other developments including: (a) possible future settlements with other purchasers, (b) the outcome of the European Commission antitrust investigation, (c) potential additional lawsuits by foreign purchasers, (d) the failure to satisfy the conditions to the class action settlement, and (e) adverse rulings or judgments in pending litigation, including an adverse final determination as to the right of the foreign purchasers to relief under U.S. antitrust laws, the antitrust matters could result in aggregate liabilities and costs which could differ materially and adversely from the Antitrust Charge and could affect the Company's financial condition and its ability to service its currently planned liquidity needs. As of July 31, 2000, $42.2 million in antitrust settlements and costs had been paid. 3 5 GRAPHITE ELECTRODE PRODUCTS BUSINESS Products and Markets The Company's graphite electrode products business segment includes graphite electrodes, needle coke, bulk graphite, granular graphite (primarily from machine turnings) and other related miscellaneous sales. The following table presents the Company's net sales and percentage of segment sales within its graphite electrode products segment for fiscal 2000, by principal product category:
FISCAL 2000 ---------------------------------------------- Product Category Net Sales % of Total - ------------------------------------------------------------------------------------------------------------------- (dollars in thousands) Graphite electrodes $117,332 73.9% Needle coke (third-party sales) 21,496 13.5 Bulk graphite 12,147 7.6 Granular graphite 6,814 4.3 Other 1,029 0.7 - ------------------------------------------------------------------------------------------------------------------ Total graphite electrode product net sales $158,818 100.0% ==================================================================================================================
The Company's graphite electrode marketing group was re-aligned during fiscal 2000. The Company's direct domestic sales force, consisting of eight sales people, are responsible for coordinating all aspects of customer relationships in the United States and Canada. This includes electrode technical service as well as arc furnace operations and furnace monitoring solutions. A network of international sales agents is responsible for coordinating export customer relationships. Four technical service personnel support both domestic and international selling and customer service initiatives. The Company also sells graphite specialty products primarily through two sales people and, to a lesser degree, international agents. In the past, the Company has sold a significant amount of its electrode production into export markets. The Company regularly enters into forward foreign currency contracts to help mitigate foreign currency exchange rate exposure. Primarily as a result of the weaker Euro and its negative impact on net price realizations on sales into Europe, the Company has reduced its graphite electrode production to approximately 90 million pounds per year. The Company plans to increase electrode sales efforts to domestic and non-European export markets. As a result, the Company's graphite electrode sales to customers in export markets are expected to become a smaller percentage of total electrode sales for the foreseeable future. The Company's needle coke affiliate, Seadrift Coke, L.P. (Seadrift) sold approximately 54% of its needle coke production to eight other graphite electrode producers during fiscal 2000. The Company's sales of needle coke to its competitors in the graphite electrode industry is expected to become a more significant component of sales in the graphite electrode products segment in the future. In connection with the fiscal 1995 sale (the Specialty Products Sale) of the Company's graphite specialty products business (Specialty Products) to SGL Corp., the Company agreed to continue to produce graphite rods and plates (also known as bulk graphite), the majority of which were sold to SGL Corp. at prices approximating the Company's manufacturing cost under a supply agreement that expired in January 1998 (the SGL Supply Agreement). Sales to SGL Corp. under this contract in fiscal 1998 were $3.9 million versus $16.7 million in fiscal 1997. The Company also sells these bulk graphite rods and plates, and certain other graphite products, to other graphite specialty customers. The Company continues to pursue a strategy to increase its customer base for bulk graphite. While the Company believes that it will continue to sell bulk graphite to SGL Corp. and other bulk graphite customers, there can be no assurance that the Company will be able to achieve bulk graphite sales volumes equal to those sold while the SGL Supply Agreement was in effect. Bulk graphite sales totaled $12.1 million in fiscal 2000. 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. Sales of granular graphite are expected to decline as electrode production volumes are reduced in fiscal 2001. In addition, the Company provides processing services, which include graphitizing baked rods. 4 6 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 may 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 and liquidity. Demand for and sales of graphite electrodes and needle coke can also fluctuate from quarter to quarter due to such factors as scheduled plant shutdowns by customers, 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 or decreases. Manufacturing The Company's electrodes and other graphite products 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. During fiscal 2000, the Company maintained electrode production capacity at approximately 105 million pounds per year. However, as a result of the working capital improvement program, electrode production was reduced to approximately 94 million pounds during fiscal 2000. In addition, the Company currently maintains approximately 20 million pounds of annual bulk specialty graphite production capacity. The Company manufactures all of its needle coke (the primary raw material for graphite electrodes) at its affiliate, Seadrift. The Company currently has the capacity to manufacture approximately 200,000 tons of needle coke annually. During fiscal 2000, approximately 27% of Seadrift's capacity was used internally for the production of graphite electrodes. Needle coke is shipped from Seadrift largely by rail to the Company's St. Marys, Pennsylvania facility and by rail, barge and overseas vessel to its third-party customers. During fiscal 2000, the Company implemented a working capital improvement program, which temporarily reduced graphite electrode and needle coke production in order to reduce inventory levels and further improve the Company's cash flow and cost structure. This program had a positive effect on operating cash flows as cash outflows for raw materials, labor and utilities were reduced during the period of lower production. As an extension of this initiative, the Company, effective October 2000, has reduced its graphite electrode production to approximately 90 million pounds a year, a 15% reduction from the Company's production capacity in fiscal 2000. The 90 million production level represents the Company's most efficient, lowest cost electrode production and the Company expects to generate additional cost and working capital savings by operating at this lower level of production. CALCIUM CARBIDE PRODUCTS BUSINESS Products and Markets The Company's primary products in this segment are acetylene and calcium carbide for metallurgical applications such as iron and steel desulfurization and deoxidation. The following table presents the Company's net sales and percentage of segment sales within its calcium carbide products segment for fiscal 2000, by principal product category:
FISCAL 2000 ------------------------------------------- Product Category Net Sales % of Total - ----------------------------------------------------------------------------------------------------------------- (dollars in thousands) Acetylene: Pipeline acetylene $12,163 25.1% Fuel gas applications 12,102 24.9 Metallurgical applications 18,271 37.6 Other 6,001 12.4 - ----------------------------------------------------------------------------------------------------------------- Total calcium carbide product net sales $48,537 100.0% =================================================================================================================
5 7 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 as a feedstock in the manufacture of specialty chemicals. Each of these customers has been supplied by the Company for over thirty years. Although relationships with these pipeline customers are long-standing, there can be no assurance that any of these customers will continue to operate their adjacent facility or require the Company's acetylene product. ISP, the Company's largest pipeline acetylene customer, in response to lower global demand and lower prices for some of its acetylene-based products, reduced their demand for the Company's acetylene during fiscal 1999 and fiscal 2000 by as much as 75% of its historical levels. This situation has resulted in the discontinuance of calcium carbide production at the Calvert City, Kentucky facility. Partially offsetting the sales effect of the lower deliveries to pipeline acetylene customers is an increase in average pipeline acetylene prices resulting from the volume/price structure of the Company's acetylene supply arrangements. 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 serve their regional markets. The Company sells to both types of customers. 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 and, together with several additives, are injected into baths of molten iron to reduce the sulfur content of the material. In addition to selling directly to steel customers, the Company also sells calcium carbide to major distributors which in turn supply carbide mixtures and a variety of ancillary services to steel mills for metallurgical applications. The Company markets calcium carbide products to all of its end customers through a sales force of three personnel and through distributors, with technical service support from a staff of two personnel. Sales to customers other than pipeline customers are made through purchase orders. Manufacturing The Company manufactures its calcium carbide products at plants in Louisville and Calvert City, Kentucky. Louisville has 120,000 tons of calcium carbide production capacity. Calvert City has 80,000 tons of calcium carbide production capacity, but is currently shut down in terms of calcium carbide production. Both plants operate crushing, screening and packing equipment; acetylene generators; and grinding facilities. The Louisville plant supplies pipeline acetylene to DuPont; the Calvert City plant supplies pipeline acetylene to ISP and Air Products. The Calvert City plant is operated in block-run fashion on an as needed basis. COMPETITION Graphite Electrode Products The Company's competition in graphite electrodes includes two major producers, UCAR and SGL, as well as a group of smaller, foreign and U.S. producers, including Showa Denko, Tokai Carbon Co., Ltd. (of Japan), Nippon Carbon Co. Ltd. (of Japan), ERFTcarbon AG (of Germany) and Superior Graphite. 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 having worldwide market shares ranging between 25% and 35%. Both maintain operations in various international markets. The Company is one of a small group of graphite electrode producers each having a worldwide market share of 5% to 7%. While the Company markets its graphite electrodes worldwide, it has no production facility outside of the United States and, accordingly, has significant transportation, duty cost and, at times, foreign currency exchange rate disadvantages relative to some of its competitors who have production facilities located in foreign markets. From time to time, graphite electrode manufacturers, including the Company, experience temporary declines in the quality of their graphite electrodes, sometimes 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. There can be no assurance, however, that temporary declines in electrode quality will not recur. 6 8 Outside of Japan, there are currently only three needle coke producers: Conoco, Inc. (Conoco), UNO-VEN Company (Uno-Ven) and Seadrift. Conoco is the largest needle coke producer and is the market leader, with annual capacity currently estimated by the Company to be approximately 400,000 tons. Uno-Ven has a production capacity of approximately 100,000 tons per year and Seadrift's production capacity is currently approximately 200,000 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 granular graphite marketed by other electrode manufacturers and a variety of graphite scrap dealers and granular graphite substitutes. Graphite blocks and rods (also known as bulk graphite) are produced by a number of companies throughout the world, including UCAR and SGL. These materials are marketed on a worldwide basis by the Company. Calcium Carbide Products The Company's primary competitor in the manufacture and marketing of calcium carbide in the United States and Canada is Elkem. 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 plants of its pipeline customers. These plants are not supplied with acetylene by any source other than the Company, although certain pipeline acetylene customers have alternative production facilities producing the same end products for which they purchase acetylene from the Company. See " Calcium Carbide Products Business--Products and Markets." 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 through its versatility and ease of use. Acetylene provides the hottest cutting flame of all the fuel gases and thus allows for faster, cleaner cutting operations. Calcium carbide for metallurgical applications competes with magnesium- and lime-based desulfurization products and 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 all of its needle coke requirements from Seadrift, an affiliate of the Company. Seadrift 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 Seadrift. Due to restraints on local availability, Seadrift also purchases decant oil on the West and East Coasts at a higher cost (due primarily to transportation costs) than if obtained from a local refinery. Conoco, Seadrift's largest needle coke competitor, operates a large, integrated refinery that has 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 and, in certain cases, West Texas Intermediate crude oil. The Company regularly hedges oil costs by trading in futures contracts for crude oil and swap agreements for low sulfur fuel oil. The Company utilizes several suppliers of low sulfur decant oil in an effort to disperse the risk of availability to some degree. Prices and availability of low sulfur decant oil may be impacted by many factors, including world crude oil production and output, global demand for oil products and the production parameters of Seadrift's decant oil suppliers. While the Company believes that a sufficient amount of decant oil of an acceptable quality is currently readily available, there can be no assurance that Seadrift will be able to obtain an adequate quantity of suitable feedstocks at all times in the future or at acceptable prices. During fiscal 2000, the Company purchased a $3.5 million hydrodesulfurization (HDS) complex in connection with the expected implementation of an HDS project at Seadrift. In addition, the Company will spend an additional $1.6 million during fiscal 2001 to dismantle and transport the HDS unit to Seadrift. The HDS project in total is expected 7 9 to cost approximately $30 million. Once installed, it is expected that the HDS project will allow Seadrift to purchase virtually all of its decant oil feedstock needs from the Gulf Coast as it will have the capability to reduce the sulfur levels of high sulfur feedstocks to acceptable levels. The completion of the HDS project is strategically critical for the Company and Seadrift as it is expected to significantly reduce decant oil procurement costs and improve Seadrift's needle coke quality from a sulfur content perspective. In addition, the completion of the HDS project should mitigate the risk of feedstock supply shortages as the potential universe of feedstocks increases significantly once Seadrift installs HDS capacity. The implementation of the HDS project is contingent upon securing adequate financing to fund the remaining $25 million cost of the project. See "Liquidity and Capital Resources" under Item 7 of this Form 10-K. During fiscal 2000, the Company's feedstock costs increased approximately 61% per barrel as a result of the worldwide shortage of petroleum products, particularly crude and heating oils. The Company's commodity hedging program partially mitigated the impact of the increase in feedstock costs during fiscal 2000. The Company's current financial commodity hedge instruments expire in December 2000. Based on widely published forward rates for petroleum products, the Company expects its feedstock costs to steadily decline as fiscal 2001 progresses. However, there can be no assurance that the expected trend in petroleum prices and, therefore, decant oil costs, will transpire. See "Liquidity and Capital Resources" under Item 7 of this Form 10-K. Electricity for graphitizing electrodes represents a major cost to the Company. 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, Seadrift is a net power producer, resulting in only nominal electrical power costs for that facility. The Company purchases natural gas for heating kilns from either interstate natural gas carriers or from local gas well operators. During the latter half of fiscal 2000, spot natural gas prices began to rise as supply levels declined as a result of lower production levels in the U.S. The Company's financial results for fiscal 2000 were not significantly impacted by the increase in spot natural gas prices as the Company had negotiated a fixed price supply contract for its fiscal 2000 natural gas requirements. Given the current spot prices for natural gas, the Company expects to experience a significant increase in its natural gas costs during fiscal 2001. However, the increase has been partially mitigated as the Company has negotiated fixed rate supply contracts for a significant portion of its expected natural gas requirements in fiscal 2001 at rates substantially lower than current spot rates. In addition, based on widely published forward rates for natural gas, the Company expects the cost of its natural gas requirements to steadily decline as fiscal 2001 progresses as the costs for spot natural gas purchases are expected to decline. However, there can be no assurance that the expected trend in natural gas prices will transpire. See "Liquidity and Capital Resources" under Item 7 of this Form 10-K. Calcium Carbide Products Raw materials required for calcium carbide manufacture are lime, coke and large amounts of electricity for submerged arc electric furnaces. The Company believes that its raw materials are widely available at satisfactory prices. Both the Louisville and Calvert City plants are supplied electricity under conventional power contracts. EMPLOYEES The Company employed 907 people as of July 31, 2000. At July 31, 2000, the Company employed 680 people in its graphite electrode products segment, of which 34% were salaried and 66% were paid hourly. Seadrift is staffed entirely with salaried personnel. At July 31, 2000, there were 214 people in the calcium carbide segment, of which 19% were salaried and 81% were paid hourly. At July 31, 2000, the Company employed 13 people in its corporate function, all of whom were salaried employees. The Company has various labor agreements with unions representing its hourly work force. Within the graphite electrode products business, the St. Marys labor agreement was renegotiated and became effective in June 1999. The new agreement will expire in June 2001. This agreement was negotiated to terms deemed satisfactory to the Company. The Niagara Falls labor agreement expires in January 2004. 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, although 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. 8 10 PATENTS AND TRADEMARKS The Company has filed a trademark and copyright application with respect to software it has developed. The software, to be marketed under the name ArchiTech, is used in monitoring the operating parameters of electric arc furnaces. 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 (the BOC Environmental Indemnity Agreement). 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 environmental claims or liabilities. The BOC indemnity survives with respect to 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 environmental costs in excess of an aggregate $100,000 threshold up to a maximum exposure of $6.0 million for a five-year period which expired in January 2000. 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 environmental 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. No environmental claims were submitted for indemnification by SGL Corp. During fiscal 1999, the Company completed an environmental compliance audit (ECA) of all five of its operating facilities. Such ECA was completed by an independent, experienced environmental consulting firm which assessed the compliance status of each facility. In addition to the compliance objectives, the ECA evaluated the effectiveness of the existing management systems with respect to environmental compliance as well as the risks associated with management practices related to the use, storage, and disposal of regulated and non-regulated materials. All areas of non-compliance identified by the ECA have been corrected and the Company is in the process of implementing suggestions to achieve best management practices in an effort to maintain and improve environmental performance. None of the areas of non-compliance identified by the ECA were deemed to be material. The Clean Air Act was amended in 1990 (including Title V). The Clean Air Act has resulted and it is likely that it 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. In the process of developing permit applications for facility upgrades at the St. Marys, PA graphite plant, the Company determined that certain parameters in its air permits do not reflect current operations. The Company has advised the appropriate state environmental authorities. The Company is in the process of implementing a plan of action to achieve resolution of this issue. Such plan of action includes the installation and ongoing operation of an air emissions scrubbing unit. The cost estimate for this unit is approximately $4.0 million installed, with an additional $0.5 million per year in ongoing cash operating costs. The facility improvements are expected to be made during the Company's fiscal year ending 9 11 July 31, 2001. The Company believes that certain costs are subject to reimbursement under the BOC Environmental Indemnity Agreement. The Company expects that the fine to be levied in connection with this issue will be immaterial. During fiscal 2000, the Company spent approximately $0.6 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 2001, the Company expects to spend approximately $4.5 million for such projects, a substantial portion of which is expected to be reimbursed under the BOC Environmental Indemnity Agreement. ITEM 2 PROPERTIES The Company maintains its corporate headquarters at One Gateway Center, Pittsburgh, Pennsylvania under a lease with a term expiring on June 30, 2003. The Company has the following additional properties, which are owned or leased, as indicated:
Area (approximate Owned Location Use square feet) or Leased - ----------------------------------------------------------------------------------------------------------------------- Graphite electrode products facilities: Niagara Falls, New York Electrodes 1,000,000 Owned St. Marys, Pennsylvania Electrodes 742,000 Owned Seadrift, Texas Needle coke 743,000 Owned Calcium carbide products facilities: Calvert City, Kentucky Carbide products 150,000 Owned Louisville, Kentucky Carbide products 200,000 Owned Louisville, Kentucky Carbide sales, technical and finance offices 6,000 Leased =======================================================================================================================
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 generally 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 $26.1 million, $29.3 million and $37.7 million for the fiscal years ended July 31, 2000, 1999 and 1998, 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 Department of Justice that the Grand Jury is investigating price fixing by producers of graphite products in the United States and abroad during the period 1992 to 1997. 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. 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. Subsequent to the initiation of the DOJ investigation, four civil cases were filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia asserting claims on behalf of a class of purchasers for violations of the Sherman Act. These cases, which have been consolidated, name the Company, UCAR, SGL Corp. and SGL 10 12 as defendants and seek treble damages. On March 30, 1998, a number of purchasers who were previously included in the purported class of plaintiffs covered by the consolidated case initiated a separate action in the same District Court which asserts substantially the same claims and seeks the same relief as the consolidated case and names the Named Defendants, as well as Showa Denko. Thereafter, seven additional groups of purchasers who were previously included in the purported class of plaintiffs covered by the consolidated case instituted their own actions against the Named Defendants, Showa Denko and, in several cases, certain present or former related parties of UCAR and Showa Denko, asserting substantially the same claims and seeking the same relief as in the consolidated case. Four such actions were filed in the United States District Court for the Eastern District of Pennsylvania on April 3, 1998, May 14, 1998, May 28, 1998 and March 31, 1999, respectively. One action was filed in the United States District Court for the Northern District of Ohio on April 17, 1998 but was transferred to the Eastern District of Pennsylvania for pre-trial proceedings. Another action was filed in the United States District Court for the Western District of Pennsylvania on June 17, 1998 but was transferred to the Eastern District of Pennsylvania for pre-trial proceedings. Another action was filed in the United States District Court of the Middle District of Pennsylvania on April 10, 2000, but was transferred to the Eastern District of Pennsylvania for pre-trial proceedings. The complaints or amended complaints in some of the cases have also named as defendants other companies including Mitsubishi Corporation, Tokai Carbon U.S.A., Inc. and related companies. On December 7, 1998, the Company was served with a complaint filed by Chaparral Steel Company against the Named Defendants, Showa Denko and parties related to Showa Denko and UCAR in state court in Ellis County, Texas alleging violations of various Texas state antitrust laws and seeking treble damages. Chaparral Steel Company has filed an amended complaint adding two additional related plaintiffs, a second amended complaint adding additional defendants Nippon Carbon Co., Ltd., SEC Corporation, Tokai Carbon Company, Ltd., Tokai Carbon USA, Inc., VAW Aktiengesellscheft and VAW Carbon GMBH, and third, fourth and fifth amended complaints. The Company has reached settlement agreements representing approximately 96% of domestic antitrust claims with the class plaintiffs and the plaintiffs that filed lawsuits on March 30, 1998, April 3, 1998, April 17, 1998, May 14, 1998, May 28, 1998, June 17, 1998 and March 31, 1999 and other purchasers who had yet to file lawsuits. The settlement agreement with the class has been approved by the Court. Although various of the settlements are unique, in the aggregate they consist generally of current and deferred cash payments and, in a number of cases, provisions which provide for additional payments under certain circumstances ("most favored nations" provisions). In addition to the settlements discussed above, the Company may also settle with various additional purchasers. On February 10, 1999, a U.S. corporation which allegedly made purchases on behalf of two foreign entities and a group of 22 foreign purchasers which are based in several foreign countries filed a complaint against the Company, UCAR, SGL, Tokai Carbon Co., Ltd., Tokai Carbon U.S.A., Inc., Nippon Carbon Co., Ltd., SEC Corporation and certain present and former related parties of UCAR in United States District Court for the Eastern District of Pennsylvania. This complaint has been amended to add four additional defendants. On September 24, 1999, three Australian companies and one New Zealand company filed a complaint against the same parties as are named in the lawsuit filed on February 10, 1999. These cases assert substantially the same claims and seek the same relief as the consolidated case. Other foreign purchasers have also made similar claims against the Company but have not filed lawsuits. The Company understands that defendants UCAR, SGL and Showa Denko have reached settlement agreements with the class action plaintiffs, which have been approved by the court, and have also settled claims brought by various individual purchasers. The Company further understands that UCAR, Robert P. Krass, Robert J. Hart, SGL, Robert J. Koehler, Showa Denko, Tokai, SEC Corporation and Nippon Carbon Co. have pled guilty to antitrust conspiracy charges filed by the DOJ and have agreed to pay fines and, in the cases of Messrs. Krass and Hart, to serve prison sentences, in connection with those guilty pleas. The Company also understands that the DOJ has indicted Mitsubishi Corporation and Georges Schwegler, a former UCAR employee. The Company has also advised the Commission of the European Communities (the European Commission) that it wishes to invoke its Leniency Notice. Generally under these guidelines, the European Commission may reduce fines and other penalties if a company sufficiently cooperates with the European Commission. On January 24, 2000, the European Commission adopted a Statement of Objections against the Company, SGL, UCAR, VAW Aluminum AG, Showa Denko KK, Tokai Carbon Co. Ltd., Nippon Carbon Co. Ltd. and SEC Corporation. The Company has prepared 11 13 and submitted to the European Commission a response to the Statement of Objections and has appeared at a hearing regarding the imposition of fines. The Company understands that the European Commission will determine fines, if any, at the completion of its proceedings. On June 18, 1998, a group of Canadian purchasers filed a lawsuit in the Ontario Court (General Division) claiming a conspiracy and violations of the Canadian Competition Act. The Canadian lawsuit names the Named Defendants and Showa Denko, as well as several present or former parents, subsidiaries and/or affiliates of UCAR, SGL and Showa Denko. The Canadian Competition and Consumer Law Division (Canadian Division) has initiated an inquiry and the Company is cooperating fully with the authorities conducting that inquiry pursuant to an agreement with the Director of Research and Investigation of the Canadian Division under which the Company and its present and former officers, directors and employees will not be subject to criminal prosecution. During fiscal 1998, the Company recorded a $38 million pre-tax charge ($25 million after expected tax benefits) for potential liabilities resulting from civil lawsuits, claims, legal costs and other expenses associated with the pending antitrust matters (the Initial Antitrust Charge). During fiscal 1999, the Company recorded an additional $7 million charge ($4.5 million after expected tax benefits) for such potential liabilities (the Supplemental Antitrust Charge). The combined $45 million charge (the Antitrust Charge) represents the Company's estimate, based on current facts and circumstances, of the expected cost to resolve pending antitrust claims. The Company understands that defendants UCAR, SGL and Showa Denko have reached settlements with the class action plaintiffs and various individual purchasers at amounts substantially higher than the levels contemplated in the Antitrust Charge. In light of these and other developments including: (a) possible future settlements with other purchasers, (b) the outcome of the European Commission antitrust investigation, (c) potential additional lawsuits by foreign purchasers, (d) the failure to satisfy the conditions to the class action settlement, and (e) adverse rulings or judgments in pending litigation, including an adverse final determination as to the right of the foreign purchasers to relief under U.S. antitrust laws, the antitrust matters could result in aggregate liabilities and costs which could differ materially and adversely from the Antitrust Charge and could affect the Company's financial condition and its ability to service its currently planned liquidity needs. As of July 31, 2000, $42.2 million in antitrust settlements and costs had been paid. 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, 2000, a $0.2 million reserve has been recorded to provide for estimated exposure on claims for which a loss is deemed probable. 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. 12 14 PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the NASDAQ National Market System. The following tables provide information regarding the high and low prices at which the Company's Common Stock traded for each of the quarterly periods in the fiscal years ended July 31, 2000 and 1999. QUARTERLY STOCK INFORMATION Year Ended July 31, 2000 HIGH LOW - ------------------------------------------------------------------- First $13 7/8 $ 5 3/8 Second 9 1/4 5 3/8 Third 7 3/8 3 7/16 Fourth 5 3/4 2 1/4 - ------------------------------------------------------------------- Fiscal Year $13 7/8 $ 2 1/4 =================================================================== Year Ended July 31, 1999 High Low - ------------------------------------------------------------------- First $21 5/8 $ 7 3/4 Second 17 1/8 10 3/4 Third 13 11/16 9 3/8 Fourth 15 11 - ------------------------------------------------------------------- Fiscal Year $21 5/8 $ 7 3/4 =================================================================== No cash Common Stock dividends were declared during fiscal 2000 or fiscal 1999. The Company estimates that as of September 22, 2000, there were 100 record holders and approximately 1,500 beneficial holders of its Common Stock. DIVIDEND OF PREFERRED SHARE PURCHASE RIGHTS In fiscal 1999, the Company's Board of Directors declared a dividend distribution of one Preferred Share Purchase Right on each outstanding share of Common Stock. The dividend distribution was made on June 1, 1999 payable to stockholders of record on that date. The Preferred Share Purchase Rights are designed to ensure that all of the Company's stockholders receive fair and equal treatment in the event of certain takeovers of the Company. The Rights are not intended to prevent a takeover, but rather to encourage anyone seeking to acquire the Company to negotiate with the Company's Board of Directors prior to attempting a takeover. 13 15 ITEM 6 SELECTED FINANCIAL DATA
Year Ended July 31, 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts, percentages and pricing information) STATEMENTS OF OPERATIONS DATA(1): Net sales $ 207,355 $ 240,130 $ 293,751 $ 289,586 $ 259,394 Cost of goods sold 197,619 202,888 242,535 235,401 214,396 Selling, general and administrative 12,100 14,925 14,884 16,031 14,609 Early retirement/severance charge(2) 2,050 -- -- 1,100 -- Other expense (income)(3) -- 15,043 38,000 -- (308) - ------------------------------------------------------------------------------------------------------------- Operating income (loss) (4,414) 7,274 (1,668) 37,054 30,697 Interest expense, net 10,423 6,617 5,130 7,894 9,073 Special financing expenses -- -- -- -- 889 Provision (benefit) for income taxes (5,108) 259 (1,729) 10,732 6,416 - ------------------------------------------------------------------------------------------------------------- Income (loss) from operations and before extraordinary loss $ (9,729) $ 398 $ (5,069) $ 18,428 $ 14,319 ============================================================================================================ Per share income (loss) from operations and before extraordinary loss applicable to common stock: Basic $ (1.17) $ 0.05 $ (0.58) $ 2.16 $ 1.90 Diluted (1.17) 0.05 (0.58) 2.09 1.67 BALANCE SHEET DATA (AT PERIOD END): Working capital $ 72,776 $ 75,604 $ 70,129 $ 100,825 $ 104,825 Property, plant and equipment, net 124,910 130,342 137,603 87,653 65,177 Total assets 250,494 274,416 289,099 235,860 212,870 Long-term debt 120,800 110,500 110,232 80,035 81,763 Stockholders' equity 71,470 81,317 84,814 96,209 74,808 OTHER OPERATING DATA(1): Gross profit margin percentage 4.7% 15.5% 17.4% 18.7% 17.3% Operating income (loss) margin percentage (2.1) 3.0 (0.6) 12.8 11.8 EBITDA(4) $ 16,319 $ 40,420 $ 50,708 $ 49,354 $ 39,560 Depreciation and amortization(4) 18,683 18,103 14,376 11,200 9,171 Capital expenditures 13,197 15,532 64,306 33,765 15,670 - -------------------------------------------------------------------------------------------------------------
(1) Certain amounts reported in previous years have been reclassified to conform with current year presentation. (2) Represents costs associated with the elimination of approximately 35 salaried positions in fiscal 2000 and with the retirement of two executives in fiscal 1997. (3) Represents expense related to facility closure activities in fiscal 1999, expenses related to the Antitrust Reserve in fiscal 1999 and 1998 and income related to a long-term contract for the construction of a graphite electrode plant in the People's Republic of China (the China Contract) in fiscal 1996. (4) EBITDA is defined as operating income before depreciation and amortization, early retirement/severance charges and other expense and 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. No cash Common Stock dividends were declared or paid during the five-year period ended July 31, 2000. 14 16 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW OF RESULTS The Company's results from operations before extraordinary loss for the fiscal year ended July 31, 2000 were a loss of $9.7 million, or $1.17 per share, versus earnings of $0.4 million, or $0.05 per share, for the fiscal year ended July 31, 1999 and a loss of $5.1 million, or $0.58 per share, for the fiscal year ended July 31, 1998. During fiscal 1999 and fiscal 1998, the Company recorded net charges of $4.5 million and $25.0 million, respectively, representing the Antitrust Charge. Also, the Company recorded a $1.3 million net charge to provide for an early retirement/severance program during fiscal 2000 and a $5.2 million net charge to provide for the closure of certain graphite production facilities (the Closure Charge) during fiscal 1999. An extraordinary loss resulting from the early retirement of the Senior Notes (as herein defined) during fiscal 1998 reduced the Company's net results to an $11.5 million loss, or $1.32 per share. The Company's reportable business segments include graphite electrode products, which includes graphite electrodes, needle coke and other graphite specialty products, and calcium carbide products, which includes pipeline acetylene, calcium carbide for 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 Annual Report on Form 10-K:
Year Ended July 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------- (dollar amounts in thousands) Net sales: Graphite electrode products $ 158,818 $ 183,618 $ 215,767 Calcium carbide products 48,537 56,512 77,984 - ------------------------------------------------------------------------------------------------------- Total net sales $ 207,355 $ 240,130 $ 293,751 ======================================================================================================= Percentage of net sales: Graphite electrode products 76.6% 76.5% 73.5% Calcium carbide products 23.4 23.5 26.5 - ------------------------------------------------------------------------------------------------------- Total percentage of net sales 100.0% 100.0% 100.0% ======================================================================================================= Gross profit as a percentage of segment net sales: Graphite electrode products 3.0% 16.4% 18.0% Calcium carbide products 10.3 12.6 15.9 Percentage of total net sales: Total gross profit 4.7% 15.5% 17.4% Selling, general and administrative 5.8 6.2 5.0 Operating income (loss) (2.1) 3.0 (0.6) Income (loss) from operations and before extraordinary loss (4.7) 0.2 (1.7) Net income (loss) (4.7) 0.2 (3.9) =======================================================================================================
15 17 FISCAL 2000 VERSUS FISCAL 1999 Net sales for fiscal 2000 were $207.4 million versus $241.1 million in fiscal 1999, a 13.6% decrease. Graphite electrode product net sales declined 13.5% to $158.8 million, while calcium carbide product net sales declined 14.1% to $48.5 million. Within the graphite electrode products segment, graphite electrode net sales were $117.3 million, a 9.9% decrease from fiscal 1999 resulting primarily from a 9.6% decline in average net electrode prices. Graphite electrode shipments in fiscal 2000 totaled 103.8 million pounds versus 104.0 million pounds in fiscal 1999. Domestic and foreign electrode shipments as a percentage of total electrode shipments during fiscal 2000 were 58.0% and 42.0%, respectively, versus 57.7% and 42.3%, respectively, in fiscal 1999. Average domestic electrode prices were down 6.1% in fiscal 2000 primarily as a result of increased price competition. Average foreign electrode prices declined 13.9% during fiscal 2000 as a result of increased price competition in certain foreign markets, coupled with the negative impact of the weaker Euro on the Company's net price realizations for electrode sales in Europe. The Company expects shipments of graphite electrodes to decline to approximately 90 million to 95 million pounds per year as a result of its lowering electrode production beginning in fiscal 2001. In addition, the Company's average net price realizations are expected to improve as it shifts electrode marketing efforts away from Europe and into domestic and other export markets which have more favorable net prices. Needle coke sales during fiscal 2000 were $21.5 million, a 32.5% decrease from fiscal 1999. Needle coke sales volumes in fiscal 2000 declined 22.1% to 61.2 thousand tons, while average needle coke prices declined 13.3% during fiscal 2000. Shipments and average prices for needle coke were lower during fiscal 2000 due to weaker demand for needle coke and increased price competition in this market. Graphite specialty product sales during fiscal 2000 totaled $20.0 million, a 7.5% decline from fiscal 1999 primarily as a result of lower bulk graphite sales. Within the calcium carbide products segment, acetylene sales (which includes pipeline acetylene and calcium carbide for fuel gas applications) during fiscal 2000 declined 22.1% to $24.3 million. The decline was primarily a result of lower shipments to pipeline acetylene customers. ISP, the Company's largest pipeline acetylene customer, had begun to reduce their demand for the Company's acetylene during fiscal 1999 by approximately 75% of its historical levels. This reduction in demand continued into fiscal 2000. In addition, shipments of calcium carbide for fuel gas applications were also lower during fiscal 2000, contributing to the lower net sales in this product area. Sales of calcium carbide for metallurgical applications during fiscal 2000 declined 7.1% to $18.3 million due primarily to lower net prices in the desulfurization product area. Increased price competition in calcium carbide as well as from substitute products has had a negative impact on price realizations for some metallurgical applications. However, shipments of calcium carbide for metallurgical applications improved slightly during fiscal 2000 and the Company has experienced price increases in certain metallurgical products. The Company has been successful in realizing price increases in the fuel gas sector as well. The Company believes this trend may continue into fiscal 2001. All other sales within calcium carbide product net sales totaled $6.0 million, a 5.4% increase primarily resulting from increased sales of electrode paste and carbide lime. Gross profit as a percentage of graphite electrode product net sales for fiscal 2000 was 3.0% versus 16.4% in fiscal 1999. The effects of the Company's working capital improvement program negatively impacted the gross profit margin during fiscal 2000. The Company temporarily reduced graphite electrode and needle coke production to lower inventory levels during fiscal 2000. The Company estimates that its cost of goods sold for fiscal 2000 includes approximately $10 million in fixed costs that would have been capitalized into inventory had the Company been operating at higher production levels during the period. Lower average prices for graphite electrodes and needle coke as well as lower shipments of needle coke also contributed to the lower gross profit margins in fiscal 2000. In addition, depreciation and amortization charges were approximately $0.6 million higher during fiscal 2000 as a result of the significant level of capital improvements made during recent fiscal years. Also, the gross cost of decant oil, the primary raw material in the production of needle coke, increased approximately 61% during fiscal 2000, contributing to the lower results. The Company's commodity hedging program partially mitigated the impact of the higher decant oil costs incurred in fiscal 2000. The high level of world petroleum prices may continue to have a negative effect on graphite electrode product gross profit margins for the foreseeable future. Gross profit as a percentage of calcium carbide product net sales for fiscal 2000 was 10.3% versus 12.6% in fiscal 1999. The decline in the gross margin is primarily a result of lower sales in the carbide business. Selling, general and administrative expenditures for fiscal 2000 were $12.1 million, an 18.9% decline from fiscal 1999. The decrease in expenditures was due primarily to lower departmental operating costs achieved as a result of the Company's cost saving programs, coupled with lower employee-related benefit costs during fiscal 2000. 16 18 During fiscal 2000, the Company recorded a $2.0 million charge to provide for severance payments and benefits associated with the elimination of approximately 35 salaried positions. Substantially all of such payments are expected to be made through April 30, 2001. Net interest expense for fiscal 2000 was $10.4 million, including $9.7 million of interest expense associated with the Company's revolving credit facility, $0.3 million in fee amortization and $0.4 million in bank fees and other costs. Net interest expense for fiscal 1999 was $6.6 million, including $7.4 million of interest expense associated with the Company's revolving credit facility and $0.3 million in bank fees and other costs, less $1.1 million in capitalized interest. The effective tax rate was 34.4% for fiscal 2000. The effective rate differs from the federal statutory rate due primarily to state income taxes and non-deductible expenses. FISCAL 1999 VERSUS FISCAL 1998 Net sales for fiscal 1999 were $240.1 million versus $293.8 million in fiscal 1998, an 18.3% decrease. Graphite electrode product net sales declined 14.9% to $183.6 million, while calcium carbide product net sales declined 27.5% to $56.5 million. Within the graphite electrode products segment, graphite electrode net sales were $130.2 million, representing an 18.6% decrease resulting from a 12.8% decrease in electrode shipments and a 6.7% decrease in average electrode prices. Graphite electrode shipments for fiscal 1999 totaled 104.0 million pounds versus 119.3 million pounds in fiscal 1998. Weakness in certain regions of the global economy had a negative impact on demand for electric arc furnace steel and, as a result, lower graphite electrode shipments and prices during fiscal 1999. Domestic and foreign electrode shipments as a percentage of total electrode shipments for fiscal 1999 were 57.7% and 42.3%, respectively, versus 55.7% and 44.3%, respectively, in fiscal 1998. Average domestic electrode prices during fiscal 1999 were down 9.6% from fiscal 1998 due to lower electric arc furnace steel production in the U.S. market. Average foreign net prices were down 3.4% due to lower transactional prices overseas and as a result of an unfavorable U.S. dollar exchange rate. Needle coke sales during fiscal 1999 decreased 6.1% to $31.8 million. A 15.9% increase in needle coke shipments was more than offset by a 19.0% decrease in needle coke prices. The decrease in needle coke prices was due primarily to the lower demand for graphite electrodes described above, which in turn has resulted in weakening demand for needle coke industry-wide. Graphite specialty product sales during fiscal 1999 were essentially flat at $21.6 million, although a 37.5% increase in higher-margin bulk graphite sales essentially offset a 25.9% reduction in lower-margin granular graphite sales. During fiscal 1999, one of the Company's graphite customers, Dow Chemical (Dow), announced its intention to permanently close its magnesium production facility in Freeport, Texas. The Company previously supplied Dow with all of its graphite anode needs under a long-term supply agreement. The cancellation of the supply agreement accounts for approximately 8 million pounds of graphite production capacity. In connection with a cost savings program (discussed below), the Company has eliminated a significant amount of the costs associated with producing the graphite anodes previously supplied to Dow. The cancellation of this contract contributed to the reported decline in shipments of graphite electrodes for fiscal 1999. Within the calcium carbide product segment, pipeline acetylene sales for fiscal 1999 declined 40.8% to $17.1 million. The decrease was the result of a significant decrease in shipments to pipeline acetylene customers. ISP, the Company's largest pipeline acetylene customer, in response to lower global demand and lower prices for some of its acetylene-based products, reduced their demand for the Company's acetylene during fiscal 1999 by as much as 75% of its historical levels. This reduction in demand may be permanent. Partially offsetting the sales effect of the deliveries to pipeline acetylene customers was an increase in average pipeline acetylene prices resulting from the price/volume structure of the Company's acetylene supply contracts. Sales of calcium carbide for metallurgical applications of $19.7 million represented a 17.0% decrease from fiscal 1998, primarily due to lower shipments. Weakness in domestic steel production by integrated steel producers, coupled with lower prices for magnesium (a substitute product) and selective promotion of magnesium over calcium carbide by a major distributor, resulted in the lower sales levels. Calcium carbide for fuel gas applications totaled $14.1 million for fiscal 1999, a 29.8% decrease from fiscal 1998 resulting primarily from lower shipments. All other calcium carbide product sales for fiscal 1999 increased slightly to $5.7 million as a result of increased shipments of electrode paste. Gross profit as a percentage of graphite electrode product sales for fiscal 1999 was 16.4% versus 18.0% in fiscal 1998. The decrease in the gross margin was the result of lower prices of graphite electrodes and needle coke and the decrease in shipments of graphite electrodes. In addition, depreciation and amortization increased approximately $4.0 million 17 19 in fiscal 1999, which alone negatively impacted the gross margin by 2.2%. Partially offsetting the effect of the above was a decline in net decant oil costs, which were 12.4% lower during fiscal 1999. Gross profit as a percentage of calcium carbide product sales for fiscal 1999 was 12.6% versus 15.9% in fiscal 1998. The decrease in the gross margin was the result of lower sales in the carbide business. In response to weak demand for many of the Company's products, the Company initiated a comprehensive cost savings program. A component of this program is the closure of two high-cost graphite production facilities at the Company's St. Marys, Pennsylvania plant. This cost savings program, coupled with the commissioning of two major capital projects in the Company's graphite business in February 1999, reduced staffing levels by approximately 300 employees Company wide, representing a reduction in staffing of approximately 24%. The Company also achieved cost reductions in the areas of raw materials, utilities, transportation and professional services during fiscal 1999 in an effort to help offset the negative effect of lower sales. The Company expects to achieve further cost reductions in fiscal 2000. Selling, general and administrative expenditures for fiscal 1999 were $14.9 million, unchanged as compared to fiscal 1998. An increase in expenses associated with the Company's variable incentive compensation plans was essentially offset by a reduction in general operating expenses, which was the result of the Company's cost savings program. During fiscal 1999 and in connection with the Company's cost savings program discussed above, the Company announced plans to close certain baking and graphitizing operations at its St. Marys, PA plant resulting in a 12% reduction in the Company's graphite electrode production capacity. The Company estimates that it is capable of producing 110 million pounds of graphite electrodes per year after the facility closure. Other expense in fiscal 1999 includes the Closure Charge. Included in this charge is $5.7 million for the net write-off of impaired fixed assets and spare parts inventory, $1.4 million for hourly and salary workforce severance costs and $0.9 million in other closure-related costs. Essentially all of these costs were funded in fiscal 1999. Other expense for fiscal 1999 also includes the $7.0 million Supplemental Antitrust Charge. Net interest expense for fiscal 1999 was $6.6 million, including $7.4 million of interest expense associated with the Company's revolving credit facility and $0.3 million in bank fees, less $1.1 million in capitalized interest. Net interest expense for fiscal 1998 was $5.1 million, including $5.2 million of interest expense associated with the revolving credit facility, $1.5 million of interest expense associated with the 11.5% Senior Notes due 2003 (the Senior Notes) previously outstanding and $0.4 million in bank fees, less capitalized interest of $1.7 million and interest income of $0.3 million. The effective tax rate for fiscal 1999 was 39.4%. The effective rate differs from the federal statutory rate due primarily to state taxes and non-deductible expenses, offset by benefits derived from the Company's foreign sales corporation. As a result of a tender of the Company's Senior Notes in fiscal 1998 (the Tender) and a related revolving credit facility refinancing, the Company recorded a $6.4 million net extraordinary loss on the early extinguishment of debt during fiscal 1998. 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 a revolving credit facility replaced in connection with the Tender. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Effective for fiscal 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) #133, "Accounting for Derivative Instruments and Hedging Activities." The adoption of SFAS #133 resulted in a net of tax transition gain of $1.6 million recorded by the Company as a cumulative-effect adjustment to accumulated other comprehensive income to recognize the fair value of all derivatives. The Company's derivatives consist of foreign exchange forward contracts, oil futures and swap contracts and interest rate caps and swap contracts; all are designated as cash-flow hedges. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. In this documentation, the Company identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and states how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. In December 1999, the staff of the SEC issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements." SAB 101 outlines the basic criteria that must be met to recognize revenue, and provides guidelines 18 20 for disclosure related to revenue recognition policies. This guidance is required to be implemented in the fourth quarter of fiscal 2001. The Company is currently reviewing this guidance in order to determine the impact of its provisions, if any, on the consolidated financial statements. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity needs are primarily for capital expenditures, working capital (including antitrust settlements) and debt service on its revolving credit facility. The weakness in certain regions of the global economy and its impact on demand for the Company's products has resulted in the deferment of certain discretionary capital projects. The Company currently estimates that it will spend approximately $12 million in capital improvements during its fiscal year ending July 31, 2001. This projection includes $1.6 million for the HDS project for Seadrift. The HDS project in total is expected to cost approximately $30 million, $3.5 million of which has been spent as of July 31, 2000. The implementation of the HDS project is contingent upon securing adequate financing to fund the remaining costs of the project. In addition, the Company paid $18.5 million in antitrust payments during fiscal 2000. The increase in prices of decant oil (a major raw material for Seadrift) has also resulted in an increased working capital requirement for this raw material. During fiscal 2000, the Company implemented a working capital improvement program whereby the Company temporarily reduced graphite electrode and needle coke production in order to reduce inventory levels and further improve the Company's cash flow and cost structure. This program had a positive effect on operating cash flows as cash outflows for raw materials, labor and utilities were reduced during the period of lower production. However, the program had a negative impact on the Company's operating results during fiscal 2000 as the Company did not benefit from operating efficiencies and fixed cost absorption typical of normal levels of production. This situation significantly contributed to the Company reporting a net loss from operations for the fiscal year ended July 31, 2000. In connection with the tender of substantially all of the Company's 11.5% Senior Notes in fiscal 1998 (the Tender), the Company entered into an agreement with a consortium of banks led by PNC Bank (the Bank Group) for a $150 million revolving credit facility with a $15 million sub-limit for letters of credit which will expire in December, 2003 (as amended, the 1997 Revolving Credit Facility). As a result of the working capital improvement program, the Company and the Bank Group reduced the amount available under the 1997 Revolving Credit Facility to $135.0 million as of July 31, 2000. As of July 31, 2000, the Company had $8.5 million in availability under the 1997 Revolving Credit Facility. Borrowings outstanding were $120.8 million and letters of credit were $5.7 million as of July 31, 2000. The 1997 Revolving Credit Facility is collateralized with the Company's receivables, inventory and property, plant and equipment. As a result of the decline in the Company's operating results, coupled with the increased capital needs during fiscal 2000, the Company was not in compliance with the financial covenants required to be maintained under the 1997 Revolving Credit Facility for the reporting period ended July 31, 2000. On November 13, 2000 (the Waiver Effective Date), the Company and the Bank Group agreed to an amendment and waiver with respect to the 1997 Revolving Credit Facility (the Amendment and Waiver) under which the covenant violations discussed above were waived until August 6, 2001. In connection with the Amendment and Waiver, the Company has agreed to issue to the Bank Group warrants for the Company's Common Stock. Warrants exercisable for nominal consideration representing 15% of the Company's Common Stock outstanding (1,249,701 shares) were fully earned on the Waiver Effective Date. The Company can earn back 10% of such warrants (warrants representing 833,134 shares) if it is able to reduce the commitment under the 1997 Revolving Credit Facility to $110.0 million on or before March 31, 2001. The Company can earn back the remaining 5% of such warrants (warrants representing 416,567 shares) if it is able to reduce the commitment under the 1997 Revolving Credit Facility to $85.0 million (if the commitment was reduced to $110.0 million on or before March 31, 2001) or to $110.0 million (if the commitment was not already reduced to $110.0 million on or before March 31, 2001) on or before July 31, 2001. The fee associated with the Amendment and Waiver is 200 basis points, or $2.7 million, fully earned as of the Waiver Effective Date and payable as follows: $0.3 million on the Waiver Effective Date; $0.7 million on April 1, 2001; $1.0 million on May 1, 2001; and $0.7 million on June 1, 2001. The fee is reduced to 100 basis points, or $1.35 million, if the 1997 Revolving Credit Facility is fully repaid by April 30, 2001. As a result of the Amendment and Waiver, interest costs under the 1997 Revolving Credit Facility are computed at a rate of PNC Bank's prime rate plus a spread of 100 basis points (currently 10.5%). Such spread increases to 200 basis points if the Company does not reduce the commitment under the 1997 Revolving Credit Facility by $25 million on March 31, 2001. The issuance of the warrants associated with the Amendment and Waiver resulted in a $3.4 million non-cash charge which will be amortized into interest expense over the vesting period of the warrants which ends on July 31, 2001. The $2.7 million amendment fee has been capitalized as a deferred debt issuance cost and will be amortized into interest expense over the remaining life of the 1997 Revolving Credit Facility. 19 21 As a result of the Amendment and Waiver, the commitment under the 1997 Revolving Credit Facility will be reduced by $0.5 million per month beginning on April 1, 2001. In addition, the Company has agreed to further reduce the commitment under the 1997 Revolving Credit Facility by an amount equal to the amount by which the Company's accounts receivable and inventory in total fall below certain thresholds, as more fully described in the Amendment and Waiver. Also, the commitment under the 1997 Revolving Credit Facility will be reduced by two-thirds of any refunds received by the Company from BOC related to the installation of a sulfur dioxide air emissions scrubbing unit at the Company's St. Marys, Pennsylvania facility. During the waiver period, the Company is restricted from issuing any equity (other than preferred share purchase rights) in the Company unless 100% of the net proceeds of any such issuance is used to repay and reduce the commitment under the 1997 Revolving Credit Facility. Any reduction in commitment arising as a result of these provisions is credited toward the $50 million reduction in commitment required to avoid the vesting of the warrants as outlined above. In connection with the Amendment and Waiver, the Company is required to achieve minimum monthly and quarterly EBITDA levels through July 2001, as well as sales commitment targets for needle coke and graphite electrodes for calendar 2001, all as more fully described in the Amendment and Waiver. Also, the Company must not allow its accounts receivable and inventory amounts in total to exceed certain thresholds and must maintain certain financial ratios with respect to accounts receivable and inventory, all as more fully described in the Amendment and Waiver. In connection with and as a requirement of the Amendment and Waiver, the Company has engaged Bear Stearns & Company to assist the Company in identifying strategic options or potential sources of financing to affect the $50 million reduction in commitment under the 1997 Revolving Credit Facility described above or otherwise refinance the 1997 Revolving Credit Facility. While the Company believes that there are certain strategic options or potential sources of financing available to the Company, there can be no assurance that the Company will be successful in reducing the commitment under the 1997 Revolving Credit Facility by $50 million to avoid the significant financial cost of not meeting the commitment reduction. The Company's expected operating results and cash flows from operations could be negatively impacted if demand for the Company's products weakens, if the U.S. dollar continues to strengthen versus the Euro or if increased oil costs continue for an extended period of time without increased product pricing. The negative impact of the operating factors noted above may continue to impact the Company's compliance with the financial covenants in the 1997 Revolving Credit Facility in the future. If the Company is not in compliance with such covenants in the future, the Company would have to obtain additional covenant violation waivers and amendments from its lenders, refinance the 1997 Revolving Credit Facility and/or obtain additional sources of financing. Terms and conditions of any settlements of pending antitrust claims may also adversely impact the Company's expected liquidity needs in the future. In the event that the Company's capital resources are not sufficient to fund the Company's planned capital expenditures, service its indebtedness, fund its working capital needs and pay any other obligation including those that may arise from pending legal proceedings and the resolution of current antitrust matters, the Company may be required to refinance or renegotiate the 1997 Revolving Credit Facility, obtain additional funding or further delay discretionary capital projects. If the Company were required to refinance or renegotiate the 1997 Revolving Credit Facility or obtain additional funding to satisfy its liquidity needs, there can be no assurance that funds would be available in amounts sufficient for the Company to meet its obligations or on terms favorable to the Company. During fiscal 1998, the Company's Board of Directors authorized the expenditure of up to $10 million to repurchase the Company's Common Stock. Subject to price and market considerations and applicable securities laws, such purchases may be made from time to time in open market, privately negotiated or other transactions. No time limit was placed on the duration of the repurchase program. The extent and timing of any repurchases will depend on market conditions and other corporate considerations. During fiscal 2000, the Company repurchased 25,000 shares of its Common Stock for $0.2 million under its share repurchase program. Since fiscal 1998, the Company has repurchased an aggregate 492,200 shares of its Common Stock under its share repurchase program at a total cost of $5.9 million. The 1997 Revolving Credit Facility currently precludes the Company from repurchasing its Common Stock. During fiscal 2000, total assets decreased $23.9 million to $250.5 million as of July 31, 2000. Current assets declined $17.9 million to $118.4 million primarily due to an $8.1 million decline in current deferred income taxes. In addition, inventories declined $7.0 million as a result of the Company's working capital improvement program. Property, plant and equipment declined $5.4 million to $124.9 million, as capital expenditures of $13.2 million were more than offset by depreciation of $18.6 million. Total liabilities declined $14.1 million to $179.0 million as of July 31, 2000 primarily due to the Company having funded $18.5 million in antitrust settlements and related legal costs. Total debt increased 20 22 $10.3 million to $120.8 million, while non-current deferred income taxes declined $7.9 million primarily as a result of the benefit of the Company's net tax operating loss generated in fiscal 2000. Stockholders' equity declined $9.8 million to $71.5 million primarily as a result of the Company's $9.7 million net loss in fiscal 2000. Cash flow provided by operations for fiscal 2000 was $5.9 million. Cash inflows from net loss plus non-cash items of $9.6 million were offset by a $3.7 million net change in working capital items. Major working capital inflows during fiscal 2000 included $7.0 million from inventories. These inflows were offset by cash outflows of $12.2 million for accounts payable and accrued expenses and $3.1 million for accounts receivable. During fiscal 2000, the Company paid net interest expenses of $8.2 million and received $8.5 million in net income tax refunds. The Company's investing activities have historically included capital expenditures ranging from $13.2 million in fiscal 2000 to $64.3 million in fiscal 1998. The substantial increase in capital expenditures during fiscal 1998 was due primarily to a 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. The Company's financing activities have principally represented borrowings 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. The Company also repurchased treasury shares in fiscal 2000, 1999, and 1998 at a cost of $0.2 million, $4.2 million and $1.9 million, respectively. Other financing activities during fiscal 1998 also included the effects of the Tender. ITEM 7A QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK The Company is exposed to financial, market and economic risks in many areas of its business. The Company utilizes several financial instruments and risk management programs in an effort to mitigate much of this exposure. The following is a summarization of the programs utilized by the Company in an attempt to mitigate these risks. FOREIGN CURRENCY RISKS Approximately 30% of the Company's net sales during each of the fiscal years ended July 31, 2000, 1999 and 1998 were to customers located in foreign countries. The majority of these foreign sales were denominated in local currencies, subjecting the Company to foreign currency exchange rate risk. The Company regularly enters into forward foreign currency contracts to help mitigate foreign currency exchange rate exposure on customer accounts receivable and sales commitments denominated in foreign currencies. These contracts require the Company to deliver foreign currencies in the future in order to receive U.S. dollars owed to it under the contracts at settlement. These contracts generally mature within 12 months and are principally unsecured contracts with commercial banks. Gains and losses related to forward foreign currency contracts are deferred and recognized in income at the time of the sale of the product. As of July 31, 2000, the Company had $10.6 million in forward foreign currency contracts outstanding. A hypothetical 10% change in forward rates would result in a gain or loss of approximately $1.0 million related to the contracts outstanding as of July 31, 2000, although any gain or loss would be substantially offset by an inverse change in the value of future collections on foreign accounts receivable or sales commitments. For purposes of this sensitivity analysis, the applicable forward rate for each contract as of July 31, 2000 was adjusted by the 10% hypothetical change and applied to the notional value of the contracts outstanding. The cash flows from these contracts are classified in a manner consistent with the underlying nature of the transactions. See Note 2 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. 21 23 COMMODITY PRICE RISKS The Company's affiliate, Seadrift, currently purchases approximately 2.0 million barrels of low sulfur decant oil each year to produce needle coke, the key raw material in the production of graphite electrodes. The cost of refinery decant oil is pegged to the U.S. Gulf Coast spot cargo barge prices and, in some cases, West Texas Intermediate crude oil. The Company regularly enters into crude oil and low sulfur fuel oil futures and swap agreements in order to help mitigate exposure to fluctuations in the cost of decant oil. These futures and swap contracts are financial hedges; the Company does not actually take delivery of the oil product that is the subject of the contracts. In the case of futures contracts, the Company agrees to purchase crude oil in the future at a set price, then liquidates the contract prior to settlement. The difference between the price of crude oil on the date the Company enters into the contract and the price on the settlement date represents the financial gain or loss on that contract. In the case of swap contracts, the Company agrees to pay a fixed price for low sulfur fuel oil and a counter party agrees to pay the variable market price for a particular month. The difference between the fixed price and the average market price for the applicable month represents the financial gain or loss on the contract. Gains and losses associated with these contracts, when settled, are deferred as an adjustment to Seadrift's oil inventory values and, ultimately, the carrying cost of needle coke. As of July 31, 2000, the Company had $3.9 million in low sulfur fuel oil and West Texas Intermediate crude oil swap contracts. A 10% change in the futures rates for these petroleum products would result in a $0.5 million gain or loss related to these contracts, although any gain or loss would be substantially offset by an inverse change in the purchase price of low sulfur decant oil expected to be purchased in the future. This hypothetical computation assumes a parallel shift in the applicable commodity futures prices. For purposes of this sensitivity analysis, forward low sulfur fuel oil prices for the months of August 2000 through December 2000 were adjusted by the 10% hypothetical change and applied to the notional number of barrels being hedged per the contracts outstanding. An increase in decant oil costs experienced in fiscal 2000 may continue to have a negative impact on the Company's gross margin if the higher oil costs continue for an extended period of time or if the Company is unable to realize needle coke price increases in fiscal 2001. The Company's commodity hedging program will mitigate the increase in oil costs to some degree in fiscal 2001. An additional market risk associated with the commodity product Seadrift purchases is availability of low sulfur decant oil of an acceptable quality. The Company utilizes several suppliers of low sulfur decant oil in an effort to try to mitigate the risk of availability to some degree. Prices and availability of low sulfur decant oil may be impacted by many factors, including world crude oil production and output, global demand for oil products and the production parameters of Seadrift's decant oil suppliers. While the Company believes that a sufficient amount of decant oil of an acceptable quality is currently readily available, there can be no assurance that Seadrift will be able to obtain an adequate quantity of suitable feedstocks at all times in the future or at acceptable prices. If financing is secured and the project is completed, the HDS project is expected to significantly mitigate this risk. See Note 2 to the consolidated financial statements for a detailed description of the consolidated financial statement impact of the Company's oil hedging activities during the fiscal years presented therein. INTEREST RATE RISKS The Company's indebtedness as of July 31, 2000 is comprised of $120.8 million in borrowings outstanding under the 1997 Revolving Credit Facility. Interest cost under the 1997 Revolving Credit Facility is based on PNC Bank's prime rate plus a spread (currently 1.0%). The Company uses interest rate swap and cap agreements to hedge a portion of its debt cost in an attempt to strike a favorable balance between fixed and variable rate debt and keep financing costs as low as possible. The Company has entered into several interest rate swap and cap agreements. The interest rate swap agreements effectively fix the Company's LIBOR rate at approximately 5.7% for a decreasing level of borrowings outstanding ranging from $55.0 million in fiscal 2001 to $15.0 million in fiscal 2003. The interest rate swap agreements did not have a material impact on the Company's consolidated financial statements during the fiscal year ended July 31, 2000. The interest rate cap agreements effectively cap the Company's base LIBOR rate at 7.5% on $20.0 million in borrowings through fiscal 2003. The interest rate cap agreements did not have a material impact on the Company's consolidated financial statements for the fiscal year ended July 31, 2000. 22 24 The Company's effective interest rate, which includes actual interest costs as well as bank fees and amortization of debt transaction costs, for its fiscal year ended July 31, 2000 was 9.2%. The Company's blended effective interest rate on borrowings outstanding as of July 31, 2000 was 9.8%. A hypothetical 10% change in the blended effective interest rate assuming debt levels as of July 31, 2000 would result in a $1.2 million increase or decrease in interest costs. OTHER MATTERS CALCIUM CARBIDE JOINT VENTURE On March 7, 2000, the Company announced that it would form a North American 50/50 joint venture with non ferrum Metallpulver Gesellschaft m.b.H. & Co.KG. ("non ferrum"), based in St. Georgen, Austria, and with "non ferrum" had executed letters of intent to purchase certain assets of Rossborough Manufacturing Co., L.P. (Rossborough) and Reactive Metals & Alloys Corporation (Remacor). On May 4, 2000, the Company announced that it would not pursue the purchase of Remacor. The joint venture arrangements contemplated that the Company would contribute its calcium carbide business net assets and debt to the joint venture while "non ferrum" would invest cash and contribute certain European magnesium businesses. In addition, Rossborough's management team take a more direct role in the new joint venture. The formation of the joint venture has been delayed as a result of operational, currency and other factors and the Company presently believes that in light of these considerations and the Amendment and Waiver, it is unlikely that the joint venture will be implemented in the form originally contemplated. FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements that are based on current expectations, estimates and projections about the industries in which the Company operates, management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, and are subject to the safe harbor created thereby. These statements are based on a number of assumptions that could ultimately prove inaccurate and, therefore, there can be no assurance that such statements will prove to be accurate. Factors that could affect actual future results include the developments relating to the antitrust investigations by the Department of Justice, the antitrust enforcement authorities of the European Union or related civil lawsuits as well as the assertion of other claims relating to such investigations or lawsuits or the subject matter thereof. While the Company believes that its Antitrust Reserve is adequate, there can be no assurance that agreements in principle will be finalized or that future developments or other factors might not adversely affect current estimates. Such factors also include the possibility that forecasted demand or prices for the Company's products may not occur or continue, changing economic and competitive conditions (including currency exchange rate and commodity pricing fluctuations), technological risks and other risks, costs and delays associated with the start-up and operation of major capital projects (including the Company's modernization program), changing governmental regulations (including environmental rules and regulations) and other risks and uncertainties, including those detailed in the Company's filings with the Securities and Exchange Commission. The Company does not undertake to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. 23 25 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of The Carbide/Graphite Group, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of The Carbide/Graphite Group, Inc. and Subsidiaries (the Company) at July 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania 15219 September 8, 2000, except for paragraphs 2 through 5 of Note 6 as to which the date is November 13, 2000 24 26
CONSOLIDATED STATEMENTS OF OPERATIONS THE CARBIDE/GRAPHITE GROUP, INC. Year Ended July 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- (in thousands, except share and per share information) Net sales $ 207,355 $ 240,130 $ 293,751 Operating costs and expenses: Cost of goods sold 197,619 202,888 242,535 Selling, general and administrative 12,100 14,925 14,884 Early retirement/severance charge (Note 12) 2,050 -- -- Other expense (Note 12) -- 15,043 38,000 - ----------------------------------------------------------------------------------------------------------------------- Operating income (loss) (4,414) 7,274 (1,668) Other costs and expenses: Interest expense, net (Note 6) 10,423 6,617 5,130 - ----------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes and extraordinary loss (14,837) 657 (6,798) Provision (benefit) for taxes on income from operations (Note 4) (5,108) 259 (1,729) - ----------------------------------------------------------------------------------------------------------------------- Income (loss) before extraordinary loss (9,729) 398 (5,069) Extraordinary loss on early extinguishment of debt, net of tax benefit of $3,769 in 1998 (Note 6) -- -- (6,417) - ----------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (9,729) $ 398 $ (11,486) - ----------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE INFORMATION (Note 1) Income (loss) before extraordinary loss: Basic $ (1.17) $ 0.05 $ (0.58) Diluted $ (1.17) $ 0.05 $ (0.58) - ----------------------------------------------------------------------------------------------------------------------- Extraordinary loss on early extinguishment of debt, net: Basic -- -- (0.74) Diluted -- -- (0.74) - ----------------------------------------------------------------------------------------------------------------------- Net income (loss): Basic $ (1.17) $ 0.05 $ (1.32) Diluted $ (1.17) $ 0.05 $ (1.32) - ----------------------------------------------------------------------------------------------------------------------- Common and common equivalent shares: Basic 8,327,815 8,391,192 8,699,304 Diluted 8,327,815 8,415,437 8,699,304 - -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 25 27
CONSOLIDATED BALANCE SHEETS THE CARBIDE/GRAPHITE GROUP, INC. July 31, 2000 1999 - --------------------------------------------------------------------------------------------------------------------- (in thousands, except share and per share information) ASSETS Current assets: Accounts receivable--trade, net of allowance for doubtful accounts: $977 in 2000 and $819 in 1999 (Note 2) $ 40,775 $ 37,997 Inventories (Note 3) 66,575 73,621 Income taxes receivable (Note 4) 4,299 6,592 Deferred income taxes (Note 4) 3,999 12,093 Other current assets 2,787 5,989 - --------------------------------------------------------------------------------------------------------------------- Total current assets 118,435 136,292 Property, plant and equipment, net (Note 5) 124,910 130,342 Other assets 7,149 7,782 - --------------------------------------------------------------------------------------------------------------------- Total assets $ 250,494 $ 274,416 - --------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Overdrafts $ 1,236 $ 4,079 Accounts payable, trade 24,148 16,937 Accrued expenses: Antitrust claims reserve (Note 7) 2,857 21,404 Vacation 2,808 3,242 Workers' compensation 4,438 5,597 Other 10,172 9,429 - --------------------------------------------------------------------------------------------------------------------- Total current liabilities 45,659 60,688 Long-term debt (Notes 2 and 6) 120,800 110,500 Deferred income taxes (Note 4) 229 8,107 Retirement benefit plans and other (Note 8) 10,091 11,424 Deferred revenue (Note 1) 2,245 2,380 - --------------------------------------------------------------------------------------------------------------------- Total liabilities 179,024 193,099 - --------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 7) - --------------------------------------------------------------------------------------------------------------------- Stockholders' equity: Preferred Stock, $0.01 par value; 2,000,000 shares authorized; none issued -- -- Common Stock, $0.01 par value; 18,000,000 shares authorized; shares issued: 9,955,542 in 2000 and 9,937,042 in 1999 99 99 Additional paid-in capital, net of equity issue costs of $1,398 36,712 36,616 Retained earnings 45,866 55,595 Common Stock to be issued under options (Note 9) -- 39 - --------------------------------------------------------------------------------------------------------------------- 82,677 92,349 Common Stock held in treasury at cost (Note 14): 1,624,200 shares in 2000 and 1,599,200 shares in 1999 (11,207) (11,032) - --------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 71,470 81,317 - --------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 250,494 $ 274,416 - ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 26 28
CONSOLIDATED STATEMENTS OF CASH FLOWS THE CARBIDE/GRAPHITE GROUP, INC. Year Ended July 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) Net income (loss) $ (9,729) $ 398 $ (11,486) Adjustments to reconcile net income (loss) to cash provided by operations: Depreciation and amortization 18,630 18,022 14,012 Amortization of debt issuance costs 280 160 190 Amortization of intangible assets 53 81 364 Adjustments to deferred taxes 216 7,642 (14,102) Provision for loss--accounts receivable 301 120 -- Extraordinary loss on early extinguishment of debt -- -- 10,186 Loss on the impairment of assets -- 5,742 -- Increase (decrease) in cash from changes in: Accounts receivable (3,079) 12,352 (1,381) Inventories 7,046 (5,782) (9,394) Income taxes 2,293 (7,438) 1,796 Other current assets 3,211 871 (936) Accounts payable and accrued expenses (12,186) (14,160) 28,892 Net change in other non-current assets and liabilities (1,168) (311) 50 - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by operations 5,868 17,697 18,191 - ----------------------------------------------------------------------------------------------------------------------------- Investing activities: Capital expenditures (13,198) (15,532) (64,306) Proceeds from (purchases of) short-term investments -- -- 15,750 - ----------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (13,198) (15,532) (48,556) - ----------------------------------------------------------------------------------------------------------------------------- Financing activities: Payments on revolving credit facilities (91,200) (68,670) (75,400) Proceeds from revolving credit facilities 101,500 69,020 185,550 Repurchase or redemption of Senior Notes, including premiums of $8,077 in 1998 -- -- (88,030) Net change in cash overdraft (2,843) 1,622 2,457 Proceeds from exercise of stock options under benefit plans 48 157 619 Purchase of treasury stock (175) (4,207) (1,930) Other -- (87) (836) - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities 7,330 (2,165) 22,430 - ----------------------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents -- -- (7,935) Cash and cash equivalents, beginning of period -- -- 7,935 - ----------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period -- -- -- - -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 27 29
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THE CARBIDE/GRAPHITE GROUP, INC. Common Stock to Common Stock Additional be Issued Comprehensive -------------------- Paid-In Retained Under Treasury Income (Loss) Shares Amount Capital Earnings Options Stock - -------------------------------------------------------------------------------------------------------------------------- (in thousands, except share information) Balance at July 31, 1997 9,752,272 $ 97 $ 34,163 $ 66,683 $ 161 $ (4,895) Net loss $ (11,486) (11,486) - --------------------------------------- Exercise of stock options 132,270 2 678 (61) Tax benefit on exercise of stock options 1,402 Purchase of treasury stock (1,930) - --------------------------------------------------------------------------------------------------------------------------- Balance at July 31, 1998 9,884,542 99 36,243 55,197 100 (6,825) Net income $ 398 398 - --------------------------------------- Exercise of stock options 52,500 -- 218 (61) Tax benefit on exercise of stock options 155 Purchase of treasury stock (4,207) - ----------------------------------------------------------------------------------------------------------------------------- Balance at July 31, 1999 9,937,042 99 36,616 55,595 39 (11,032) Net loss $ (9,729) (9,729) - --------------------------------------- Exercise of stock options 18,500 -- 87 (39) Tax benefit on exercise of stock options 9 Purchase of treasury stock (175) - -------------------------------------------------------------------------------------------------------------------------- BALANCE AT JULY 31, 2000 9,955,542 $ 99 $ 36,712 $ 45,866 -- $ (11,207) - --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 28 30 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 and affiliates. 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 consolidated 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Effective for fiscal 2001, the Company adopted SFAS #133, "Accounting for Derivative Instruments and Hedging Activities." The adoption of SFAS #133 resulted in a net of tax transition gain of $1.6 million recorded by the Company as a cumulative-effect adjustment to accumulated other comprehensive income to recognize the fair value of all derivatives. The Company's derivatives consist of foreign exchange forward contracts, oil futures and swap contracts and interest rate caps and swap contracts; all are designated as cash-flow hedges. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. In this documentation, the Company identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and states how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. In December 1999, the staff of the SEC issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements." SAB 101 outlines the basic criteria that must be met to recognize revenue, and provides guidelines for disclosure related to revenue recognition policies. This guidance is required to be implemented in the fourth quarter of fiscal 2001. The Company is currently reviewing this guidance in order to determine the impact of its provisions, if any, on the consolidated financial statements. INVENTORIES Inventories are stated at the lower of cost or market, with cost determined under both the actual cost and 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 utilizing the straight-line method which approximates actual shipments. 29 31 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. EARNINGS PER SHARE The following table provides a reconciliation of the income (loss) and share amounts for the basic and diluted earnings per share computations for income (loss) before extraordinary loss for the fiscal years ended July 31, 2000, 1999 and 1998 (dollar amounts in thousands):
Per Share Income (Loss) Shares Amount - ------------------------------------------------------------------------------------------------------------ 2000 Basic earnings per share $ (9,729) 8,327,815 $ (1.17) - ------------------------------------------------------------------------------------------------------------ Effect of dilutive securities: Options for common stock -- -- - ------------------------------------------------------------------------------------------------------------ Diluted earnings per share $ (9,729) 8,327,815 $ (1.17) - ------------------------------------------------------------------------------------------------------------ 1999 Basic earnings per share $ 398 8,391,192 $ 0.05 - ------------------------------------------------------------------------------------------------------------ Effect of dilutive securities: Options for common stock -- 24,245 - ------------------------------------------------------------------------------------------------------------ Diluted earnings per share $ 398 8,415,437 $ 0.05 - ------------------------------------------------------------------------------------------------------------ 1998 Basic earnings per share $ (5,069) 8,699,304 $ (0.58) - ------------------------------------------------------------------------------------------------------------ Effect of dilutive securities: Options for common stock -- -- - ------------------------------------------------------------------------------------------------------------ Diluted earnings per share $ (5,069) 8,699,304 $ (0.58) - ------------------------------------------------------------------------------------------------------------
The weighted-average number of options for common stock outstanding for the fiscal years ended July 31, 2000 and 1998 was 25,151 and 194,694, respectively. Options assumed to be outstanding for purposes of the dilutive earnings per share computations were reduced utilizing the treasury stock method. Since the Company's results were a net loss for the fiscal years ended July 31, 2000 and 1998, common equivalent shares were excluded from the diluted earnings per share computation for these periods as their effect would have been anti-dilutive. 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. RECLASSIFICATION Certain amounts previously reported have been reclassified to conform with the current year presentation. 30 32 2. FINANCIAL INSTRUMENTS The Company's financial instruments as of July 31, 2000 included its revolving credit facility, with an estimated fair value of $111 million as of July 31, 2000. In addition, the Company purchases and currently holds certain derivative financial instruments as hedging vehicles, as more fully described below. The Company regularly enters into forward foreign currency contracts to help mitigate foreign currency exchange rate exposure on customer accounts receivable and sales commitments denominated in foreign currencies. The Company's accounts receivable as of July 31, 2000 and 1999 included the following foreign currency balances (in thousands):
July 31, 2000 1999 - --------------------------------------------------------------------------------------- German Marks $3,179 $4,057 Japanese Yen 2,423 2,234 French Francs -- 1,468 Spanish Pesata 330 592 Italian Lira 640 586 Euros 204 412 British Sterling -- 57 - --------------------------------------------------------------------------------------- Total foreign currency accounts receivable $6,776 $9,406 - ---------------------------------------------------------------------------------------
As of July 31, 2000 and 1999, the Company held forward foreign currency contracts in the following foreign denominations (in thousands):
2000 1999 -------------------------- ---------------------------- Market Market Contract Value Contract Value July 31, Value Gain (Loss) Value Gain (Loss) - ------------------------------------------------------------------------------------------------------------------------ Euros $ 4,730 $ 246 $12,549 $ (213) German Marks -- -- 5,183 100 Japanese Yen 4,564 270 3,636 (47) French Francs -- -- 1,694 63 British Sterling 1,354 1 1,907 (24) Spanish Pesata -- -- 633 30 Italian Lira -- -- 621 68 Belgian Francs -- -- 213 4 - ------------------------------------------------------------------------------------------------------------------------ Total forward foreign currency contracts $10,648 $ 517 $26,436 $ (19) - ------------------------------------------------------------------------------------------------------------------------
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. The cash flows from these contracts are classified in a manner consistent with the underlying nature of the transactions. 31 33 The Company regularly enters into crude and low sulfur fuel oil futures contracts and swap agreements. Such contracts and agreements are accounted for as hedges of decant oil purchases, the primary raw material in the production of needle coke. As of July 31, 2000 and 1999, the Company held the following oil swap contracts (in thousands):
2000 1999 --------------------------- ----------------------------- MARKET Market CONTRACT VALUE Contract Value July 31, VALUE GAIN (LOSS) Value Gain (Loss) - ----------------------------------------------------------------------------------------------------------------- West Texas Intermediate swap contracts $1,175 $ 245 -- -- Low sulfur fuel oil swap contracts 2,748 927 $5,972 $1,759 - ----------------------------------------------------------------------------------------------------------------- Total commodity hedging contracts $3,923 $1,172 $5,972 $1,759 - -----------------------------------------------------------------------------------------------------------------
As of July 31, 2000 and 1999, deferred gains associated with the Company's oil hedging activities, including gains not yet recorded in the consolidated financial statements and gains deferred as an adjustment to the Company's inventory value totaled $2.1 million and $2.2 million, respectively. Gains and losses associated with oil hedging activities recognized as an adjustment to cost of goods sold in the consolidated statements of operations were a gain of $3.5 million, and losses of $3.4 million and $1.0 million for the fiscal years ended July 31, 2000, 1999 and 1998, respectively. The Company has entered into several interest rate swap and cap agreements. The interest rate swap agreements effectively fix the Company's average LIBOR borrowing rate at approximately 5.7% for a decreasing level of borrowings outstanding ranging from $55.0 million in fiscal 2001 to $15.0 million in fiscal 2003. The interest rate swap agreements did not have a material impact on the Company's consolidated financial statements during the fiscal years ended July 31, 2000, 1999 and 1998. The interest rate cap agreements effectively cap the Company's base LIBOR rate at 7.5% on $20.0 million in borrowings through fiscal 2003. The interest rate cap agreements did not have a material impact on the Company's consolidated financial statements for the fiscal years ended July 31, 2000, 1999 and 1998. The fair value of the Company's interest rate swap and cap agreements was approximately $0.8 million as of July 31, 2000. 3. Inventories Inventories were as follows (in thousands): July 31, 2000 1999 - -------------------------------------------------------------------------------- Finished goods $ 18,907 $ 22,386 Work in process 34,602 43,723 Raw materials 16,747 13,429 - -------------------------------------------------------------------------------- 70,256 79,538 LIFO reserve (14,749) (16,487) - -------------------------------------------------------------------------------- 55,507 63,051 Supplies 11,068 10,570 - -------------------------------------------------------------------------------- Total inventories $ 66,575 $ 73,621 - -------------------------------------------------------------------------------- As of July 31, 2000 and 1999, approximately 64.0% and 72.2%, respectively, of the Company's inventory was valued on a LIFO basis. If valued on a current cost basis, total inventories would be $14.7 million and $16.5 million higher as of July 31, 2000 and 1999, respectively. During fiscal 1999, the Company recorded a $1.0 million pre-tax charge to write-off supplies inventories that became obsolete upon the closure of certain graphite production facilities. See Note 12. 32 34 4. INCOME TAXES The components of the provision (benefit) for income taxes related to operations included the following (in thousands):
Year Ended July 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- Current: Federal $ (5,690) $ (7,827) $ 11,523 State 151 444 850 - ----------------------------------------------------------------------------------------------------------------------- (5,539) (7,383) 12,373 Deferred 431 7,642 (14,102) - ----------------------------------------------------------------------------------------------------------------------- Provision (benefit) for income taxes $ (5,108) $ 259 $ (1,729) - -----------------------------------------------------------------------------------------------------------------------
A reconciliation of federal statutory income taxes to effective taxes follows (in thousands):
Year Ended July 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- Federal statutory taxes $(5,193) $ 230 $(2,379) Tax effect of: State income taxes, net of federal benefit 112 225 415 Foreign sales corporation benefit -- (232) (394) Prior year return and audit adjustments (82) (92) 442 Non-deductible expenses 70 69 88 Other (15) 59 99 - ----------------------------------------------------------------------------------------------------------------------- Total effective taxes $(5,108) $ 259 $(1,729) - -----------------------------------------------------------------------------------------------------------------------
The components of deferred tax assets and liabilities follow (in thousands):
2000 1999 ------------------------------ ----------------------------- DEFERRED TAX DEFERRED TAX Deferred Tax Deferred Tax July 31, ASSETS LIABILITIES Assets Liabilities - ----------------------------------------------------------------------------------------------------------------- Depreciation -- $14,901 -- $11,180 Federal net operating losses $10,850 -- -- -- Antitrust claims reserve 912 -- $ 7,491 -- Employee retirement benefits 1,603 -- 1,784 -- Inventory adjustments 624 -- 790 -- Workers' compensation 1,764 -- 2,213 -- Allowance for doubtful accounts 742 -- 593 -- Vacation reserve 672 -- 792 -- Other 1,504 -- 1,503 -- - ----------------------------------------------------------------------------------------------------------------- Total deferred taxes $18,671 $14,901 $15,166 $11,180 - -----------------------------------------------------------------------------------------------------------------
Management believes that the net deferred tax asset as of July 31, 2000 will be realized through reductions to future taxable income. All federal tax returns prior to fiscal 1997 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. As of July 31, 2000, the Company had available federal net operating loss carryforwards of approximately $31.0 million. These net operating loss carryforwards may be used to offset future federal income taxes through 2020. As of July 31, 2000, the Company had no net operating loss carryforwards for state income tax purposes. 33 35 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands):
July 31, 2000 1999 - ------------------------------------------------------------------------------------- Buildings and improvements $ 53,358 $ 51,647 Machinery and equipment 276,322 272,469 - ------------------------------------------------------------------------------------- 329,680 324,116 Accumulated depreciation (222,464) (207,506) - ------------------------------------------------------------------------------------- 107,216 116,610 Land 7,711 7,711 Construction in progress 9,983 6,021 - ------------------------------------------------------------------------------------- Total property, plant and equipment $ 124,910 $ 130,342 - -------------------------------------------------------------------------------------
6. LONG-TERM DEBT In connection with the tender of substantially all of the Company's 11.5% Senior Notes in fiscal 1998 (the Tender), the Company entered into an agreement with a consortium of banks led by PNC Bank (the Bank Group) for a $150 million revolving credit facility with a $15 million sub-limit for letters of credit which will expire in December, 2003 (as amended, the 1997 Revolving Credit Facility). The Company and the Bank Group reduced the amount available under the 1997 Revolving Credit Facility to $135.0 million as of July 31, 2000. As of July 31, 2000, the Company had $8.5 million in availability under the 1997 Revolving Credit Facility. Borrowings outstanding were $120.8 million and letters of credit were $5.7 million as of July 31, 2000. The 1997 Revolving Credit Facility is collateralized with the Company's receivables, inventory and property, plant and equipment. As a result of the decline in the Company's operating results, coupled with the increased capital needs during fiscal 2000, the Company was not in compliance with the financial covenants required to be maintained under the 1997 Revolving Credit Facility for the reporting period ended July 31, 2000. On November 13, 2000 (the Waiver Effective Date), the Company and the Bank Group agreed to an amendment and waiver with respect to the 1997 Revolving Credit Facility (the Amendment and Waiver) under which the covenant violations discussed above were waived until August 6, 2001. In connection with the Amendment and Waiver, the Company has agreed to issue to the Bank Group warrants for the Company's Common Stock. Warrants exercisable for nominal consideration representing 15% of the Company's Common Stock outstanding (1,249,701 shares) were fully earned on the Waiver Effective Date. The Company can earn back 10% of such warrants (warrants representing 833,134 shares) if it is able to reduce the commitment under the 1997 Revolving Credit Facility to $110.0 million on or before March 31, 2001. The Company can earn back the remaining 5% of such warrants (warrants representing 416,567 shares) if it is able to reduce the commitment under the 1997 Revolving Credit Facility to $85.0 million (if the commitment was reduced to $110.0 million on or before March 31, 2001) or $110.0 million (if the commitment was not already reduced to $110.0 million on or before March 31, 2001) on or before July 31, 2001. The fee associated with the Amendment and Waiver is 200 basis points, or $2.7 million, fully earned as of the Waiver Effective Date and payable as follows: $0.3 million on the Waiver Effective Date; $0.7 million on April 1, 2001; $1.0 million on May 1, 2001; and $0.7 million on June 1, 2001. The fee is reduced to 100 basis points, or $1.35 million, if the 1997 Revolving Credit Facility is fully repaid by April 30, 2001. As a result of the Amendment and Waiver, interest costs under the 1997 Revolving Credit Facility are computed at a rate of PNC Bank's prime rate plus a spread of 100 basis points (currently 10.5%). Such spread increases to 200 basis points if the Company does not reduce the commitment under the 1997 Revolving Credit Facility by $25 million on March 31, 2001. The issuance of the warrants associated with the Amendment and Waiver resulted in a $3.4 million non-cash charge which will be amortized into interest expense over the vesting period of the warrants which ends on July 31, 2001. The $2.7 million amendment fee has been capitalized as a deferred debt issuance cost and will be amortized into interest expense over the remaining life of the 1997 Revolving Credit Facility. As a result of the Amendment and Waiver, the commitment under the 1997 Revolving Credit Facility will be reduced by $0.5 million per month beginning on April 1, 2001. In addition, the Company has agreed to further reduce the commitment under the 1997 Revolving Credit Facility by an amount equal to the amount by which the Company's accounts receivable and inventory in total fall below certain thresholds, as more fully described in the Amendment and Waiver. Also, the commitment under the 1997 Revolving Credit Facility will be reduced by two-thirds of any refunds received by the Company from BOC related to the installation of a sulfur dioxide air emissions scrubbing unit at the Company's 34 36 St. Marys, Pennsylvania facility. During the waiver period, the Company is restricted from issuing any equity (other than preferred share purchase rights) in the Company unless 100% of the net proceeds of any such issuance is used to repay and reduce the commitment under the 1997 Revolving Credit Facility. Any reduction in commitment arising as a result of these provisions is credited toward the $50 million reduction in commitment required to avoid the vesting of the warrants as outlined above. In connection with the Amendment and Waiver, the Company is required to achieve minimum monthly and quarterly EBITDA levels through July 2001, as well as sales commitment targets for needle coke and graphite electrodes for calendar 2001, all as more fully described in the Amendment and Waiver. Also, the Company must not allow its accounts receivable and inventory amounts in total to exceed certain thresholds and must maintain certain financial ratios with respect to accounts receivable and inventory, all as more fully described in the Amendment and Waiver. In connection with and as a requirement of the Amendment and Waiver, the Company has engaged Bear Stearns & Company to assist the Company in identifying strategic options or potential sources of financing to affect the $50 million reduction in commitment under the 1997 Revolving Credit Facility described above or otherwise refinance the 1997 Revolving Credit Facility. While the Company believes that there are certain strategic options or potential sources of financing available to the Company, there can be no assurance that the Company will be successful in reducing the commitment under the 1997 Revolving Credit Facility by $50 million to avoid the significant financial cost of not meeting the commitment reduction. Interest expense for the fiscal year ended July 31, 1998 was reduced by $0.3 million of interest income earned on cash, cash equivalents and short-term investments. Also, during fiscal 1999 and 1998 the Company capitalized $1.1 million and $1.7 million, respectively, in interest costs associated with capital expenditures. The Company's effective interest rate, which includes actual interest costs as well as bank fees and amortization of debt transaction costs, for its fiscal year ended July 31, 2000 was 9.2%. The Company's blended effective interest rate on borrowings outstanding as of July 31, 2000 was 9.8%. 7. 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): Year Ending July 31, - -------------------------------------------------------------------------------- 2001 $2,015 2002 1,865 2003 1,669 2004 1,247 Thereafter 470 - -------------------------------------------------------------------------------- Consolidated rent expense for the years ended July 31, 2000, 1999 and 1998 amounted to approximately $3.0 million, $3.3 million and $2.9 million, respectively. 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. 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 Department of Justice (DOJ) that the Grand Jury is investigating price fixing by producers of graphite products in the United States and abroad during the period 1992 to 1997. 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. 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. Subsequent to the initiation of the DOJ investigation, four civil cases were filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia asserting claims on behalf of a class of purchasers for violations 35 37 of the Sherman Act. These cases, which have been consolidated, name the Company, UCAR International Inc. (UCAR), SGL Carbon Corporation (SGL Corp.) and SGL Carbon AG (SGL) as defendants (together, the Named Defendants) and seek treble damages. On March 30, 1998, a number of purchasers who were previously included in the purported class of plaintiffs covered by the consolidated case initiated a separate action in the same District Court which asserts substantially the same claims and seeks the same relief as the consolidated case and names the Named Defendants, as well as Showa Denko Carbon, Inc. (Showa Denko). Thereafter, seven additional groups of purchasers who were previously included in the purported class of plaintiffs covered by the consolidated case instituted their own actions against the Named Defendants, Showa Denko and, in several cases, certain present or former related parties of UCAR and Showa Denko, asserting substantially the same claims and seeking the same relief as in the consolidated case. Four such actions were filed in the United States District Court for the Eastern District of Pennsylvania on April 3, 1998, May 14, 1998, May 28, 1998 and March 31, 1999, respectively. One action was filed in the United States District Court for the Northern District of Ohio on April 17, 1998 but was transferred to the Eastern District of Pennsylvania for pre-trial proceedings. Another action was filed in the United States District Court for the Western District of Pennsylvania on June 17, 1998 but was transferred to the Eastern District of Pennsylvania for pre-trial proceedings. Another action was filed in the United States District court of the Middle District of Pennsylvania on April 10, 2000, but was transferred to the Eastern District of Pennsylvania for pre-trial proceedings. The complaints or amended complaints in some of the cases have also named as defendants other companies including Mitsubishi Corporation, Tokai Carbon U.S.A., Inc. and related companies. On December 7, 1998, the Company was served with a complaint filed by Chaparral Steel Company against the Named Defendants, Showa Denko and parties related to Showa Denko and UCAR in state court in Ellis County, Texas alleging violations of various Texas state antitrust laws and seeking treble damages. Chaparral Steel Company has filed an amended complaint adding two additional related plaintiffs, a second amended complaint adding additional defendants Nippon Carbon Co., Ltd., SEC Corporation, Tokai Carbon Company, Ltd., Tokai Carbon USA, Inc., VAW Aktiengesellscheft and VAW Carbon GMBH, and third, fourth and fifth amended complaints. The Company has reached settlement agreements representing approximately 96% of domestic antitrust claims with the class plaintiffs and the plaintiffs that filed lawsuits on March 30, 1998, April 3, 1998, April 17, 1998, May 14, 1998, May 28, 1998, June 17, 1998 and March 31, 1999 and other purchasers who had yet to file lawsuits. The settlement agreement with the class has been approved by the Court. Although various of the settlements are unique, in the aggregate they consist generally of current and deferred cash payments and, in a number of cases, provisions which provide for additional payments under certain circumstances ("most favored nations" provisions). In addition to the settlements discussed above, the Company may also settle with various additional purchasers. On February 10, 1999, a U.S. corporation which allegedly made purchases on behalf of two foreign entities and a group of 22 foreign purchasers which are based in several foreign countries filed a complaint against the Company, UCAR, SGL, Tokai Carbon Co., Ltd., Tokai Carbon U.S.A., Inc., Nippon Carbon Co., Ltd., SEC Corporation and certain present and former related parties of UCAR in United States District Court for the Eastern District of Pennsylvania. This complaint has been amended to add four additional defendants. On September 24, 1999, three Australian companies and one New Zealand company filed a complaint against the same parties as are named in the lawsuit filed on February 10, 1999. These cases assert substantially the same claims and seek the same relief as the consolidated case. Other foreign purchasers have also made similar claims against the Company but have not filed lawsuits. The Company understands that defendants UCAR, SGL and Showa Denko have reached settlement agreements with the class action plaintiffs, which have been approved by the court, and have also settled claims brought by various individual purchasers. The Company further understands that UCAR, Robert P. Krass, Robert J. Hart, SGL, Robert J. Koehler, Showa Denko, Tokai, SEC Corporation and Nippon Carbon Co. have pled guilty to antitrust conspiracy charges filed by the DOJ and have agreed to pay fines and, in the cases of Messrs. Krass and Hart, to serve prison sentences, in connection with those guilty pleas. The Company also understands that the DOJ has indicted Mitsubishi Corporation and Georges Schwegler, a former UCAR employee. The Company has also advised the Commission of the European Communities (the European Commission) that it wishes to invoke its Leniency Notice. Generally under these guidelines, the European Commission may reduce fines and other penalties if a company sufficiently cooperates with the European Commission. On January 24, 2000, the European Commission adopted a Statement of Objections against the Company, SGL, UCAR, VAW Aluminum AG, Showa Denko KK, Tokai Carbon Co. Ltd., Nippon Carbon Co. Ltd. and SEC Corporation. The Company has prepared 36 38 and submitted to the European Commission a response to the Statement of Objections and has appeared at a hearing regarding the imposition of fines. The Company understands that the European Commission will determine fines, if any, at the completion of its proceedings. On June 18, 1998, a group of Canadian purchasers filed a lawsuit in the Ontario Court (General Division) claiming a conspiracy and violations of the Canadian Competition Act. The Canadian lawsuit names the Named Defendants and Showa Denko, as well as several present or former parents, subsidiaries and/or affiliates of UCAR, SGL and Showa Denko. The Canadian Competition and Consumer Law Division (Canadian Division) has initiated an inquiry and the Company is cooperating fully with the authorities conducting that inquiry pursuant to an agreement with the Director of Research and Investigation of the Canadian Division under which the Company and its present and former officers, directors and employees will not be subject to criminal prosecution. During fiscal 1998, the Company recorded a $38 million pre-tax charge ($25 million after expected tax benefits) for potential liabilities resulting from civil lawsuits, claims, legal costs and other expenses associated with the pending antitrust matters (the Initial Antitrust Charge). During fiscal 1999, the Company recorded an additional $7 million charge ($4.5 million after expected tax benefits) for such potential liabilities (the Supplemental Antitrust Charge). The combined $45 million charge (the Antitrust Charge) represents the Company's estimate, based on current facts and circumstances, of the expected cost to resolve pending antitrust claims. The Company understands that defendants UCAR, SGL and Showa Denko have reached settlements with the class action plaintiffs and various individual purchasers at amounts substantially higher than the levels contemplated in the Antitrust Charge. In light of these and other developments including: (a) possible future settlements with other purchasers, (b) the outcome of the European Commission antitrust investigation, (c) potential additional lawsuits by foreign purchasers, (d) the failure to satisfy the conditions to the class action settlement, and (e) adverse rulings or judgments in pending litigation, including an adverse final determination as to the right of the foreign purchasers to relief under U.S. antitrust laws, the antitrust matters could result in aggregate liabilities and costs which could differ materially and adversely from the Antitrust Charge and could affect the Company's financial condition and its ability to service its currently planned liquidity needs. As of July 31, 2000, $42.2 million in antitrust settlements and costs had been paid. The Company is also party to various legal proceedings considered incidental to the conduct of its business or otherwise not material in the judgment 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, 2000. As of July 31, 2000, a $0.2 million reserve has been recorded to provide for estimated exposure on claims for which a loss is deemed probable. 8. EMPLOYEE RETIREMENT BENEFIT PLANS The Company maintains defined benefit pension, postretirement health care and life insurance benefit plans covering substantially all of its hourly employees. The benefits under the pension plans are based primarily on years of service and benefit rates established by union contracts. For the pension plans, the Company's funding policy is to contribute annually the amount recommended by its consulting actuary, subject to statutory provisions. The postretirement healthcare and life insurance plans (the OPEB Plans) are currently unfunded and require the employee to pay a portion of the benefit cost. The following is a reconciliation of the beginning and ending benefit obligations for the Company's pension plans and OPEB Plans (in thousands):
Pension Plans OPEB Plans ------------------------- ------------------------ 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Benefit obligation as of the beginning of the year $ 26,487 $ 23,944 $ 4,073 $ 3,652 Service cost 851 960 108 95 Interest cost 1,883 1,684 276 246 Actuarial loss (gain) (912) 227 (166) 390 Plan amendments -- 281 -- -- Plan curtailments -- 133 -- (48) Benefits paid to retirees (903) (742) (241) (262) - -------------------------------------------------------------------------------------------------------------------- Benefit obligation as of the end of the year $ 27,406 $ 26,487 $ 4,050 $ 4,073 - --------------------------------------------------------------------------------------------------------------------
37 39 The following is a reconciliation of the beginning and ending fair values of plan assets for the Company's pension plans (in thousands):
Pension Plans --------------------------------- 2000 1999 - ----------------------------------------------------------------------------------------------------------- Fair value of plan assets as of the beginning of the year $ 19,769 $ 17,613 Actual return on plan assets 2,547 1,821 Employer contributions 2,656 1,077 Benefits paid to retirees (903) (742) - ----------------------------------------------------------------------------------------------------------- Fair value of plan assets as of the end of the year $ 24,069 $ 19,769 - -----------------------------------------------------------------------------------------------------------
Components of each of the plan's assets included primarily U.S. government obligations and common stocks. The following is a reconciliation of the funded status of the Company's pension plans and OPEB Plans as of July 31, 2000 and 1999 (in thousands):
Pension Plans OPEB Plans --------------------------- ---------------------------- 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Benefit obligations $ 27,406 $ 26,487 $ 4,050 $ 4,073 Fair value of plan assets 24,069 19,769 -- -- - ------------------------------------------------------------------------------------------------------------------ Unfunded status (3,337) (6,718) (4,050) (4,073) Unrecognized transition obligation 313 412 -- -- Unrecognized prior service cost 4,731 5,234 (28) (31) Unrecognized net actuarial loss (gain) (1,045) 741 101 273 - ------------------------------------------------------------------------------------------------------------------ Net funded (unfunded) status recognized $ 662 $ (331) $ (3,977) $ (3,831) - ------------------------------------------------------------------------------------------------------------------ Accrued benefit liability $ (2,634) $ (5,803) $ (3,977) $ (3,831) Intangible asset 3,296 5,472 -- -- - ------------------------------------------------------------------------------------------------------------------ Net funded (unfunded) status recognized $ 662 $ (331) $ (3,977) $ (3,831) - ------------------------------------------------------------------------------------------------------------------
The following is a summary of the amount of net periodic benefit cost recognized in the consolidated statement of operations for the years ended July 31, 2000, 1999 and 1998 (in thousands):
Pension Plans OPEB Plans ----------------------------------- ---------------------------------- 2000 1999 1998 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Service cost $ 851 $ 960 $ 829 $ 108 $ 95 $ 107 Interest cost 1,883 1,684 1,407 276 246 239 Expected return on plan assets (1,673) (1,433) (1,296) -- -- -- Plan curtailments -- 680 -- -- (48) -- Recognized net actuarial gain -- -- (10) -- -- (8) Net amortization 602 598 486 3 (4) (4) - --------------------------------------------------------------------------------------------------------------------- Total net periodic benefit cost $ 1,663 $ 2,489 $ 1,416 $ 387 $ 289 $ 334 - ---------------------------------------------------------------------------------------------------------------------
The net gain and loss associated with plan curtailments during fiscal 1999 were the result of the curtailment of the St. Marys, Pennsylvania hourly workforce pension plan and OPEB Plans. The curtailment was the result of the severance of hourly employees at the St. Marys plant in connection with closure of certain graphite production facilities (see Note 12). 38 40 The following assumptions were used in the accounting for the Company's pension plans and OPEB Plans:
2000 1999 1998 - --------------------------------------------------------------------------------------------------------------- Discount rate: Net periodic benefit cost 7.50% 7.00% 7.50% Benefit obligation 7.50 7.00 7.00 Expected return on plan assets 8.00 8.00 8.00 - ---------------------------------------------------------------------------------------------------------------
For estimated OPEB Plan expense and liability measurement purposes, the health care cost trend rate was assumed to be 7.0% in fiscal 2001, with the rate of increase declining evenly each year to 5.0% in fiscal 2004 and thereafter. If the assumed health care cost trend rate was increased by one percent, the fiscal 2000 OPEB Plan benefit cost would have increased 2.2% while the OPEB Plan benefit obligation as of July 31, 2000 would have increased approximately 3.1%. 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 $0.4 million, $1.8 million and $1.5 million for the fiscal years ended July 31, 2000, 1999 and 1998, respectively. 9. OTHER COMPENSATION MANAGEMENT STOCK OPTION PLANS The Company has adopted several 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 (collectively, the MSOP). Options granted under the MSOP generally vest over three years and expire ten years from the date of grant. The table below summarizes option activity for the periods indicated.
Year Ended July 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------- Options outstanding, beginning of year: Number 692,300 479,000 446,250 Weighted-average exercise price $ 18.08 $ 18.79 $ 13.67 Granted: Number 230,000 269,800 177,000 Weighted-average exercise price $ 5.11 $ 13.94 $ 21.69 Weighted-average fair value* $ 3.05 $ 5.78 $ 9.08 Exercised: Number (18,500) (52,500) (132,250) Weighted-average exercise price $ 2.61 $ 3.00 $ 4.68 Forfeited or expired: Number (45,400) (4,000) (12,000) Weighted-average exercise price $ 16.28 $ 22.31 $ 22.31 - ----------------------------------------------------------------------------------------------------------------- Options outstanding, end of year Number 858,400 692,300 479,000 Weighted-average exercise price $ 15.03 $ 18.08 $ 18.79 - -----------------------------------------------------------------------------------------------------------------
* 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. 39 41 The following is a summary of the characteristics of the options outstanding as of July 31, 2000:
Options Outstanding Range 1 Range 2 Total - -------------------------------------------------------------------------------------------------------------------------- Number 553,400 305,000 858,400 Weighted-average exercise price $ 10.59 $ 23.10 $ 15.03 Range of exercise prices $3.56-$18.25 $21.53-$28.87 $3.56-$28.87 Remaining weighted-average contractual life (in months) 106 89 100 Number of options currently exercisable 205,928 258,333 464,261 Weighted-average exercise price of options exercisable $ 13.63 $ 23.38 $ 19.06 - --------------------------------------------------------------------------------------------------------------------------
As of July 31, 2000, 860,400 shares were reserved for issuance under the MSOP. Options granted under the MSOP for the fiscal years presented 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 Company adopted the disclosure requirements of SFAS #123, "Accounting for Stock-Based Compensation." The measurement alternatives of SFAS #123 were not adopted. SFAS #123 requires the disclosure of pro forma net income (loss) 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 years ended July 31, 2000, 1999 and 1998 (in thousands, except per share amounts):
2000 1999 1998 --------------------------- ---------------------- --------------------------- Actual Pro Forma Actual Pro Forma Actual Pro Forma - ------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (9,729) $ (10,603) $ 398 $ (326) $ (11,486) $ (11,848) Earnings (loss) per share $ (1.17) $ (1.27) $ 0.05 $ (0.04) $ (1.32) $ (1.36) - -------------------------------------------------------------------------------------------------------------------------------
Significant assumptions used in determining fair value and compensation cost for stock options in accordance with SFAS #123 included the following:
2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------- Risk-free rate of return 6.7% 5.5% 5.3% Expected volatility 63.3% 53.6% 44.8% Expected dividend yield 0.0% 0.0% 0.0% Expected life of option 5 years 3 to 4 years 4 to 5 years - -----------------------------------------------------------------------------------------------------------------
BONUS PLANS The Company recorded $1.3 million and $0.2 million in compensation expense for the fiscal years ended July 31, 1999 and 1998, respectively, associated with bonuses for executives and certain key employees of the Company. The bonus amounts were determined by the Company's Board of Directors. No bonuses were awarded for fiscal year 2000. 40 42 10. SEGMENT INFORMATION The Company has three operating segments organized around its major product groups: graphite products, the Company's affiliate, Seadrift Coke, L.P. and calcium carbide products. Two of these operating segments, graphite products and Seadrift Coke, L.P., have been combined into one reportable segment: graphite electrode products. The other reportable segment is calcium carbide products. Such aggregation and presentation of reportable segments is consistent with the approach utilized by the Company in previous fiscal years. The graphite electrode products segment manufactures and markets graphite electrodes, primarily to electric arc furnace steel producers. In addition, this segment manufactures and markets 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, in fuel gas applications, and in metallurgical applications such as ductile iron and steel desulfurization. Net sales to the Company's top ten customers as a percentage of total sales were approximately 26%, 30%, and 30% in each of the fiscal years ended July 31, 2000, 1999 and 1998, respectively. Sales of graphite electrodes and calcium carbide for metallurgical applications to customers in the steel and ductile iron industries accounted for approximately 60% of net sales in each of the fiscal years presented. Amounts due from customers in the steel industry at July 31, 2000 and 1999 were approximately $28 million and $29 million, respectively. 41 43 Segment information is as follows (in thousands):
Year Ended July 31, 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- NET SALES TO CUSTOMERS BY PRODUCT LINE: Graphite electrodes $ 117,332 $ 130,182 $ 159,997 Needle coke 21,496 31,833 33,907 Bulk graphite 12,147 12,750 9,273 Granular graphite 6,814 7,155 9,627 Other 1,029 1,698 2,963 - ---------------------------------------------------------------------------------------------------------------------- Total graphite electrode product net sales 158,818 183,618 215,767 - ---------------------------------------------------------------------------------------------------------------------- Acetylene: Pipeline acetylene 12,163 17,085 28,863 Fuel gas applications 12,102 14,056 20,009 Metallurgical applications 18,271 19,679 23,712 Other 6,001 5,692 5,400 - ---------------------------------------------------------------------------------------------------------------------- Total calcium carbide product net sales 48,537 56,512 77,984 - ---------------------------------------------------------------------------------------------------------------------- Total net sales to customers 207,355 240,130 293,751 - ---------------------------------------------------------------------------------------------------------------------- Intersegment sales, at prevailing market prices: Graphite electrode products 114 152 338 Eliminations (114) (152) (338) - ---------------------------------------------------------------------------------------------------------------------- Total net sales $ 207,355 $ 240,130 $ 293,751 - --------------------------------------------------------------------------------------------------------------------- TOTAL NET SALES TO GEOGRAPHIC AREAS: United States $ 143,896 $ 157,118 $ 202,557 Europe 32,985 51,157 45,237 Other Americas 20,525 22,853 32,585 Asia/Far East 9,949 9,002 13,372 - ---------------------------------------------------------------------------------------------------------------------- Total net sales 207,355 $ 240,130 $ 293,751 - ---------------------------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS): Graphite electrode products* $ (586) $ 24,710 $ 32,813 Calcium carbide products 2,979 5,079 10,470 Unallocated corporate expenses (6,807) (22,515) (44,951) - ---------------------------------------------------------------------------------------------------------------------- Total operating income (loss) $ (4,414) $ 7,274 $ (1,668) - ---------------------------------------------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION: Graphite electrode products $ 16,949 $ 16,371 $ 12,365 Calcium carbide products 1,593 1,545 1,553 Unallocated corporate 141 187 458 - ---------------------------------------------------------------------------------------------------------------------- Total depreciation and amortization $ 18,683 $ 18,103 $ 14,376 - ---------------------------------------------------------------------------------------------------------------------- EBITDA:** Graphite electrode products $ 16,363 $ 41,081 $ 45,178 Calcium carbide products 4,572 6,624 12,023 Unallocated corporate expenses (4,616) (7,285) (6,493) - ---------------------------------------------------------------------------------------------------------------------- Total EBITDA $ 16,319 $ 40,420 $ 50,708 - ---------------------------------------------------------------------------------------------------------------------- IDENTIFIABLE ASSETS: Graphite electrode products $ 213,273 $ 224,773 $ 238,399 Calcium carbide products 24,689 27,888 29,332 Corporate assets 12,532 21,755 21,368 - ---------------------------------------------------------------------------------------------------------------------- Total assets $ 250,494 $ 274,416 $ 289,099 - ---------------------------------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES: Graphite electrode products $ 12,458 $ 13,718 $ 62,698 Calcium carbide products 739 1,814 1,608 - ---------------------------------------------------------------------------------------------------------------------- Total capital expenditures $ 13,197 $ 15,532 $ 64,306 - ----------------------------------------------------------------------------------------------------------------------
* Excludes other expense in fiscal 1999 and 1998, which are included in "Unallocated Corporate Expenses" (see Note 12). ** EBITDA is defined as operating income before depreciation and amortization, early retirement/severance charges and other expense. 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. EBITDA is an important measure in assessing the performance of the Company's business segments. 42 44 11. CASH FLOW INFORMATION Net cash payments for interest and income taxes were as follows (in thousands):
Year Ended July 31, 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Interest $8,191 $7,572 $10,196 Income taxes (received) paid (8,463) 106 6,627 - --------------------------------------------------------------------------------------------------------------------
12. OTHER ITEMS EARLY RETIREMENT/SEVERANCE CHARGE Early retirement/severance charge for fiscal 2000 represents costs associated with the elimination of approximately 35 salaried employees during fiscal 2000. OTHER EXPENSE During fiscal 1999, the Company announced plans to close certain baking and graphitizing operations at its St. Marys, Pennsylvania plant. Other expense for fiscal 1999 includes the Closure Charge, an $8.0 million pre-tax charge to provide for the estimated cost of the facility closure activities. Included in this charge is $5.7 million for the net write-off of impaired fixed assets and spare parts inventory, $1.4 million for hourly and salary workforce severance costs and $0.9 million in other closure-related costs. Essentially all of these costs were funded in fiscal 1999. Other expense for fiscal 1999 and 1998 also includes charges of $7.0 million and $38.0 million, respectively, representing, in total, the Antitrust Charge (see Note 7). 43 45 13. QUARTERLY RESULTS (UNAUDITED) The following table sets forth certain unaudited consolidated quarterly operating information of the Company (in millions, except per share information):
Year Ended July 31, 2000: 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FISCAL YEAR - ----------------------------------------------------------------------------------------------------------------------- Net sales $ 51.1 $ 53.6 $ 51.3 $ 51.4 $ 207.4 Gross profit 6.4 (1.3) 1.4 3.2 9.7 Operating income (loss) 3.4 (4.5) (3.2)* (0.1) (4.4) Net income (loss) 0.9 (4.6) (3.8) (2.2) (9.7) Per diluted share: Net income (loss) 0.11 (0.55) (0.45) (0.28) (1.17) - ----------------------------------------------------------------------------------------------------------------------- Year Ended July 31, 1999: Net sales $ 69.3 $ 58.2 $ 58.3 $ 54.3 $ 240.1 Gross profit 10.0 8.7 8.7 9.8 37.2 Operating income (loss) (1.6)** 5.3 4.5 (0.9)*** 7.3 Net income (loss) (2.0) 2.5 1.8 (1.9) 0.4 Per diluted share: Net income (loss) (0.23) 0.30 0.22 (0.23) 0.05 - -----------------------------------------------------------------------------------------------------------------------
* Includes a $2.1 million pre-tax charge for an early retirement/severance program (see Note 12) ** Includes an $8.0 million pre-tax charge for facility closure activities (see Note 12). *** Includes a $7.0 million pre-tax charge for potential antitrust liabilities (see Note 7). 14. SHARE REPURCHASE PROGRAM During fiscal 1998, the Company's Board of Directors authorized the expenditure of up to $10 million to repurchase the Company's Common Stock. Subject to price and market considerations and applicable securities laws, such purchases may be made from time to time in open market, privately negotiated or other transactions. No time limit was placed on the duration of the repurchase program. The extent and timing of any repurchases will depend on market conditions and other corporate considerations. During fiscal 2000, the Company repurchased 25,000 shares of its Common Stock for $0.2 million under its share repurchase program. Since fiscal 1998, the Company has repurchased an aggregate 492,200 shares of its Common Stock under its share repurchase program at a total cost of $5.9 million. 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. 44 46 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT THE BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY The following is information as to each director, executive officer, and certain other officers of the Company as of September 22, 2000.
Name Age Position - --------------------------------------------------------------------------------------------------------------------------- Walter B. Fowler(3)(5) 46 Chairman, President and Chief Executive Officer and Director Stephen D. Weaver 46 Senior Vice President and General Manager-Electrodes and Graphite Specialty Products Walter E. Damian 60 Vice President-Human Resources Ararat Hacetoglu 45 Vice President and General Manager-Carbide Products Jim J. Trigg 51 Vice President and General Manager-Seadrift Coke, L.P. Nicholas T. Kaiser(3)(5) 66 Director James R. Ball(1)(2)(5) 57 Director Paul F. Balser(1)(4) 58 Director Robert M. Howe(3)(4) 60 Director Ronald B. Kalich(1)(2)(5) 52 Director Charles E. Slater(3)(4) 66 Director Roger Mulvihill 64 Secretary - ---------------------------------------------------------------------------------------------------------------------------
(1) Member of the Board's Compensation Committee. (2) Member of the Board's Stock Option Committee. (3) Member of the Board's Nominating Committee. (4) Member of the Board's Audit Committee. (5) Member of the Board's Governance Committee. Officers of the Company are elected annually by the Board for a term expiring at the next annual meeting of the Board or as otherwise determined by the Board. Walter B. Fowler was elected as the Company's Chairman, President and Chief Executive Officer in March 1997 and has been a director of the Company since September 1995. Previously, Mr. Fowler was President-Electrodes and Graphite Specialty Products of the Company from March 1995 to March 1997 and had been Vice President-General Manager, Graphite Electrode Products of the Company from January 1995 to March 1995 and Vice President-General Manager, Graphite Specialties of the Company from July 1991 to March 1995. He served as Chief Financial Officer and Treasurer of the Company from October 1988 to October 1991, and Vice President-Finance and Assistant Secretary from August 1988 to July 1991. Stephen D. Weaver has been Senior Vice President and General Manager-Electrodes and Graphite Specialty Products since May 2000. Previously, Mr. Weaver was the Company's Vice President-Finance and Chief Financial Officer of the Company since October 1991. Walter E. Damian has been the Company's Vice President-Human Resources since August 1988. Ararat Hacetoglu has been Vice President and General Manager, Carbide Products since April 1997. Previously, Mr. Hacetoglu was Vice President and Plant Manager-Louisville in the Carbide Products segment of the Company from March 1993 to April 1997 and Plant Manager-Louisville from August 1992 to March 1993. Jim J. Trigg has been Vice President and General Manager, Seadrift Coke, L.P. since June 1994. Previously, Mr. Trigg was Vice President and Plant Manager-Seadrift of the Company from February 1993 to June 1994 and Production Manager-Seadrift from August 1988 to February 1993. Nicholas T. Kaiser has been a member of the Company's Board of Directors since August 1988. Mr. Kaiser was the Company's Chairman of the Board and Chief Executive Officer from October 1994 to March 1997 and was President of the Company from October 1991 to March 1997. Mr. Kaiser received $20,000 in compensation for his services as a director of the Company for fiscal 2000. James R. Ball was elected to the Company's Board in March 1994. From July 1992 to December 1994, Mr. Ball was President and Chief Executive Officer of Vista Chemical Company. Since 1995, he has been a consultant and private 45 47 investor. Mr. Ball also currently serves on the Board of Directors of Quanta Services, Inc. and he previously served on the Board of Rexene Corporation from April 1996 to August 1997. Mr. Ball received $21,000 in compensation for his services as a director of the Company for fiscal 2000. Paul F. Balser has been a member of the Company's Board since August 1988 and was Vice President of the Company from August 1988 until June 1992. He was a partner of Centre Partners L.P., the managing general partner of Centre Capital Investors L.P. (CCI) from 1986 until August 1995. In August 1995, Mr. Balser resigned as an officer of the managing general partner of Centre Partners L.P., to become a founding partner of Generation Capital Partners L.P., a private investment partnership. Mr. Balser currently serves on the Boards of Directors of Kansas City Southern Industries, Inc., Scientific Games Holdings, Inc. and a number of privately held companies. Mr. Balser received $23,500 in compensation for his services as a director of the Company for fiscal 2000. Robert M. Howe has been a member of the Company's Board since April 1996. From March 1986 to December 1995, Mr. Howe was the President, Chief Operating Officer and a director of MAPCO, Inc. Mr. Howe is also currently a director of T.D. Williamson, Inc. Mr. Howe received $23,500 in compensation for his services as a director of the Company for fiscal 2000. Ronald B. Kalich was elected to the Company's Board in March 1994. Mr. Kalich is currently President and Chief Executive Officer of Fabristeel Holdings, Inc., a position he has held since September 2000. Previously he was President and Chief Executive Officer of National-Standard Company. From 1993 to 1998 he served as a Group Executive in the Marmon Group, Inc. Mr. Kalich is also currently a director of Thomas and Betts, Inc. and National-Standard Company. Mr. Kalich received $24,000 in compensation for his services as a director of the Company for fiscal 2000. Charles E. Slater was elected to the Company's Board in September 1997. Mr. Slater is currently the President and Chief Executive Officer of the Concrete Reinforcing Steel Institute, a position he has held since March 1998. Previously, Mr. Slater was the Executive Director of the Iron & Steel Society, a position he held since 1992. Mr. Slater received $24,500 in compensation for his services as a director of the Company for fiscal 2000. Roger Mulvihill has been a Secretary of the Company since August 1988. He has been a partner with the law firm of Dechert since December 1991. COMMITTEES OF THE BOARD OF DIRECTORS The committees of the Board of Directors for fiscal 2000 are described below. Compensation and Stock Option Committees The Compensation Committee consists of three directors and is responsible for policies, procedures and other matters relating to compensation of the executive officers as a group and the chief executive officer individually. In addition, the Compensation Committee reviews the operations of the Company's pension plans and its medical insurance plans. During fiscal 2000, the Compensation Committee held three meetings. The Stock Option Committee consists of two directors and has authority to grant options pursuant to the Company's stock option plans. During fiscal 2000, the Stock Option Committee held two meetings. Nominating Committee The Nominating Committee consists of four directors, a majority of whom may not be employees of the Company. The Nominating Committee is responsible for nominating individuals for election as directors of the Company. During fiscal 2000, the Nominating Committee did not hold any meetings. Audit Committee The Audit Committee consists of three directors. The Audit Committee is responsible for policies, procedures and other matters relating to accounting, internal financial controls and financial reporting, including the engagement of independent auditors and the planning, scope, timing and cost of any audit and any other services they may be asked to perform, and will review with the auditors their report on the Company's financial statements following completion of each such audit. During fiscal 2000, the Audit Committee held four meetings. 46 48 Governance Committee The Governance Committee consists of four members. The Governance Committee is responsible for Board governance matters, such as Board compensation, evaluation and committee assignments. During fiscal 2000, the Governance Committee held one meeting. The Board has also formed a special committee, which currently consists of Messrs. Ball, Balser, Howe, Kalich and Slater, to review and make recommendations to the Board regarding various aspects of certain antitrust claims involving the Company that are the subject of previously reported Grand Jury proceedings and several civil antitrust actions currently pending. In September 1998, the Board also formed a committee that currently consists of Messrs. Howe, Kalich and Slater to explore various strategic opportunities. The Board held eight meetings during fiscal 2000. Each incumbent director attended at least 75% of the aggregate number of meetings of the Board and the committees of the Board on which such director served. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and change in ownership with the Securities and Exchange Commission. Officers, directors and greater than 10% shareholders are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on the review of the copies of such forms furnished to the Company, the Company believes that during fiscal 2000 all Section 16(a) filing requirements applicable to its directors, officers and greater than 10% beneficial owners were filed on a timely basis. 47 49 ITEM 11 EXECUTIVE COMPENSATION The following table sets forth certain information concerning compensation received by the chief executive officer and each of the most highly compensated executive officers who received compensation in excess of $100,000 (collectively, the Named Executive Officers) for services rendered in all capacities during the Company's indicated fiscal years. SUMMARY COMPENSATION TABLE
Long-Term Annual Compensation Compensation ---------------------------------- ------------- Common Stock Other Annual Underlying All Other Name and Principal Position Year Salary Bonus(1) Compensation Options(2) Compensation - -------------------------------------------------------------------------------------------------------------------- Walter B. Fowler 2000 $350,004 -- -- 33,000 $ 12,201(3) Chairman of the Board, President 1999 350,004 $195,831 -- 40,000 26,137 and Chief Executive Officer 1998 316,668 -- -- 30,000 23,307 Stephen D. Weaver (4) 2000 208,503 -- -- 25,000 7,278(5) Senior Vice President & 1999 206,004 69,926 -- 20,000 16,800 General Manager-Electrodes 1998 191,341 -- -- 15,000 16,687 and Graphite Specialty Products Walter E. Damian 2000 162,000 -- -- 17,000 6,474(6) Vice President-Human Resources 1999 162,000 54,839 -- 20,000 13,562 1998 151,000 -- -- 15,000 14,962 Ararat Hacetoglu 2000 170,004 -- -- 17,000 4,412(7) Vice President & General 1999 170,004 53,262 -- 20,000 12,465 Manager-Carbide Products 1998 151,667 -- -- 15,000 12,545 Jim J. Trigg 2000 170,000 -- -- 17,000 7,141(8) Vice President & General 1999 170,000 56,765 -- 20,000 14,134 Manager-Seadrift Coke L.P. 1998 151,538 -- -- 15,000 15,294 Michael F. Supon(9) 2000 297,507 -- -- 16,000 5,708(10) Former Vice President & 1999 170,004 56,289 -- 20,000 14,225 General Manager-Electrodes 1998 151,667 -- -- 15,000 13,426 and Graphite Specialty Products ====================================================================================================================
(1) All amounts shown in this column represent bonuses earned in fiscal 1999 under the Incentive Bonus Plan. See Bonus Plans below. (2) Options were granted under the 1998 Plan and the 1995 Plan. All options granted in fiscal 2000 have an exercise price of either $5.53125 per share or $3.5625 per share depending on the date of grant. All options granted in fiscal 1999 have an exercise price of $13.9375 per share. All options granted in fiscal 1998 have an exercise price of $21.53125 per share. All options granted in the fiscal years presented vest and become exercisable at a rate of one-third per year beginning with the anniversary date of the grant. All options granted under the 1998 Plan and the 1995 plan expire in ten years from the grant date. (3) All other compensation for 2000 includes: $576 of premiums for group term life insurance; and $11,625 of Company match contributions under the Company's savings investment plan adopted pursuant to Section 401(k) of the Internal Revenue Service Code of 1986, as amended (the Savings Investment Plan). (4) Mr. Weaver became the Company's Senior Vice President and General Manager-Electrodes and Graphite Specialty Products effective May 2000. (5) All other compensation for 2000 includes: $320 of premiums for group term life insurance; and $6,958 of Company match contributions under the Savings Investment Plan. (6) All other compensation for 2000 includes: $625 of premiums for group term life insurance; and $5,849 of Company match contributions under the Savings Investment Plan. (7) All other compensation for 2000 includes: $92 of premiums for group term life insurance; and $4,320 of Company match contributions under the Savings Investment Plan. (8) All other compensation for 2000 includes: $342 of premiums for group term life insurance; and $6,799 of Company match contributions under the Savings Investment Plan. (9) Mr. Supon resigned from his position of Vice President and General Manager-Electrodes and Graphite Specialty Products effective April 2000. Included in Mr. Supon's salary for fiscal 2000 was $127,503 in regular salary and $170,004 in salary benefits accrued by the Company in connection with Mr. Supon's s severance. Except for 5,000 options granted during fiscal 1998, all options granted to Mr. Supon during the fiscal years presented were canceled as a result of his severance. (10) All other compensation for 2000 includes: $194 of premiums for group term life insurance; and $5,514 of Company match contributions under the Savings Investment Plan. 48 50 The following table sets forth certain information regarding awards of options for Common Stock to the Named Executive Officers during fiscal 2000. COMMON STOCK OPTIONS GRANTED IN FISCAL 2000
Individual Grants -------------------------------------------------------------- Potential Realizable % of Total Value at Assumed Options Annual Rates of Stock Shares Granted to Price Appreciation Underlying Employees for Option Term(3) Options in Fiscal Exercise Expiration ----------------------- Name Granted(1) Year Price(2) Date 5% 10% - ------------------------------------------------------------------------------------------------------------- Walter B. Fowler 33,000 14.3% $5.47 (4) $113,555 $287,770 Stephen D. Weaver 25,000 10.9 4.82 (4) 75,821 192,146 Walter E. Damian 17,000 7.4 5.42 (4) 57,898 146,724 Ararat Hacetoglu 17,000 7.4 5.42 (4) 57,898 146,724 Jim J. Trigg 17,000 7.4 5.42 (4) 57,898 146,724 Michael F. Supon (5) -- -- -- -- -- -- =============================================================================================================
(1) Options granted during fiscal 2000 were granted on February 28, 2000 and May 1, 2000 under the 1998 Plan. All options vest and become exercisable at a rate of one-third per year beginning with the anniversary date of the grant. (2) Represents the weighted average exercise price of options granted during fiscal 2000. Options granted on February 28, 2000 and May 1, 2000 have an exercise price of $5.53125 and $3.5625 per share, respectively. (3) The dollar amounts are the result of calculations at the 5% and 10% annual capital appreciation rates prescribed by the Securities and Exchange Commission and are not intended to forecast any possible appreciation of the Company's stock price. (4) Options granted under the 1998 Plan expire in ten years from the date of grant. (5) Options granted to Mr. Supon during fiscal 2000 were canceled in connection with his severance in April 2000. The following table provides information related to options exercised by the Named Executive Officers during fiscal 2000 and the number and value of options held as of July 31, 2000. AGGREGATE OPTION EXERCISES IN FISCAL 2000 AND FISCAL YEAR END-OPTION VALUES
Number of Shares Underlying Unexercised Value of Unexercised Options as of In-the-Money Options Shares July 31, 2000 as of July 31, 2000(1) Acquired Value ---------------------------------------------------------------- Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ------------------------------------------------------------------------------------------------------------------------------- Ararat Hacetoglu 11,000 $48,688(2) 35,667 35,333 -- $750 Walter B. Fowler -- -- 78,333 69,667 -- 750 Stephen D. Weaver -- -- 37,667 43,333 -- 6,750 Walter E. Damian -- -- 37,167 34,333 -- 750 Jim J. Trigg -- -- 39,667 35,333 -- 750 Michael F. Supon -- -- 19,000 -- -- -- ===============================================================================================================================
(1) Value is calculated based on the difference between $4.3125, the fair market value of the Company's Common Stock on July 31, 2000, and the exercise price of options outstanding. Options with an exercise price greater than $4.3125 per share were not included in this computation. (2) Options exercised had an exercise price of $2.00 per share. 5,000 of the options were exercised when the fair value of the Company's Common Stock was $7.50 per share and 6,000 of the options were exercised when the fair value of the Company's Common Stock was $5.53125 per share. 49 51 PERFORMANCE GRAPH The following graph compares the cumulative total return on the Company's Common Stock with the cumulative total return of the companies listed in the NASDAQ Stock Market--US Index (the NASDAQ Index) and the S&P Iron and Steel Index (the S&P Index) for the period from September 14, 1995, the date on which the Common Stock began public trading, to July 31, 2000. As compared to a basis of $100 as of September 14, 1995, the Company's index was $29, the NASDAQ Index was $377 and the S&P Index was $62, all as of July 31, 2000. COMPARISON OF 58-MONTH CUMULATIVE TOTAL RETURN AMONG THE CARBIDE/GRAPHITE GROUP, INC., THE NASDAQ STOCK MARKET (US) INDEX, AND THE S&P IRON & STEEL INDEX THE CARBIDE/GRAPHITE NASDAQ STOCK GROUP, INC. MARKET (U.S.) S&P IRON & STEEL - -------------------------------------------------------------------------------- 9/95 100 100 100 10/95 88 102 92 1/96 107 104 110 4/96 118 117 104 7/96 107 107 84 10/96 109 120 86 1/97 139 136 94 4/97 151 124 95 7/97 193 158 115 10/97 238 158 102 1/98 227 161 95 4/98 215 186 115 7/98 147 186 87 10/98 83 177 84 1/99 83 252 84 4/99 87 252 100 7/99 93 265 90 10/99 47 299 84 1/00 45 394 77 4/00 23 385 73 7/00 29 377 62 ================================================================================ * $100 invested on 9/14/95 in stock or index--including reinvestment of dividends. Fiscal year ending July 31. COMPENSATION OF DIRECTORS Refer to "The Board of Directors and Officers of the Company" section for details on compensation of each outside director for fiscal 2000. A portion of directors' fees earned by each outside director were credited to a deferred compensation plan. Such deferral was at the discretion of the director, subject to limitations summarized in the plan documents (see the "Deferral Plan" described below). Mr. Fowler received no compensation for his service as Chairman of the Board and a director of the Company in fiscal 2000. Non-employee directors receive a $5,000 per year retainer for services as members of the Board. Also, each Board committee chair receives a $1,500 per year chairmanship fee. For Board activities, each non-employee director receives $2,000 for in-person Board meetings, $1,000 for conference call Board meetings, $1,000 for in-person Board committee meetings and $500 for conference call Board committee meetings. During fiscal 1996, the Company adopted the Non-Employee Director Stock-Based Incentive Compensation Plan (the Director Plan). Options granted under the Director Plan generally have a term of ten years and are granted with an exercise price equal to the fair market value of the Company's Common Stock on the date of grant. Such options 50 52 vest and become exercisable on the one-year anniversary date of the option grant, with the stipulation that the non-employee director receiving the option continues as a director of the Company on such anniversary date. Options under the Director Plan may be exercised for cash and, under certain circumstances, Common Stock and additional unexercised options of the Company. There have been four annual option grants under the Director Plan since its inception. Except for Mr. Slater, option grants of 1,700, 2,000, 2,000 and 3,400 per outside director occurred on August 26, 1996 and July 31, 1997, 1998 and 1999, respectively. The exercise price of such options was $18.25, $28.875, $21.53125 and $13.9375 per share, respectively. In the case of Mr. Slater, option grants of 2,000, 2,000 and 3,400 occurred on September 9, 1997 and July 31, 1998 and 1999, respectively. The exercise price of such options was $34.6875, $21.53125 and $13.9375 per share, respectively. EMPLOYMENT AND SEVERANCE AGREEMENTS The Company is a party to employment, termination or severance agreements with Messrs. Fowler, Weaver, Damian, Trigg, Hacetoglu, Supon and Kaiser as set forth below. In September 1999, Mr. Fowler entered into an employment agreement with the Company as Chief Executive Officer which will terminate on August 31, 2001. Pursuant to the terms of the agreement, he is to receive annual cash compensation of at least $350,000 and incentive compensation in the form of stock options to purchase shares of Common Stock and annual incentive awards up to 100% of his base pay pursuant to the terms of the Incentive Bonus Plan. In the event of termination of his employment by the Company for other than death, disability or cause, or other than by virtue of a change in control, as defined therein, Mr. Fowler is to receive severance in a lump sum equal to twice the amount of his base salary plus twice the amount of the average of his bonus plan payouts for the previous two years. If terminated due to a change of control event, Mr. Fowler would receive a lump sum payment equal to 2.99 times his base salary plus, subject to certain exceptions, 2.99 times the average of his bonus plan payouts for the previous two years at the time of termination. The agreement also provides for certain payments in the event of Mr. Fowler's death or disability. Effective February 1, 2000, Mr. Weaver entered into an employment agreement. Such employment agreement was amended effective May 1, 2000 in connection with Mr. Weaver's promotion to Senior Vice President-Electrodes and Graphite Specialty Products. Pursuant to the terms of the amended agreement, he is to receive annual cash compensation of at least $216,000 and incentive awards of up to 60% of his base pay pursuant to the terms of the Incentive Bonus Plan. In the event of termination of his employment by the Company for other than death, disability or cause, as defined therein, Mr. Weaver is to receive severance in a lump sum equal to twice the amount of his base salary plus twice the amount of the average of his bonus plan payouts for the previous two years. If terminated due to a change of control event, Mr. Weaver will receive a lump sum payment equal to 2.99 times his base salary, plus, subject to certain exceptions, 2.99 times the average of his bonus plan payouts for the previous two years, at the time of termination. The agreement also provides for certain payments in the event of Mr. Weaver's death or disability. The Company entered into severance agreements with Messrs. Trigg, Damian and Hacetoglu with respect to their employment as, respectively, Vice President and General Manager-Seadrift Coke, L.P., Vice President-Human Resources and Vice President and General Manager-Calcium Carbide Products. Pursuant to the terms of the agreements, Messrs. Trigg, Damian, and Hacetoglu will each be granted one year of severance pay and medical coverage if terminated other than for cause. In connection with his agreement, Mr. Supon is to receive one year of severance pay and medical coverage as a result of his severance in April 2000. In March 1997, Mr. Kaiser retired from his positions with the Company, other than his position as a director. Pursuant to his March 1997 revised employment agreement, the Company will provide for the continuation of Mr. Kaiser's health insurance benefits until January 1, 2001. SAVINGS INVESTMENT PLAN The Company has adopted the Savings Investment Plan for substantially all salaried employees, including the Named Executive Officers. Employee contributions of not more than 6% of employee compensation are matched at a rate of 50% by the Company in lieu of a pension plan. Additional employer contributions may be made at the discretion of the Board based on the Company's current year performance. 51 53 Deferral Plan The Company has implemented a compensation deferral plan (the Deferral Plan) for the benefit of its directors and officers, currently 17 individuals, including the Named Executive Officers. The Deferral Plan became effective for compensation that would otherwise be paid on or after January 1, 1996. Under the Deferral Plan, participants are allowed to defer a portion or all of their base salary, director's fees or bonuses. Contributions to the Deferral Plan are invested, as the participants direct, into a variety of fixed income, balanced and equity funds. The Deferral Plan also restores the Saving Investment Plan matching contribution lost on deferred compensation up to $235,840 (as such amounts may be increased under Section 415(d) of the Internal Revenue Code). Distributions from the Deferral Plan generally will be made upon retirement, disability or upon termination of employment, unless further deferred by the participant. 1995 STOCK-BASED INCENTIVE COMPENSATION PLAN General. The Board adopted the 1995 Stock-Based Incentive Compensation Plan (the 1995 Plan) in April 1995, and the shareholders of the Company approved the 1995 Plan in August 1995. The purpose of the 1995 Plan is to assist the Company, and its subsidiaries and affiliates, in attracting and retaining valued employees by offering them a greater stake in the Company's success and a closer identity with it, and to encourage ownership of the Company's Common Stock by such employees. The 1995 Plan permits awards of stock options and/or stock appreciation rights (SARs) to eligible employees that qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). The total number of shares of the Company's Common Stock available for awards under the 1995 Plan is 400,000 shares (subject to adjustments for stock splits, stock dividends and the like). No employee may be granted (i) an award of, or exercisable for, more than a specified number of shares of Common Stock in any one calendar year, or (ii) incentive stock options first exercisable in any one calendar year for shares of Common Stock having an aggregate fair market value in excess of $100,000. The following summary description of the 1995 Plan is qualified in its entirety by the full text of the 1995 Plan, as amended, copies of which may be obtained by the Company's stockholders upon request to the Office of the Secretary of the Company. Administration. The Stock Option Committee (the Committee) designated by the Board has full power to interpret and administer the 1995 Plan and full authority to act in selecting the employees to whom awards of options or SARs under the 1995 Plan (Awards) shall be granted, in determining the type and amount of Awards to be granted to each such employee, the terms and conditions of Awards granted under the 1995 Plan and the terms and agreements that shall be entered into with employees to whom an Award is granted (the Holders). Effective August 1996, all grants under the 1995 Plan must be approved by the Committee. The Committee members must be Board members who are not employees of the Company and, for periods prior to August 1996, who are not eligible to participate in the 1995 Plan. The Board has the power to amend, suspend or terminate the 1995 Plan at any time except that stockholder approval is required to increase the total number of shares available for issuance pursuant to the 1995 Plan, change the class of employees eligible to be Holders, decrease the price at which the Common Stock may be purchased upon the exercise of an option, withdraw the administration of the 1995 Plan from the Committee, change the provisions of Section 9 of the 1995 Plan, or take any other action that requires stockholder approval under Section 16(b) of the Securities Exchange Act of 1934. Eligibility. Any employee is eligible to receive an Award, except that any employee employed by an affiliate (any entity (other than a 50% or more subsidiary)) in which the Company has a substantial direct or indirect equity interest, as determined by the Board) shall not be eligible to receive an incentive stock option. For these purposes, "employee" means an officer or other key employee, consultant or advisor of the Company, a subsidiary or an affiliate, including a director who is such an employee, consultant or advisor. Awards. Under the 1995 Plan, eligible employees may be awarded stock options and/or SARs. Stock options may be either incentive stock options or non-qualified stock options. Incentive stock options are intended to be "incentive stock options" under Section 422 of the Internal Revenue Code; non-qualified stock options are intended to be those stock options which do not qualify under Section 422 of the Internal Revenue Code. The price at which shares of Common Stock may be purchased upon the exercise of an option is determined by the Committee but must be at 52 54 least equal to the fair market value of such shares on the date of the award. Payment of the option price must be paid in full in cash at the time of exercise or, with the consent of the Committee, in whole or in part in shares of Common Stock valued at fair market value. With the consent of the Committee, payment upon the exercise of a non-qualified stock option may be made in whole or in part by the delivery of additional, unexercised non-qualified stock options (based on the difference between the fair market value of the Common Stock for which they are exercisable and the exercise price of such additional non-qualified stock options) or by a "cashless exercise." An SAR entitles the recipient to receive a payment equal to the excess of the fair market value of the shares of Common Stock covered by the SAR on the date of exercise over the exercise price of the SAR. Such payment may be in cash, in shares of Common Stock, or any combination thereof, as the Committee may determine. An SAR may be awarded in tandem with options or separately. Stock options and SARs will be exercisable over a period to be designated by the Committee, but not prior to six months or more than ten years (or five years for certain incentive stock options) after the date of the award. All options and SARs awarded under the 1995 Plan are non-transferable other than by will or by operation of the laws of descent and distribution. As of September 22, 2000, all 400,000 options for Common Stock available for grant under the 1995 Plan had been granted or cancelled. Of the 400,000 options granted under the 1995 Plan, 353,500 options for Common Stock, representing 4.2% of the Common Stock outstanding, had not yet been exercised as of September 22, 2000. The closing price of the Company's Common Stock as reported on the NASDAQ National Market System on September 22, 2000 was $3.6875 per share. The average exercise price of outstanding options granted under the 1995 Plan is $21.34 per share. Term. The 1995 Plan became effective in May 1995 and will remain in full force and effect until the earlier of May 1, 2005 or the date it is terminated by the Board. Performance-Based Compensation. It is intended that all compensation income recognized by any Holder as the result of the exercise of options or SARs, or the disposition of shares of common stock acquired on exercise of options or SARs, will be considered performance-based compensation excludable from such Holder's "applicable employee remuneration" pursuant to Section 162(m)(4)(C) of the Internal Revenue Code. Federal Tax Treatment. Under the present federal tax laws, the federal income tax treatment of stock options and SARs under the 1995 Plan is as follows: An employee recognizes no taxable income and the Company is not entitled to a deduction when an incentive stock option is awarded or exercised. If an employee sells Common Stock acquired upon exercise, after complying with requisite holding periods, any gain or loss realized upon such sale will be long-term capital gain or loss. The Company will not be entitled to take a deduction as a result of any such sale. If the employee disposes of such Common Stock before complying with requisite holding periods, the employee generally will recognize ordinary income equal to the difference between the fair market value of the Common Stock on the date of exercise and the exercise price, and the Company will be entitled to a corresponding income tax deduction. An employee recognizes no taxable income and the Company is not entitled to an income tax deduction when a non-qualified option is awarded. Upon exercise of a non-qualified option, an employee generally will realize ordinary income in an amount equal to the excess of the fair market value of the Common Stock over the exercise price, and, provided that the applicable conditions of Section 162(m) of the Internal Revenue Code are met, the Company will be entitled to a corresponding income tax deduction. Upon sale of the Common Stock acquired, the employee will realize short-term or long-term capital gain or loss, depending upon whether the Common Stock has been held for more than one year, equal to the difference between the sale price of the Common Stock and the fair market value of the Common Stock on the date that the employee recognizes income with respect to the option exercise. An employee recognizes no taxable income and the Company is not entitled to an income tax deduction when an SAR is awarded. Upon exercise of an SAR, an employee generally will realize ordinary income in an amount equal to the difference between the fair market value of the Common Stock on the date of exercise and the exercise price under the SAR, and, provided the applicable conditions of Section 162(m) of the Internal Revenue Code are met, the Company will be entitled to a corresponding income tax deduction. 53 55 THE 1998 STOCK-BASED INCENTIVE COMPENSATION PLAN General. The 1998 Stock-Based Incentive Compensation Plan (the 1998 Plan) was approved by the Company's stockholders in December 1998. The purpose of the 1998 Plan is to assist the Company, and its subsidiaries and affiliates, in attracting and retaining valued employees by offering them a greater stake in the Company's success and a closer identity with it, and to encourage ownership of the Company's Common Stock by such employees. No employee may be granted incentive stock options first exercisable in any one calendar year for shares of Common Stock having an aggregate fair market value in excess of $100,000. The aggregate number of shares of the Company's Common Stock issued under the 1998 Plan will not exceed 450,000 shares (subject to adjustments for stock splits, stock dividends and the like). The 1998 Plan permits awards to eligible employees of stock options and/or SARs that qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). Section 162(m) of the Code limits the deductibility of compensation paid to the Company's Chief Executive Officer and to each of the next four most highly paid officers unless that compensation is "performance based." The following summary description of the 1998 Plan is qualified in its entirety by the full text of the 1998 Plan, copies of which may be obtained by the Company's stockholders upon request to the Office of the Secretary of the Company. Administration. The Committee has full power to interpret and administer the 1998 Plan and full authority to act in selecting the employees to whom awards of options or SARs under the 1998 Plan (Awards) are granted, in determining the type and amount of Awards to be granted to each such employee, the terms and conditions of Awards granted under the 1998 Plan and the terms and agreements entered into with employees to whom an Award is granted (the Holders). All grants under the 1998 Plan must be approved by the Committee. The Committee members must be Board members who are not employees of the Company or any parent, subsidiary, or Seadrift or any affiliate. No Committee member can receive any compensation from the Company except in his capacity as director. All have to otherwise qualify as "outside directors" under Section 162(m) of the Internal Revenue Code and "non-employee directors" under Rule 16b-3 promulgated by the Securities and Exchange Commission. The Board has the power to amend, suspend or terminate the 1998 Plan at any time, except that stockholder approval is required to increase the total number of shares available for issuance pursuant to the 1998 Plan, change the class of employees eligible to be Holders, withdraw the administration of the 1998 Plan from the Committee, change the provisions of the 1998 Plan describing when a shareholder vote is required for plan modification, or take any other action that would require stockholder approval under the "short swing profit recapture" rules of Section 16(b) of the Securities Exchange Act of 1934. Eligibility. Employees, consultants and advisors of the Company, or a subsidiary or Seadrift or any other affiliate, including any director who is an employee, consultant or advisor, are eligible to receive Awards. Directors, consultants and advisors who are not employees, and employees of Seadrift or any other affiliate (any entity (other than a 50% or more subsidiary) in which the Company has a substantial direct or indirect equity interest, as determined by the Board), are not, however, eligible to receive incentive stock options. Employees, consultants, and advisors of the Company or a subsidiary would be eligible to receive incentive stock options as well as non-qualified options and SARs. Awards. Under the 1998 Plan, eligible employees can be awarded stock options and/or SARs. Stock options may be either incentive stock options or non-qualified stock options. Incentive stock options are intended to be "incentive stock options" under Section 422 of the Internal Revenue Code. Non-qualified stock options are those options that do not qualify under Section 422 of the Internal Revenue Code. The price at which shares of Common Stock can be purchased upon the exercise of an option is determined by the Committee, but has to be at least equal to the fair market value of such shares (or 110% of fair market value for certain incentive stock options) on the date of the Award. Payment of the option price has to be made in full in cash at the time of exercise or, with the consent of the Committee, in whole or in part in shares of Common Stock valued at fair market value. With the consent of the Committee, payment upon the exercise of a non-qualified stock option can be made in whole or in part by the delivery of additional, unexercised non-qualified stock options (based on the difference between the fair market value of the Common Stock for which they are exercisable and the exercise price of such additional non-qualified stock options) or by a "cashless exercise." An SAR entitles the recipient to receive a payment equal to the excess of the fair market value of the shares of Common Stock covered by the SAR on the date of exercise over the exercise price of the SAR. Such payment may be in cash, in shares of Common Stock, or in any combination thereof, as the Committee may determine. An SAR may be awarded in tandem with options or separately. 54 56 Stock options and SARs may be exercisable over a period to be designated by the Committee, but not prior to six months or more than ten years (or five years for certain incentive stock options) after the date of the Award. All incentive stock options awarded under the 1998 Plan are non-transferable other than by will or by operation of the laws of descent and distribution. As of September 22, 2000, 448,000 of the 450,000 options for Common Stock available for grant under the 1998 Plan had been granted or cancelled. None of the options granted under the 1998 plan have been exercised as of September 22, 2000. Options for Common Stock granted under the 1998 Plan represent approximately 5.4% of the Common Stock outstanding as of September 22, 2000. The closing price of the Company's Common Stock as reported on the NASDAQ National Market System on September 22, 2000 was $3.6875 per share. The average exercise price of outstanding options that were granted under the 1998 Plan is $9.41 per share. The Committee retains the power to amend the terms of, or cancel and regrant, stock options and SARs for the benefit of any Holder. All terms of the options and SARs can be amended, subject to the specific limitations set forth in the Plan. Any incentive stock option amended by the Committee becomes a non-qualified option. In the event of a dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving corporation, or any other transaction wherein the Company's stockholders give up all their equity interest in the Company, the successor company, if any, may substitute its own substantially similar options and SARs, or it could elect to terminate the Plan. Termination would result in expiry of all awards at such a time and on such conditions as the Board determines. Term. The 1998 Plan became effective December 3, 1998 and will remain in full force and effect until the earlier of December 3, 2008 or the date it is terminated by the Board. Performance-Based Compensation. It is intended that all compensation income recognized by any Holder as the result of the exercise of options or SARs, or the disposition of shares of Common Stock acquired on exercise of options or SARs, be considered performance-based compensation excludable from such Holder's "applicable employee remuneration" pursuant to section 162(m)(4)(C) of the Internal Revenue Code. Federal Tax Treatment. Under the present federal tax laws, the federal income tax treatment of stock options and SARs under the 1998 Plan is as follows: An employee recognizes no taxable income and the Company is not entitled to a deduction when an incentive stock option is awarded or exercised. If an employee sells Common Stock acquired upon exercise, after complying with requisite holding periods, any gain or loss realized upon such sale is a long-term capital gain or loss. The Company is not entitled to take a deduction as a result of any such sale. If the employee disposes of such Common Stock before complying with requisite holding periods, the employee generally will recognize ordinary income equal to the difference between the fair market value of the Common Stock on the date of exercise and the exercise price, and the Company will be entitled to a corresponding income tax deduction. An option holder recognizes no taxable income and the Company is not entitled to an income tax deduction if a non-qualified option is awarded. Upon exercise of a non-qualified option, the Holder generally would realize ordinary income in an amount equal to the excess of the fair market value of the Common Stock over the exercise price, and, provided that the applicable conditions of Section 162(m) of the Internal Revenue Code are met, the Company will be entitled to a corresponding income tax deduction. Upon sale of the Common Stock acquired, the Holder would realize short-term or long-term capital gain or loss, depending upon whether the Stock had been held for more than one year, equal to the difference between the sale price of the Common Stock and the fair market value of the Common Stock on the date that the Holder recognizes income with respect to the option exercise. The employee, director, consultant or advisor recognizes no taxable income and the Company is not entitled to an income tax deduction if an SAR is awarded. Upon exercise of an SAR, the Holder generally would realize ordinary income in an amount equal to the difference between the fair market value of the Common Stock on the date of exercise and the exercise price under the SAR, and, provided any applicable conditions of Section 162(m) of the Internal Revenue Code were met, the Company will be entitled to a corresponding income tax deduction. 55 57 BONUS PLANS The Company has adopted an incentive bonus plan for certain executives, including the Named Executive Officers (the Incentive Bonus Plan). The Incentive Bonus Plan provides for the award of annual bonuses based on the Company's meeting or exceeding personal goals, as well as performance targets relating to earnings before interest, taxes, depreciation and amortization (EBITDA) which are established annually by the Board. Satisfaction of EBITDA targets will trigger awards equal to 10%, 20%, 30% or 50% of base pay depending on management levels. EBITDA in excess of the established targets will increase bonus awards subject to maximum awards of 20%, 40%, 60% or 100%, respectively, depending on management levels. Approximately 31 salaried employees are currently eligible to participate in the Incentive Bonus Plan, including the Named Executive Officers. The Company has also adopted a discretionary bonus plan for salaried employees not eligible for the Incentive Bonus Plan (the Discretionary Bonus Plan). The Discretionary Bonus Plan provides for the payment of an aggregate amount equal to up to 2% of the total annual salaries of non-executive employees. Awards under the Discretionary Bonus Plan are made solely at management's discretion. The Company did not pay any bonuses under the Incentive Bonus Plan or the Discretionary Bonus Plan for fiscal 2000. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of the Board of Directors is comprised of Messrs. Ball, Balser and Kalich, none of whom currently is an executive officer of the Company; however, Mr. Balser served as an officer of the Company in the past. Executive officer compensation is determined by the Compensation Committee. STOCK OPTION COMMITTEE The Stock Option Committee of the Board of Directors is comprised of Mr. Ball and Mr. Kalich, neither of whom currently is an executive officer of the Company or receives any compensation from the Company in any capacity other than as a director. Awards under the 1998 Plan are determined by the Stock Option Committee. 56 58 REPORT OF COMPENSATION COMMITTEE The Compensation Committee, which is currently comprised of three non-employee directors, is responsible for guiding the Company in the development and implementation of the Company's compensation policies, plans and programs. The intended purposes of these programs are to: (i) promote the interests of the Company and its stockholders by attracting and retaining officers and other key employees of exceptional ability; (ii) maximize the Company's long-term success and investment returns to stockholders; (iii) provide officers and key employees who are important to the Company's sustained growth with a proprietary interest in, and greater incentives to contribute to the success of the Company through ownership of the Company's Common Stock and stock options; and (iv) provide incentives for officers and other key employees which are competitive with those offered by other corporations in the business and geographic areas in which the Company operates. The Compensation Committee reviews and recommends the annual compensation of the Company's executive officers and other members of management, which consists principally of base salary, annual bonuses and stock option grants. The Compensation Committee considers, among other things, compensation statistics for executives of companies that are similar in size and other characteristics to the Company in determining the compensation of its executives. Messrs. Fowler, Weaver, Damian, Trigg and Hacetoglu have entered into employment and/or severance agreements with the Company. Base Salary. Base salary is designed to compensate executives and other key employees for individual performance. Such base salaries are intended to (a) take into consideration the relative intrinsic value of the subject executive position to the Company, as measured by the position's scope of responsibility, strategic importance, technological requirements and complexity; (b) competitive salaries; and (c) individual performance. Executives and other key employees may or may not receive annual base salary increases, depending upon performance in the prior year and upon the achievement of individual and corporate performance goals. Annual Incentive Awards. Annual incentive awards will be granted under the Incentive Bonus Plan and are based on achieving personal goals and EBITDA targets which have been established by the Board. Meeting such objectives will trigger awards as a percentage of base pay dependent on management level of 10%, 20%, 30% or 50%. Exceeding such targets will increase bonuses subject to maximum payments of 20%, 40%, 60% or 100% depending on management levels. EBITDA results in excess of targets, but below maximum levels, will result in awards calculated linearly between such points. Long-term Incentives. Long-term incentives are provided through annual stock option grants to executives, principally through the 1995 and 1998 Plans. Generally, stock options have a term of 10 years and vest ratably over three years. Option exercise prices equal the fair market value of the Common Stock on the date of grant. Incentive stock options are granted to the extent permitted by applicable tax law and options granted in excess of such amounts will be non-qualified options. Outstanding options held by an employee are considered in connection with the award of new options. CEO Compensation. Mr. Fowler, the Chief Executive Officer of the Company, is compensated pursuant to the terms of his Employment Agreement with the Company. In developing Mr. Fowler's compensation, the Compensation Committee considered Mr. Fowler's prior performance in senior managerial roles with the Company's electrodes unit, its largest business unit. Mr. Fowler served as President of the Electrodes and Graphite Specialty Products of the Company from March 1995 through March 1997, as Vice President-General Manager, Graphite Electrode Products of the Company from January 1995 through March 1995 and as Vice President-General Manager, Graphite Specialties of the Company from July 1991 to March 1995. The Committee also considered Mr. Fowler's contributions with respect to the Company's significant capital expenditure program, including its modernization plan and his management of the Company in recent periods under difficult business conditions. Respectfully Submitted, Compensation Committee /S/ James R. Ball /S/ Paul F. Balser /S/ Ronald B. Kalich 57 59 DIRECTORS AND OFFICERS LIABILITY INSURANCE The Company maintains $20 million of insurance under primary and secondary layer policies providing payment either to the Company for indemnification provided to its directors or officers, or directly to its directors and officers, for certain liabilities which the Company's directors and officers may incur in such capacities. The premiums and fees paid under such policies in fiscal 2000 totaled $231,417. Coverage was extended for fiscal 2001 for premiums totaling $224,035. The insurance policies are issued by National Union Fire Insurance Company and Twin City Fire Insurance Company. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRINCIPAL STOCKHOLDERS The following table sets forth information as of September 22, 2000 with respect to each stockholder who beneficially owns 5% or more of the Company's outstanding Common Stock. Except as set forth below, each stockholder has sole voting and investment power with respect to all shares shown to be beneficially owned by such stockholder. This information is based upon the latest written report furnished to the Company or filed with the Securities and Exchange Commission by such stockholder on or before September 22, 2000 and may not be current. Common Stock outstanding as of September 22, 2000 was 8,331,342 shares.
Number of Shares Percent Name Beneficially Owned of Class - ----------------------------------------------------------------------------------------------------- Southeastern Asset Management, Inc. (1) 1,740,000 20.9% 6075 Poplar Avenue, Suite 900 Memphis, Tennessee 38119 James J. Filler 827,600 9.9 c/o Jefferson Iron & Metal Brokerage Company P.O. Box 131449 Birmingham, Alabama 35213 Jennison Associates LLC 761,900 9.1 466 Lexington Avenue New York, New York 10017 Dimensional Fund Advisors, Inc. 524,400 7.7 1299 Ocean Avenue Santa Monica, California 90401-1038 ======================================================================================================
(1) Shares are owned by Longleaf Partners Small-Cap Fund for which Southeastern Asset Management, Inc. is the investment adviser. 58 60 OWNERSHIP OF SECURITIES BY DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN OTHER OFFICERS The following is a summary of the beneficial ownership of the Company's Common Stock as of September 22, 2000 by the Company's directors, executive officers and by all such officers and directors as a group. Each of the Company's officers and directors can be reached through the Company's corporate offices located at One Gateway Center, 19th Floor, Pittsburgh, PA 15222.
Number of Shares Percentage Name of Officer or Director Beneficially Owned(1) of Class(2) - ----------------------------------------------------------------------------------------------------- Officers: Walter B. Fowler (3) 206,000 2.4% Ararat Hacetoglu (4) 99,227 1.2 Jim J. Trigg (5) 90,915 1.1 Stephen D. Weaver (6) 89,403 1.1 Walter E. Damian (7) 81,087 1.0 Roger Mulvihill 8,000 0.1 Directors: Nicholas T. Kaiser (8) 209,400 2.5 Paul F. Balser (9) 35,100 0.4 James R. Ball (10) 34,100 0.4 Ronald B. Kalich (11) 19,100 0.2 Robert M. Howe (12) 12,100 0.1 Charles E. Slater (13) 10,400 0.1 All executive officers and directors as a group (12 persons) 894,832 10.1 =====================================================================================================
(1) Unless otherwise noted, each stockholder has or will have sole voting and investment power with respect to the shares shown. (2) Shares issuable upon the exercise of Common Stock options were added to the Company's total Common Stock outstanding for purposes of this computation, if applicable. (3) Number of shares indicated includes 58,000 shares of Common Stock, 78,333 shares of Common Stock issuable upon the exercise of fully vested stock options and 69,667 shares of Common Stock issuable upon the exercise of non-vested stock options. (4) Number of shares indicated includes 28,227 shares of Common Stock, 35,667 shares of Common Stock issuable upon the exercise of fully vested stock options and 35,333 shares of Common Stock issuable upon the exercise of non-vested stock options. (5) Number of shares indicated includes 15,915 shares of Common Stock, 39,667 shares of Common Stock issuable upon the exercise of fully vested stock options and 35,333 shares of Common Stock issuable upon the exercise of non-vested stock options. (6) Number of shares indicated includes 8,403 shares of Common Stock, 37,667 shares of Common Stock issuable upon the exercise of fully vested stock options and 43,333 shares of Common Stock issuable upon the exercise of non-vested stock options. (7) Number of shares indicated includes 9,587 shares of Common Stock, 37,167 shares of Common Stock issuable upon the exercise of fully vested stock options and 34,333 shares of Common Stock issuable upon the exercise of non-vested stock options. (8) Number of shares indicated includes 195,000 shares of Common Stock and 14,400 shares of Common Stock issuable upon the exercise of vested stock options. (9) Number of shares indicated includes 26,000 shares of Common Stock and 9,100 shares of Common Stock issuable upon the exercise of fully vested stock options. (10) Number of shares indicated includes 25,000 shares of Common Stock and 9,100 shares of Common Stock issuable upon the exercise of fully vested stock options. (11) Number of shares indicated includes 10,000 shares of Common Stock and 9,100 shares of Common Stock issuable upon the exercise of fully vested stock options. (12) Number of shares indicated includes 3,000 shares of Common Stock and 9,100 shares of Common Stock issuable upon the exercise of fully vested stock options. (13) Number of shares indicated includes 3,000 shares of Common Stock and 7,400 shares of Common Stock issuable upon the exercise of vested stock options. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CERTAIN TRANSACTIONS AND RELATIONSHIPS Pursuant to an agreement entered into in connection with the Company's initial public offering of Common Stock in September 1995, the Company filed a registration statement under the Securities Act of 1933, as amended (the Securities Act), which became effective in March 1996, with respect to the sale of certain shares of Common Stock held by management stockholders and agreed to keep such registration in effect for at least 36 months. Shares of Common Stock owned by the Company's directors are also covered by such registration statement. 59 61 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 25 through 44 and page 24, respectively, of 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, 2000 and 1999. - - Consolidated Statements of Operations for the Years Ended July 31, 2000, 1999 and 1998. - - Consolidated Statements of Stockholders' Equity for the Years Ended July 31, 2000, 1999 and 1998. - - Consolidated Statements of Cash Flows for the Years Ended July 31, 2000, 1999 and 1998. - - Report of Independent Accountants dated September 8, 2000, except for paragraphs 2 through 5 of Note 6 as to which the date is November 13, 2000. (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 66 and 67, 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 8, 2000, except for paragraphs 2 through 5 of Note 6 as to which the date is November 13, 2000. - - Schedule II--Valuation and Qualifying Accounts for the Years Ended July 31, 2000, 1999 and 1998. 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. 60 62 (a)(3) List of Exhibits EXHIBIT NO. DESCRIPTION - ------------------------------------------------------------------------------ 3.1* Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, Registration No. 33-91002) 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. 33-91002) 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) 3.4* Rights Agreement, including the associated Form of Rights Certificate and Form of Certificate of Designation for Series A Junior Participating Preferred Stock, dated as of May 21, 1999, between The Carbide/Graphite Group, Inc. and State Street Bank (incorporated herein by reference to Exhibit 1 of the Company's Current Report on Form 8-K dated May 21, 1999 and filed on June 1, 1999) 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) 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 Company, as trustee, related to the elimination of substantially all of the restrictive covenants and certain default provisions in the Senior Note Indenture (incorporated herein by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1997, Commission File No. 0-20490) 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 (incorporated herein by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1997, Commission File No. 0-20490) 10.6* Second Amendment to Revolving Credit and Letter of Credit Issuance Agreement and Waiver between the Company and PNC Bank, N.A. dated April 30, 1998 (incorporated herein by reference to Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1998, Commission File No. 0-20490) 61 63 EXHIBIT NO. DESCRIPTION - ------------------------------------------------------------------------------ 10.7* Third Amendment to the Revolving Credit and Letter of Credit Issuance Agreement and Amendment to Revolving Credit Notes among The Carbide/Graphite Group, Inc., the Lenders which are Parties thereto, and PNC Bank, N.A., as the Issuing Bank and as the Agent for the Lenders dated April 30, 1999 (incorporated herein by reference to Exhibit 10.33 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1999) 10.8* Fourth Amendment to the Revolving Credit and Letter of Credit Issuance Agreement among The Carbide/Graphite Group, Inc., the Lenders which are Parties thereto, and PNC Bank, N.A., as the Issuing Bank and as the Agent for the Lenders dated September 8, 1999 (incorporated herein by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1999, Commission File No. 0-20490 10.9* Fifth Amendment to the Revolving Credit and Letter of Credit Issuance Agreement among The Carbide/Graphite Group, Inc., the Lenders which are Parties thereto, and PNC Bank, N.A., as the Issuing Bank and as the Agent for the Lenders dated December 10, 1999 (incorporated herein by reference to Exhibit 10.32 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1999, Commission File No. 0-20490) 10.10* Letter Amendment and Waiver to the Revolving Credit and Letter of Credit Issuance Agreement among The Carbide/Graphite Group, Inc., the Lenders which are Parties thereto, and PNC Bank, N.A., as the Issuing Bank and as the Agent for the Lenders dated May 22, 2000 (incorporated herein by reference to Exhibit 10.33 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2000, Commission File No. 0-20490) 10.11(a) Letter Amendment and Waiver to the Revolving Credit and Letter of Credit Issuance Agreement among The Carbide/Graphite Group, Inc., the Lenders which are Parties thereto, and PNC Bank, N.A., as the Issuing Bank and as the Agent for the Lenders dated November 13, 2000 10.11(b) Warrant Agreement between The Carbide/Graphite Group, Inc. and the Warrantholders parties thereto dated November 13, 2000 10.11(c) Form of Warrant, Series A associated with the Warrant Agreement dated November 13, 2000 10.11(d) Form of Warrant, Series B associated with the Warrant Agreement dated November 13, 2000 10.12* Employment Agreement dated September 1, 1999 between the Company and Walter B. Fowler (incorporated herein by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1999, Commission File No. 0-20490) 10.13 Employment Agreement dated February 1, 2000 between the Company and Stephen D. Weaver 10.14* Separation Agreement dated April 25, 1997 between the Company and Walter E. Damian (incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1997, Commission File No. 0-20490) 10.15* Separation Agreement dated April 25, 1997 between the Company and Jim J. Trigg (incorporated herein by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1997, Commission File No. 0-20490) 10.16* Separation Agreement dated August 11, 1999 between the Company and Ararat Hacetoglu (incorporated herein by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1999, Commission File No. 0-20490) 10.17* Separation Agreement dated October 6, 1999 between the Company and Michael F. Supon(incorporated herein by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1999, Commission File No. 0-20490) 10.18* 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) 10.19* 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) 62 64 EXHIBIT NO. DESCRIPTION - ------------------------------------------------------------------------------ 10.20* 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) 10.21* 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) 10.22* Incentive Bonus Plan of the Company (incorporated herein by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1997, Commission File No. 0-20490) 10.23* 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) 10.24* The 1998 Stock-Based Incentive Compensation Plan (incorporated herein by reference from Exhibit 10.32 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 31, 1999) 10.25* 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) 10.26* 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) 10.27* 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) 10.28* 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) 10.29* 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) 10.30* Agreement between the Company (Electrode Unit) and International Union of Electrical, Technical Salaried Machine and Furniture Workers, AFL-CIO Local Union 502, dated June 7, 1999 (incorporated herein by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1999, Commission File No. 0-20490) 10.31* 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) 10.32* Agreement between the Company (Electrode Unit) and the Oil, Chemical and Atomic Workers International Union and Local Union Number 8-23516, dated January 25, 1999 (incorporated herein by reference to Exhibit 10.29 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended January 31, 1999) 10.33* 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) 63 65 EXHIBIT NO. DESCRIPTION - ------------------------------------------------------------------------------ 21.1* Subsidiaries and Affiliates of the Company (incorporated herein by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1997, Commission File No. 0-20490) 23.1 Consent of Independent Accountants 27.1 Financial Data Schedule * Exhibit has previously been filed with the Commission and is herein incorporated by reference. (b) Reports on Form 8-K The Company did not file any reports on form 8-K for the quarterly period ended July 31, 2000. 64 66 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 November 14, 2000. 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 November 14, 2000.
SIGNATURE TITLE - ------------------------------------------------------------------------------------------------------------ /s/ Walter B. Fowler Chairman of the Board, President, Chief Executive Officer and - ---------------------------------------- Director (Principal Executive Officer) (WALTER B. FOWLER) /s/ William M. Thalman Vice President-Treasurer - ---------------------------------------- (Principal Financial Officer) (WILLIAM M. THALMAN) /s/ Jeffrey T. Jones Vice President-Controller - ---------------------------------------- (Principal Accounting Officer) (JEFFREY T. JONES) /s/ Ararat Hacetoglu Vice President and General Manager, Carbide Products - ---------------------------------------- (ARARAT HACETOGLU) /s/ Stephen D. Weaver Senior Vice President and General Manager, - ---------------------------------------- Electrodes and Graphite Specialty Products (STEPHEN D. WEAVER) /s/ Jim J. Trigg Vice President and General Manager, Seadrift Coke, L.P. - ---------------------------------------- (JIM J. TRIGG) /s/ James R. Ball 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)
65 67 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of The Carbide/Graphite Group, Inc.: Our audits of the consolidated financial statements referred to in our report dated September 8, 2000, except for paragraphs 2 through 5 of Note 6 as to which the date is November 13, 2000 appearing on page 24 of the 2000 Annual Report on Form 10-K of The Carbide/Graphite Group, Inc. also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania 15219 September 8, 2000, except for paragraphs 2 through 5 of Note 6 as to which the date is November 13, 2000 66 68 SCHEDULE II THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the Years Ended July 31, 2000, 1999 and 1998 (in thousands)
Col. A Col. B Col. C Col. D Col. E Col. F - ---------------------------------------------------------------------------------------------------------------------- Additions -------------------------- Balance at Beginning Charged Charged to Balance at of Period to Expense Other Accounts Deductions* End of Period - ---------------------------------------------------------------------------------------------------------------------- Allowance for Doubtful Accounts: Year Ended July 31, 2000 $ 819 $301 -- $ 143 $ 977 Year Ended July 31, 1999 2,025 120 -- 1,326 819 Year Ended July 31, 1998 2,029 -- -- (4) 2,025 ======================================================================================================================
* Represents uncollectible accounts written off and recoveries of customer accounts previously reserved for. 67 EX-10.11.A 2 j8492301ex10-11_a.txt AMENDMENT & WAIVER TO REVOLVING CREDIT AGREEMENT 1 Exhibit 10.11(a) November 13, 2000 The Carbide/Graphite Group, Inc. One Gateway Center, 19th Floor Pittsburgh, PA 15222-1416 Attention: Mr. Walter B. Fowler, Jr., Chairman Re: That certain Revolving Credit and Letter of Credit Issuance Agreement dated as of September 25, 1997, as amended by that certain First Amendment to Revolving Credit and Letter of Credit Issuance Agreement dated as of October 28, 1997 (the "First Amendment"), the Second Amendment to Revolving Credit and Letter of Credit Issuance Agreement and Waiver dated as of April 30, 1998 (the "Second Amendment"), the Third Amendment to Revolving Credit and Letter of Credit Issuance Agreement and Amendment to Revolving Credit Notes dated as of April 30, 1999 (the "Third Amendment"), the Fourth Amendment to Revolving Credit and Letter of Credit Issuance Agreement dated as of September 8, 1999 (the "Fourth Amendment") and the Fifth Amendment to Revolving Credit and Letter of Credit Issuance Agreement dated as of December 10, 1999 (the "Fifth Amendment") and as further amended by that certain Letter Agreement dated May 22, 2000 ("May 2000 Letter") and as further amended by that certain Letter Agreement dated August 21, 2000 ("August 2000 Waiver Letter") (the Revolving Credit and Letter of Credit Issuance Agreement, as amended by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the May, 2000 Letter Amendment and the August 2000 Waiver Letter, is hereinafter referred to as the "Credit Agreement"), among The Carbide/Graphite Group, Inc., a Delaware corporation (the "Borrower"), the financial institutions party thereto (collectively, the "Lenders"; and individually, a "Lender") and PNC Bank, National Association as the agent for the Lenders (in such capacity, the "Agent") Dear Mr. Fowler: The Borrower, the Lenders and the Agent have entered into that certain August 2000 Waiver Letter pursuant to which the Lenders and the Agent have waived compliance with certain covenants set forth in the Credit Agreement. You have advised the Lenders and the Agent that the Borrower anticipates that as of the Waiver Expiration Date (as such term is defined in the August 2000 Waiver Letter) the Borrower will not be back in compliance with the various financial covenants set forth in the Credit Agreement and that the Borrower will again be in 2 The Carbide/Graphite Group, Inc. November 13, 2000 Page 2 default of its obligations to the Lenders thereunder. As a result, you have asked the Lenders to consider further an amendment to the Credit Agreement to better reflect the Borrower's present financial condition. The Lenders have expressed to you their willingness to waive the violations of the Credit Agreement described in Section 2 below and amend the terms of the Credit Agreement as herein set forth. Accordingly, the Lenders are willing to enter into this waiver and amendment agreement (this "November 2000 Waiver Agreement") for a period from the date hereof until August 6, 2001 (the "Waiver Period"), provided that the Borrower fully complies with the terms and condition hereof and the Credit Agreement (except as expressly amended or waived hereby) during the Waiver Period. Accordingly, the parties hereto, with the intent to be legally bound, agree as follows: 1. Representations and Warranties. To induce the Lenders to execute and deliver this November 2000 Waiver Agreement, the Borrower hereby represents and warrants to the Lenders that except as noted in the immediately succeeding paragraph, (a) all the representations and warranties of the Borrower contained in the Credit Agreement and any of the other Loan Documents are true and correct in all material respects as to the Borrower on and as of the date of this November 2000 Waiver Agreement, as though made on and as of such date, (b) no event has occurred and is continuing or would result from the execution and delivery of this November 2000 Waiver Agreement, which constitutes or would constitute a Default or an Event of Default under the Credit Agreement, except as described herein and waived hereby, and (c) each representative of the Borrower and each Subsidiary Guarantor who executes this November 2000 Waiver Agreement has full power and authority to enter into this November 2000 Waiver Agreement. 2. List of Defaults. The Borrower represents and warrants to the Lenders that as of the date of this November 2000 Waiver Agreement the Borrower is in default of Section 6.02 (ii) for the Fiscal Year ending July 31, 2000, Section 6.02 (iii) for the Fiscal Year ending July 31, 2000, Section 7.12, Section 7.13 and Section 7.14 of the Credit Agreement (the "Existing Defaults") and no others; and the Borrower does not expect to be in compliance with the provisions of Sections 7.12, 7.13 and 7.14 of the Credit Agreement for the Fiscal Quarters of the Borrower ending October 31, 2000, January 31, 2001, April 30, 2001, and July 31, 2001, during the Waiver Period (the "Expected Covenant Defaults"; and the Existing Defaults and the Expected Covenant Defaults are herein referred to collectively as, the "Subject Defaults"). 3. Loan Balance. As of the date of this November 2000 Waiver Agreement the Borrower is indebted to the Lenders under the Credit Agreement and the other Loan Documents in the following amounts: 3 The Carbide/Graphite Group, Inc. November 13, 2000 Page 3 Principal $124,160,989.00 Accrued Interest $ 361,404.32 Letters of Credit (Undrawn total) $ 6,395,330.00 Fees and Expenses (approximate)(1) $ 260,153.82 Total: $131,177,877.14 (1) Does not include fees payable under this November 2000 Waiver Agreement pursuant to Section 8(e). 4. Waiver by Lenders. (a) Waiver Expiration Date. For purposes of this November 2000 Waiver Agreement, the "Waiver Expiration Date" shall mean (i) the earlier of (A) August 6, 2001; or (B) the termination of the Lenders' obligation to waive under this November 2000 Waiver Agreement due to the occurrence of a Waiver Period Default (as defined in Section 5 hereof) as set forth in Section 6 hereof; or (ii) such other date as may be agreed to, in writing, by all of the Lenders and the Borrower. (b) Waiver by the Lenders. The Lenders hereby covenant and agree that, except as otherwise expressly provided in this November 2000 Waiver Agreement, subject to the Borrower's complete compliance with the terms and conditions of this November 2000 Waiver Agreement and any other documents executed in connection with this November 2000 Waiver Agreement, (i) the Lenders shall not, prior to the Waiver Expiration Date, (x) declare the Borrower to be in default under the Credit Agreement as a result of any violation of any condition or covenant identified in Section 2 above as a Subject Default, or (y) commence any enforcement action against the Borrower or any Subsidiary Guarantor for collection of the Lender Obligations during the Waiver Period based upon a Subject Default, (ii) each Lender, the Agent and the L/C Issuer agrees that during the Waiver Period the determination of whether the conditions precedent to the making of any Loans, or the issuance of any Letter of Credit, shall be made without regard to the existence (whether now or in the future) of any of the Subject Defaults, and (iii) the Lenders, the Agent, the L/C Issuer and the Borrower hereby acknowledge and agree that the extension of Swingline Loans by the Agent is made solely in the discretion of the Agent, subject to the other terms and conditions of the Credit Agreement. The Borrower expressly acknowledges and agrees that from and after the Waiver Expiration Date the Lenders shall have the right, at any time and from time to time, without the benefit to the Borrower of further opportunity to cure, or to receive further notice of, a Subject Default or both, to exercise any and all rights and remedies available to them against the Borrower, at law and in equity, to 4 The Carbide/Graphite Group, Inc. November 13, 2000 Page 4 the same extent as the Lenders would be entitled if the foregoing waiver had never been part of this November 2000 Waiver Agreement. Each of the Subject Defaults shall be deemed to have occurred and be continuing unless the Borrower delivers to the Lenders prior to the Waiver Expiration Date a certificate executed by the Borrower's chief financial officer stating that one or more of the Subject Defaults do not exist under the Credit Agreement or the other Loan Documents as of the date of that certificate. In the event that the Borrower shall have reduced (i) on or before March 31, 2001 (or as such date may be extended due to a Permitted Sale Delay to April 30, 2001), the Revolving Credit Commitment to $110,000,000.00, or (ii) on or before July 31, 2001, the Revolving Credit Commitment to $85,000,000.00, in each such circumstance the Lenders, the Agent and the L/C Issuer agree to negotiate in good faith to establish new financial covenants addressing the changes in the level of consolidated assets and the earnings potential of the Borrower and its consolidated Subsidiaries. The Borrower also agrees to proceed with due diligence and in good faith to obtain alternate financing to the credit accommodations available under the Credit Agreement on or before July 31, 2001. (c) Exercise of Rights By the Lenders prior to the Waiver Expiration Date. The Borrower understands and agrees that the waiver by the Lenders set forth in Section 4(b) does not relate or extend to any actions that the Lenders may take under the Loan Documents or at law or in equity to preserve or protect the collateral provided for in the Security Documents (the "Collateral") and the interest of the Agent and the Lenders in the Collateral, including, by way of example and not limitation, (i) filing actions against or defending or intervening in actions brought by third parties, including but not limited to any and each Subsidiary Guarantor relating to the Collateral or the interests of the Agent and the Lenders therein, (ii) the sending of notices to any persons or entities concerning the existence of security interests or liens in favor of the Agent and the Lenders or concerning any of the Collateral, (iii) filing or recording financing statements, continuation statements, amendments, revivals or any other documents, or taking other actions to evidence, effectuate, establish, perfect, maintain or continue the Lenders' security interests or liens in the Collateral, (iv) taking such action as the Lenders deem necessary or appropriate in the Borrower's or any Subsidiary Guarantor's bankruptcy, or (v) taking of such action as the Lenders deem necessary or appropriate with respect to any other person or entity not a party to this November 2000 Waiver Agreement. 5. Waiver Defaults. For purposes of this November 2000 Waiver Agreement, each of the events described in this Section 5 shall constitute a "Waiver Period Default." (a) Misrepresentation. Any representation or warranty of the Borrower, or any Subsidiary Guarantor, in this November 2000 Waiver Agreement or any Loan Document, proves to have been untrue in any material respect as of the date when made, or any certificate or other document furnished by the Borrower to the Agent or the Lenders pursuant to the provisions 5 The Carbide/Graphite Group, Inc. November 13, 2000 Page 5 hereof or thereof proves to have been untrue in any material respect on the date as of which the facts set forth therein are stated or certified. (b) Breach of Covenants. (i) The Borrower or any Subsidiary Guarantor shall default in the performance of its covenants set forth at Subsection 8(c) through Subsection 8(q) inclusive and Subsection 8(w) of this November 2000 Waiver Agreement; or (ii) the Borrower or any Subsidiary Guarantor shall breach or default under or fail to fully perform any of their respective other agreements, obligations and covenants under this November 2000 Waiver Agreement or any of their respective agreements, obligations and covenants under the Credit Agreement, or any Loan Document, or the documents executed pursuant to or in connection herewith or therewith, other than the occurrence or existence of any of the Subject Defaults or any default described in clause (i) of this Subsection 5(b) of this November 2000 Waiver Agreement, and the continuance of such breach or default or failure to perform beyond the period of grace, if any, allowed with respect thereto under the applicable Loan Document. (c) Breach of Other Lender Agreements. The Borrower, or any Subsidiary Guarantor, shall breach, default under or fail to perform any other agreements or contracts, other than the Loan Documents, with any of the Lenders or any of the Lenders' respective affiliates or subsidiaries; and if such breach, default or failure to perform involves a failure to make a timely payment under the applicable agreement or contract, such breach, default or failure to perform shall continue unremedied for a period of the earlier of (i) ten (10) days after its due date plus any applicable grace period provided under the applicable agreement or contract or (ii) the date of the acceleration of, or the exercise of collection remedies with respect to, the indebtedness of the Borrower or any Subsidiary Guarantor due under such agreement or contract; and if such breach, default or failure to perform involves a breach of non-payment term of the applicable agreement or contract, such breach, default or failure to perform shall continue unremedied for a period of (x) the earlier of thirty (30) days after written notice to the Borrower, or (y) the date of the acceleration of, or the exercise of collection remedies with respect to, the indebtedness of the Borrower or any Subsidiary Guarantor under such agreement or contract. (d) Bankruptcy or Insolvency. The Borrower or any Subsidiary Guarantor shall file a petition in bankruptcy under any chapter of the Bankruptcy Code (Title 11, U.S.C. Section 101 et seq.), or shall make any general assignment for the benefit of creditors, or shall file any petition seeking reorganization, liquidation, dissolution or similar relief under any present or future federal, state or local law or regulation relating to bankruptcy, insolvency or other relief for debtors, or shall fail generally to pay its respective debts as they become due. (e) Judgment, Tax Lien or Forfeiture Against the Borrower. Execution is issued on any judgment against the Borrower or any Subsidiary Guarantor in excess of $500,000 or any levy, forfeiture, seizure or attachment is made against assets of the Borrower or any 6 The Carbide/Graphite Group, Inc. November 13, 2000 Page 6 Subsidiary Guarantor in excess of $500,000 or any federal or state tax lien is filed against the Borrower or any Subsidiary Guarantor in excess of $500,000. (f) Suit Against the Lenders. The Borrower, or any Subsidiary Guarantor, shall file or institute against the Lenders or the Agent or any of their respective officers, directors, employees, agents or attorneys any lawsuit, complaint, administrative claim, adversary proceeding or other legal action. 6. Remedies. (a) Automatic Termination of Waiver. Upon the occurrence of a Waiver Period Default under Section 5(d) hereof, the agreement of the Lenders to waive pursuant to Section 4(b) hereof and any and all other obligations of the Lenders pursuant to this November 2000 Waiver Agreement, shall immediately terminate and be without further force and effect in the same manner and to the same extent as if the same had never been included in this November 2000 Waiver Agreement. In addition, upon the occurrence of any such Waiver Period Default, all Lender Obligations shall be deemed immediately due and payable without necessity of demand, presentment, protest, notice of dishonor or notice of default. No full or partial exercise of any right or remedy shall be deemed a waiver of any other right or remedy. The Lenders shall without further notice be entitled to exercise any and all rights and remedies of the Lenders against the Borrower, and/or the Subsidiary Guarantor, provided for under the Credit Agreement, or in the other Loan Documents, or in any other manner available at law or in equity, including, by way of example and not limitation, the Lenders' right to obtain a judicial sale, either by foreclosure or execution proceeding, of any property subject to any mortgage or judgment. (b) Additional Termination of Waiver. Upon the occurrence of a Waiver Period Default under Section 5(a), 5(b), 5(c), 5(e) or 5(f) hereof and the continuance of such Waiver Period Default for a period of thirty (30) days without the applicable remedy, waiver or cure, the waiver agreement of the Lenders pursuant to Section 4(b) hereof and any and all other obligations of the Lenders pursuant to this November 2000 Waiver Agreement shall be terminated and be without further force and effect. Upon such termination of the Waiver Period and upon declaration of acceleration in accordance with the Credit Agreement, the amounts due by the Borrower to Lenders under the Credit Agreement and the other Loan Documents shall be deemed immediately due and payable without necessity of further presentment, presentation, protest, notice of dishonor or notice of default. No full or partial exercise of any right or remedy shall be deemed a waiver of any other right or remedy. Thereafter, the Lenders shall without further notice be entitled to exercise any and all rights and remedies of the Lenders against the Borrower and/or the Subsidiary Guarantors provided for under the Credit Agreement or in the other Loan Documents, or in any other manner available at law or in equity, including, by way of 7 The Carbide/Graphite Group, Inc. November 13, 2000 Page 7 example and not limitation, the Lenders' right to obtain a judicial sale, either by foreclosure or execution proceeding, of any property subject to any lien, mortgage or judgment. 7. Extent of Waiver. Except as expressly described herein, this November 2000 Waiver Agreement shall not constitute (a) a modification or an alteration of any of the terms, conditions or covenants of the Credit Agreement, all of which remain in full force and effect, or (b) a waiver, release or limitation upon the Agent's or any Lender's exercise of any of its rights and remedies thereunder, all of which are hereby expressly reserved. This November 2000 Waiver Agreement shall not relieve or release the Borrower in any way from any of its duties, obligations, covenants or agreements under the Credit Agreement or from the consequences of any Default or Event of Default thereunder, except as expressly described herein. This November 2000 Waiver Agreement shall not obligate the Agent or any Lender, or be construed to require the Agent or any Lender, to waive any other Events of Default or Defaults under the Credit Agreement, whether now existing or which may occur after the date of this November 2000 Waiver Agreement. Except as expressly waived or amended hereby, the Credit Agreement and each and every representation, warranty, agreement, covenant, term and condition contained therein or in any other Loan Document is specifically ratified and confirmed. Nothing in this November 2000 Waiver Agreement shall be deemed or construed to be a waiver or release of, or a limitation upon, the Agent's or any Lender's exercise of any of its rights and remedies under the Credit Agreement or the other Loan Documents except as expressly set forth herein. 8. Covenants and Obligations. (a) Interest, Commitment Fees and Letter of Credit Fees During the Waiver Period. (i) Commencing on the Agreement Effective Date (as defined in Section 11 below), the rate of interest on the Revolving Credit Loans payable to the Lenders shall be Prime Rate plus one percent (1%) per annum; provided that in the case of any Euro-Rate Portion in existence on the Agreement Effective Date, such Euro-Rate Portion shall begin to accrue interest at Prime Rate plus 1% per annum from the conclusion of the current Euro-Rate Interest Period in effect in respect of such Euro-Rate Portion; and commencing on May 1, 2001 the rate of interest on the Revolving Credit Loans payable to the Lender shall be increased to the Prime Rate plus two (2%) percent per annum if the Borrower has not caused a permanent reduction in the Revolving Credit Commitment to at least $110,000,000. After the Agreement Effective Date interest on the Loans shall be payable monthly in arrears, payable on the first Business Day of each month, (and on the last day of any Euro-Rate Interest Period in respect to any Euro-Rate Loan still in effect on the Agreement Effective Date). 8 The Carbide/Graphite Group, Inc. November 13, 2000 Page 8 (ii) Commencing on the Agreement Effective Date, and notwithstanding any other provision of the Credit Agreement to the contrary, the Applicable Commitment Fee shall be equal to fifty (50) basis points (.5%) per annum. (iii) Commencing on the Agreement Effective Date, and notwithstanding any other provision of the Credit Agreement to the contrary, the Applicable Letter of Credit Fee for each Letter of Credit shall be three hundred twenty-five (325) basis points (3.25%) per annum. (iv) The interest rate and fees the subject of this Section 8(a) are subject to adjustment upon the occurrence of an Event of Default. After the occurrence of an Event of Default (including any Waiver Period Default) and during the continuance thereof, the rate of interest and the Letter of Credit Fee above set forth shall be increased by two hundred (200) basis points (2%) above the pre-default rate. (b) Compliance with Loan Documents. Except as specifically waived hereby, the Borrower shall comply with all of the provisions of the Loan Documents. (c) Additional Financial Reports. (i) The Borrower shall provide to the Agent and each of the Lenders on the Agreement Effective Date (for the current Fiscal Quarter) and at least ten (10) Business Days prior to the commencement of each Fiscal Quarter of the Borrower during the Waiver Period, a financial forecast for each such Fiscal Quarter presented on a monthly basis, commencing with the Fiscal Quarter ending January 31, 2001 (each a "Quarterly Financial Forecast"; and any Quarterly Financial Forecast together with the Waiver Period Financial Forecast, as herein defined, shall be referred to herein as a "Financial Forecast"), including (a) a consolidated balance sheet for the Borrower and its Subsidiaries, (b) a consolidated statement of income for the Borrower and its Subsidiaries and (c) a consolidated statement of cash flow for the Borrower and its Subsidiaries, prepared in reasonable detail, reconciling to EBITDA for each monthly period, and certified, subject to changes resulting from year-end adjustments, by the chief financial officer of the Borrower. (ii) Beginning with November 15, 2000 and continuing each month thereafter, the Borrower shall deliver to the Agent and each of the Lender within twelve (12) Business Days after the end of the preceding calendar month an updated Quarterly Financial Forecast for the remainder of the current Fiscal Quarter, and a comparison of actual operating results of the Borrower and its Subsidiaries for the previous calendar month against the related Quarterly Financial Forecast and the Waiver Period Financial Forecast for such calendar month. 9 The Carbide/Graphite Group, Inc. November 13, 2000 Page 9 (iii) The Borrower shall provide to the Agent and each of the Lenders on the Amendment Effective Date (for the current Fiscal Quarter) and at least ten (10) Business Days prior to the commencement of each Fiscal Quarter of the Borrower, a weekly cash receipts and disbursements forecast (the "Cash Forecast") for such Fiscal Quarter. Such Cash Forecast will provide in reasonable detail (acceptable to the Agent) the expected weekly sources and uses of cash by the Borrower for the following Fiscal Quarter (and in the case of the Fiscal Quarter ending January 31, 2001, the current Fiscal Quarter). On Wednesday of each week, the Borrower shall submit to the Agent and to each Lender, Borrower's actual cash receipts and disbursements for the immediately preceding week with a comparison to the forecast provided in the applicable Cash Forecast. (iv) The Borrower shall deliver to the Agent and each of the Lenders within forty-five (45) days after the end of each fiscal quarter in each fiscal year of a Subsidiary Guarantor, (A) a balance sheet as at the end of such period for such Subsidiary Guarantor, (B) a statement of income for such period for such 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 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 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 8(c)(iv), each such statement shall set forth, in comparative form, corresponding figures for the corresponding period in the immediately preceding fiscal year of such Subsidiary Guarantor; 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 or general partner, as the case may be, of such Subsidiary Guarantor. (v) The Borrower shall deliver to the Agent and each of the Lenders 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, (B) a statement of income and cash flow for such year for such Subsidiary Guarantor, and (C) a statement of shareholders' equity (or similar statement for a partnership) for such year of such Subsidiary Guarantor; and with each financial statement described in clauses (A) through (C) of this Section 8(c)(v), 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 (C) of this Section 8(c)(v) in reasonable detail; and all such financial statements shall present fairly in all material respects the 10 The Carbide/Graphite Group, Inc. November 13, 2000 Page 10 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. (vi) The Borrower shall deliver to Agent and each of the Lenders within twelve (12) Business Days after the end of the preceding month, (A) a consolidated balance sheet for the Borrower and its Subsidiaries, (B) a consolidated statement of income for the Borrower and its Subsidiaries, and (C) a consolidated statement of cash flow for the Borrower and its Subsidiaries, all such statements to be prepared in reasonable detail and certified, subject to changes resulting from year-end adjustments, by the chief financial officer of the Borrower. (vii) The Borrower shall deliver to the Agent and each of the Lenders within twelve (12) Business Days of the close of each month during the term of the Waiver Period, a compliance certificate of the Borrower, (A) stating (1) that the Borrower has reviewed the terms of this November 2000 Waiver Agreement and the other 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 monthly period most recently ended, (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 (3) either that the Borrower does not have knowledge of the existence, as at the date of such compliance certificate, of any event or condition that would, or could reasonably be expected to, cause a material adverse change in the ability of the Borrower and its Subsidiaries to achieve in all material respects the financial projections set forth in the current Quarterly Financial Forecast, as updated, or that in the event the Borrower knows of any event or condition that would, or could reasonably be expected to, cause a material adverse change in the ability of the Borrower and its Subsidiaries to achieve in all material respects the results set forth in the current Quarterly Financial Forecast, as updated, then the Borrower shall specify the nature of such event or condition and the Borrower shall detail the action the Borrower and its Subsidiary propose to take or address and to overcome such material adverse change; and (B) demonstrating in reasonable detail compliance or non-compliance as at the end of such monthly period with the restrictions and requirements contained in Section 8(h), Subsection 8(k)(i), 8(k)(ii), 8(l) and Section 8(m) hereof. (viii) The Borrower shall deliver to the Agent and each of the Lenders within forty-five (45) days of the close of each Fiscal Quarter during the term of the Waiver Period, a compliance certificate of the Borrower, (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 Fiscal 11 The Carbide/Graphite Group, Inc. November 13, 2000 Page 11 Quarter most recently ended, 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 or non-compliance as at the end of such accounting period with the restrictions and requirements contained in Subsection 8(k)(iii) and Section 8(m). (ix) The Borrower shall promptly give written notice to the Agent and each of the Lenders of the happening of any event (which is known to the Borrower or should reasonably be known to the Borrower) which constitutes a Waiver Period Default under this November 2000 Waiver Agreement, 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. (x) The Borrower shall instruct, or cause delivery by, the investment banker engaged by the Borrower pursuant to the terms of Subsection 8(j)(ii) hereof to deliver to the Agent and each of the Lenders, within twelve (12) Business Days of the end of each month during the term of the Waiver Period, a report describing, in such detail as requested by the Agent, the services performed by the investment banker engaged by the Borrower pursuant to the terms of Subsection 8(j)(ii) hereof during the prior month, and the status of any proposed asset sales, divestitures, capital reorganizations and/or recapitalizations concerning the Borrower and its Subsidiaries. (xi) The Borrower shall instruct, or cause delivery by, the financial consultant engaged by the Borrower pursuant to the terms of Subsection 8(j)(i) hereof to deliver to the Agent and each of the Lenders within twelve (12) Business Days of the close of each month during the term of the Waiver Period, a report describing, in such detail as requested by the Agent, the actions taken by the financial consultant engaged by the Borrower pursuant to the terms of Subsection 8(j)(i) hereof concerning the identification and/or implementation of the Business Cycle Improvement Projects during the prior fiscal month. (xii) The Borrower shall instruct, or cause delivery by, Shay Kimple Consulting Group, Inc., to deliver to the Agent and each of the Lenders a copy of any report prepared by Shay Kimple Consulting Group, Inc., concerning labor relations and labor productivity issues for the Borrower and its Subsidiaries; and the Borrower shall instruct, or cause delivery by, Shay Kimple Consulting Group, Inc., to deliver to the Agent and each of the Lenders within twelve (12) Business Days of the close of each month during the term of the Waiver Period, a report describing, in such detail as requested by the Agent, the actions taken by, or on behalf of the Borrower, concerning the labor relations and labor productivity issues of the Borrower and its Subsidiaries identified in any report of Shay Kimple Consulting Group, Inc. 12 The Carbide/Graphite Group, Inc. November 13, 2000 Page 12 (xiii) The Borrower shall deliver to the Agent and each of the Lenders, within twelve (12) Business Days of the close of each month during the term of the Waiver Period, an aged report of accounts receivables of the Borrower and its Subsidiaries as at the end of the preceding month. (xiv) During the Waiver Period, Borrower shall deliver such other reports or documents as shall be reasonably requested by the Agent, and the Borrower shall take part in such quarterly meetings as may be reasonably requested by the Agent and/or Required Lenders; and if requested the Borrower shall include the various financial and operational consultants and investment bankers referred to in Section 8(j) or Subsection 8(c)(xii) hereof in such meetings. (xv) The Borrower shall promptly give written notice to the Agent and each of the Lenders of (x) the issuance of any execution on any judgment against the Borrower or any Subsidiary Guarantor in excess of $250,000, (y) the occurrence of any, levy, forfeiture, seizure or attachment made against assets of the Borrower or any Subsidiary Guarantor in excess of $250,000, or (2) the filing of any federal or state tax lien against the Borrower or any Subsidiary Guarantor in excess of $250,000. (d) Maintenance of Assets and Collateral/Insurance. The Borrower shall maintain, and shall cause the Subsidiary Guarantors to maintain, all of their respective assets in good working order and will do, and shall cause the Subsidiary Guarantors to do, all things necessary to cause the Lenders to maintain a first priority perfected security interest in the Collateral, subject only to Permitted Liens. The Borrower shall pay, or cause to be paid, all required monthly payments for casualty and hazard insurance on the Collateral, and the Agent shall be named as mortgagee/lender loss payee and additional insured on all such insurance documents, including applicable endorsements of the insurance company or companies. The Borrower shall provide, or cause to be provided, to the Agent evidence of insurance and the endorsements. (e) Amendment Fee. The Borrower shall pay to the Agent, for the ratable benefit of the Lenders that execute and deliver this November 2000 Waiver Agreement to the Agent on or before the close of business on November 13, 2000, a cash amendment fee of $2,700,000.00 for the execution and delivery of this November 2000 Waiver Agreement, which such fee shall be fully earned on the Agreement Effective Date, but shall be payable as follows: (i) $337,500 due and payable on the date hereof, (ii) $700,000 due and payable on April 1, 2001, (iii) $1,000,000 due and payable on May 1, 2001, and (iv) $662,500 due and payable on June 1, 2001; provided, however, any remaining unpaid cash amendment fee shall be paid in full (subject to the following proviso to this sentence), on the earlier to occur of (x) the date that the 13 The Carbide/Graphite Group, Inc. November 13, 2000 Page 13 Loans, together with all related interest, fees, costs and expenses are repaid in full, and the Revolving Credit Commitment is cancelled, or (y) the date on which the Borrower permanently reduces the Revolving Credit Commitment to $110,000,000 or less; provided further, however, if on or prior to April 30, 2001, the Borrower repays the Loans in full, together with all related interest, fees, costs and expenses, cancels the Revolving Credit Commitment in full, causes the surrender and cancellation of all outstanding Letters of Credit or otherwise provides satisfactory security for the payment of any related reimbursement obligations and repays in full any unreimbursed drawings against the Letters of Credit, together with interest, then the payment of any then remaining unpaid cash amendment fee up to an amount not in excess of $1,350,000 shall, and is hereby, waived by the Lenders. As additional consideration for execution and delivery of this November 2000 Waiver Agreement, the Borrower will execute and deliver on the Agreement Effective Date to the Agent, for the ratable benefit of the Lenders that execute and deliver this November 2000 Waiver Letter to the Agent on or before the close of business on November 13, 2000, the November Warrant Purchase Agreement; and the Borrower will execute and issue and deliver on the Agreement Effective Date to the Agent, for the ratable benefit of the Lenders that execute and deliver this November 2000 Waiver Agreement to the Agent on or before the close of business on November 13, 2000, the November Warrants. The cash consideration payable to the Lenders that execute and deliver this November 2000 Waiver Agreement to the Agent on or before the close of business of November 13, 2000, pursuant to this Section 8(e) and the issuance of the November Warrants to the Lenders that execute and deliver this November 2000 Waiver Agreement to the Agent on or before the close of business of November 13, 2000, are collectively referred to herein as the "November 2000 Amendment Fee". (f) Subsidiary Guarantors; Subsidiary Assigned Collateral and Mortgaged Property. The Borrower hereby agrees to cause each of its Subsidiaries (each a "Subsidiary Guarantor"; and collectively, the "Subsidiary Guarantors") to grant and convey to the Agent for the benefit of the Lenders and the L/C Issuer a Lien on any and all Subsidiary Assigned Collateral or Mortgaged Property now owned or hereafter acquired by each such 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 Subsidiary Guarantor in and to any Subsidiary Assigned Collateral and Mortgaged Property of such Subsidiary Guarantor, the Borrower hereby agrees to cause each Subsidiary Guarantor to execute and deliver to the Agent a Subsidiary Guaranty, a Subsidiary Security Agreement and a Mortgage, 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. 14 The Carbide/Graphite Group, Inc. November 13, 2000 Page 14 (g) Orders Booked. On or before December 31, 2000, the Borrower and its Subsidiaries shall have booked firm sales concerning the electrode and needle coke divisions of the Borrower for the calendar year 2001 in an aggregate amount of at least $35,000,000; and shall have delivered to the Agent on or before January 6, 2001, proof satisfactory to the Agent of the amount of such booked firm sales. On or before January 31, 2001, the Borrower and its Subsidiaries shall have additional booked firm sales concerning the electrode and needle coke divisions of the Borrower for the calendar year 2001 in an aggregate amount of at least $35,000,000; and shall have delivered to the Agent on or before February 6, 2001, proof satisfactory to the Agent of the amount of such additional booked firm sales. For purposes of this November 2000 Waiver Agreement, the term "booked firm sales" shall mean any sales commitment contemplated by the Borrower for shipments of graphite electrodes and needle coke during the calendar year ending December 31, 2001 that is supported by any one of the following: a purchase order provided by a customer of the Borrower (or the applicable Subsidiary of the Borrower); a supply contract agreed to by the Borrower (or the applicable Subsidiary of the Borrower) and its customer; a letter acknowledgement provided by a customer of the Borrower (or the applicable Subsidiary of the Borrower) documenting award of sales commitment; or an internal documentation of a telephone conversation between the Borrower (or the applicable Subsidiary of the Borrower) and its customer during which the sales commitment was awarded (with written confirmation promptly to follow). For purposes of the definition of "booked firm sales", the term "customer" shall not include any Affiliate of the Borrower (or the applicable Subsidiary of the Borrower). (h) Level and Aging of Accounts Receivable and Inventory. (i) As of each month end date of each month during the Waiver Period, the Borrower shall possess and maintain, directly or indirectly through its Subsidiary Guarantors, an Average Accounts Receivable and Inventory Balance of at least $95,000,000; provided that in the event that as of the close of any monthly period during the Waiver Period the Average Accounts Receivable and Inventory Balance is less than $95,000,000, the Borrower will cause on or before the twelfth (12th) Business Day following the close of such monthly period a permanent reduction in the Revolving Credit Commitment for each dollar that the Average Accounts Receivable and Inventory Balance is less than $95,000,000 as of the close of any monthly period during the Waiver Period (without duplication of any permanent reduction to the Revolving Credit Commitment previously effected pursuant to this Subsections 8(h)(i) or Subsection (h)(ii) hereof or contemporaneously required by Subsection 8(h)(ii) hereof); and to accomplish any such reduction to the Revolving Credit Commitment the requirements of Section 2.04(a) of the Credit Agreement (x) that reduction in the Revolving Credit Commitment occur in the minimum amount of $5,000,000 and increments of $1,000,000 for any reduction in excess of $5,000,000 and (y) that such reduction be made only with five (5) Business Days prior notice, are each hereby waived; and the timely implementation of any such reduction required in the Revolving Credit Commitment shall be deemed a cure of any violation of the maintenance covenant as of 15 The Carbide/Graphite Group, Inc. November 13, 2000 Page 15 such month and date set forth in this Subsection 8(h)(i). At no time following any reduction in the Revolving Credit Commitment required by this Subsection 8(h)(i) shall Total Utilization exceed such reduced Revolving Credit Commitment. For purposes of this November 2000 Waiver Agreement, the term "Average Accounts Receivable and Inventory Balance" shall mean the sum as of the rolling three month average of (I) the consolidated accounts receivable (as determined in accordance with GAAP consistently applied and on a consolidated basis) of the Borrower and its consolidated Subsidiaries and (II) the consolidated inventory (as determined in accordance with GAAP consistently applied and on a consolidated basis) of the Borrower and its consolidated Subsidiaries. (ii) As of each month end date during the Waiver Period, the Borrower shall possess and maintain, directly or indirectly through its Subsidiary Guarantors, accounts receivable and inventory (as such terms are determined in accordance with GAAP consistently applied and on a consolidated basis) in the aggregate sum of $90,000,000; provided that in the event that the aggregate sum of accounts receivable and inventory as of the close of any monthly period during the Waiver Period is less than $90,000,000, the Borrower will cause on or before the twelfth (12th) Business Day following the close of such monthly period a permanent reduction in the Revolving Credit Commitment for each dollar that the aggregate sum of accounts receivable and inventory is less than $90,000,000 as of the close of any monthly period during the Waiver Period (without duplication of any permanent reduction to the Revolving Credit Commitment previously effected pursuant to this Subsection 8(h)(ii) or Subsection 8(h)(i) hereof or contemporaneously required by Subsection 8(h)(i) hereof); and to accomplish any such reduction to the Revolving Credit Commitment the requirements of Section 2.04(a) of the Credit Agreement (x) that reduction in the Revolving Credit Commitment occur in the minimum amount of $5,000,000 and increments of $1,000,000 for any reduction in excess of $5,000,000, and (y) that such reduction be made only with five (5) Business Days prior notice, are each hereby waived; and the timely implementation of any such reduction required in the Revolving Credit Commitment shall be deemed a cure of any violation of the maintenance covenant as of such month end date set forth in this Subsection 8(h)(ii). At no time following any reduction in the Revolving Credit Commitment required by this Subsection 8(h)(ii) shall Total Utilization exceed such reduced Revolving Credit Commitment. (iii) The Borrower shall not permit, or suffer to exist, as of the last day of any month during the term of the Waiver Period, the Days Sales Outstanding of the Borrower and its consolidated Subsidiaries to be more than the number of days set forth opposite the month end dates shown below: 16 The Carbide/Graphite Group, Inc. November 13, 2000 Page 16
Month Number End Date of Days -------- ------- 10/31 80 11/30 80 12/31 80 01/31 80 02/28 78 03/31 76 04/30 74 05/31 72 06/30 70 07/31 68
For purposes of this November 2000 Waiver Agreement, the term "Days Sales Outstanding" shall mean the rolling three month average of the month end consolidated accounts receivable balance of the Borrower and its consolidated Subsidiaries for the month then ending, divided by the rolling three month average of the month end consolidated sales of the Borrower and its consolidated Subsidiaries for the month then ending, times the average number of days per month for such three month period. The accounts receivable balance and sales of the Borrower and its consolidated Subsidiaries shall be determined in accordance with GAAP consistently applied and on a consolidated basis. (iv) The Borrower shall not permit, or suffer to exist, as of the last day of any month during the term of the Waiver Period, the Days on Hand Inventory of the Borrower and its consolidated Subsidiaries to be more than the number of days set forth opposite the month end dates shown below:
Month Number End Date of Days -------- ------- 10/31 140 11/30 140 12/31 140 01/31 140 02/28 137 03/31 134 04/30 131 05/31 120 06/30 125 07/31 122
17 The Carbide/Graphite Group, Inc. November 13, 2000 Page 17 For purposes of this November 2000 Waiver Agreement, the term "Days on Hand Inventory" shall mean the rolling three month average of the month end consolidated inventory balance of the Borrower and its consolidated Subsidiaries for the month then ending, divided by the rolling three month average of the month end consolidated cost of goods sold of the Borrower and its consolidated Subsidiaries for the month then ending, times the average number of days per month for such three month period. The inventory balance and the cost of goods sold of the Borrower and its consolidated Subsidiaries shall be determined in accordance with GAAP consistently applied and on a consolidated basis. (v) The Borrower shall review its inventory each month and as of the close of business on the last day of each month (x) revalue all inventory at the lower of cost or market and (y) write-off the value of any inventory which is obsolete, subject to deterioration, unmerchantable or defective in excess of its cash replacement cost, all determined in accordance with GAAP consistently applied and on a consolidated basis. (i) Operating Accounts and Lockbox Account. The Borrower agrees, and agrees to cause each Subsidiary of the Borrower, to maintain with the Agent or a Lender or an affiliate of the Agent (for the account of the Agent on behalf of the Agent, the Lenders and L/C Issuer) all of their respective operating and cash management accounts. The Borrower agrees, and agrees to cause each Subsidiary of the Borrower, to maintain lockbox accounts with the Agent and to direct all Account Debtors to make all payments on Accounts to such lockbox accounts. Notwithstanding the foregoing provisions of this Section 8(i), the Borrower may maintain one or more operating, cash management and/or lockbox accounts with The Chase Manhattan Bank for foreign account debtors so long as collected funds are transferred to the Agent on a daily basis. (j) Financial Consultant; Investment Banker. (i) On or before November 14, 2000, the Borrower shall engage the services of a recognized financial consultant or advisor or firm of consultants, to assist the Borrower and its Subsidiaries in (w) analyzing and/or improving the purchasing cycle/process of the Borrower and its Subsidiaries, (x) analyzing and/or improving the accounts receivable collection cycle/process of the Borrower and its Subsidiaries, (y) analyzing and/or improving the inventory management process of the Borrower and its Subsidiaries and (z) analyzing the commodity and/or foreign currency hedge positions of the Borrower and its Subsidiaries and if appropriate offering alternative and prudent strategies for such hedge positions (the foregoing collectively referred to herein as the "Business Cycle 18 The Carbide/Graphite Group, Inc. November 13, 2000 Page 18 Improvement Projects"). Such consultant or advisor shall be reasonably satisfactory to the Agent. (ii) On or before November 14, 2000, the Borrower shall engage the services of a nationally recognized investment banker to advise the Borrower and its Subsidiaries on strategic divestitures and recapitalization alternatives. (k) Minimum EBITDA. (i) The Borrower will not permit EBITDA of the Borrower and its consolidated Subsidiaries determined as of any month end date to be negative for any one month. (ii) The Borrower will not permit the cumulative EBITDA of the Borrower and its consolidated Subsidiaries determined as of the month end dates set forth below for the period commencing August 1, 2000 to be less than the minimum EBITDA set forth opposite such month end dates:
MINIMUM MONTH END DATE CUMULATIVE EBITDA ------------------------------------------------------ October 31, 2000 $ 3,000,000.00 November 30, 2000 $ 3,500,000.00 December 31, 2000 $ 4,500,000.00 January 31, 2001 $ 6,500,000.00 February 28, 2001 $ 7,100,000.00 March 31, 2001 $ 8,600,000.00 April 30, 2001 $ 12,000,000.00 May 31, 2001 $ 13,500,000.00 June 30, 2001 $ 15,500,000.00 July 31, 2001 $ 19,000,000.00 ------------------------------------------------------
(iii) The Borrower will not permit the EBITDA of the Borrower and its consolidated Subsidiaries determined as of the Fiscal Quarter end dates set forth below to be less than the minimum EBITDA set forth opposite such Fiscal Quarter end dates:
FISCAL QUARTER MINIMUM END DATE EBITDA --------------------------------------------------- October 31, 2000 $3,000,000.00 --------------------------------------------------- January 31, 2001 $3,500,000.00 --------------------------------------------------- April 30, 2001 $5,500,000.00 --------------------------------------------------- July 31, 2001 $7,000,000.00 ---------------------------------------------------
(l) Reductions in Accounts and Inventory. The aggregate sum of the accounts receivable and inventory of the Borrower and its consolidated Subsidiaries (all as 19 The Carbide/Graphite Group, Inc. November 13, 2000 Page 19 determined in accordance with GAAP consistently applied and on a consolidated basis) shall not exceed at the date set forth below the dollar amount shown opposite the dates set forth below:
MONTH END DATE MAXIMUM ACCOUNTS RECEIVABLE AND INVENTORY LEVELS ---------------------------------------------------------------- October 31, 2000 $110,000,000.00 ---------------------------------------------------------------- November 30, 2000 $107,500,000.00 ---------------------------------------------------------------- December 31, 2000 $107,500,000.00 ---------------------------------------------------------------- January 31, 2001 $107,500,000.00 ---------------------------------------------------------------- February 28, 2001 $106,500,000.00 ---------------------------------------------------------------- March 31, 2001 $105,500,000.00 ---------------------------------------------------------------- April 30, 2001 $104,500,000.00 ---------------------------------------------------------------- May 31, 2001 $103,500,000.00 ---------------------------------------------------------------- June 30, 2001 $102,500,000.00 ---------------------------------------------------------------- July 31, 2001 $102,500,000.00 ----------------------------------------------------------------
(m) Capital Expenditures Limitations. (i) The Borrower agrees that its cumulative capital expenditures (as reported in its consolidated financial statements per GAAP) during the fiscal year ending July 31, 2001 will not exceed the following limitations:
Fiscal Year to Date as of: Limitation -------------------------- ---------- October 31, 2000 $ 4.0 million January 31, 2001 $ 8.0 million April 30, 2001 $11.0 million July 31, 2001 $12.5 million
(ii) The Borrower also agrees that its capital expenditures during the fiscal year ending July 31, 2001 will not exceed the following amounts for the following specific capital projects:
Capital Project Limitation --------------- ---------- HDS Procurement $1.6 million(1) SO(2) Project $4.5 million
- -------- (1) As of the Amended Effective Date the Borrower has already expended approximately $1.1 million of this budgeted amount. 20 The Carbide/Graphite Group, Inc. November 13, 2000 Page 20 ; provided, however, on or after the Agreement Effective Date the Borrower shall not expend funds in excess of $500,000.00 for the payment of outstanding services performed or received, or goods purchased, in connection with the HDS Procurement. (n) Restricted Payments. During the Waiver Period, the Borrower shall not, and shall not permit any Subsidiary of the Borrower to, (i) declare or make any dividend or other distribution on any shares of Borrower's capital stock (other than dividends payable solely in shares of its capital stock or rights distributable pursuant to the Rights Agreement), or (ii) acquire (A) any shares of Borrower's capital stock, or (B) any security convertible into, or any option, warrant or other right to acquire, shares of Borrower's capital stock. (o) Foreign Currency Hedge Agreements; and Oil Hedge Agreements. The Borrower shall maintain, and cause each Subsidiary Guarantor to maintain, their respective current and future Foreign Exchange Hedge agreements only in the ordinary course of their businesses and for the corporate purposes currently addressed as of the date hereof. The Borrower will implement the oil hedging policy approved by the board of directors of the Borrower on November 13, 2000, a copy of which is attached hereto as Exhibit "E". (p) Limitations on Equity Issuances. During the Waiver Period (i) unless 100% of the net proceeds of any issuance or sale of an Equity Interest is used to repay Total Utilization and permanently reduce Revolving Credit Commitments by the amount of repayment, or (ii) unless after the application of the net proceeds of an issuance or sale of an Equity Interest the Revolving Credit Commitment is permanently reduced to $85,000,000 and Total Utilization does not exceed $85,000,000 (and in the event that immediately prior to the issuance or sale of an Equity Interest, the Borrower has reduced permanently the Revolving Credit Commitment to $85,000,000, the Borrower applies that portion of the net proceeds of such issuance of Equity Interests to the further permanent reduction of the Revolving Credit Commitment as the Required Lenders may require), or (iii) issuances of the Series A Junior Participating Preferred Stock of the Borrower (or dividends payable solely in shares of its capital stock or rights distributable pursuant to the terms of the Rights Agreement), the Borrower shall not, and shall cause its Subsidiaries not to, issue or sell any Equity Interest in the Borrower or any Subsidiary of the Borrower without the prior written consent of the Agent and the Required Lenders. For purposes of this November 2000 Waiver Agreement, the term "Equity Interests" shall mean with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), 21 The Carbide/Graphite Group, Inc. November 13, 2000 Page 21 whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination. (q) Amortization of Revolving Credit Commitment. Notwithstanding any other provisions of the Credit Agreement to the contrary, (i) on April 1, 2001 and on the first day of each month thereafter, the Revolving Credit Commitment shall reduce by $500,000 per month, and (ii) on each date of the payment of any BOC Refund to the Borrower, the Borrower shall further permanently reduce the Revolving Credit Commitment by 2/3 of the amount of such BOC refund payment. To accomplish any reduction to the Revolving Credit Commitment set forth in this Section 8(q), the requirements of Section 2.04(a) of the Credit Agreement (x) that reduction in the Revolving Credit Commitment occur in the minimum amount of $5,000,000 and increments of $1,000,000 for any reduction in excess of $5,000,000, and (y) that such reduction be made only with five (5) Business Days prior notice, are each hereby waived. At no time following any reduction in the Revolving Credit Commitment required by this Section 8(q) shall Total Utilization exceed such reduced Revolving Credit Commitment. (r) Amendment to Article IV. Article IV of the Credit Agreement is hereby amended as follows: (i) Section 4.07 of the Credit Agreement is hereby amended to delete the Schedule 4.07 attached to the Credit Agreement and to substitute therefor the Revised Schedule 4.07 attached to this November 2000 Waiver Agreement; and the Credit Agreement is hereby further amended such that each reference therein to the term "Schedule 4.07" is hereby deemed a reference to Revised Schedule 4.07 attached to this November 2000 Waiver Agreement. (ii) Section 4.16 of the Credit Agreement is hereby amended to delete the Schedule 4.16 attached to the Credit Agreement and to substitute therefor the Revised Schedule 4.16 attached to this November 2000 Waiver Agreement; and the Credit Agreement is hereby further amended such that each reference therein to the term "Schedule 4.16" is hereby deemed a reference to Revised Schedule 4.16 attached to this November 2000 Waiver Agreement. (iii) Section 4.20 of the Credit Agreement is hereby amended to delete the Schedule 4.20 attached to the Credit Agreement and to substitute therefor the Revised Schedule 4.20 attached to this November 2000 Waiver Agreement; and the Credit Agreement is hereby further amended such that each reference therein to the term "Schedule 4.20" is hereby deemed a reference to Revised Schedule 4.20 attached to this November 2000 Waiver Agreement. 22 The Carbide/Graphite Group, Inc. November 13, 2000 Page 22 (iv) Section 4.26 of the Credit Agreement is hereby amended and restated to read as follows: 4.26 No Material Adverse Change. No event has occurred since November 1, 2000, and is continuing, which has had or would reasonably be expected to have a Material Adverse Change. (s) Amendment to Article V. Article V of the Credit Agreement is hereby amended as follows: (i) Subsection 5.02(a) is hereby amended and restated to read as follows: Section 5.02 (a) The representations and warranties contained in Article IV hereof and in the other Loan Documents shall be correct in all material respects (x) when made and (y) at the date of such additional Revolving Credit Loan or issuance of a Letter of Credit, except for such representations and warranties which relate solely to any earlier date (in which case such representations and warranties shall have been true and correct in all material respects as of such date); provided, however, that for purpose of this clause (a) the representations and warranties contained in Section 4.08 shall be deemed updated to include any financial statements of the Borrower delivered to the Agent pursuant to Section 6.02(ii), and Section 4.07 and Section 4.20 shall be deemed updated if, and to the extent that, an action, suit, investigation, litigation, governmental investigation or Environmental Condition is set forth in any Form 10-K and 10-Q filed by the Borrower in respect of any period subsequent to he date hereof or in any Form 8-K filed by the Borrower subsequent to the date hereof or in any supplement to Revised Schedule 4.07 or Revised Schedule 4.20 delivered to the Agent by the Borrower subsequent to the date hereof; (t) Amendment to Article VI. Article VI of the Credit Agreement is hereby amended as follows: (i) Section 6.10 of the Credit Agreement is amended and restated, effective as of October 1, 2000, to read as follows: 6.10. Plans and Benefit Arrangements. Except as set forth in Schedule 6.10 attached to the November 2000 Waiver Agreement, the 23 The Carbide/Graphite Group, Inc. November 13, 2000 Page 23 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, except as set forth in Schedule 6.10 attached to the November 2000 Waiver Agreement, 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. (u) Amendment to Article VII. Article VII of the Credit Agreement is hereby amended as follows: (i) Section 7.01(ii) is deleted in its entirety. (ii) Section 7.01(viii) is hereby amended and restated to read as follows: (viii) (x) Existing Indebtedness as set forth on Revised Schedule 7.01 attached to the November 2000 Waiver Agreement (including any extensions or renewals thereof provided there is no increase in the amount or other significant change in the terms thereof); and (y) other unsecured Indebtedness not covered by items (i) through (vii) above or clause (x) of this item (viii), provided that the aggregate amount of such Indebtedness permitted by this clause (y) of this item (viii) shall not exceed $4,000,000 at any one time outstanding; and (iii) Section 7.01(ix) is deleted in its entirety. (iv) Section 7.05(iv) is amended to delete the phrase "2.5% of the Consolidated Net Worth of the Borrower" and to replace it with the amount of "$250,000". (v) Section 7.05(v) is deleted in it entirety and replaced with "[RESERVED]". (vi) Section 7.05 is amended by adding thereto a new subsection (vi): 24 The Carbide/Graphite Group, Inc. November 13, 2000 Page 24 (vi) any contribution of Capital Stock of the Borrower held as treasury shares to the 401(k) retirement plan of eligible employees of the Borrower or Subsidiaries. (vii) Section 7.09 is amended, effective as of October 1, 2000, such that the introductory phrase to Section 7.09 which reads as "The Borrower shall not, and shall not permit any member of the ERISA Group to" is deleted and there is substituted therefor the phrase " Except as set forth in Schedule 7.09 attached to the November 2000 Waiver Agreement, the Borrower shall not, and shall not permit any member of the ERISA Group to". (v) Amendment to Article X. Article X of the Credit Agreement is hereby amended as follows: (i) Clause (i) of Subsection 10.05(b) of the Credit Agreement is amended and restated as follows: 10.05(b)(i) The Agent must give its prior consent to any such assignment, which consent shall not be unreasonably withheld. (ii) Clause (ii) of Subsection 10.05(b) is hereby amended such that each reference therein to "$10,000,000" is replaced by "$5,000,000". (w) Real Estate Matters. On or before February 14, 2001, the Borrower shall deliver to the Agent surveys for each of the Mortgaged Properties, together with such certifications from the surveyors as the Agent may reasonably request. (x) Further Documentation. The Borrower shall execute and deliver any and all documents, instruments or agreements that the Lenders deem appropriate in order to (i) reflect the terms and conditions of this November 2000 Waiver Agreement, and (ii) perfect or continue the perfection of the security interest, liens and encumbrances securing the Lender Obligations to the Lenders, contemporaneous with the execution of this November 2000 Waiver Agreement. 9. Additional Representations and Warranties. As an inducement to the Agent, the Lenders, and the L/C Issuer to enter into this November 2000 Waiver Agreement, the Borrower hereby represents and warrants that (i) as of November 13, 2000, the authorized Capital Stock of the Borrower consists of (A) 18,000,000 shares of common stock of which 8,331,342 shares of common stock were issued and outstanding and (B) 2,000,000 shares of preferred stock none of which was issued and outstanding; and all of the Capital Stock of the Borrower has been validly 25 The Carbide/Graphite Group, Inc. November 13, 2000 Page 25 issued and is fully paid and nonassessable; and except as set forth in Schedule 9 attached hereto, there are no options, warrants or other rights outstanding to purchase any such Capital Stock; (ii) that neither the execution and deliver of this November 2000 Waiver Agreement, the November Warrant Purchaser Agreement or the November Warrants, nor the performance of the Borrower's obligations hereunder and thereunder, will result in a change of control under the terms of any executive employment agreement or employment contract executed by the Borrower or any of its Subsidiaries, (iii) (x) the Borrower has delivered to the Agent the consolidated financial statements of the Borrower and its Subsidiaries for the period ended July 31, 2000, and 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; and (y) the Borrower and its Subsidiaries have no liabilities, contingent or otherwise, that are not disclosed in the financial statements referred to in clause (x) 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; and (iv) for purposes of such representation and warranties set forth in clause (a) of Section 1 hereof, this November 2000 Waiver Agreement is, and shall be construed to be, one of the Loan Documents referred to in such representations and warranties. 10. Waiver of Defenses. (a) No Fraudulent Intent. Neither the execution and delivery of this November 2000 Waiver Agreement nor the performance of any actions required hereunder or described herein is being consummated by the Borrower with or as a result of any actual intent to hinder, delay or defraud any entity to which the Borrower now or will hereafter become indebted. (b) Reaffirmation of Loan Documents and Lender Obligations/Waiver of Defenses. In consideration of the Lenders' agreements hereunder, the Borrower hereby agrees, acknowledges and reaffirms that the Loan Documents constitute valid and legally binding obligations, and that the Loan Documents are enforceable against the Borrower and each Subsidiary Guarantor, in accordance with their terms; neither this November 2000 Waiver Agreement nor any other documents described herein are deemed or construed to be a satisfaction, reinstatement, novation or release of the Lender Obligations or Loan Documents, or except as provided above, waiver by the Lenders of any Events of Default or Defaults or of the rights of the Lenders under the Loan Documents or at law or in equity; neither the Borrower nor any Subsidiary Guarantor has any defenses, setoffs, claims, counterclaims or causes of action of any kind or nature whatsoever with respect to the Lender Obligations, the Loan Documents, any other transactions between the Borrower and the Lenders or the Agent, or with respect to any other documents or instruments now or heretofore evidencing, securing or in any way relating to 26 The Carbide/Graphite Group, Inc. November 13, 2000 Page 26 the Lender Obligations, or with respect to the administration or funding by the Lenders or the Agent of any loans or other transactions that gave rise to any of the Lender Obligations or any other loans to the Borrower, or any of the property of the Borrower. The Borrower hereby expressly waives, releases and relinquishes any and all such defenses, setoffs, claims, counterclaims and causes of action existing as of the date of this November 2000 Waiver Agreement. (c) No Waivers. The terms and conditions of this November 2000 Waiver Agreement, do not, except as specifically provided for herein, alter, waive or amend the provisions of the Loan Documents and shall not constitute a waiver of any rights or remedies of the Lenders or the Agent under the Loan Documents, or at law or in equity. No delay or failure of the Agent or the Lenders to exercise any right or remedy hereunder shall operate as a waiver thereof, and no single or partial exercise of any right or remedy thereunder or hereunder shall preclude other or further exercise thereof or the exercise of any other right or remedy. No action or forbearance of the Lenders contrary to the provisions hereof or of any of the Loan Documents shall be construed to constitute a waiver of any of the provisions hereof or the Loan Documents. Any party may in writing expressly waive any of such party's rights under this November 2000 Waiver Agreement or under any of the other Loan Documents without invalidating this November 2000 Waiver Agreement or any of the Loan Documents or any portions hereof or thereof. (d) Release. As a material inducement to the Lenders to enter into this November 2000 Waiver Agreement, which is to the direct advantage and benefit of the Borrower, and each Subsidiary Guarantor, the Borrower and each Subsidiary Guarantor does hereby remise, release, acquit, satisfy and forever discharge the Lenders and the Agent, and all of the respective past, present and future officers, directors, employees, agents, attorneys, representatives, participants, heirs, successors and assigns of the Lenders and the Agent, from any and all manner of debts, bonds, warranties, representations, covenants, promises, contracts, controversies, agreements, liabilities, obligations, expenses, damages, judgments, executions, actions, claims, demands and causes of action of any nature whatsoever, whether at law or in equity, either now accrued or hereafter maturing, which the Borrower or any Subsidiary Guarantor, now has or hereafter can, shall or may have by reason of any matter, cause or thing, from the beginning of the world to and including the date of this November 2000 Waiver Agreement. The Borrower and each Subsidiary Guarantor hereby covenants and agrees never to institute or cause to be instituted or continue prosecution of any suit or other form of action or proceeding of any kind or nature whatsoever against the Lenders or the Agent or any subsidiaries or affiliates of the Lenders or the Agent, or any of their respective past, present or future officers, directors, employees, agents, attorneys, representatives, participants, heirs, successors or assigns, by reason of or in connection with any of the foregoing matters, claims or causes of action. This release shall be effective upon execution of this November 2000 Waiver Agreement by the 27 The Carbide/Graphite Group, Inc. November 13, 2000 Page 27 Borrower and each Subsidiary Guarantor and shall survive any Waiver Expiration Date, any termination of the Lenders' obligations to extend further credit under the Credit Agreement or any termination of the Loan Documents. 11. Effective Date. This November 2000 Waiver Agreement shall become effective on the date on which each of the following conditions are satisfied (or are waived by the Required Lenders in writing) (such date, the "Agreement Effective Date"). (a) November 2000 Waiver Agreement. A duly executed counterpart original of this November 2000 Waiver Agreement executed by the Required Lenders, the L/C Issuer, the Agent, the Borrower and each Subsidiary Guarantor. (b) Borrower Security Agreement. A duly executed Security Agreement executed and delivered by the Borrower. (c) Subsidiary Guarantor Documents. A duly executed Subsidiary Guaranty and Subsidiary Security Agreement executed and delivered by each Subsidiary Guarantor, together with all appropriate financing statements. (d) Confirmation Certificate. A certificate from the Secretary of the Borrower certifying that the Articles of Incorporation and Bylaws of the Borrower and each Subsidiary Guarantor previously delivered to the Agent are true, complete, and correct. (e) Compliance Certificate. A certificate signed by an authorized officer of the Borrower dated as of the Agreement Effective Date, affirming the matters set forth in Section 1. (f) Secretary's Certificate for Borrower. A copy of a certificate of the Secretary of the Borrower that sets forth the names, offices and titles of the Borrower's officer or officers authorized to sign this November 2000 Waiver Agreement and the other related Loan Documents executed in connection herewith 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 November 2000 Waiver Agreement and the other related Loan Documents and the true signatures of such officers, on which the Agent, each Lender and the L/C Issuer may conclusively rely. (g) Secretary's Certificate for Subsidiary Guarantors. A copy of a certificate of the Secretary of each of the Subsidiary Guarantors that sets forth 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 executed in connection herewith and the true signatures of such officer or officers and the identities of the 28 The Carbide/Graphite Group, Inc. November 13, 2000 Page 28 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 related Loan Documents and the true signatures of such officers, on which the Agent, each Lender and the L/C Issuer may conclusively rely. (h) Organizational Documents for Subsidiary Guarantors. (A) copies of each Subsidiary Guarantor's organizational documents, as in effect on the Agreement Effective Date certified, by the secretary of state of the state of its organization or formation (except that the articles of incorporation of CG International, Inc., a Barbados corporation, shall be certified as true and correct by its corporate secretary); (B) a certificate as to the continued existence and good standing of each Subsidiary Guarantor (except for CG International, Inc., a Barbados corporation) issued by the secretary of state of the state of its organization or formation; and (C) if applicable, a certified copy of the filed fictitious name registration (if required by applicable law). (i) Authorizing Actions. Copies of all corporate or partnership action taken by the Borrower and each Subsidiary Guarantor in connection with the transactions contemplated hereby. (j) Financial Forecast. A Quarterly Financial Forecast and Cash Forecast for the Borrower and its Subsidiaries, beginning with the November 1, 2000. (k) Warrants. A duly executed November Warrant Purchase Agreement executed and delivered by the Borrower, substantially in the form of Exhibit "A" hereto; and the issuance by the Borrower of the November Warrants to the Lenders pursuant to the November Warrant Purchase Agreement. (l) Real Estate Issues. The Borrower shall deliver to the Agent (i) a modification of mortgage concerning each Mortgaged Property which recites the chain of title into the Borrower or a Subsidiary Guarantor of the related Mortgaged Property, in form and substance satisfactory to the Agent, and (ii) an affidavit of title by the Borrower, or a Subsidiary Guarantor, as applicable, concerning the status of any negative pledge agreements executed by the Borrower or a Subsidiary Guarantor and recorded with respect to any Mortgaged Property, all in form and substance satisfactory to the Agent. (m) Cash Collateral Account Agreements and Lockbox Agreements. Such duly executed, amended and restated cash collateral account agreements and lockbox agreements as the Agent shall request. 29 The Carbide/Graphite Group, Inc. November 13, 2000 Page 29 (n) Financial Forecast for Waiver Period. The Borrower shall provide to the Agent and each of the Lenders on the Agreement Effective Date, a financial forecast for each Fiscal Quarter which occurs during the Waiver Period, commencing with the Fiscal Quarter ending January 31, 2001 (the "Waiver Period Financial Forecast"), including (a) a consolidated balance sheet for the Borrower and its Subsidiaries, (b) a consolidated statement of income for the Borrower and its Subsidiaries and (c) a consolidated statement of cash flow for the Borrower and its Subsidiaries, prepared in reasonable detail, reconciling to EBITDA for each monthly period, and certified, subject to changes resulting from year-end adjustments, by the chief financial officer of the Borrower. (o) Compliance Certificate. The Borrower shall execute and deliver the Compliance Certificate attached hereto as Exhibit "F", and the certifications set forth on such Compliance Certificate shall be true and correct on the Agreement Effective Date. (p) Opinion of Counsel. There shall be delivered to the Agent for the benefit of each Lender a written opinion of Reed Smith, LLP, special counsel for the Borrower and the Subsidiary Guarantors dated the Agreement Effective Date and in form and substance reasonably satisfactory to the Agent and its counsel as to the matters set forth on Exhibit "B". (q) Engagement Letter for Shay Kimple Consulting Group, Inc. The Borrower shall deliver to the Agent a copy of the engagement letter of the Borrower with Shay Kimple Consulting Group, Inc. (r) Payment of Cash Amendment Fee. The payment to the Agent, to be distributed as set forth in Section 8(e) hereof, of a portion of the total cash Amendment Fee in the amount of $337,500. (s) Other Matters. All matters and circumstances set forth as qualifications, limitations, exceptions, additional matters or other materials provided by or on behalf of the Borrower or its Subsidiaries shall be acceptable to the Agent, its reasonable discretion. 12. General Provisions. (a) Ratification of Terms. Except as expressly waived by this November 2000 Waiver Agreement, the Credit Agreement and each and every representation, warranty, covenant, term and condition contained therein is specifically ratified and confirmed. The Borrower hereby confirms that any Collateral for the Lender Obligations, including but not limited to encumbrances, Liens, security interests, mortgages and pledges granted by the Borrower or the Subsidiary Guarantors, shall continue unimpaired and in full force and effect. The Borrower expressly ratifies and confirms the waiver of jury trial provision contained in the 30 The Carbide/Graphite Group, Inc. November 13, 2000 Page 30 Credit Agreement and the other Loan Documents. This November 2000 Waiver Agreement shall be construed in connection with and as part of the Credit Agreement; and the Credit Agreement is hereby modified to include this November 2000 Waiver Agreement. (b) References. All notices, communications, agreements, certificates, documents or other instruments executed and delivered after the execution and delivery of this November 2000 Waiver Agreement in connection with the Credit Agreement, any of the other Loan Documents or the transactions contemplated thereby may refer to the Credit Agreement without making specific reference to this November 2000 Waiver Agreement, but nevertheless all such references shall include this November 2000 Waiver Agreement unless the context requires otherwise. From and after the date of this November 2000 Waiver Agreement, all references in the Credit Agreement and each of the other Loan Documents to the "Agreement" shall be deemed to be references to the Credit Agreement as modified hereby. (c) Incorporation into Credit Agreement. This November 2000 Waiver Agreement is deemed incorporated into the Credit Agreement. To the extent that any term or provision of this Agreement is or may be deemed expressly inconsistent with any term or provision of the Credit Agreement, the terms and provisions hereof shall control. This November 2000 Waiver Agreement shall be deemed to be a "Loan Document" under the terms of the Credit Agreement. This November 2000 Waiver Agreement shall survive the expiration of the Waiver Period and shall continue as a Loan Document. (d) Counterparts. This November 2000 Waiver Agreement may be executed in different counterparts, each of which when executed by the Borrower and the Agent, the Required Lenders, and the L/C Issuer shall be regarded as an original, and all such counterparts shall constitute one Agreement. (e) Definitions. In addition to words and terms defined elsewhere in this November 2000 Waiver Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise: (i) Incorporation of Defined Terms. Except for proper nouns and as otherwise defined herein, capitalized terms used herein as defined terms shall have the same meanings herein as are ascribed to them in the Credit Agreement, as amended hereby. (ii) Additional Defined Terms. Account shall mean an "account" or a "general intangible" as defined in the Uniform Commercial Code as in effect in the jurisdiction whose Law 31 The Carbide/Graphite Group, Inc. November 13, 2000 Page 31 governs the perfection of the Agent's security interest therein, whether now owned or hereafter acquired or arising. Account Debtor shall mean, with respect to any Account, each Person who is obligated to make payments to the Borrower or a Subsidiary Guarantor on such Account. BOC shall mean The BOC Group, PLC, an English corporation. BOC Refund shall mean any reimbursement to the Borrower by BOC for any losses, claims, judgments, costs or expenses suffered or incurred by the Borrower to address, correct, remediate, or rectify any Environmental Conditions concerning the SO(2) Project. HDS Procurement shall mean the process under which equipment related to the Borrower's HDS project at the Seadrift facility was dismantled at transferred to Seadrift facility. Mortgage shall mean a mortgage or deed of trust by the Borrower or Subsidiary Guarantor in the form of Exhibits "M-1" or "M-2" attached to the Credit Agreement, or such other form of mortgage or deed of trust approved by the Agent. Mortgaged Property shall mean the real property owned in fee by the Borrower or a Guarantor Subsidiary, improvements thereon and fixtures relating thereto, all as now or hereafter more fully described in a Mortgage. November Warrant Purchase Agreement shall mean the November Warrant Purchase Agreement substantially in the form of Exhibit "A" attached hereto, as the same may be supplemented and amended from time to time. November Warrant, Series 2000A shall mean a warrant of the Borrower substantially in the form of Exhibit "C" attached hereto, as the same may be supplemented and amended from time to time. November Warrant, Series 2000B shall mean a warrant of the Borrower substantially in the form of Exhibit "D" attached hereto, as the same may be supplemented and amended from time to time. November Warrants shall mean collectively the November Warrant, Series A and the November Warrant, Series B, and the term "November 32 The Carbide/Graphite Group, Inc. November 13, 2000 Page 32 Warrant" shall refer to either or both of the November Warrants as this case may be or the context requires. Permitted Sole Delay shall have the meaning ascribed to it in the November Warrant Purchase Agreement. Rights Agreement shall mean that certain Rights Agreement dated as of May 21, 1999, by and between the Borrower and State Street Bank and Trust Company, a Massachusetts trust company, as rights agent. SO(2) Project shall mean the installation of a sulfur dioxide emissions scrubbing unit at the Borrower's St. Marys, PA production facility. Subsidiary Assigned Collateral shall mean "Assigned Collateral", as described in a Subsidiary Security Agreement executed by a Subsidiary Guarantor. Subsidiary Guarantor shall mean each Subsidiary of the Borrower incorporated or organized in the United States of America or Barbados. Subsidiary Guaranty shall mean a guaranty agreement executed by a Subsidiary Guarantor substantially in the form of Exhibit "I" attached to the Credit Agreement (or such other form of guaranty approved by the Agent), together in each case with all extensions, renewals, amendments, substitutions and replacements thereto and thereof. Subsidiary Security Agreement shall mean the amended and restated security agreement executed by a Subsidiary Guarantor, substantially in the form of Exhibit "J-1" attached to the Credit Agreement (or such other form approved by the Agent), together in each case with all extensions, renewals, amendments, substitutions and replacements thereto and thereof. (f) Taxes. The Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this November 2000 Waiver Agreement and such other documents and instruments as are delivered in connection herewith and agrees to save the Agent, the Lenders, and the L/C Issuer harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. (g) Costs and Expenses. The Borrower will pay all costs and expenses of the Agent (including, without limitation, the reasonable fees and the disbursements of the Agent's special counsel, Tucker Arensberg, P.C., local counsel for the Agent, real property title review 33 The Carbide/Graphite Group, Inc. November 13, 2000 Page 33 costs and the financial consultant to the Agent and Lenders) in connection with the preparation, execution and delivery of this November 2000 Waiver Agreement and the other documents, instruments and certificates delivered in connection herewith. (h) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO THE PROVISIONS THEREOF REGARDING CONFLICTS OF LAW. (i) Headings. The headings of the sections in this November 2000 Waiver Agreement are for purposes of reference only and shall not be deemed to be a part hereof. (j) Amendments. Any amendment, modification or waiver (i) of the payment terms set forth in Sections 8(a) and 8(e) hereof and (ii) of the reduction provisions set forth in Section 8(q) hereof, shall require the consent of all Lenders. No term, provision or covenant set forth in Section 10(d) may be amended, modified or waived with respect to a Lender, the Agent or the L/C Issuer without the prior written consent of the Lender in question, the Agent or the L/C Issuer, as the case may be. Any other terms or provisions of this November 2000 Waiver Agreement may be amended, modified or waived by the consent of the Required Lenders. (k) Confidential Reports. For avoidance of doubt, it is noted that the reports referred to in Subsections 8(c)(x), 8(c)(xi) and 8(c)(xii) above are subject to the confidentiality provisions contained in Section 10.10 of the Credit Agreement, and that any third party referred to in any such report (as opposed to the provider of such report) is a "Person" as that term is issued in the first sentence of Section 10.10 of the Credit Agreement. (l) Consents of Guarantors and Lenders. The Consent of Guarantor and the Consent of Lenders attached to this document are to be interpreted as an integral part of this November 2000 Waiver Agreement. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 34 The Carbide/Graphite Group, Inc. November 13, 2000 Page 34 IN WITNESS WHEREOF, the parties hereto, with the intent to be legally bound hereby, have caused this November 2000 Waiver Agreement to be duly executed by their respective proper and duly authorized officers as a document under seal, as of the day and year first above written. Very truly yours, PNC BANK, NATIONAL ASSOCIATION, as Agent for the Lenders By: /s/Martin E. Mueller ------------------------------ Name: Martin E. Mueller ---------------------------- Title: Vice President --------------------------- With the intent to be legally bound hereby, the foregoing is hereby acknowledged, accepted and agreed to this 13 day of November, 2000. THE CARBIDE/GRAPHITE GROUP, INC., a Delaware corporation By: /s/William M. Thalman ----------------------------------- Name: William M. Thalman --------------------------------- Title: Vice President & Treasurer -------------------------------- 35 CONSENT OF GUARANTOR Each of the undersigned guarantors (jointly and severally the "Guarantor") consents to the provisions of the foregoing November 2000 Waiver Agreement and all prior amendments (if any) and confirms and agrees that: (a) the Guarantor's obligations under their Guaranty and Suretyship Agreement dated October 25, 1997 (collectively, the "Guaranty"), relating to the Lender Obligations, shall be unimpaired by the November 2000 Waiver Agreement; (b) the Guarantor has no defenses, setoffs, claims, counterclaims or causes of action of any kind against any Lender or the Agent, or their respective officers, directors, employees, agents or attorneys representations, participants, successors and assigns with respect to the Guaranty; and (c) all of the terms, conditions and covenants in the Guaranty remain unaltered and in full force and effect and are hereby ratified and confirmed and apply to the Loan Documents, as modified by this November 2000 Waiver Agreement. The Guarantor certifies that all representations and warranties made in the Guaranty are true and correct. Each Guarantor has reviewed the terms and provisions of Section 10(d) of the foregoing November 2000 Waiver Agreement. The terms of Section 10(d) are incorporated herein by referenced; each undersigned Guarantor ratifies, confirms and adopts the waivers, releases, discharges, covenants and agreements therein set forth; and each undersigned Guarantor acknowledges and agrees that it is bound by the terms of such Section 10(d). The Guarantor hereby confirms that any collateral for the Lender Obligations, including liens, security interests, mortgages, and pledges granted by the Guarantor or third parties (if applicable), shall continue unimpaired and in full force and effect, and shall cover and secure all of the Guarantor's existing and future obligations to the Lenders, as modified by the November 2000 Waiver Agreement . The Guarantor ratifies and confirms the indemnification and waiver of jury trial provisions contained in the Guaranty. WITNESS the due execution of this Consent as a document under seal as of the date of the November 2000 Waiver Agreement, intending to be legally bound hereby. WITNESS: GUARANTOR: SEADRIFT COKE, L.P., a Texas limited partnership By THE CARBIDE/GRAPHITE GROUP, INC., its authorized general partner By: /s/ Travis E. Williams By: /s/ William M. Thalman (SEAL) ------------------------------- ------------------------- Name: Name: William M. Thalman ----------------------------- ------------------------------- Title: Title: Vice President & Treasurer ---------------------------- ------------------------------
[SIGNATURES OF GUARANTORS CONTINUED ON NEXT PAGE] 36 [CONTINUATION OF SIGNATURES OF GUARANTORS CONTINUED ON NEXT PAGE] CARBIDE/GRAPHITE MANAGEMENT CORPORATION, a Delaware corporation By: /s/ Travis E. Williams By: /s/ William M. Thalman (SEAL) -------------------------------- ---------------------------- Name: Name: William M. Thalman ------------------------------ ----------------------------- Title: Title: Vice President & Treasurer ----------------------------- ---------------------------- C/G SPECIALTY PRODUCTS MANAGEMENT CORPORATION, a Delaware corporation By: /s/ Travis E. Williams By: /s/ William M. Thalman (SEAL) ------------------------------- ---------------------------- Name: Name: William M. Thalman ------------------------------ ----------------------------- Title: Title: Vice President & Treasurer ----------------------------- ---------------------------- CARBIDE/GRAPHITE BUSINESS TRUST, a Delaware business trust By: /s/ Travis E. Williams By: /s/ William M. Thalman (SEAL) ------------------------------- ---------------------------- Name: Name: William M. Thalman ------------------------------ ----------------------------- Title: Title: Vice President & Treasurer ----------------------------- ---------------------------- CARBON/GRAPHITE INTERNATIONAL, INC., a Barbados corporation By: /s/ Travis E. Williams By: /s/ Jeffrey T. Jones (SEAL) ------------------------------- ---------------------------- Name: Name: Jeffrey T. Jones ------------------------------ ----------------------------- Title: Title: Treasurer ----------------------------- ----------------------------
37 CONSENT OF LENDERS Each of the undersigned Lenders hereby consent to the terms of the foregoing November 2000 Waiver Agreement and authorizes the Agent to execute and deliver the November 2000 Waiver Agreement to the Borrower. Witness the due execution of this Consent of Lenders as a document under seal as of the date of the November 2000 Waiver Agreement, intending to be legally bound hereby. LENDERS: Revolving Credit PNC BANK, NATIONAL ASSOCIATION, Commitment: $23,400,000 as a Lender, the L/C Issuer and Agent Ratable Share: 17.33% By: /s/ Martin E. Mueller (SEAL) ---------------------------- Name: Martin E. Mueller -------------------------- Title: Vice President ------------------------- Revolving Credit NATIONAL CITY BANK OF Commitment: $16,200,000 PENNSYLVANIA Ratable Share: 12% By: /s/ William F. Nicholson (SEAL) ---------------------------- Name: William F. Nicholson -------------------------- Title: Vice President ------------------------- Revolving Credit BANK ONE, N.A. Commitment: $11,700,000 Ratable Share: 8.66% By: /s/ Christer D. Lucander (SEAL) ---------------------------- Name: Christer D. Lucander -------------------------- Title: First Vice President ------------------------- Revolving Credit FIRST UNION NATIONAL BANK Commitment: $16,200,000 Ratable Share: 12% By: /s/ Amy B. Delfini (SEAL) ---------------------------- Name: Amy B. Delfini -------------------------- Title: Assistant Vice President -------------------------
[SIGNATURES OF LENDERS CONTINUED ON NEXT PAGE] 38 [CONTINUATION OF SIGNATURES OF LENDERS TO CONSENT TO LENDERS] Revolving Credit KEYBANK, NATIONAL ASSOCIATION Commitment: $11,700,000 Ratable Share: 8.66% By: /s/ Anne R. Hohl (SEAL) ---------------------------- Name: Anne R. Hohl -------------------------- Title: Vice President ------------------------- Revolving Credit STANDARD CHARTERED BANK Commitment: $11,700,000 Ratable Share: 8.66% By: /s/ Peter Brach (SEAL) ---------------------------- Name: Peter Brach -------------------------- Title: Vice President ------------------------- Revolving Credit MELLON BANK, N.A. Commitment: $11,700,000 Ratable Share: 8.66% By: /s/ Alan J. Kopolow (SEAL) ---------------------------- Name: Alan J. Kopolow -------------------------- Title: Vice President ------------------------- Revolving Credit BANK OF AMERICA, N.A. Commitment: $16,200,000 Ratable Share: 12% By: /s/ Reinhard Freimuth (SEAL) ---------------------------- Name: Reinhard Freimuth -------------------------- Title: Vice President ------------------------- Revolving Credit THE CHASE MANHATTAN BANK Commitment: $16,200,000 Ratable Share: 12% By: /s/ John Malone (SEAL) ---------------------------- Name: John Malone -------------------------- Title: Vice President -------------------------
EX-10.11.B 3 j8492301ex10-11_b.txt WARRANT AGREEMENT 1 Exhibit 10.11(b) WARRANT AGREEMENT Between THE CARBIDE/GRAPHITE GROUP, INC., a Delaware corporation, and THE WARRANTHOLDERS PARTIES HERETO Dated as of November 13, 2000 2 THE CARBIDE/GRAPHITE GROUP, INC. One Gateway Center, 19th Floor Pittsburgh, Pennsylvania 15222 WARRANT AGREEMENT Dated as of: November 13, 2000 THE WARRANTHOLDERS LISTED IN ANNEX 1 HERETO: Ladies and Gentlemen: The undersigned, THE CARBIDE/GRAPHITE GROUP, INC., a Delaware corporation (herein, together with its successors and assigns, the "Company"), proposes to issue to the Warrantholders (as more particularly defined in Article I below) Warrants (as more particularly defined in Article I below) on the terms and subject to the conditions contained in this Agreement. Accordingly, the parties hereto agree as follows: ARTICLE I CERTAIN DEFINED TERMS In addition to the terms defined in Article VI as used herein, the following terms shall have the respective meanings assigned to them in this Article I: "Associate" when used to indicate a relationship with any Person shall mean (i) any Person of which such Person is a director, office or partner or is, directly or indirectly, the beneficial owner of 20% or more of any class of voting stock, (ii) any trust or other estate in which such Person has at least a 20% beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, and (iii) any relative of such Person. "Acquired Equity Interests" shall have the meaning ascribed to that term in Section 2.02 hereof. "Acquired Securities" shall mean the Warrants and the Common Stock acquired upon exercise of the Warrants. "Affiliate" means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person. As used in this definition, 3 "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "Bank Debt" shall have the same meaning as "Total Utilization" as such term is defined in the Credit Agreement described in the November 2000 Waiver Agreement "Capital Stock" shall mean, with respect to any Person, any class of preferred, common or other capital or similar equity interest of a Person. "Closing" shall have the meaning ascribed to that term in Article IV. "Closing Date" shall have the meaning ascribed to that term in Article IV. "Common Stock" shall mean the Company's common stock, $.01 par value per share. "Equity Interest" shall mean with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination. "Fundamental Documents" shall mean, collectively, this Agreement and the Warrants. "Majority of the Warrantholders" shall mean, at any particular date, Persons holding of record or deemed to be holding of record, at such date, more than fifty percent (50%) of the total number of all Warrant Shares held of record or deemed to be held of record by all Persons at such date. "November 2000 Waiver Agreement" means that certain Waiver Agreement dated as of November 13, 2000, by and among the Borrower, the financial institutions a party thereto as lenders, PNC Bank, National Association, as letter of credit issuer, and PNC Bank, National Association as agent for such lenders and letter of credit issuer. "Permitted Sale Delay" has the meaning ascribed to such term in the Warrants A. "Permitted Section 7.05 Sale" means any sale, lease, transfer or other disposition of assets of the Company and/or its consolidated Subsidiaries in one, several or any series of -2- 4 transactions which under the terms of Section 7.05 and/or Section 10.01 of the Credit Agreement require the consent of the Lenders for such sale, lease, transfer or other disposition of assets. "Permitted Transferee" shall mean: (i) any Affiliate of the transferor or any other Warrantholder; (ii) any accredited investor, as defined in Regulation D promulgated under the Securities Act; (iii) any Person (A) who shall acquire Acquired Securities from the Warrantholders or from any Permitted Transferees thereof in a transaction not involving any public offering, and (B) who shall, after giving effect to such transaction, hold of record not less than 1% of the aggregate number of the Acquired Securities then outstanding; (iv) in the case of any Permitted Transferee which is not a natural person, any Person who shall acquire (whether by operation of law or otherwise) all or any substantial part of the assets of such Permitted Transferee; or (v) in the case of any Permitted Transferee thereof who is a natural person, any executor, administrator, heir or legatee of such Permitted Transferee. Unless the context shall otherwise clearly require, the term "the Warrantholders," as used in this Agreement, shall include all of the Permitted Transferees of the Warrantholders and all of the Permitted Transferees of such Permitted Transferees; and each Permitted Transferee is deemed to be subject to, and bound by, the terms of this Agreement. "person" or "Person" shall mean an individual, corporation, partnership, limited liability company, joint venture, trust, or unincorporated organization, or a government or any agency or political subdivision thereof. "Required Lenders" shall have the meaning ascribed to it in the Credit Agreement described in the November 2000 Waiver Agreement. "Revolving Credit Commitments" shall have the meaning ascribed to it in the Credit Agreement described in the November 2000 Waiver Agreement. "Rights" shall mean: (a) any warrant (including, without limitation, any Warrant) or any option (including, without limitation, employee stock options) to acquire Capital Stock of the Company; -3- 5 (b) any right issued to holders of such Capital Stock, or any class thereof, permitting the holders thereof to subscribe to additional shares of such Capital Stock (pursuant to a rights offering or otherwise); (c) any right to acquire such Capital Stock pursuant to the provisions of any Security convertible or exchangeable into such Capital Stock; and (d) any similar right permitting the holder thereof to subscribe for or purchase shares of such Capital Stock. "Rights Agreement" shall mean that certain Rights Agreement dated as of May 21, 1999, by and between the Company and the State Street Bank and Trust Company, a Massachusetts trust company, as rights agent. "Subsidiary" shall mean, in relation to the Company at any particular time, any corporation or other entity at least fifty percent (50%) of the outstanding voting shares or equity interests of which shall be owned or controlled (whether directly or indirectly) by the Company and/or by any one or more of the Company's other Subsidiaries. "Total Utilization" shall have the meaning ascribed to it in the Credit Agreement described in the November 2000 Waiver Agreement. "Warrant Certificate" shall have the meaning ascribed to it in Section 3.04. "Warrant Exercise Date" shall mean the date upon which the Warrants become exercisable pursuant to the terms and condition set forth in the Warrant Certificates. "Warrantholders" means, collectively, (i) the Persons listed on Annex I hereto so long as such Persons shall continue to own and hold of record any of the Acquired Securities (each an "Initial Warrantholder"), (ii) each Permitted Transferee of the Warrantholders so long as such Permitted Transferee shall continue to own and hold of record any of the Acquired Securities, and (iii) each Permitted Transferee of any other Permitted Transferee so long as such Permitted Transferee shall continue to own and hold of record any of the Acquired Securities; provided, however, the term Warrantholder shall not include any Persons that hold only Common Stock of the Company obtained through a public offering or any Person not affiliates with an Initial Warrantholder that acquires Common Stock from an Initial Warrantholder or a Permitted Transferee pursuant to Rule 144 promulgated under the Securities Act. "Warrantholders Consent" shall mean, at any particular date, the consent, approval or vote of Persons holding of record, at such date, more than fifty percent (50%) of the total number of all Warrant Shares held of record by such Persons at such date. "Warrants" shall mean collectively Warrants A and Warrants B as more fully described in Section 2.02 hereof, and shall in any event include all other warrants delivered in exchange or in substitution therefor. -4- 6 "Warrants A" shall mean collectively The Carbide/Graphite Group, Inc., Common Stock Warrants, Series A, the form of which is attached hereto as Exhibit "A-1", as more fully defined in Section 2.02 hereof, and shall in any event include all other warrants delivered in exchange or in substitution therefor. "Warrants B" shall mean collectively The Carbide/Graphite Group, Inc., Common Stock Warrants, Series B, the form of which is attached hereto as Exhibit "A-2", as more fully defined in Section 2.02 hereof, and shall in any event include all other warrants delivered in exchange or in substitution therefor. "Warrant Shares" shall mean shares of Acquired Equity Interests (a) issuable upon exercise of any Warrants or (b) that have been issued upon exercise of the Warrants. For purposes of the definitions of Warrantholders Consent and Majority of the Warrantholders, holders of Warrants shall be deemed to be holders of Warrant Shares described in clause (a) of this definition that are at such time issuable upon exercise in full of the Warrants. ARTICLE II AUTHORIZATION OF WARRANT; REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Warrantholders as follows: 2.01. Capitalization of Company. As more particularly set forth in Section 2.07 below, the equity capital of the Company consists of eighteen million (18,000,000) shares of authorized Common Stock, of which eight million three hundred thirty one thousand three hundred forty-two (8,331,342) shares are issued and outstanding and one million six hundred twenty four thousand two hundred (1,624,200) shares of Common Stock are held as treasury shares. Additionally, options for senior management and directors executive compensation have been issued for an additional eight hundred sixty thousand four hundred (860,400) shares. There are no other equity securities or options, warrants, securities convertible to equity securities, registration rights, or other rights (including, without limitation, rights to require the Company or any Subsidiary to repurchase or otherwise acquire or retire any equity interests of the Company), existing with respect to the Common Stock or other equity interests of the Company except as listed on Schedule 2.01 attached hereto. 2.02. Authorization of Warrants. The Company has duly and properly authorized the issuance of (i) the Company's Common Stock Purchase Warrants, Series A to be substantially in the form of Exhibit A-1 (the "Warrants A") and the Company's Common Stock Purchase Warrants, Series B to be substantially in the form of A-2 (the "Warrants B") both attached hereto (the Warrants A and Warrants B herein referred to collectively as the "Warrants"; and the term "Warrant" shall mean any of the Warrants), evidencing rights to purchase from the Company one million two hundred forty nine thousand seven hundred one (1,249,701) shares of Common Stock in the aggregate (subject to adjustment as provided therein); and (ii) the Common Stock issuable by the Company upon exercise of the Warrants. Warrants A will evidence the right to purchase eight hundred thirty-three thousand one hundred thirty-four (833,134) shares of -5- 7 common stock in the aggregate (subject to adjustment as provided therein). Warrants B will evidence the right to purchase four hundred sixteen thousand and five hundred sixty-seven (416,567) shares of Common Stock of the Company in the aggregate (subject to adjustment as provided therein). As used herein the term "Acquired Equity Interests" shall mean the Common Stock and other equity interests issuable or issued upon exercise of the Warrants. 2.03. Restrictions. The Company is not a party to any contract or agreement that materially restricts its right or ability to issue Capital Stock, or Rights in respect of Capital Stock, of the Company, as the case may be, other than the agreements listed on Schedule 2.03, none of which restricts the issuance of the Warrants or the Acquired Equity Interests or the execution and delivery of, or the compliance with, this Agreement by the Company. 2.04. Due Authorization; Enforceability. (a) The issuance and delivery of the Acquired Securities, the execution and delivery by the Company of each of the Fundamental Documents to which it is a party and compliance by the Company with all of the provisions of such Fundamental Documents: (i) is and will be within the corporate powers of the Company; and (ii) is and will be legal under current law and does not and will not conflict with, result in any breach of any of the provisions of, constitute a default under, or result in the creation of any lien upon any property of the Company or any Subsidiary under the provisions of: (A) any agreement, charter instrument, bylaw or other instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is or may be bound; (B) any order, judgment, decree, or ruling of any court, arbitrator or governmental authority currently applicable to the Company or any of its property; or (C) any statute or other rule or regulation of any governmental authority currently applicable to the Company or any of its property other than Section 203 of the Delaware General Corporation Law. (b) The Company has duly authorized by all necessary action on its part each of the Fundamental Documents. Each such Fundamental Document has been executed and delivered by one or more duly authorized officers of the Company and constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganizaiton, moratorium or other similar laws affecting creditors rights generally and except as equitable remedies may be limited -6- 8 by general principles of equity (whether such remedies are sought in a proceeding brought at law or in equity). 2.05. Governmental Consent to Issue. (a) Neither the nature of the Company nor any of its businesses or properties, nor any relationship between the Company and any other Person, nor any circumstance in connection with the offer, issuance or delivery of the Acquired Securities and the execution and delivery of any Fundamental Document, nor the performance of the obligations of the Company hereunder or thereunder, is, under current law, such as to require a consent, approval or authorization of, or prefiling, registration or qualification with, any governmental authority on the part of the Company as a condition thereto, except for such consents, approvals, authorizations, prefilings, registrations and qualifications (i) that are described on Schedule 2.05 attached hereto, all of which have been obtained on or prior to the Closing Date, and (ii) that, if not made or obtained, would not reasonably be expected to have a material adverse effect on the transactions contemplated hereby. (b) Neither the issuance of the Acquired Securities nor the incurrence of the obligations represented thereby, nor the execution and delivery of any Fundamental Document and the performance of the obligations of the Company hereunder and thereunder violates, under current law, any provision of any statute or other rule or regulation of any governmental authority applicable to the Company. (c) The Warrantholders acknowledge that the representations and warranties given by the Company pursuant to this Section 2.05 is made in part in reliance on the representations and warranties of the Warrantholders made to the Company pursuant to Section 5.01 hereof. 2.06. Private Offering of Warrants. (a) Neither the Company nor any other Person acting on behalf of the Company has offered any of the Warrants or any security of the Company similar to the Warrants for sale to, or solicited offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any prospective purchaser, (i) other than the Warrantholders within the six (6) month period prior to the Closing Date and (ii) other than discussions with accredited investors which directly or indirectly may have involved by implication the offer of any securities. (b) Neither the Company nor any Person acting on behalf of the Company in connection with the transactions contemplated by the Fundamental Documents (including, without limitation, the issuance of the Warrants) has engaged in any conduct or entered into any agreements or understanding which would subject the transactions contemplated by the Fundamental Documents to the registration provisions of Section 5 of the Securities Act, the provisions of the Trust Indenture Act of 1939, as amended, or to the registration, qualification or other similar provisions of any securities or "blue sky" law of any applicable state. -7- 9 2.07. Capitalization. (a) Schedule 2.07 correctly sets forth, after giving effect to the issuance of the Warrants and the consummation of all other transactions contemplated by this Agreement on the Closing Date: (i) the authorized and outstanding shares of the Capital Stock and other Securities of the Company (specifying the type, class or series of all such Capital Stock and other securities and whether such Capital Stock and other Securities are voting or non-voting); (ii) all Rights, together with descriptions of the terms thereof; and (iii) all obligations (contingent or otherwise) of the Company to repurchase or otherwise acquire or retire any Rights or shares of Capital Stock of the Company. All such outstanding shares of Capital Stock have been duly authorized and validly issued and are fully paid, and non-assessable. There are no preemptive rights, subscription rights or other contractual rights similar in nature to preemptive rights with respect to any Capital Stock of the Company. (b) To the knowledge of the Company, other than as specified on Schedule 2.07(b), there is no agreement or understanding between or among the holders of Rights or Capital Stock of the Company regarding the Capital Stock of the Company. The Company has provided each Warrantholder with true, accurate and complete copies of all agreements referred to in Schedule 2.07(b). (c) The Company acknowledges and agrees that any Common Stock issued pursuant to the exercise of any Warrant on or prior to the Distribution Date, the Redemption Date, the Exchange Date or the Final Redemption Date (as such terms are defined in the Rights Agreement) shall have the benefits of the Rights Agreement, except as otherwise provided in the Rights Agreement concerning any Acquiring Person (as such term is defined in the Rights Agreement) or its transferree (including without limitation Section 7(e) of the Rights Agreement). The Company will give the Warrantholders as soon as practicable prior written notice of any of the Distribution Date, the Redemption Date, the Exchange Date or the Final Redemption Date. ARTICLE III ISSUANCE OF WARRANTS 3.01. Issuance of Warrants. At the Closing, the Company will issue to each Warrantholder the Warrants to purchase the number of shares of Common Stock set forth next to its name on Annex I hereto. Subject to conditions set forth in the Warrants A, the Warrants A -8- 10 will be exercisable on or after April 1, 2001 (or May 1, 2001 due to a Permitted Sale Delay), and at a price per share of 1/100 dollars ($.01), (the "Exercise Price"). Subject to conditions set forth in the Warrants B, the Warrants B will be exercisable on or after August 1, 2001 at the Exercise Price. 3.02 Acknowledgements of the Company and the Warrantholders. (a) The Company and the Warrantholders understand, acknowledge and agree that the Company is entering into this Agreement in order to induce certain of the Warantholders to execute and deliver the November 2000 Waiver Agreement. (b) The Company and the Warrantholders understand, acknowledge and agree that neither the Warrantholders nor any of the directors, trustees or employees of the Warrantholders have rendered or agreed to render any services to the Company in connection with the issuance of the Warrants. (c) The Company agrees with the Warrantholders that neither the Company nor any of its Subsidiaries will take any action for tax or accounting purposes which is in any respect inconsistent with the understandings and agreements set forth in this Section 3.02. 3.03 Legend. Each certificate or instrument, if any, representing or evidencing any Acquired Securities (unless registered) shall bear a legend in or substantially in the following form: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN EXEMPTION FROM SUCH REGISTRATION." 3.04 Registration Books. The Company will keep, or cause to be kept, at its office maintained at the address of the Company set forth on the first page hereof or at such other office of the Company in the United States of America of which the Company shall have given notice to each Warrantholder, books for registration and transfer of the Warrants. Such books shall show the names and addresses of the respective holders of the Warrants, the date, the registration number and the number of Warrant Shares set forth on the face of each certificate or document (a "Warrant Certificate") representing or evidencing the Warrants held by each such holder. Any Warrantholder may review and, at such Warrantholder's expense, make photocopies of, such books during business hours upon reasonable notice to the Company. 3.05 Effect of Issuance in Registered Form. Every holder of a Warrant Certificate by accepting the same consents and agrees with the Company and with every other Warrantholder that: -9- 11 (a) the Warrant Certificates are transferable only on the registry books of the Company if surrendered at the office of the Company referred to in Section 3.04 hereof, accompanied by a duly executed instrument of assignment and payment of the Exercise Price and any applicable transfer tax or stamp tax; and (b) the Company and each Warrantholder may deem and treat the person in whose name each Warrant Certificate is registered as the absolute owner thereof and of the Warrants evidenced thereby (notwithstanding any notations of ownership or writing on the Warrant Certificates made by anyone other than the Company) for all purposes whatsoever, and neither the Company nor any Warrantholder shall be affected by any notice to the contrary. ARTICLE IV THE CLOSING The closing under this Agreement (the "Closing") will take place at the offices of Tucker Arensberg, P.C., at 10:00 a.m., local time, on November 13, 2000, or at such other time and on such other date or place as may be mutually agreed upon in writing by the Warrantholders and the Company. The date of the Closing is herein called the "Closing Date." At the Closing, the Company will (among other things) deliver to the Warrantholders the Warrants to be issued to the Warrantholders hereunder. ARTICLE V REPRESENTATIONS OF THE WARRANTHOLDERS Each of the Warrantholders represents and warrants to the Company with respect to itself, severally and not jointly, that as of the Closing Date: 5.01. Investment Representations. (a) Such Warrantholder is acquiring the Warrants from the Company in accordance with the terms hereof for its own account without a view to any distribution thereof in violation of the Securities Act, but, subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. Each Warrantholder has been informed and understands that the Acquired Securities have not been registered pursuant to Section 5 of the Securities Act and must be held indefinitely unless such Securities are subsequently registered under the provisions of the Securities Act or an exemption from such registration is available. (b) Such Warrantholder has been furnished with, or has had access to, such information concerning the Company and its Subsidiaries, and such opportunity to raise questions of officers of the Company, as it has deemed necessary or appropriate in order to enable it to make an informed investment decision with respect to the acquisition of the Warrants by it. Such Warrantholder has such knowledge and experience in financial matters that it is capable of evaluating the merits and risks of its investment in the Acquired Securities. Such -10- 12 Warrantholder's financial condition is such that it is able to bear all economic risks of investment in the Acquired Securities, including a complete loss of its investments therein and the risks of holding the Acquired Securities for an indefinite period of time. 5.02 Organization and Authority. Each Warrantholder is a corporation or banking association, duly organized, subsisting and in good standing under the laws of the jurisdiction of its formation; and each Warrantholder has full power, authority and legal right to execute and deliver, and to perform its obligations under, this Agreement; and each Warrantholder has taken all necessary corporate and legal action to authorize the guarantee hereunder on the terms and conditions of this Agreement and to authorize its execution, delivery and performance of this Agreement. ARTICLE VI COVENANTS OF COMPANY The Company hereby covenants to the Warrantholders that, from the Closing Date and for so long as any of the Warrants remain outstanding, except as otherwise expressly permitted or provided, in any particular instance, by a written Warrantholders Consent: 6.01. Shareholder Meetings. The Company will at all times allow, or cause to be allowed, a representative of each of the Initial Warrantholders (and each an Affiliate of the Initial Warrantholders) so long each continues to hold any Warrants to attend all meetings of the stockholders of the Company. The individual so designated will be furnished with prior notice of each of such meetings and will also be furnished with copies of all other written notices, all written information, all financial statements, business plans and projections, and all other reports, memoranda and documents of any kind from time to time furnished to stockholders of the Company, subject to any requirements and limitations of applicable securities laws. All such notices, information, reports and other documents will be furnished to the individual so designated not later than the same are furnished to stockholders of the Company. 6.02. Issuance of Preferred Equity Interests, etc. (a) (i) Unless 100% of the net proceeds of any issuance or sale of an Equity Interest is used to repay Total Utilization and permanently reduce Revolving Credit Commitments by the amount of repayment, or (ii) unless after the application of the net proceeds of an issuance or sale of an Equity Interest the Revolving Credit Commitment is permanently reduced to $85,000,000 and Total Utilization does not exceed $85,000,000 (and in the event that immediately prior to the issuance or sale of an Equity Interest, the Borrower has reduced permanently the Revolving Credit Commitment to $85,000,000, the Borrower applies that portion of the net proceeds of such issuance of Equity Interests to the further permanent reduction of the Revolving Credit Commitment as the Required Lenders may require), or (iii) except for issuances of the Series A Junior Participating Preferred Stock of the Borrower or rights to purchase the Series A Junior Participating Preferred Stock of the Borrower pursuant to -11- 13 the terms of the Rights Agreement, the Company will not, until the Bank Debt is paid in full, by refinancing or otherwise, issue (whether by way of a dividend payment or otherwise), sell or grant to any Person (I) any Preferred Equity Interests (as defined in 6.02(b) hereof); (II) any rights in respect of Preferred Equity Interests, or (III) any options, warrants or any other rights to acquire any Preferred Equity Interests. The Board of Directors of the Company will act in all respects as a fiduciary with respect to the interests of each holder of a Warrant, in each case as if such holder directly holds the Common Stock into which such Warrant is exercisable. (b) As used in this Article VI, the term Preferred Equity Interests shall mean: any class or any series of any class of the equity interests of the Company: (A) which shall be entitled, upon any distribution of any assets of the Company, whether by dividend or by liquidation or by redemption, to any preference ranking prior or superior to the Common Stock; or (B) which shall be entitled, upon any redemption of any of such equity interests, whether at the option of the Company, at the option of the holders thereof, or upon the happening of any specified events, to any preference in redemption payments ranking prior or superior to the Common Stock; or (C) which shall be convertible into, or exchangeable for, whether at the option of the Company, at the option of the holders thereof, or upon the happening of any specified events or conditions, any Preferred Equity Interests of any class or series. 6.03. Amendments to Charter Documents; etc. Without limiting the obligations of the Company set forth in Section 6.02(a) above, the Company will not until the Bank Debt is paid in full, by refinancing or otherwise, cause or permit the Certificate of Incorporation or By-laws of the Company to be modified, amended or supplemented so as: (a) to authorize or create any new class or any new series of any class of the equity interests of the Company which constitutes Preferred Equity Interests; or (b) to reclassify the authorized equity interests of the Company of any class or of any series of any class, by changing the designations, preferences, or relative, participating, optional, or other special rights of the equity interests, or the qualifications, limitations or restrictions of such rights; or (c) to alter, change or abolish any of the powers, preferences or rights of any of the equity interests of the Company of any class or of any series of any class of such equity interests; or (d) to create any powers, preferences or rights in respect of any of the equity interests of the Company of any class or of any series of any class; or (e) to amend, repeal, abolish or modify any term or provision of, or add any term or provision to, any Article or Section of the Certificate of Incorporation or Bylaws of the Company; if any such action of the kind described in items (a) through (e) of this Section 6.03 would either (1) materially change or otherwise affect any of the powers, designations, preferences, privileges or rights of the Acquired Equity Interests or any of the restrictions provided for the benefit of the Acquired Equity Interests or (2) result, directly or indirectly, in the failure of the Company or the Board of Directors of the Company to perform its obligations set forth in Section 6.02(a) above. 6.04. Compliance with Agreements. The Company shall comply in all material respects with all its covenants, agreements and obligations set forth in the Fundamental Documents. -12- 14 ARTICLE VII REGISTRATION RIGHTS The Company hereby grants to the Warrantholders certain rights as set forth in this Article VII to participate with the Company in any registration by the Company of Common Stock under the Securities Act. The Company and the Warrantholders hereby absolutely and unconditionally agree to be bound and governed by, and specifically make and adopt, all of the terms and provisions contained in this Article VII. Section 7.01. Definitions. As used in this Article VII and elsewhere in this Agreement: (a) the term "Commission" shall mean the Securities and Exchange Commission; (b) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any federal statute or code which is a successor thereto; (c) the terms "Form S-1", "Form S-2" and "Form S-3" shall mean the forms so designated, promulgated by the Commission for registration of securities under the Securities Act, and any forms succeeding to the functions of such forms, whether or not bearing the same designation; (d) the term "Holders" shall mean, collectively, all persons holding the Acquired Securities, and the term "Holder" shall mean any one of the Holders; (e) the term "Majority of Registrable Securities" shall mean, in relation to any registration, more than fifty percent (50%) of all Registrable Securities included in such registration; (f) the terms "register", "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering by the Commission of effectiveness of such registration statement; (g) the term "Registrable Securities" shall mean, in relation to the Holders at any particular time: (A) all equity interests issuable upon conversion of or in exchange for or upon exercise of rights under any Acquired Equity Interests; and (B) all Acquired Equity Interests held of record at such time by Holders; as to any particular Registrable Securities once issued, such interests and Acquired Equity Interests shall cease to be Registrable Securities: (i) when a registration statement with respect to the sale of such interests and Equity Interests shall have become effective under the Securities Act and such Securities have been disposed of in accordance with such registration statement; -13- 15 (ii) when they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act; (iii) when they shall have been otherwise transferred and subsequent disposition of them shall not require registration or qualification under the Securities Act or any similar state law then in force; or (iv) when they shall have ceased to be outstanding or issuable upon exercise of the Warrants; (h) the term "Rule 144" shall mean Rule 144 issued by the Commission under the Securities Act, or any subsequent rule pertaining to the disposition of securities without registration; (i) the term "Securities Act" shall mean the Securities Act of 1933, as amended, or any federal statute or code which is a successor thereto; (j) the terms "underwritten registration" or "underwritten offering" shall refer to any registration in which securities of the Company are sold or to be sold pursuant to a firm commitment underwriting; and (k) a Holder shall, for all purposes of this Article VII, unless the context shall otherwise require, be deemed to hold, at any particular time, all equity interests issuable upon conversion of or in exchange for or upon exercise of rights under all Acquired Securities or other securities (including, without limitation, options and warrants) of the Company held of record by such Holder at such time. 7.02. Demand Registration. (a) Requests for Demand Registration. (i) Subject to the limitations contained in the following paragraphs of this Section 7.02, the Holders of not less than fifty percent (50%) of the Registrable Securities at any time outstanding may at any time on or after the Warrant Exercise Date give to the Company, pursuant to this clause (i), a written request for the registration (a "Demand Registration Notice") by the Company under the Securities Act of all or any part of the Registrable Securities of such Holders (such registration being herein called a "Demand Registration"). Within ten (10) days after the receipt by the Company of any such written request, the Company will give written notice of such registration request to all Holders of Registrable Securities. (ii) Subject to the limitations contained in the following paragraphs of this Section 7.02, after the receipt of each such Demand Registration Notice, (A) the Company shall be obligated and required to include in such Demand Registration all Registrable Securities with respect to which the Company shall receive from Holders of Registrable Securities, within thirty (30) days after the date on which the -14- 16 Company shall have given to all Holders a written notice of registration request pursuant to Section 7.02(a)(i) hereof, the written requests of such Holders for inclusion in such Demand Registration, and (B) the Company will use its best efforts in good faith to effect promptly the registration of all such Registrable Securities; provided, however, the Company shall have no obligation to effect any Demand Registration unless the Demand Registration Notice covers at least 150,000 shares of Registrable Securities and provided further, the Company has not effected any Demand Registration within 120 days of receipt of the Demand Registration Notice. In addition, if the Company determines in the exercise of its reasonable judgment that it would be inadvisable to effect a Demand Registration at such time due to a valid need to disclose confidential information or because it would materially interfere with any material financing, acquisition or other corporate action, the Company may defer such Demand Registration for a single period not to exceed 60 days. All written requests made by Holders of Registrable Securities pursuant to this clause (ii) will specify the number of shares of Registrable Securities to be registered and will also specify the intended method of disposition thereof. Such method of disposition shall, in any case, be an underwritten offering if an underwritten offering is requested by Holders of a Majority of Registrable Securities to be included in such Demand Registration. (b) In any registration initiated by the Holders as a Demand Registration pursuant to Section 7.02(a) hereof, the Company will pay all Registration Expenses (as that term is defined in Section 7.07 hereof). (c) The Company and any other securityholder of Registrable Securities who has registration rights may include its securities in the Demand Registration; provided that, the Holders shall have priority sale rights over the Company and such other securityholders with respect to all Registrable Securities requested by them to be included in the Demand Registration. The Company will not grant, or agree to grant, to any persons any registration rights which will conflict or be inconsistent in any material respect with any of the provisions of this Section 7.02(c). In the event of any such conflict or inconsistency, the provisions of this Section 7.02(c) shall in any case prevail and be controlling. (d) If any Demand Registration is an underwritten offering and the managing underwriters shall give written advice to the Company and the Holders of Registrable Securities to be included in such registration that, in the reasonable opinion of such managing underwriters, marketing factors require a limitation on the total number of securities to be underwritten (in this paragraph (d) called the "Underwriters' Maximum Number"), then the Company shall include in such registration that number of Registrable Securities requested by the Holders thereof to be included in such registration which does not exceed the Underwriters' Maximum Number, and such number of Registrable Securities shall be allocated pro rata among the Holders of such Registrable Securities on the basis of the number of Registrable Securities requested to be included therein by each such Holder; and only if the number of Registrable Securities requested -15- 17 by the Holders is less than the Underwriters' Maximum Number may any Registrable Securities of the Company or any other security holder be included. (e) If any Demand Registration or any registration effected pursuant to Section 7.04 hereof is an underwritten offering or a best efforts underwritten offering, the investment bankers and managing underwriters in such registration will be selected by the Company with the consent of the of the Holders of a Majority of Registrable Securities, which consent shall not be unreasonably withheld, to be included in such registration. 7.03. Piggyback Registrations. (a) Rights to Piggyback. (i) If (and on each occasion that) the Company proposes to register any of its securities under the Securities Act, either for the Company's own account, other than in connection with a merger, consolidation or other business combination to which Rule 145 of the Commission is applicable, other than in connection with a registration statement on Form S-4 or S-8 (or any successor or substantially similar form), and other than in connection with (x) an employee stock option, stock purchase or compensation plan or of securities issuable or issued pursuant to any such plan or (y) a dividend reinvestment plan, or for the account of any of its securityholders, on a form which would permit registration of Registrable Securities for resale by Holders thereof to the public under the Securities Act (each such registration being herein called a "Piggyback Registration"), the Company will give written notice to all Holders of Registrable Securities of the Company's intention to effect such Piggyback Registration not later than the earlier to occur of (A) the twentieth (20th) day following the receipt by the Company of notice of exercise of any registration rights by any persons, and (B) sixty (60) days prior to the anticipated filing date of such Piggyback Registration. (ii) Subject to the provisions contained in paragraphs (c) and (d) of this Section 7.03 and in the last sentence of this clause (ii), (A) the Company shall be obligated to include in each Piggyback Registration all Registrable Securities with respect to which the Company shall receive from Holders of Registrable Securities, within forty-five (45) days after the date on which the Company shall have given written notice of such Piggyback Registration to all Holders of Registrable Securities pursuant to Section 7.03(a)(i) hereof, the written requests of such Holders for inclusion in such Piggyback Registration, and (B) the Company will use its reasonable best efforts in good faith to effect promptly the registration of all such Registrable Securities. The Holders of Registrable Securities shall be permitted to withdraw all or any part of the Registrable Securities of such Holders from any Piggyback Registration at any time prior to the effective date of such Piggyback Registration. -16- 18 (iii) If any Piggyback Registration is an underwritten primary registration initiated by the Company, all persons whose securities are included in such Piggyback Registration shall be obligated to sell their securities on the same terms and conditions as shall apply to the securities being issued and sold by the Company. If any Piggyback Registration is an underwritten secondary registration initiated by holders of the Company's securities, all persons whose securities are included in such Piggyback Registration shall be obligated to sell their securities on the same terms and conditions as shall apply to the securities being sold by the holders who initiated the underwritten secondary registration. (b) The Company will pay all Registration Expenses of each Piggyback Registration attributable to Registrable Securities or otherwise reasonably incurred or sustained in connection with or arising out of the inclusion in each such Piggyback Registration of Registrable Securities. (c) If a Piggyback Registration is an underwritten primary registration initiated by the Company and the managing underwriters shall give written advice of the Company that, in the reasonable opinion of such managing underwriters, marketing factors require a limitation on the total amount of securities to be underwritten (in this paragraph (c) called the "Underwriters' Maximum Number"), then: (A) the Company shall be entitled to include in such registration that amount of securities which the Company proposes to offer and sell for its own account in such registration and which does not exceed the Underwriters' Maximum Number; (B) the Company will be obligated and required to include in such registration that amount of Registrable Securities which shall have been requested by the Holders thereof to be included in such registration which, when added to the number of securities included in such registration for the account of the Company, does not exceed the Underwriters' Maximum Number, and such amount of Registrable Securities shall be allocated pro rata among the Holders of such Registrable Securities on the basis of the amount of Registrable Securities requested to be included therein by each such Holder; and (C) if the Underwriters' Maximum Number exceeds the sum of the amount of Registrable Securities which the Company shall be required to include in such registration and the amount of securities which the Company proposes to offer and sell for its own account in such registration, then the Company may include in such registration that amount of other securities which persons (other than the Holders as such) shall have requested be included in such registration and which shall not be greater than such excess. (d) If any Piggyback Registration is an underwritten secondary registration initiated by holders of the Company's securities and the managing underwriters shall give written advice to the Company that, in the reasonable opinion of such managing underwriters, marketing factors require a limitation on the total amount of securities to be underwritten (in this paragraph (d) called the "Underwriters' Maximum Number"), then: (i) the Company will be obligated and required to include in such registration, to the extent of the Underwriters' Maximum Number, the securities requested to be included therein by the holders initiating such registration, and such securities shall be allocated among the holders of such securities in such proportions as the Company and such holders may agree, and (ii) if the Underwriters' Maximum Number exceeds the amount of securities to be included in such registration by holders initiating such registration, -17- 19 then the Company will be obligated and required to include, to the extent of such excess, the Registrable Securities requested to be included in such registration, and such securities shall be allocated pro rata among the Holders of such Registrable Securities on the basis of the amount of Registrable Securities requested to be included therein by such respective Holders. (e) In any Piggyback Registration, the Company shall have the right to select the investment bankers and managing underwriters in such registration. 7.04. Lockup Agreements. (a) Each Holder of Registrable Securities, if the Company or the managing underwriters so request in connection with such registration, will not, without the prior written consent of the Company or such underwriters, effect any public sale or other distribution of Registrable Securities, including any sale pursuant to Rule 144, during the ten (10) days prior to, and during the one hundred twenty (120) day period commencing on, the effective date of such underwritten registration, except in connection with such underwritten registration, provided that each officer and director of the Company and each holder of more than one percent (1%) of the issued and outstanding Registrable Securities shall have entered into a similar agreement restricting his or its ability to make such public sales and distributions. Notwithstanding the foregoing, no Holder shall be required to refrain from making such public sale or other distribution to the extent that such Holder is prohibited by applicable law from agreeing to withhold Registrable Securities for sale. (b) The Company agrees not to effect any public sale or other distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such equity securities, during the period commencing on the seventh (7th) day prior to, and ending on the ninetieth (90th) day following, the effective date of any underwritten Piggyback Registration, except in connection with any such underwritten registration. 7.05. Registration Procedures. If (and on each occasion that) the Company shall, in accordance with the terms of this Article VII, become obligated to effect any registration (whether a Demand Registration or a Piggyback Registration) of any Registrable Securities, the Company will use its best efforts in good faith to effect promptly the registration of such Registrable Securities under the Securities Act and to permit the public offering and sale of such Registrable Securities in accordance with the intended method of disposition thereof, and, in connection therewith, the Company, as expeditiously as shall be reasonably possible, will: (a) prepare and file with the Commission a registration statement with respect to such Registrable Securities, and use its best efforts in good faith to cause such registration statement to become and remain effective as provided herein; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included in such registration statement as may be necessary or advisable to comply in all material respects with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement or as may be necessary to keep such registration statement effective and current, but for no longer than -18- 20 six (6) months subsequent to the effective date of such registration; provided that, no registration statement shall be required to remain in effect after all Registrable Securities covered by such registration statement have been sold and distributed as contemplated by such registration; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), the prospectus included in such registration statement (including each preliminary prospectus), and such other documents as any such seller may reasonably request in order to facilitate the disposition of the Registrable Securities held by such seller; (d) enter into such customary agreements and take all such other action in connection therewith as the Holders of a Majority of Registrable Securities being registered reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; (e) use its best efforts in good faith to register and qualify the Registrable Securities covered by such registration statement under such securities or Blue Sky laws of such jurisdictions as any seller shall reasonably request and do any and all such other acts and things as may be reasonably necessary or advisable to enable such seller to consummate the disposition in such Jurisdictions of the Registrable Securities held by such seller provided, however, that the Company will not be required to (1) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (e), (2) subject itself to taxation in any such jurisdiction but for actions taken pursuant to this paragraph (e), or (3) file a general consent to service of process in any such jurisdiction; and (f) furnish to each prospective seller (i) an opinion of counsel for the Company, dated the effective date of the registration statement, and (ii) a "comfort" letter signed by the independent public accountants who have certified the Company's financial statements included in the registration statement both addressing such items as are customarily covered in opinions of issuer's counsel and in "comfort" letters delivered in underwritten public offerings of securities. 7.06. Cooperation by Prospective Sellers, etc. (a) Each prospective seller of Registrable Securities will furnish to the Company in writing such information as the Company may reasonably require from such seller in connection with any registration statement with respect to such Registrable Securities. (b) The failure of any prospective seller of Registrable Securities to furnish any information or documents in accordance with any provision contained in this Article VII shall not affect the obligations of the Company under this Article VII to any other remaining sellers who furnish such information and documents unless, in the reasonable opinion of counsel to the Company or the underwriters, such failure impairs or may impair the viability of the offering or the legality of the registration statement or the underlying offering. (c) The Holders of Registrable Securities included in any registration statement will not (until further notice) effect sales thereof after receipt of telegraphic or written -19- 21 notice from the Company to suspend sales to permit the Company to correct or update such registration statement or prospectus; but the obligations of the Company with respect to maintaining any registration statement current and effective shall be extended by a period of days equal to the period such suspension is in effect. (d) At the end of any period during which the Company is obligated to keep any registration statement current and effective as provided by Section 7.05 hereof (and any extensions thereof required by the preceding paragraph (c) of this Section 7.06), the Holders of Registrable Securities included in such registration statement shall discontinue sales of securities pursuant to such registration statement upon receipt of notice from the Company of its intention to remove from registration the securities covered by such registration statement which remain unsold, and such Holders shall notify the Company of the amount of securities registered which remain unsold promptly after receipt of such notice from the Company. 7.07. Registration Expenses. (a) All costs and expenses incurred or sustained in connection with or arising out of each registration pursuant to Section 7.02 or Section 7.03 hereof, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or Blue Sky laws (including reasonable fees and disbursements of counsel for the underwriters in connection with the Blue Sky qualification of Registrable Securities), printing expenses, messenger, telephone and delivery expenses, fees and disbursements of counsel for the Company and for the sellers of Registrable Securities (subject to the limitations contained in paragraph (b) of this Section 7.07), fees and disbursements of all independent certified public accountants engaged by the Company (including the expenses relating to the preparation and delivery of any special audit or "cold comfort" letters required by or incident to such registration), and fees and disbursements of underwriters (excluding discounts and commissions, but including underwriters' liability insurance if the Company or if the underwriters so require), the reasonable fees and expenses of any special experts retained by the Company of its own initiative or at the request of the managing underwriters in connection with such registration, and fees and expenses of all (if any) other persons retained by the Company (all such costs and expenses being herein called, collectively, the "Registration Expenses"), will be borne and paid by the Company as provided by the provisions contained in this Article VII. The Company will, in any case, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the expense of liability insurance referred to above, and the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which similar securities of the Company are then listed. (b) In connection with each registration of Registrable Securities pursuant to this Article VII, the Company will reimburse the Holders of Registrable Securities being registered in such registration for the reasonable fees and disbursements of no more than two (2) law firms which act as counsel chosen by Holders collectively constituting a Majority of Registrable Securities; provided, that the aggregate sum of such fees and disbursement shall not exceed $100,000. The Company will not bear the cost of nor pay for any equity interest transfer taxes imposed in respect of the transfer of any Registrable Securities to any purchaser thereof by -20- 22 any Holder of Registrable Securities in connection with any registration of Registrable Securities pursuant to this Article VII. (c) To the extent that Registration Expenses incident to any registration are, under the terms of this Article VII, not required to be paid by the Company, each Holder of Registrable Securities included in such registration will pay all Registration Expenses which are clearly solely attributable to the registration of such Holder's Registrable Securities so included in such registration, and all other Registration Expenses not so attributable to one Holder will be borne and paid by all sellers of securities included in such registration in proportion to the amount of securities so included by each such seller. 7.08. Indemnification. (a) The Company will indemnify each Holder requesting or joining in a registration, the officers, directors, trustees, stockholders and partners of each such Holder, each person who controls any thereof (within the meaning of the Securities Act) and each underwriter of the securities so registered, against any and all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of any material fact contained in any prospectus, offering circular or other document incident to any registration, qualification or compliance (or in any related registration statement, notification or the like) or any omission (or alleged omission) to state therein any material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to any action or inaction required of the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, officer, director, trustee, partner, controlling person, and underwriter for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon written information furnished to the Company in an instrument duly executed by such Holder, officer, director, stockholder, trustee, partner, controlling person, or underwriter and stated to be exclusively and specifically for use therein. (b) Each Holder joining in a registration, and each underwriter of the securities so registered, will indemnify each other Holder, the Company and its officers and directors and each person, if any, who controls any thereof (within the meaning of the Securities Act) and their respective successors in title and assigns against any and all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of any material fact contained in any prospectus, offering circular or other document incident to any registration, qualification or compliance (or in any related registration statement, notification or the like) or any omission (or alleged omission) to state therein any material fact required to be stated therein or necessary to make the statement therein not misleading, and such Holder will reimburse the Company and each other person indemnified pursuant to this paragraph (b) for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or -21- 23 action; provided, however, that this paragraph (b) shall apply only if (and only to the extent that) such statement or omission was made in reliance upon written information furnished to the Company in any instrument duly executed by such Holder and stated to be specifically for use in such prospectus, offering circular or other document (or related registration statement, notification or the like) or any amendment or supplement thereto. The maximum liability under this paragraph (b) of each Holder joining in any registration shall be limited to the aggregate amount of all sales proceeds actually received by such Holder upon the sale of such Holder's Registrable Securities in connection with such registration. (c) Each party entitled to indemnification pursuant to this Section 7.08 (the "Indemnified Party") shall give notice to the party required to provide indemnification pursuant to this Section 7.08 (the "Indemnifying Party") promptly after such indemnified party acquires actual knowledge of any claim as to which indemnity may be sought, and shall permit the indemnifying party (at its expense) to assume the defense of any claim or any litigation resulting therefrom; provided that counsel for the indemnifying party, who shall conduct the defense of such claim or litigation, shall be acceptable to the indemnified party, and the indemnified party may participate in such defense at such party's expense; and provided further, that if any indemnified party shall have reasonably concluded that there may be one or more legal defenses available to such indemnified party which are different from or additional to and are inconsistent with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity agreement provided in this Section 7.08, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party and such indemnifying party shall reimburse such indemnified party and any person controlling such indemnified party for that portion of the reasonable fees and expenses of any counsel retained by the indemnified party which are reasonably related to the matters covered by the indemnity agreement provided in this Section 7.08; and provided, further, that the failure by any indemnified party to give notice as provided in this paragraph (c) shall not relieve the indemnifying party of its obligations under this Section 7.08 except to the extent that the failure results in a failure of actual notice to the indemnifying party and such indemnifying party is damaged (or the indemnification liability of such indemnifying party hereunder would be increased) solely as a result of the failure to give notice. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. The reimbursement required by this Section 7.08 shall be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. 7.09. Rule 144 Requirements. The Company will make every effort in good faith to make publicly available and available to the Holders of Registrable Securities, pursuant to Rule 144 of the Commission under the Securities Act, such information as shall be necessary to enable the Holders of Registrable Securities to make sales of Registrable Securities pursuant to that Rule. The Company will furnish to any Holder of Registrable Securities, upon request made by such Holder at any time, a written statement signed by the Company, addressed to such Holder, describing briefly the action the Company has taken or proposes to take to comply with the current public information requirements of Rule 144. The Company will, at the request of any -22- 24 Holder of Registrable Securities, upon receipt from such Holder of a certificate certifying (1) that such Holder has held such Registrable Securities for a period of not less than two (2) consecutive years, and (ii) that such Holder has not been an affiliate (as defined in Rule 144) of the Company for more than the ninety (90) preceding days, remove from the certificates or instruments, if any, representing such Registrable Securities that portion of any restrictive legend which relates to the registration provisions of the Securities Act. 7.10. Participation in Underwritten Registrations. No person may participate in any underwritten registration pursuant to this Article VII unless such person (a) agrees to sell such person's securities on the basis provided in any underwriting arrangements approved by the persons entitled, under the provisions contained in this Article VII, to approve such arrangements, and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required by the terms of such underwriting arrangements; provided, however, that no such indemnities or underwriting agreements shall provide for indemnification or contribution obligations of any Holder to a greater extent than the obligations of such Holder set forth in Section 7.08(b) hereof. Any Holder of Registrable Securities to be included in any underwritten registration shall be entitled at any time to withdraw such Registrable Securities from such registration in the event that such Holder shall disapprove of any of the terms of the related underwriting agreement. 7.11. No Inconsistent Agreements. The Company will not, until the Bank Debt is repaid in full, by refinancing or otherwise, enter into any agreement or contract (whether written or oral) with respect to any of its securities which is inconsistent in any material respect with the registration rights granted by the Company to the Warrantholders pursuant to Article VII of this Agreement. 7.12. Registrable Securities Held by the Company. Whenever the consent or approval of Holders of Registrable Securities is required pursuant to this Article VII, Registrable Securities held by the Company or any Affiliate of the Company shall not be counted in determining whether such consent or approval was duly and properly given by such Holders pursuant to and in compliance with any of the terms of Article VII of this Agreement. ARTICLE VIII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION. 8.01. Survival of representations. The representations and warranties of the Company and of the Warrantholders contained in this Agreement, or any agreement, instrument or document delivered pursuant to any of the provisions of this Agreement, shall survive the execution and delivery of this Agreement and the Closing hereunder provided such representations and warranties hereunder shall survive until the later of five (5) years from the date hereof or one year after the last registration of Registrable Securities hereunder. 8.02. Indemnification for Misrepresentations. The Company agrees to indemnify and hold the Warrantholders harmless, from and against, and to pay to the Warrantholders, on demand by any Holder from time to time, the full amount of any loss, claim, damage, liability, -23- 25 cost or expense (including reasonable attorneys' fees) resulting to the Warrantholders from any false, incorrect or misleading representation or warranty of the Company contained in this Agreement, or any agreement, instrument or document delivered by the Company to the Warrantholders pursuant to any of the provisions of this Agreement. 8.03. Expenses. Whether or not all or any of the arrangements or transactions contemplated by this Agreement or by any of the other Fundamental Documents shall be consummated, the Company agrees to pay to the Warrantholders, on demand by the Warrantholders at any time and as often as the occasion therefor may require: (a) all of the reasonable legal fees, plus all reasonable out-of-pocket expenses and disbursements which have been or shall be incurred or sustained at any time in connection with the preparation, negotiation, execution or delivery of this Agreement, any of the other Fundamental Documents or any other agreements, instruments or documents directly relating thereto; and all reasonable out-of-pocket costs and expenses which shall be incurred or sustained by any Person holding the Acquired Securities at any time in connection with any modifications or amendments to or consents, approvals or waivers under this Agreement or any of the other Fundamental Documents, or in connection with any litigation, proceeding or dispute arising out of or relating to any Fundamental Documents (provided that a Warrantholder shall not be reimbursed for its legal fees, expenses and disbursements incurred with any litigation, proceeding or dispute arising from the gross negligence or willful misconduct of such Warrantholder), or in connection with any action or proceeding taken by any Person holding Acquired Securities to protect or preserve all or any of the rights, remedies, powers or privileges of the Warrantholders under any of such documents or to enforce any of the covenants, agreements or obligations of the Company under any of such documents (including, without limitation, all of the reasonable fees and disbursements of legal counsel for the Warrantholders). ARTICLE IX MISCELLANEOUS 9.01. Notices. (a) All notices and other communications pursuant to this Agreement shall be in writing, either delivered in hand or sent by certified mail, postage prepaid, or sent by recognized overnight delivery service, addressed as follows: (i) if to the Company, at the address of the Company set forth on the first page hereof, or at such other address as shall have been furnished to the Warrantholders by notice in writing by the Company; (ii) if to any Warrantholder, to the address of such Warrantholder set forth on Annex 1 hereto or to such other addresses (in each case) as shall have been furnished to the Company by such Warrantholder (including any Permitted Transferee, each of which is included with the term the Warrantholders) by notice in writing. -24- 26 (b) Any notice or other communication pursuant to this Agreement shall be deemed to have been duly given or made and to have become effective (i) when delivered in hand to the party to which it was directed, (ii) if sent by overnight delivery service and properly addressed in accordance with the foregoing provisions of this Section 9.01, when received by the addressee, (iii) if sent by facsimile transmission, when received by the telecopy recipient or (iv) if sent by certified mail, postage prepaid, and properly addressed in accordance with the foregoing provisions of this Section 9.01, (A) when received by the addressee, or (B) on the fifth (5th) business day following the day of dispatch thereof, whichever of (A) or (B) shall be the earlier. 9.02. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES. 9.03. Amendments and Waivers. (a) Except as otherwise provided by paragraph (b) of this Section 9.03, and except as otherwise expressly required by any other provisions of this Agreement, none of the terms or provisions contained in this Agreement or in Sections 3 through Section 11, inclusive, of any Warrant, and none of the agreements, obligations or covenants of the Company contained in this Agreement or in Sections 3 through Section 11, inclusive, of any Warrant, may be amended, modified, supplemented, waived or terminated unless (i) the Company shall execute an instrument in writing agreeing or consenting to such amendment, modification, supplement, waiver or termination, and (ii) the Company shall receive the prior Warrantholders Consent therefor. (b) Each of the terms and provisions contained in this Section 9.03 or in the definitions of Permitted Transferee, Warrantholders Consent and Majority of The Warrantholders contained in Article IX or in any Warrant (other than Section 5 through 11, inclusive) hereof may be amended, modified, supplemented, waived or terminated only by a written instrument or consent signed by the Company and by all Persons holding of record Acquired Securities. (c) In connection with any action taken or to be taken pursuant to paragraph (a) of this Section 9.03, there shall be no obligation or requirement on the part of the Company, the Warrantholders or any other persons (i) to solicit or to attempt to solicit from the Warrantholders the consent or approval of the Warrantholders for such action, or (ii) to submit any notices of any kind to the Warrantholders in advance of any action proposed to be taken pursuant to paragraph (a) of this Section 9.03. However, copies of all written consents or approvals given by the Warrantholders in connection with any action taken or to be taken pursuant to and in compliance with paragraph (a) of this Section 9.03 shall be sent by the Company, promptly after the receipt thereof by the Company, to any Person holding Warrant Shares who shall have failed or refused to give a written consent or approval for such action. (d) Any action taken pursuant to and in compliance with paragraph (a) of this Section 9.03 shall be binding upon the Company and upon the Warrantholders, including all of -25- 27 the Persons holding Warrant Shares who shall have failed or refused to give a written consent or approval for such action. 9.04. Proportional Adjustments. There are references in this Agreement to a specific price per share of the Company's Common Stock or to a specific number of shares in the Capital Stock of the Company. The specific price per share shall not be subject to adjustment. However, as more particularly set forth in Section 3 of the Warrants, the specific number of shares so stated shall be proportionally adjusted from time to time if (and on each occasion that) there shall be effected by the Company any stock dividend, stock split, subdivision of shares, combination of shares, reclassification, recapitalization or other similar corporate reorganization affecting the capital structure of the Company. The exact amount and the effective date of each adjustment effected pursuant to this Section 9.04 shall be determined in good faith and on a reasonable basis by the Board of Directors of the Company. The Company shall promptly notify each Warrantholder in writing of each such adjustment. 9.05. Rights and Obligations Several. The rights and obligations of each of the parties hereto shall be several (and not joint), except as otherwise expressly provided by this Agreement. 9.06. No Waiver; Cumulative Remedies. No failure or delay on the part of the Warrantholders in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 9.07. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes any prior understandings or agreements concerning the subject matter hereof. 9.08. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 9.09. Binding Effect. All of the covenants and agreements of the Company contained in, and all of the rights granted by the Company pursuant to, this Agreement, shall inure to the benefit of the Warrantholders, including each of the Permitted Transferees that are included in the definition of the Warrantholders. Except as otherwise provided herein, none of such covenants, agreements or rights shall be assignable or transferable by the Warrantholders to any person except to a person who is a Permitted Transferee. 9.10. Counterparts. This Agreement may be executed simultaneously in several counterparts, and by the different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by each of the parties hereto. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -26- 28 If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this Agreement and return such counterpart to the undersigned, whereupon this Agreement, as so accepted by you, shall become a binding agreement under seal between you and the undersigned. Very truly yours, THE CARBIDE/GRAPHITE GROUP, INC., a Delaware corporation By: /s/William M. Thalman ----------------------------------------- Name: William M. Thalman -------------------------------------- Title: Vice President & Treasurer ------------------------------------- -27- 29 Each of the undersigned Lenders hereby consent to the terms of the foregoing Warrant Agreement. Lenders: REVOLVING CREDIT PNC BANK, NATIONAL ASSOCIATION COMMITMENT: $23,400,000.00 RATABLE SHARE: 17.33% By: /s/Martin E. Mueller (SEAL) -------------------------------------------------- Name: Martin E. Mueller ------------------------------------------------ NO. OF WARRANTS: 216,617 Title: Vice President ----------------------------------------------- REVOLVING CREDIT NATIONAL CITY BANK OF COMMITMENT: $16,200,000.00 PENNSYLVANIA RATABLE SHARE: 12% By: /s/William F. Nicholson (SEAL) ------------------------------------------------- Name: William F. Nicholson ----------------------------------------------- NO. OF WARRANTS: 149,964 Title: Vice President ---------------------------------------------- REVOLVING CREDIT BANK ONE COMMITMENT: $11,700,000.00 RATABLE SHARE: 8.66% By: /s/Christer D. Lucander (SEAL) ------------------------------------------------- Name: Christer D. Lucander ----------------------------------------------- NO. OF WARRANTS: 108,307 Title: First Vice President ---------------------------------------------- REVOLVING CREDIT FIRST UNION NATIONAL BANK COMMITMENT: $16,200,000.00 RATABLE SHARE: 12% By: /s/Amy B. Delfini (SEAL) ------------------------------------------------- Name: Amy B. Delfini ----------------------------------------------- NO. OF WARRANTS: 149,964 Title: Assistant Vice President ----------------------------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE] -28- 30 REVOLVING CREDIT KEYBANK, NATIONAL ASSOCIATION COMMITMENT: $11,700,000.00 RATABLE SHARE: 8.66% By: /s/Anne R. Hohl (SEAL) ------------------------------------------------- Name: Anne R. Hohl ----------------------------------------------- NO. OF WARRANTS: 108,307 Title: Vice President ---------------------------------------------- REVOLVING CREDIT STANDARD CHARTERED BANK COMMITMENT: $11,700,000.00 RATABLE SHARE: 8.66% By: /s/Peter Brach (SEAL) ------------------------------------------------- Name: Peter Brach ----------------------------------------------- NO. OF WARRANTS: 108,307 Title: Vice President ---------------------------------------------- REVOLVING CREDIT MELLON BANK, N.A. COMMITMENT: $11,700,000.00 RATABLE SHARE: 8.66% By: /s/Alan J. Kopolow (SEAL) ------------------------------------------------- Name: Alan J. Kopolow ----------------------------------------------- NO. OF WARRANTS: 108,307 Title: Vice President ---------------------------------------------- REVOLVING CREDIT BANK OF AMERICA, N.A. COMMITMENT: $16,200,000.00 RATABLE SHARE: 12% By: /s/Reinhard Freimuth (SEAL) ------------------------------------------------- Name: Reinhard Freimuth ----------------------------------------------- NO. OF WARRANTS: 149,964 Title: Vice President ---------------------------------------------- REVOLVING CREDIT THE CHASE MANHATTAN BANK COMMITMENT: $16,200,000.00 RATABLE SHARE: 12% By: /s/John Malone (SEAL) ------------------------------------------------- Name: John Malone ----------------------------------------------- NO. OF WARRANTS: 149,964 Title: Vice President ----------------------------------------------
-29- EX-10.11.C 4 j8492301ex10-11_c.txt FORM OF WARRANT SERIES A 1 Exhibit 10.11(c) THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN EXEMPTION FROM SUCH REGISTRATION. November __, 2000 THE CARBIDE/GRAPHITE GROUP, INC. COMMON STOCK PURCHASE WARRANT, SERIES A Warrant No. Void after December 31, 2010 This Warrant (the "Warrant") entitles [HOLDER] (the "Holder"), for value received, to purchase from THE CARBIDE/GRAPHITE GROUP, INC., a Delaware corporation (the "Company"), at any time during the period starting from the Commencement Date (as defined in Section 1 below), to 5:00 p.m., Pennsylvania time, on December 31, 2010 (the "Expiration Date"), at which time this Warrant shall expire and become void, __________ shares of the Company's common stock, $.01 par value per share (the "Stock"), in accordance with the terms of Section 1 below and subject to adjustment as set forth herein (the shares of Stock purchasable upon exercise of this Warrant herein referred to as the "Warrant Shares"), for a price per share of $.01 subject to adjustment as set forth herein (the "Exercise Price"). In addition to the terms and conditions contained in that certain Warrant Agreement dated as of November ___, 2000 by and among the Company and Warrantholders party thereto (as may be amended from time to time, the "Warrant Agreement"), the terms of which are incorporated herein by reference, this Warrant also is subject to the following terms and conditions: 1. Exercise of Warrant. Subject to the terms and conditions hereof, this Warrant may be exercised in whole or in part at any time from and after the Commencement Date (as defined below) and before the Expiration Date subject to the following condition: (i) If the Company has not on or before March 31, 2001 (such date shall be extended to April 30, 2001, if a sale of assets of the Company, which is sufficient to provide the funds necessary to complete the reduction in the Revolving Credit Commitment and Total Utilization (as such terms are defined in the Credit Agreement described below) hereinafter described, has been finalized subject only to final regulatory approval (a "Permitted Sale Delay")), permanently reduced the Revolving Credit Commitment to at least $110,000,000 (and in the event the net proceeds of one or more Permitted Section 7.05 Sales prior to the 2 Commencement Date exceeds $25,000,000, the Revolving Credit Commitment shall be further permanently reduced pro tanta for each dollar of net proceeds of such sales in excess of $25,000,000) and reduced Total Utilization then outstanding by at least $25,000,000 (or if the net proceeds of a Permitted Section 7.05 Sale exceeds $25,000,000 by such net proceeds), together with a payment of accrued and unpaid interest and fees on the amount of such reductions, this Warrant may be exercised on or after April 1, 2001 (or in the event of a Permitted Sale Delay, on or after May 1, 2001) (such date the "Commencement Date") and until the Expiration Date with respect to the Warrant Shares subject hereto; provided, however, that if the reduction in Revolving Credit Commitment and the reduction in Total Utilization required in this Section 1(i) are satisfied as provided herein, the Holder shall have no rights to purchase the Warrant Shares the subject hereof under this Warrant, and this Warrant and the rights and privileges provided herein shall automatically terminate and be void without any further action. For purposes of this Warrant the term "Credit Agreement" shall mean that certain Revolving Credit and Letter of Credit Issuance Agreement dated as of September 25, 1997, as modified through the date hereof, by and among the Carbide/Graphite Group, Inc., the financial institutions party thereto, and PNC Bank, National Association, as Agent, and as the same may be further amended or modified from time to time. (ii) Exercise shall be by presentation and surrender to the Company at its principal office of this Warrant and the subscription form, which is annexed hereto, executed by the Holder, together with payment to the Company in accordance with Section 2 hereof, if applicable, in an amount equal to the product of the Exercise Price multiplied by the number of Warrant Shares being purchased upon such exercise. If this Warrant is exercised in part only, the Company shall, as soon as practicable after presentation of this Warrant upon such exercise, execute and deliver a new Warrant, dated the date hereof, evidencing the right of the Holder to purchase the balance of the Warrant Shares purchasable hereunder upon the same terms and conditions herein set forth. Upon and as of receipt by the Company of such properly completed and duly executed subscription form accompanied by payment as herein provided, the Holder shall be deemed to be the Holder of record of the Warrant Shares issuable upon such subscription or exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then actually be delivered to the Holder. 2. Payment of Exercise Price. The Exercise Price for the Warrant Shares being purchased may be paid (i) in cash or by check, (ii) by the surrender by the Holder to the Company of any promissory notes or other obligations issued by the Company, with all such notes and obligations so surrendered being credited against the Exercise Price for the Warrant Shares being acquired in an amount equal to the principal amount thereof plus accrued interest to the date of surrender, or (iii) by any combination of the foregoing. 3. Adjustment of Warrant Shares. The number of Warrant Shares which the Holder is entitled to purchase under this Warrant shall be subject to adjustment from time to time upon the occurrence of any of the following events: -2- 3 (a) Subdivision or Combination of Stock. If at any time or from time to time after the date hereof, the Company shall subdivide its outstanding shares of Stock, the number of Warrant Shares (calculated to the nearest whole share) shall be increased proportionately, and conversely, in the event the outstanding shares of Stock shall be combined into a smaller number of shares, the number of Warrant Shares (calculated to the nearest whole share) shall be decreased proportionately. (b) Adjustment for Stock Dividends, Other Distribution and Rights. If at any time after the date hereof, the Company shall declare a dividend or make any other distribution upon, or with respect to, any class or series of stock of the Company payable (i) in shares of Stock, preferred stock of the Company, securities convertible into shares of Stock or preferred stock of the Company, or other securities of the Company, or (ii) in rights to acquire shares of Stock, preferred stock of the Company, securities convertible into Stock or preferred stock of the Company or other securities of the Company, then the number of shares, and the classes or series of securities of the Company, to be obtained upon exercise of this Warrant shall be adjusted applicably and/or proportionately to reflect the issuance of any such shares of Stock, preferred stock, convertible securities, other securities or rights, as the case may be, issuable in payment of such dividend or distribution; provided that any such rights or other securities allocable pursuant to this Warrant shall be exercised or converted only to the extent and as provided in such right or security. (c) Reorganization, Reclassification, Consolidation, Merger or Sale. In the event of any reorganization or reclassification of the capital stock of the Company, a consolidation or merger of the Company with another corporation (other than a merger in which the Company is the surviving or continuing corporation), the sale of all or substantially all of the Company's assets or any transaction involving the transfer of a majority of the voting power over the capital stock of the Company effected in a manner such that holders of Stock shall be entitled to receive stock, securities, or other assets or property, in each case, at any time after the date hereof, then, as a condition of such reorganization, reclassification, consolidation, merger, sale or transaction, lawful and adequate provision shall be made whereby the Holder hereof shall have the right to acquire on or after the Commencement Date (in lieu of the shares of the Stock purchasable and receivable upon the exercise of the rights represented hereby), upon payment of the Exercise Price when appropriate, such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Stock equal to the number of shares of such Stock purchasable and receivable upon the exercise of the rights represented hereby. At the time of each such reorganization, reclassification, consolidation, merger, sale or transaction, including successive events of such nature, each party which is the survivor of such reorganization, reclassification, consolidation, merger, sale or transaction shall expressly assume the due and punctual observance and performance of each and every provision of the Warrant Agreement and this Warrant such that the provisions hereof and thereof (including, without limitation, provisions for adjustments of the number of shares purchasable and receivable upon the exercise of this Warrant and the agreements of the Company set forth in the Warrant Agreement) thereafter shall be applicable, as nearly practicable, to each such party with respect to any and all shares of stock, securities or assets thereafter deliverable upon the exercise hereof -3- 4 4. Notices of Record Date. Upon (a) any establishment by the Company of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or right or option to acquire securities of the Company, or any other right, or (b) any capital reorganization, reclassification, recapitalization, merger or consolidation of the Company with or into any other corporation or other entity, any transfer of all or substantially all the assets of the Company, or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to the Holder at least 30 days, or such longer period as may be required by law, prior to the record date specified therein, a notice specifying (i) the date established as the record date for the purpose of such dividend, distribution, option or right and a description of such dividend, distribution, option or right, (ii) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective and (iii) the date, if any, fixed as to when the holders of record of Stock (or other securities at that time receivable upon exercise of the Warrant) shall be entitled to exchange their shares of Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up. 5. No Dilution or Impairment. The Company will not, by amendment of its Certificate of Incorporation or By-Laws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all action as may be commercially reasonably necessary or appropriate in order to protect the rights of the Holder against dilution or other impairment. 6. Fractional Shares. The Company shall not issue any fractional shares nor scrip representing fractional shares upon exercise of any portion of this Warrant. 7. Representations, Warranties and Covenants. In addition to the representations, warranties and covenants set forth in the Warrant Agreement, this Warrant is issued and delivered by the Company and accepted by each Holder on the basis of the following representations, warranties and covenants made by the Company: (a) Authority. The Company has all necessary corporate authority to issue, execute and deliver this Warrant and to perform its obligations hereunder. This Warrant has been duly authorized, issued, executed and delivered by the Company and is the valid and binding obligation of the Company, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally and except as equitable remedies may be limited by general principles of equity (whether such remedies are sought in a proceeding brought at law or in equity). (b) Reservation of Warrant Shares. The Warrant Shares issuable upon the exercise of this Warrant have been (and any securities issuable or deliverable upon conversion of such Warrant Shares, upon issuance or delivery, will be) duly authorized and reserved for -4- 5 issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable. 8. Private Placement; Transfer, Exchange, Assignment or Loss of Warrant. (a) Restrictions on Transfer. The Holder acknowledges that it has been advised by the Company that neither this Warrant nor the Warrant Shares have been registered under the Securities Act of 1933, as amended (the "Act") as of the date hereof, that this Warrant is being or has been issued and the Warrant Shares may be issued on the basis of the statutory exemption provided by Section 4(2) of the Act or Regulation D promulgated thereunder, or both, relating to transactions by an issuer not involving any public offering. The Holder acknowledges that it has been informed by the Company of, or is otherwise familiar with, the nature of the limitations imposed by the Act and the rules and regulations thereunder on the transfer of securities. In particular, the Holder agrees that no sale, assignment or transfer of this Warrant or the Warrant Shares issuable upon exercise hereof shall be valid or effective, and the Company shall not be required to give any effect to any such sale, assignment or transfer, unless (i) the sale, assignment or transfer of this Warrant or such Warrant Shares is registered under the Act, or (ii) such sale, assignment or transfer is exempt from registration under the Act. This Warrant may be transferred, in whole or in part, subject to the restrictions set forth in the Warrant Agreement and herein. Until this Warrant and the Warrant Shares or any other securities received upon the exercise of this Warrant (the "Other Securities") are so registered, this Warrant and any certificate for Warrant Shares or Other Securities issued or issuable upon exercise of this Warrant shall contain a legend on the face thereof, as provided in Section 3.03 of the Warrant Agreement. (b) Procedure for Transfer. As provided in Section 3.04 and Section 3.05 of the Warrant Agreement, any transfer permitted hereunder shall be made by surrender of this Warrant to the Company at its principal office with a duly executed request to transfer the Warrant, which shall be in the form of assignment attached to this Warrant and shall be accompanied by funds sufficient to pay any transfer taxes applicable. Upon satisfaction of such conditions, the Company shall, without charge, execute and deliver a new Warrant in the name of the transferee named in such transfer request, and this Warrant promptly shall be canceled. (c) Lost, Stolen or Destroyed Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it of loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of reasonably satisfactory indemnification (which, if the Holder is an institutional investor, may be such Holder's unsecured agreement of indemnity), or, in the case of mutilation, upon surrender of this Warrant, the Company will execute and deliver a new Warrant of like tenor and date, and any such lost, stolen or destroyed Warrant thereupon shall become void. (d) Warrant Binding Upon Assignee or Successor. The terms and conditions of this Warrant shall be binding upon any permitted assignee and successor of the Holder. 9. Issue Tax. The issuance of certificates for shares of Stock upon the exercise of this Warrant shall be made without charge to the Holder of this Warrant for any issue tax (other -5- 6 than applicable income taxes) in respect thereof, provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 10. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, as such laws are applied to contracts entered into and wholly to be performed within the State of Delaware and without giving effect to any principles of conflicts or choice of law that would result in the application of the laws of any other jurisdiction. 11. Defined Terms. All terms herein, unless otherwise defined herein, shall have the meanings ascribed to them in the Warrant Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -6- 7 IN WITNESS WHEREOF, the Company has executed this Warrant as of the 13th day of November, 2000. THE CARBIDE/GRAPHITE GROUP, INC., a Delaware corporation By: /s/William M. Thalman ------------------------------------------ Name: William M. Thalman ---------------------------------------- Title: Vice President and Treasurer ---------------------------------------- -7- 8 SUBSCRIPTION To: The Carbide/Graphite Group, Inc. Date: ----------------- The undersigned hereby subscribes for ______________ shares of Stock covered by this Warrant. The certificate(s) for such shares shall be issued in the name of the undersigned or as otherwise indicated below: [NAME OF HOLDER] By ------------------------------------------- Name: ---------------------------------------- Title: --------------------------------------- --------------------------------------------- Name for Registration --------------------------------------------- Mailing Address -8- 9 ASSIGNMENT For value received ____________________________________________ hereby sells, assigns and transfers unto______________________________________________________ ________________________________________________________________________________ [Please print or typewrite name and address of Assignee] ________________________________________________________________________________ the within Warrant, and does hereby irrevocably constitute and appoint _________________ its attorney to transfer the within Warrant on the books of the within named Company with full power of substitution on the premises. Dated: --------------------- [NAME OF HOLDER] By ---------------------------------- Name: ------------------------------- Title: ------------------------------ -9- EX-10.11.D 5 j8492301ex10-11_d.txt EXHIBIT 10.11.D 1 Exhibit 10.11(d) THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN EXEMPTION FROM SUCH REGISTRATION. November __, 2000 THE CARBIDE/GRAPHITE GROUP, INC. COMMON STOCK PURCHASE WARRANT, SERIES B Warrant No. Void after December 31, 2010 This Warrant (the "Warrant") entitles [HOLDER] (the "Holder"), for value received, to purchase from THE CARBIDE/GRAPHITE GROUP, INC., a Delaware corporation (the "Company"), at any time during the period starting from the Commencement Date (as defined in Section 1 below), to 5:00 p.m., Pennsylvania time, on December 31, 2010 (the "Expiration Date"), at which time this Warrant shall expire and become void, __________ shares of the Company's common stock, $.01 par value per share (the "Stock"), in accordance with the terms of Section 1 below and subject to adjustment as set forth herein (the shares of Stock purchasable upon exercise of this Warrant herein referred to as the "Warrant Shares"), for a price per share of $.01 subject to adjustment as set forth herein (the "Exercise Price"). In addition to the terms and conditions contained in that certain Warrant Agreement dated as of November __, 2000 by and among the Company and Warrantholders party thereto (as may be amended from time to time, the "Warrant Agreement"), the terms of which are incorporated herein by reference, this Warrant also is subject to the following terms and conditions: 1. Exercise of Warrant. Subject to the terms and conditions hereof, this Warrant may be exercised in whole or in part at any time from and after the Commencement Date and before the Expiration Date subject to the following condition: (i) If the Company has not on or before July 31, 2001, caused the July 2001 Reduction in Revolving Credit Commitment to have occurred, this Warrant may be exercised on or after August 1, 2001 (the "Commencement Date") and until the Expiration Date with respect to the Warrant Shares subject hereto; provided, however, that if the reduction in Revolving Credit Commitment and the reduction in Total Utilization required in this Section 1(i) are satisfied as provided herein, the Holder shall have no rights to purchase the Warrant Shares the 2 subject hereof under this Warrant, and this Warrant and the rights and privileges provided herein shall automatically terminate and be void without any further action. For purposes of this Warrant, the term "July 2001 Reduction in Revolving Credit Commitment" shall mean (i) in the event the Company shall have caused the Revolving Credit Commitment (as such term is defined in the Credit Agreement described below) to be permanently reduced to $110,000,000 or less, on or before March 31, 2001 (as such date may be extended to April 30, 2001 due to a Permitted Sale Delay used to complete a permanent reduction of the Revolving Credit Commitment to $110,000,000 as contemplated by the Warrants A), a permanent reduction in the Revolving Credit Commitment to at least $85,000,000 and a reduction of Total Utilization to no more than $85,000,000, together with a payment of accrued and unpaid interest and fees on the amount of such reductions, on or before July 31, 2001, or (ii) in the event that the Company shall have not timely caused a permanent reduction to the Revolving Credit Commitment as described in clause (i) of this definition, a permanent reduction in the Revolving Credit Commitment to at least $110,000,000 and a reduction to Total Utilization to no more than $110,000,000, together with a payment of accrued and unpaid interest and fees on the amount of such reduction, on or before July 31, 2001. For purposes of this Warrant, the term "Credit Agreement" shall mean that certain Revolving Credit and Letter of Credit Issuance Agreement dated as of September 25, 1997, as modified through the date hereof, by and among the Carbide/Graphite Group, Inc., the financial institutions party thereto, and PNC Bank, National Association, as Agent, and as the same may be further amended or modified from time to time. (ii) Exercise shall be by presentation and surrender to the Company at its principal office of this Warrant and the subscription form, which is annexed hereto, executed by the Holder, together with payment to the Company in accordance with Section 2 hereof, if applicable, in an amount equal to the product of the Exercise Price multiplied by the number of Warrant Shares being purchased upon such exercise. If this Warrant is exercised in part only, the Company shall, as soon as practicable after presentation of this Warrant upon such exercise, execute and deliver a new Warrant, dated the date hereof, evidencing the right of the Holder to purchase the balance of the Warrant Shares purchasable hereunder upon the same terms and conditions herein set forth. Upon and as of receipt by the Company of such properly completed and duly executed subscription form accompanied by payment as herein provided, the Holder shall be deemed to be the Holder of record of the Warrant Shares issuable upon such subscription or exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then actually be delivered to the Holder. 2. Payment of Exercise Price. The Exercise Price for the Warrant Shares being purchased may be paid (i) in cash or by check, (ii) by the surrender by the Holder to the Company of any promissory notes or other obligations issued by the Company, with all such notes and obligations so surrendered being credited against the Exercise Price for the Warrant Shares being acquired in an amount equal to the principal amount thereof plus accrued interest to the date of surrender, or (iii) by any combination of the foregoing. -2- 3 3. Adjustment of Warrant Shares. The number of Warrant Shares which the Holder is entitled to purchase under this Warrant shall be subject to adjustment from time to time upon the occurrence of any of the following events: (a) Subdivision or Combination of Stock. If at any time or from time to time after the date hereof, the Company shall subdivide its outstanding shares of Stock, the number of Warrant Shares (calculated to the nearest whole share) shall be increased proportionately, and conversely, in the event the outstanding shares of Stock shall be combined into a smaller number of shares, the number of Warrant Shares (calculated to the nearest whole share) shall be decreased proportionately. (b) Adjustment for Stock Dividends, Other Distribution and Rights. If at any time after the date hereof, the Company shall declare a dividend or make any other distribution upon, or with respect to, any class or series of stock of the Company payable (i) in shares of Stock, preferred stock of the Company, securities convertible into shares of Stock or preferred stock of the Company, or other securities of the Company, or (ii) in rights to acquire shares of Stock, preferred stock of the Company, securities convertible into Stock or preferred stock of the Company or other securities of the Company, then the number of shares, and the classes or series of securities of the Company, to be obtained upon exercise of this Warrant shall be adjusted applicably and/or proportionately to reflect the issuance of any such shares of Stock, preferred stock, convertible securities, other securities or rights, as the case may be, issuable in payment of such dividend or distribution; provided that any such rights or other securities allocable pursuant to this Warrant shall be exercised or converted only to the extent and as provided in such rights or security. (c) Reorganization, Reclassification, Consolidation, Merger or Sale. In the event of any reorganization or reclassification of the capital stock of the Company, a consolidation or merger of the Company with another corporation (other than a merger in which the Company is the surviving or continuing corporation), the sale of all or substantially all of the Company's assets or any transaction involving the transfer of a majority of the voting power over the capital stock of the Company effected in a manner such that holders of Stock shall be entitled to receive stock, securities, or other assets or property, in each case, at any time after the date hereof, then, as a condition of such reorganization, reclassification, consolidation, merger, sale or transaction, lawful and adequate provision shall be made whereby the Holder hereof shall have the right to acquire on or after Commencement Date (in lieu of the shares of the Stock purchasable and receivable upon the exercise of the rights represented hereby), upon payment of the Exercise Price when appropriate, such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Stock equal to the number of shares of such Stock purchasable and receivable upon the exercise of the rights represented hereby. At the time of each such reorganization, reclassification, consolidation, merger, sale or transaction, including successive events of such nature, each party which is the survivor of such reorganization, reclassification, consolidation, merger, sale or transaction shall expressly assume the due and punctual observance and performance of each and every provision of the Warrant Agreement and this Warrant such that the provisions hereof and thereof (including, without limitation, provisions for adjustments of the number of shares purchasable and receivable upon the exercise of this Warrant and the -3- 4 agreements of the Company set forth in the Warrant Agreement) thereafter shall be applicable, as nearly practicable, to each such party with respect to any and all shares of stock, securities or assets thereafter deliverable upon the exercise hereof 4. Notices of Record Date. Upon (a) any establishment by the Company of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or right or option to acquire securities of the Company, or any other right, or (b) any capital reorganization, reclassification, recapitalization, merger or consolidation of the Company with or into any other corporation or other entity, any transfer of all or substantially all the assets of the Company, or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to the Holder at least 30 days, or such longer period as may be required by law, prior to the record date specified therein, a notice specifying (i) the date established as the record date for the purpose of such dividend, distribution, option or right and a description of such dividend, distribution, option or right, (ii) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective and (iii) the date, if any, fixed as to when the holders of record of Stock (or other securities at that time receivable upon exercise of the Warrant) shall be entitled to exchange their shares of Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up. 5. No Dilution or Impairment. The Company will not, by amendment of its Certificate of Incorporation or By-Laws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all action as may be commercially reasonably necessary or appropriate in order to protect the rights of the Holder against dilution or other impairment. 6. Fractional Shares. The Company shall not issue any fractional shares nor scrip representing fractional shares upon exercise of any portion of this Warrant. 7. Representations, Warranties and Covenants. In addition to the representations, warranties and covenants set forth in the Warrant Agreement, this Warrant is issued and delivered by the Company and accepted by each Holder on the basis of the following representations, warranties and covenants made by the Company: (a) Authority. The Company has all necessary corporate authority to issue, execute and deliver this Warrant and to perform its obligations hereunder. This Warrant has been duly authorized, issued, executed and delivered by the Company and is the valid and binding obligation of the Company, enforceable in accordance with its term, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally and except as equitable remedies may be limited by general principles of equity (whether such remedies are sought in a proceeding brought at law or in equity). -4- 5 (b) Reservation of Warrant Shares. The Warrant Shares issuable upon the exercise of this Warrant have been (and any securities issuable or deliverable upon conversion of such Warrant Shares, upon issuance or delivery, will be) duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable. 8. Private Offering, Transfer, Exchange, Assignment or Loss of Warrant. (a) Restrictions on Transfer. The Holder acknowledges that it has been advised by the Company that neither this Warrant nor the Warrant Shares have been registered under the Securities Act of 1933, as amended (the "Act") as of the date hereof, that this Warrant is being or has been issued and the Warrant Shares may be issued on the basis of the statutory exemption provided by Section 4(2) of the Act or Regulation D promulgated thereunder, or both, relating to transactions by an issuer not involving any public offering. The Holder acknowledges that it has been informed by the Company of, or is otherwise familiar with, the nature of the limitations imposed by the Act and the rules and regulations thereunder on the transfer of securities. In particular, the Holder agrees that no sale, assignment or transfer of this Warrant or the Warrant Shares issuable upon exercise hereof shall be valid or effective, and the Company shall not be required to give any effect to any such sale, assignment or transfer, unless (i) the sale, assignment or transfer of this Warrant or such Warrant Shares is registered under the Act, or (ii) such sale, assignment or transfer is exempt from registration under the Act. This Warrant may be transferred, in whole or in part, subject to the restrictions set forth in the Warrant Agreement and herein. Until this Warrant and the Warrant Shares or any other securities received upon the exercise of this Warrant (the "Other Securities") are so registered, this Warrant and any certificate for Warrant Shares or Other Securities issued or issuable upon exercise of this Warrant shall contain a legend on the face thereof, as provided in Section 3.03 of the Warrant Agreement. (b) Procedure for Transfer. As provided in Section 3.04 and Section 3.05 of the Warrant Agreement, any transfer permitted hereunder shall be made by surrender of this Warrant to the Company at its principal office with a duly executed request to transfer the Warrant, which shall be in the form of assignment attached to this Warrant and shall be accompanied by funds sufficient to pay any transfer taxes applicable. Upon satisfaction of such conditions, the Company shall, without charge, execute and deliver a new Warrant in the name of the transferee named in such transfer request, and this Warrant promptly shall be canceled. (c) Lost, Stolen or Destroyed Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it of loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of reasonably satisfactory indemnification (which, if the Holder is an institutional investor, may be such Holder's unsecured agreement of indemnity), or, in the case of mutilation, upon surrender of this Warrant, the Company will execute and deliver a new Warrant of like tenor and date, and any such lost, stolen or destroyed Warrant thereupon shall become void. (d) Warrant Binding Upon Assignee or Successor. The terms and conditions of this Warrant shall be binding upon any permitted assignee and successor of the Holder. -5- 6 9. Issue Tax. The issuance of certificates for shares of Stock upon the exercise of this Warrant shall be made without charge to the Holder of this Warrant for any issue tax (other than applicable income taxes) in respect thereof, provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 10. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, as such laws are applied to contracts entered into and wholly to be performed within the State of Delaware and without giving effect to any principles of conflicts or choice of law that would result in the application of the laws of any other jurisdiction. 11. Defined Terms. All terms herein, unless otherwise defined herein, shall have the meanings ascribed to them in the Warrant Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -6- 7 IN WITNESS WHEREOF, the Company has executed this Warrant as of the 13th day of November, 2000. THE CARBIDE/GRAPHITE GROUP, INC., a Delaware corporation By: /s/William M. Thalman ------------------------------------ Name: William M. Thalman ---------------------------------- Title: Vice President and Treasurer ---------------------------------- -7- 8 SUBSCRIPTION To: The Carbide/Graphite Group, Inc. Date: ------------------------ The undersigned hereby subscribes for ______________ shares of Stock covered by this Warrant. The certificate(s) for such shares shall be issued in the name of the undersigned or as otherwise indicated below: [NAME OF HOLDER] By ------------------------------------------------ Name: -------------------------------------------- Title: ------------------------------------------- ------------------------------------------------- Name for Registration ------------------------------------------------- Mailing Address -8- 9 ASSIGNMENT For value received ____________________________________________ hereby sells, assigns and transfers unto______________________________________________________ ________________________________________________________________________________ [Please print or typewrite name and address of Assignee] ________________________________________________________________________________ the within Warrant, and does hereby irrevocably constitute and appoint _________________its attorney to transfer the within Warrant on the books of the within named Company with full power of substitution on the premises. Dated: --------------------- [NAME OF HOLDER] By ------------------------------------------- Name: ---------------------------------------- Title: --------------------------------------- -9- EX-10.13 6 j8492301ex10-13.txt EMPLOYMENT AGREEMENT 1 Exhibit 10.13 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT between The Carbide/Graphite Group, Inc., a Delaware corporation (the "Corporation") and Stephen D. Weaver (the "Executive") dated as of February 1, 2000 (the "Agreement"). WHEREAS, the Corporation and the Executive have entered into an employment agreement dated February 1, 1998 which is superseded by this Agreement; and WHEREAS, the Corporation wishes to employ the Executive as Vice President-Finance/Chief Financial 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 January 31, 2002 as its Vice President-Finance/Chief Financial 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 his responsibilities as Vice President-Finance/Chief Financial Officer 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 Chairman/CEO 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 Vice President-Finance/CFO pursuant to the By-laws of the Corporation and such additional duties as may from time to time be prescribed by the Chairman/CEO and the Board of Directors. 2 3. Base Compensation. During the Employment Period, the Executive shall receive a base salary at an annual rate of at least $206,000 with any increase thereto to be determined by the Compensation Committee of the Board of Directors from time to time. 4. Stock Options. During the Employment Period, the Executive shall receive stock option grants as determined by the Stock Option Plan Committee on terms and conditions consistent with other participants in the Stock Option Plan. 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 years ending July 31, 2000 and July 31, 2001 and the period August 1, 2001 to January 31, 2002 shall be at a target award level equal to a rate of 30% of base pay, a "near-miss" award level of 15% of base pay and a maximum award level of 60% of base pay. 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). 2 3 (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 (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/CEO, which demand specifically identities the manner in which the Chairman/CEO 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 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 bonus award potential, or a material decrease in his benefits or (2) a change in the location at which the Executive's duties are principally carried out of more than 20 miles from the Corporation's principal executive offices in Pittsburgh, Pennsylvania or (3) the Corporation or its successor is unwilling to extend the Executive's employment upon terms at least as favorable to the Executive as the terms set forth in this agreement; and (B) "Change of Control" shall mean (i) a change in control of the Board of 3 4 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 a 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 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 4 5 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 provisions of subsection 6(c)(A)(3) are not applicable and 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 pay to the Executive a cash amount as severance in a lump sum equal to twice the Executive's annual base salary then in effect pursuant to Section 3 plus an amount equal to twice the average of the previous two years of bonus plan payouts for the Executive and shall continue to maintain the Insurance Benefits for a period of 24 months from the date of such termination or expiration. The lump sum payment shall be paid to the Executive within 45 days after the date of such termination or expiration. (c) If the Executive's employment is terminated by the Executive during the Employment Period pursuant to subsection 6(c) (including a termination arising from the circumstances set forth in subsection 6(c)(A)(3)), 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 plus 2.99 times the average of the previous two years of bonus plan payouts for the Executive; 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). The Corporation shall continue to 5 6 maintain the Insurance Benefits for a period of 24 months from the date of the termination provided for in subsection 6(c). (d) Nothing herein shall be deemed to restrict or reduce the Executive's vested benefits under the Corporation's Stock Option Plans, 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. 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 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 6 7 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, or (II) 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 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) 7 8 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 February 1, 1998 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 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 the Executive: Mr. Stephen D. Weaver 259 Trotwood Drive Pittsburgh, Pennsylvania 15241 If to the Corporation: The Carbide/Graphite Group, Inc. One Gateway Center, 19th Floor Pittsburgh, PA 15222 Attention: Secretary 8 9 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 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. By /s/ Walter B. Fowler ------------------------------- Name: Walter B. Fowler Title: CEO /s/ Stephen D. Weaver ---------------------------- Stephen D. Weaver 9 10 June 5, 2000 Mr. Stephen D. Weaver 259 Trotwood Drive Pittsburgh, Pennsylvania 15241 Dear Steve: Reference is made to the Employment Agreement dated as of February 1, 2000 between The Carbide/Graphite Group, Inc. and yourself (the "Employment Agreement"), and in particular to paragraphs 1 through 3 thereof. In light of your promotion to "Senior Vice President- Electrodes and Graphite Specialty Products", the references in paragraphs 1 and 2 to your title are deemed amended, effective as of May 1, 2000, to such title which shall be substituted for the title of "Vice President/Chief Financial Officer". Furthermore, effective as of May 1, 2000 your base salary as set forth in paragraph 3 of the Employment Agreement shall be $216,000. On behalf of the Board of Directors of the Company, I would like to express our pleasure at your promotion. Best regards, Sincerely, /s/ Walter B. Fowler ------------------------------ Walter B. Fowler Chairman and Chief Executive Officer Agreed: /s/ Stephen D. Weaver - ---------------------------- Stephen D. Weaver 10 EX-23.1 7 j8492301ex23-1.txt CONSENT OF INDEPENDENT ACCOUNTANTS 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-16843, 333-57543 and 333-78527) of The Carbide/Graphite Group, Inc. and Subsidiaries of our reports dated September 8, 2000, except for paragraphs 2 through 5 of Note 6 as to which the date is November 13, 2000, relating to the financial statements and financial statement schedule, which appear in this Form 10-K. /s/ PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania 15219 November 13, 2000 EX-27.1 8 j8492301ex27-1.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JUL-31-2000 AUG-01-1999 JUL-31-2000 0 0 41,752 (977) 66,575 118,435 347,374 (222,464) 250,494 45,659 120,800 0 0 99 71,371 71,470 207,355 207,355 197,619 209,418 2,050 301 10,423 (14,837) (5,108) (9,729) 0 0 0 (9,729) (1.17) (1.17)
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