-----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, UKnUE0rEAeDO60tvQ90JRmrXA7Lc2nF8UoA01ydRbEspFoFgS4IwupseqPTVx/Kb sSn73BlbUYsR0nGkqKXEjA== 0001012709-97-000007.txt : 19970329 0001012709-97-000007.hdr.sgml : 19970329 ACCESSION NUMBER: 0001012709-97-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GIANT CEMENT HOLDING INC CENTRAL INDEX KEY: 0000922405 STANDARD INDUSTRIAL CLASSIFICATION: CEMENT, HYDRAULIC [3241] IRS NUMBER: 570997411 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24850 FILM NUMBER: 97567757 BUSINESS ADDRESS: STREET 1: 320-D MIDLAND PKWY STREET 2: HIGHWAY 453 & I-26 CITY: SUMMERVILLE STATE: SC ZIP: 29485 BUSINESS PHONE: 8038519898 MAIL ADDRESS: STREET 1: 320 D MIDLAND PKWY CITY: SUMMERVILLE STATE: SC ZIP: 29485 10-K 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 [FEE REQUIRED] for fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _____________ to _____________ Commission File Number 0-24850 GIANT CEMENT HOLDING, INC. (Exact name of registrant as specified in its charter) Delaware 57-0997411 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation) 320-D Midland Parkway, Summerville, South Carolina 29485 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (803) 851-9898 Name of Each Exchange Securities registered pursuant to Title of Each Class on Which Registered ------------------- --------------------- Section 12(b) of the Act: Common Stock, $.01 Nasdaq -- NMS Par Value 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 the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 21, 1997, 9,529,277 shares of the Registrant's Common Stock, par value $.01 per share, were outstanding. The aggregate market value of the Registrant's Common Stock held by non-affiliates (based on the closing price on the Nasdaq Stock Market on March 21, 1997) was approximately $154.9 million. DOCUMENTS INCORPORATED BY REFERENCE Specified portions of the Company's 1996 Annual Report to Stockholders are incorporated by reference into Part II hereof. Specified portions of the Company's definitive Proxy Statement for the May 13, 1997 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. Exhibit Index located at Page 15 herein. TABLE OF CONTENTS PART I - ------ Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II - ------- Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures PART III - -------- Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV - ------- Item 14. Exhibits, Financial Statement Schedules and Reports on 8-K 2 PART I ------ ITEM 1. BUSINESS General Development of Business Giant Cement Holding, Inc. (herein referred to as "the Company" on a consolidated basis or "GCHI" on a separate company basis) was incorporated under the laws of the state of Delaware in April 1994. The Company manufactures a complete line of portland and masonry cements used in residential, commercial, and infrastructure construction applications. The Company's manufacturing facilities have an aggregate rated annual clinker capacity of approximately 1.4 million tons, ranking it as the 15th largest producer of cement in the United States. In September 1994, 10,000,000 shares of common stock of GCHI were sold to the public in an initial public offering. The offering resulted in GCHI and its subsidiaries being spun-off from its predecessor parent. GCHI's primary subsidiaries have been in operation since 1883 and 1928. In December 1996, the Company entered into a Letter of Intent to acquire three light weight aggregate manufacturing plants, five concrete block plants and a drum processing/fuel blending facility from Solite Corporation, a privately held manufacturer. The acquisition is subject to finalization of a definitive agreement and, among other matters, approvals by various regulatory authorities. If completed, the acquisition (which would be accounted for as a purchase) would require approximately $38 million which would likely be financed through the issuance of approximately 1.3 million common shares to the stockholders of the acquired operations and bank borrowings of approximately $18 million. Additional shares of common stock and cash would be payable over a three-year period, contingent upon the acquired operations achieving certain earnings levels. The Solite operations the Company intends to acquire are located 3 in Virginia, North Carolina and Alabama. The acquisition could expand the Company's existing construction material product lines as well as expand the Company's resource recovery service capabilities. Financial Information About Industry Segments. GCHI and its subsidiaries are involved in a single business segment which includes the domestic manufacture and sale of portland and masonry cements and related aggregates. The Company derives revenues from the sales of products, primarily cement and to a much lessor extent construction aggregates, as well as from the provision of resource recovery services. Resource recovery services revenue is primarily derived from third parties that pay the Company to utilize their waste as fuel, which additionally reduces the cost of traditional fossil fuels used in the manufacture of cement. Due to the nature of the Company's operations and the fact that the burning of waste-derived fuels is inseparable from the manufacture of cement, it is impractical to disaggregate the costs of sales and services by revenue classification. Information concerning the Company's net sales, operating income and assets for each of the years in the three-year period ended December 31, 1996 is included under "Five-Year Summary of Consolidated Financial Data" in the 1996 Annual Report. Narrative Description of Business The Company owns and operates two limestone quarries and cement manufacturing facilities through its wholly-owned subsidiaries Giant Cement Company ("Giant") and Keystone Cement Company ("Keystone"). Giant, located in Harleyville, South Carolina, serves the South-Atlantic region of the United States and Keystone, located in Bath, Pennsylvania, serves the Middle-Atlantic region. The Company pioneered resource recovery techniques for use in the manufacturing of cement in the late 1970's and is one of the largest users of waste-derived fuels in the cement industry. 3 Operations. Giant was founded in 1883 and commenced operations in Harleyville, South Carolina in 1947. Giant owns approximately 2,100 acres of land in Harleyville, where its cement production facilities and 230-acre limestone quarry are located. The Company presently estimates that Giant's limestone reserves are adequate to meet its plant requirements for in excess of 50 years. Giant has four wet process kilns with a combined rated annual clinker capacity of approximately 840,000 tons and a manufacturing plant with an annual finish grinding capacity of approximately 950,000 tons. Keystone, founded in 1928, owns approximately 1,000 acres of land in Bath, Pennsylvania, in the Lehigh Valley region approximately 60 miles north of Philadelphia. Keystone obtains the cement rock used in its production from its 200-acre limestone quarry located adjacent to its plant. The Company presently estimates that Keystone's limestone reserves are adequate to meet its plant requirements for in excess of 50 years. The two wet process kilns used in Keystone's operations have a combined rated annual clinker capacity of approximately 600,000 tons and its manufacturing plant has an annual finish grinding capacity of approximately 750,000 tons. Rated annual clinker capacity is based upon the cement kiln manufacturer's specifications. The Company's historical annual clinker production has not exceeded 1.3 million tons. In addition to limestone, the other principal raw materials used in the manufacturing of cement are silica, alumina, iron oxide, and gypsum, which are purchased from various suppliers. Management believes that the supply of these raw materials will be adequate to permit production at planned capacities for the foreseeable future. Products. The Company principally manufactures a full line of portland cement, which is the fundamental binding agent in concrete. Giant's cement has a low alkali content, a characteristic favored for use by federal and state governments on certain projects due to its minimal reaction with soil and other aggregates. Keystone also produces limited quantities of low alkali cement. The Company believes that Keystone is the only cement manufacturer currently producing a low alkali cement within a 100 mile radius of the Keystone plant. In addition to portland cement, the Company manufactures masonry cement, which is used in the preparation of mortar used in block and brick masonry. The Company also mines, crushes, screens, and sells various sizes of stone and gravel, known as aggregates, to the construction industry for use in paving, road base material, and assorted small volume applications. Additionally, the Company markets cement kiln dust ("CKD") and, occasionally, a customized blend of CKD and cement under the registered trade name "StableSorb." StableSorb is utilized by construction, remediation, and other contractors for the purpose of solidifying soil, wastes, and other materials. Cement is made in a multi-stage process that begins with the crushing, grinding, and mixing of calcium (usually in the form of quarried limestone or "cement rock"), silica, alumina, iron oxide, and other materials. This raw material is then processed in a rotary kiln at extremely high temperatures, causing it to undergo a chemical reaction. The resulting marble-sized, pellet-like material (known as "clinker") is then cooled and ground with a small quantity of gypsum to produce cement. Marketing and Distribution. The Company markets its products to ready- mix concrete plants, concrete product manufacturers, building material dealers, construction contractors, and state and local government agencies through its experienced sales force. Approximately 85% of the Company's cement is sold in bulk, primarily to ready-mix and concrete products manufacturers, with the remainder sold in individually packed bags, primarily to building materials dealers. 4 South-Atlantic Region. Giant's market area covers most of the South- Atlantic region of the United States, from southern Virginia to southern Georgia. The South-Atlantic region is one of the largest cement markets in the United States in terms of cement consumption. Giant's sales are most heavily concentrated in North and South Carolina, with the remainder of its sales in Georgia and southern Virginia. Middle-Atlantic Region. Keystone's market area, which covers most of the Middle-Atlantic region of the United States, includes eastern Pennsylvania, southeastern New York, New Jersey, western Connecticut, and portions of Delaware and Maryland. Keystone's sales are most heavily concentrated in eastern Pennsylvania, southeastern New York, and New Jersey, with the remainder of its sales in Connecticut, Delaware, and Maryland. Sales Practices and Distribution. The Company has more than 500 customers, the majority of which have been doing business with the Company for more than five years. No single customer accounted for 10% or more of the Company's cement sales during 1996, and the Company believes that the loss of any single customer would not have a material adverse effect on the Company's financial condition or results of operations. The Company, following the sales practices characteristic of its industry, does not provide the right to return nonfaulty product or extended payment terms to customers in the ordinary course of business. As is customary in the industry, the Company does not typically enter into long-term sales contracts, except with respect to major construction projects. Because the needs of its customers are generally short term in nature, backlog orders are not significant in the cement industry. The production facilities of both Keystone and Giant are located near, and served by, major rail transportation lines, which provide ready access for transporting cement to the Company's customers or terminals. In 1996, Giant delivered a substantial portion of its product by rail either directly to its customers or to its terminals where the product is picked up by customers. At Keystone, almost all product is shipped via truck, with a substantial amount being picked up by customer-owned trucks. Both Giant and Keystone have good relations with contract carriers which operate fleets of trucks to provide quick delivery, on demand, to the Company's customers requesting truck deliveries. To meet the needs of its customers in the South-Atlantic market area, Giant operates one terminal and three distribution warehouses, with annual throughput capacity of approximately 165,000 finished tons, and 25,000 square feet of storage capacity for bagged product. Giant began upgrading its Durham, NC terminal facilities during 1994 to improve efficiency and distribution capabilities, and completed the upgrade in March 1995. General and Regional Economic Conditions. Demand for the Company's products is directly related to activity in the construction industry and general economic conditions. Various economic factors beyond the Company's control affect cement consumption, including the level of new residential, commercial and infrastructure construction activity, which are in turn affected by movement in interest rates, the availability of short and long- term financing and the availability of public funds for infrastructure projects. Accordingly, adverse economic conditions in the Company's markets or a worsening of general or local economic conditions could adversely affect the Company's operating results. Cement demand reached a cyclical low in 1991, and, as a consequence, the Company experienced a decline in sales in 1991. Demand was flat to slightly higher in most regions of the country during 1992 and increased in 1993, 1994, 1995 and 1996 to record levels for U.S. cement consumption. While U.S. cement consumption was at record levels in 1996 and exceeded U.S. supply, there can be no assurance that increased cement demand will continue or that demand will remain at current levels. 5 Competition. Due to the lack of product differentiation and the commodity nature of cement, the cement industry is highly competitive. Competition is based largely on price and, to a lesser extent, quality and service. The Company competes with national and regional cement producers in its markets. Many of the Company's competitors are larger and have significantly greater resources than the Company. The prices that the Company charges its customers are not likely to be materially different from the prices charged by other producers in the same markets. Accordingly, profitability in the cement industry is generally dependent on the level of cement demand and on a cement producer's ability to contain operating costs. Prices are subject to material changes in response to relatively minor fluctuations in supply and demand, general economic conditions and other market conditions beyond the Company's control. Prior to 1993, cement prices in the United States, including the Company's markets, had fallen and remained depressed for several years, primarily due to the economic recession and competition from lower priced foreign imports. Although the Company has been able to increase its cement prices during 1994, 1995 and 1996, there can be no assurance that prices will not decline in the future. There are 11 companies in the South-Atlantic region which compete with Giant in some portion of its market, including three direct competitors, two of which compete throughout its market area. There are 15 companies in the Middle-Atlantic region which compete with Keystone in some portion of its market, including five direct primary competitors. The Company believes that Keystone is the only cement plant currently producing low alkali cement in its immediate market area. Additionally, none of Keystone's direct competitors are currently permitted to utilize waste- derived fuel as an alternative source of fuel. During the latter part of the 1980's, an influx of low-price cement imports caused prices to deteriorate in many domestic markets. A portion of the market served by Keystone may be directly subject to imports of foreign cement which can affect pricing in all of its market areas. The market areas served by Giant are also impacted indirectly by imports of foreign cement. Imports declined significantly from 1987 to 1992. The Company believes the decline was the result of increased foreign consumption, increased ocean transportation costs and the imposition of anti-dumping duties, among other things. From 1993 to 1996, imports into the United States increased significantly as a result of the US demand and consumption exceeding the domestic supply. Through 1996, the increase in the cement imports has had little effect on current prices. While the Company does not believe imports had a significant impact on its market areas in 1996, nationally, imports increased significantly and there can be no assurance that importation of lower-priced cement in the future will not increase. Resource Recovery. The cost of energy represents a significant percentage of total cement manufacturing costs. The Company's plants utilize the "wet kiln" process. While the "wet kiln" process requires more thermal energy than the alternative "dry kiln" process, the Company has implemented technology which utilizes liquid and solid industrial wastes with high BTU values ("waste-derived fuels") as fuel substitutes ("resource recovery") in the process of manufacturing cement. In the late 1970's, Keystone pioneered resource recovery techniques in the U. S. cement industry. Giant also began the limited use of waste as a fuel substitute in 1987 and has since expanded it's use of industrial solvents and other hazardous waste-derived fuels, including waste solids. These resource recovery efforts have significantly reduced the Company's traditional fossil fuel consumption and production costs, while providing it with an additional source of revenue as industrial companies pay the Company to utilize these waste-derived fuels. In 1996, waste-derived fuels comprised about 45% of Keystone's total fuel usage and 53% of Giant's. These percentages have grown significantly since such programs were initiated, allowing fuel costs to be substantially reduced. 6 Although the Company was among the first in the cement industry to utilize resource recovery as a substitute for fossil fuels, this technique has since been adopted by a number of other U. S. cement producers and is utilized at over 20 cement plants. Six of the ten largest cement companies in the United States utilize resource recovery at one or more of their production facilities. Keystone is, however, one of only two Pennsylvania plants which are presently permitted to commercially burn hazardous waste, and the only facility in the Lehigh Valley area which is permitted to utilize this economically beneficial process. Keystone is currently permitted to burn such waste at rates of up to approximately 50% of its fuel requirements and is seeking to increase such rates to 75%. While Giant is one of two plants in its immediate market area that is presently permitted to burn numerous categories of hazardous and non-hazardous liquids and solids, it is the only one in such area that is presently permitted to burn such wastes at rates of up to approximately 100% of its fuel requirements. Additionally, Giant has developed techniques to increase the proportion of higher revenue waste solids used in its resource recovery activities. The Company's subsidiaries, Keystone, Giant and Giant Resource Recovery Company, Inc. ("GRR"), utilize a network of brokers, fuel blenders, and treatment, storage, and disposal facilities to obtain waste- derived fuels. The sources for such waste products range from Fortune 500 companies to small independent waste treatment, storage, and disposal facilities. The Company's resource recovery operations are dependent on general and regional economic conditions; federal, state and local environmental laws, regulations and policies; and the Company's cement kiln utilization. The Company competes with numerous other companies for the supply of waste- derived fuels primarily on the basis of service and price. Environmental Matters. The Company's operations and properties are subject to extensive and changing federal, state, and local Environmental Laws relating to air and water quality, as well as to the handling, treatment, storage and disposal of wastes. In connection with the Company's utilization of hazardous waste-derived fuels, Environmental Laws require certain permits and other authorizations mandating procedures under which the Company shall operate. Environmental Laws also provide significant penalties for violators, as well as liabilities and costs of cleaning up releases of hazardous wastes into the environment. In addition, the Company could be subject to claims by employees or others alleging exposure to toxic or hazardous substances as a result of the failure to observe Environmental Laws. Violations of mandated procedures under operating permits, even if immaterial or unintentional, may result in fines, shutdowns, remedial actions, or revocation of such permits. The Company has been performing industrial operations at its properties for many years. Various materials from these operations that could now be classified as hazardous under Environmental Laws have been disposed of in on-site landfills and may have been disposed of in off-site landfills and other facilities. As a result, the Company from time to time is involved in administrative and other proceedings involving compliance matters and alleged violations of Environmental Laws at its operations and facilities. The Company estimates that annual expenditures for environmental compliance exceed $3.5 million per year, which includes dust collection and control systems and compliance expenditures related to the Company's resource recovery operations. Capital expenditures relative to environmental compliance totalled $712,000 in 1994, $1.6 million in 1995, and $2.8 million in 1996. The Company does not believe compliance expenditures impair its competitive position because its competitors are subject to the same laws and regulations, with the exception of those regulations specifically relating to resource recovery operations for which the Company currently receives revenues that more than offset the related compliance costs. However, the Company has no knowledge of its competitors' environmental compliance costs and such costs could vary depending upon the characteristics of a competitor's facilities. The Company's operations are subject to the Resource Conservation and Recovery Act of 1976, RCRA, and a delegated state program, which together provide a comprehensive regulatory framework for the management of hazardous wastes at active facilities. RCRA sets up a "cradle to grave" system for the management of hazardous wastes, imposing upon all parties who generate, transport, treat, store, or dispose of waste above certain 7 minimum quantities, requirements, including permitting requirements, for performance, testing, and record keeping. The boiler and industrial furnaces ("BIF") regulations, promulgated in 1991 under RCRA, also require, among other things, that cement kilns utilizing waste-derived fuels obtain operating permits. The BIF regulations are extremely complex and certain provisions are subject to different interpretations. In October 1991, the South Carolina Department of Health and Environmental Control issued to Giant a RCRA Part B Permit for the storage and management of hazardous waste. Keystone was issued a similar RCRA Part B Permit by the Commonwealth of Pennsylvania in December 1991. In addition, Giant and Keystone have received BIF "interim status" permits which currently allow them to substitute approximately 100% and 75% of their respective fuel requirements with hazardous waste-derived fuels. However, Keystone is currently limited to approximately 50% waste fuel substitution by its Pennsylvania Department of Environmental Protection ("PADEP") air quality plan approval. During this interim status period, the Company's plants must comply with BIF standards regarding emissions of particulate matter and other parameters. Giant and Keystone are currently pursuing RCRA Part B permits for the burning of such fuels pursuant to the BIF regulations, which the Company believes may take one or more years to obtain. Pursuant to the BIF regulations, in order to maintain interim status permits for the burning of waste-derived fuels, the Company was required to perform BIF Compliance Tests (BIF Tests) and submit Certificates of Compliance ("COCs") in 1995 and is required to perform BIF Tests and submit COCs every three years thereafter. The BIF Tests results and COCs set various operating parameters within which the Company must operate, including volumes of waste-derived fuel, qualitative aspects of waste- derived fuel and various other parameters. The BIF Tests are monitored by the EPA or its representative, and the BIF Tests results and COCs are subsequently reviewed by the EPA for compliance with the BIF regulations. The Company believes its COCs are substantially in compliance with the BIF regulations. However, there can be no assurance that upon EPA's review of the submissions, the EPA will concur with the Company and not require a new BIF Test or levy fines for non-compliance. There can be no assurance that the results of future BIF Tests will be successful or that future COCs will provide favorable operating parameters for burning waste-derived fuels. The two BIF Tests conducted in 1995 cost the Company approximately $800,000. Should the Company fail a BIF Test, it can continue to utilize waste-derived fuels for a total of 720 hours including hours spent conducting a new BIF Test. Various aspects of the Company's operations are also subject to regulation under the federal Clean Air Act, as amended (the "CAA"). The CAA amendments of 1990 (the "Amendments") resulted in numerous changes to the CAA, including a new federal operating permit (Title V permit) and fee program for virtually all manufacturing operations. The Amendments will likely result in significantly increased capital and operational expenses for all manufacturers in the Company's industry in the future, the amounts of which are not presently determinable. In 1996, the Company's plants submitted detailed Title V permit applications for air emissions. In addition, the EPA is developing regulations for certain air pollutants under the Amendments for a broad spectrum of industrial sectors, including portland cement manufacturing. The EPA has indicated that the new maximum available control technology standard ("MACT") for these pollutants under these Amendments could require significant reduction of air pollutants below existing levels prevalent in the industry, which could have a material adverse effect on the Company's financial condition or results of operations. The EPA issued draft regulations for MACT in 1996 for public comment and is expected to request additional public comment on alternative approaches in April 1997, with final promulgation possible in early 1998. Many of the raw materials, products, by-products, and wastes associated with the Company's facilities and operations contain chemical elements or compounds that are regulated under the Environmental Laws. Some examples of such materials are CKD and general purpose solvents, which in some instances may contain hazardous constituents including trace metals, organics or exhibit other hazardous waste characteristics. The Company has from time to time transported or delivered certain of these materials to various on-site and off-site disposal sites. Treatment and disposal of hazardous wastes generated from operations at on-site and off- site locations is additionally subject to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, CERCLA. CERCLA imposes joint and several liability (without regard to fault) on certain 8 categories of persons for clean-up costs related to releases of certain materials at facility sites, and for damage to natural resources. Keystone has been identified as a potentially responsible party at a site in Southington, Connecticut under CERCLA, which proceeding is described under "Legal Proceedings." In addition to CERCLA, similar state or other Environmental Laws may impose the same or even broader liability for the discharge, release, or the mere presence of certain substances into and in the environment. CKD, a by-product of cement manufacturing, is currently excluded from regulations as a hazardous waste under the "Bevill Amendment" to RCRA. However, CKD that comes in contact with water might produce a leachate with an elevated PH. In December 1993, the EPA issued a Report to Congress on CKD in which the EPA concluded that risks associated with CKD management are generally low, but that there is potential under certain circumstances for CKD to pose a danger to human health and the environment, or that it may do so in the future. On January 31, 1995 the EPA issued a Regulatory Determination on CKD. The EPA reported that CKD would retain its status as a "Bevill Waste" and remain exempt from regulation as a hazardous waste until such time as the EPA promulgates new regulatory controls. The EPA intends to take a "common sense" approach in developing a highly tailored set of standards that will "prevent damage to ground and potable water and reduce health risks associated with breathing and ingesting dust from cement kilns." The EPA further made it clear that it has no problems with recycling or reuse of CKD, and that it has not limited beneficial uses of CKD; however, the EPA does not encourage the use of CKD as an agricultural lime additive. Though the EPA originally intended to conduct a typical rule- making process which would involve information gathering, eventually followed by the development of a proposed rule and the promulgation of a final rule, the EPA is now considering two alternatives to the full rule- making process. Under the first alternative, a state with a federally approved hazardous waste program would be able to oversee the management of CKD on a site-by-site basis, either through regulation, permit, or enforceable agreement. The second alternative would be to create federal rules that would set contingent management standards for cement kiln dust to meet before being exempt from Subtitle C of the Resource Conservation and Recovery Act. Key components of management conditions would be based on the design of the waste management unit, dust control practices, and other factors. The process is expected to take at least two years to complete. The cement industry will be vigorously pursuing a range of regulatory, legislative and judicial remedies because the industry continues to believe that CKD is not a hazardous waste, should never be classified as a hazardous waste and, therefore, does not warrant RCRA Subtitle C regulation. The industry believes its voluntary enforceable agreement that was submitted to the Agency in 1995 offers a responsible and valid approach for managing CKD outside the realm of RCRA Subtitle C. These standards address all possible exposure pathways and are fully protective of human health and the environment. The industry is fully committed to avoiding regulation of CKD as a hazardous waste while at the same time acknowledging the need to generally improve CKD management. Accepted industry practice has been to store CKD on-site. The Company collects and stores CKD at its plants and recycles CKD related to its operations. Additionally, the Company markets CKD and, occasionally, a customized blend of CKD and cement under the registered trade name "StableSorb." StableSorb is utilized by construction, remediation, and other contractors for the purpose of solidifying soil, wastes, and other materials. Although the potential costs and impact of repeal of the Bevill Amendment exemption with respect to CKD or adoption of particular EPA or State management standards for CKD in the future cannot be estimated at this time, such costs and impact could have a material adverse effect on the Company's financial condition or results of operations. Another RCRA concern in the cement industry involves the disposal of refractory brick containing chromium. Refractory brick containing chromium was formerly widely used in the cement industry to line cement kilns and has been utilized and disposed of on-site by the Company in the past. The Company's facilities conduct tests on all brick removed from its kilns to determine whether or not it is a hazardous waste, and these tests have confirmed such brick to be non-hazardous under the applicable RCRA standards. The Company conducts these tests in accordance with EPA standards and believes that the EPA would reach the same conclusions. 9 The Company's quarry sites must comply with noise and dust suppression regulations, zoning, and special use permitting requirements, applicable mining regulations and federal health and safety requirements administered by the Mine Safety and Health Administration. The Company is also obligated under certain of its mining permits and certain regulations to engage in reclamation of land within the quarries upon completion of extraction and mining. The burning of hazardous waste-derived fuels is a key factor to the profitability of the Company. A substantial reduction in the Company's ability to substitute hazardous waste-derived fuels for traditional fossil fuels could have a material adverse effect on the Company's financial condition or results of operations. The Company regularly monitors and reviews its operations, procedures, and policies for compliance with these Environmental Laws and the Company's operating permits. The Company believes that its current procedures and practices in its operations, including those for handling hazardous wastes, are substantially in compliance with all Environmental Laws and its material operating permits. There can be no assurance, however, that a review of the Company's past, present, or future operations by courts or federal, state, or local regulatory authorities will not result in determinations that could have a material adverse effect on the Company's financial condition or results of operations. In addition, the revocation of any of the Company's operating permits, the denial of any application by the Company for a permit or the failure to renew any interim permit could have a material adverse effect on the Company's financial condition or results of operations. The Company cannot predict what Environmental Laws will be enacted or adopted in the future or how such future Environmental Laws will be administered or interpreted. The trend has been toward more stringent environmental standards. Compliance with more stringent Environmental Laws or more vigorous enforcement policies or stricter interpretation of current Environmental Laws could have a material adverse effect on the Company's financial condition or results of operation. (See also Item 3 "Legal Proceedings") Safety and Health Matters. The Company's facilities and operations are governed by laws and regulations relating to worker health and workplace safety. The Company believes that appropriate precautions are taken to protect employees and others from harmful exposure to materials handled and managed at its facilities. The Company does not believe that it will be required in the near future to expend amounts that are material in the aggregate to the Company's overall operations by reason of such health and safety laws and regulations. Insurance. The Company maintains property insurance and other insurance such as business interruption and boiler and machinery insurance on all of its plants in types and amounts believed to be customary for companies engaged in similar operations. The Company also maintains environmental liability insurance policies which, under certain circumstances, provide coverage in the event of certain off-site environmental damage resulting from the facilities' on-site operations of $5.0 million per occurrence and $10.0 million annual aggregate at each of its cement manufacturing facilities. The policies contain a number of exclusions, including liabilities arising under CERCLA, fines and penalties. Employees. As of December 31, 1996, the Company employed approximately 408 people. Approximately 256 of the Company's employees are covered by contracts with labor unions which expire on April 30, 1997 and April 30, 1998. The Company considers relations with employees to be satisfactory. The Company has substantially reduced its work force from approximately 550 persons at December 31, 1991, to approximately 408 persons at December 31, 1996, through voluntary early retirement programs offered to certain groups of employees and other measures. Trademarks. While the Company has trademarks registered with the United States and with certain states in which its products are sold, the Company believes that its products are sold primarily on the basis of price, and to a lesser extent, quality and service. 10 While the Company will endeavor to negotiate a new agreement between Giant Cement and the union effective May 1, 1997, there can be no assurance that an agreement will be reached on terms favorable to the Company, nor can there be assurance that the Company will not incur work stoppages, slowdowns or a strike which could have a material adverse effect on the Company's results of operations. Seasonal and Cyclical Business. Regional cement markets are highly cyclical, experiencing volatility corresponding to regional construction cycles. While the impact on the Company of regional downturns in the construction industry may be mitigated to some degree by the Company's presence in both the Middle-Atlantic and South-Atlantic markets, profitability is significantly affected by such construction cycles. In addition, the cement industry is seasonal in nature primarily due to the effect of weather conditions on construction activity. The Company has historically experienced lower operating income during the months of December, January and February, particularly with respect to its Pennsylvania operations where construction activity is more significantly affected by inclement weather. The cement industry is highly dependent upon the level of cement demand as a result of the high fixed costs associated with production. The Company's cost per ton of production is directly related to the number of tons of cement manufactured; decreases in production increase the Company's fixed cost per ton. Equipment utilization percentages or uptime can vary from year to year based upon demand for the Company's products or as a result of equipment failure. Much of the Company's significant manufacturing equipment requires long lead-times to replace and is very costly to replace or repair. The Company attempts to maintain sufficient spare parts inventories to avoid long periods of shutdown in the event of equipment failure, but there can be no assurance such shutdowns can be avoided. Financial Information About Foreign and Domestic Operations and Export Sales The Company does not export products in the normal course of operations; however, through its subsidiaries, it exports an insignificant amount of products from time to time. Disclosure Regarding Forward Looking Statements The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward looking statements. Certain information in Items 1, 3 and 7 of this Form 10-K include information that is or could be considered to be forward looking, such as the Company's development of techniques to increase the proportion of higher revenue waste solids used in its resource recovery activities, its exposure to foreign imports, its anticipated liquidity and capital requirements, and the results of legal proceedings. The matters referred to in forward looking statements could be affected by the risks and uncertainties involved in the Company's business. These risks and uncertainties include, but are not limited to: the effect of national, regional and local economic conditions, changes in the level of housing starts or commercial, industrial and infrastructure construction spending, increases in cement supplies in relation to demand, possible increases in shipping rates or interruptions in shipping service, the level and volatility of interest rates, the impact of current, pending, or future legislation and regulation, as well as certain other risks described above in this Item under "Competition", "Environmental Matters" and "Seasonal and Cyclical Business", and below in Item 3 in "Legal Proceedings" and in Item 7 in "Management's Discussion and Analysis of Financial Condition and Results of Operations ." Subsequent written and oral forward looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere in this Form 10-K. Executive Officers of the Registrant Set forth below are the executive officers of the Company, together with their ages, their positions with the Company and the year in which they first became an officer of the Company or its subsidiaries. Gary L. Pechota, 47, has served as Chairman, President and Chief Executive Officer of the Company since its inception in April 1994. Mr. Pechota has also served as Chairman of Giant and GRR since January 1993, as Chairman of Keystone since September 1992 and as President of Keystone since May 1992. Prior to joining Keystone, Mr. Pechota served as President and Chief Executive Officer of Dacotah Cement Company, a state-owned cement 11 company, from January 1982 to May 1992. Mr. Pechota has been employed in the cement industry for over 15 years. Terry L. Kinder, 38, has served as Vice President, Chief Financial Officer, Secretary, Treasurer and a director of the Company since April 1994. Mr. Kinder has served as Vice President, Secretary and Treasurer of Giant Group, Ltd. ("GROUP"), the Company's former parent, from June 1986 to September 29, 1994. From June 1989 to December 1992, Mr. Kinder also served as Chairman of Giant and GRR, and from June 1989 to August 1992, he served as Chairman of Keystone. Prior to joining GROUP, Mr. Kinder was a Certified Public Accountant with Coopers & Lybrand from January 1980 to June 1986. Richard A. Familia, 44, has served as Vice President, Environmental Affairs of the Company since April 1994. Mr. Familia has also served as President and Chief Operating Officer of GRR since February 1992. From 1987 to February 1992, he served as Director of Operations for various operating facilities of Laidlaw Environmental Services, Inc., a publicly- held company engaged in various environmental and other businesses. Mr. Familia has been employed in the environmental industry for over 20 years. ITEM 2. PROPERTIES Harleyville, South Carolina Cement Plant. The Company owns approximately 2,100 acres of land near Harleyville, South Carolina, where Giant's plant and the quarry for its primary raw material are located. Giant's manufacturing plant includes crushing, raw grinding, finished cement grinding and other cement processing facilities. The ages of the plant kilns range from 21 to 44 years. Bath, Pennsylvania Cement Plant. The Company owns approximately 1000 acres of land located in the Bath, Pennsylvania area, where Keystone's plant and the quarries for its primary raw material are located. The plant includes crushing, raw grinding, finished cement grinding and other cement processing facilities. One of its cement kilns was installed in 1956 and the other in 1966. The Company's manufacturing facilities have an annual rated clinker capacity of approximately 1.4 million tons and an annual rated cement grinding capacity of 1.7 million tons. The Company believes that these facilities are adequately maintained and suitable for its purposes. Other Properties. The Company's and Giant's headquarters are located in leased space in Summerville, South Carolina. The Company also operates a distribution facility on its land in Durham, North Carolina, which has storage facilities for approximately 775 tons of cement, and rents warehouse space in Atlanta , Georgia, as well as in Durham and Charlotte, North Carolina. Keystone's offices are located in leased space in Bath, Pennsylvania. The majority of the Company's assets are pledged as collateral under the terms of financing agreements. (See Note 6 of Notes to Consolidated Financial Statements) ITEM 3. LEGAL PROCEEDINGS On September 18, 1995, Pennsylvania Environmental Enforcement Project, Inc. ("PEEP") filed suit against Keystone Cement Company in the United States District Court for the Eastern District of Pennsylvania. PEEP is a public interest organization incorporated on August 15, 1995. In August 1996, Keystone and PEEP reached settlement agreement, which had no financial or operating impact on the Company, and the suit was dismissed with prejudice. 12 In April 1995, the PADEP issued Keystone an air quality plan approval with new requirements for emission rates, operating conditions, and a risk assessment. While the new air quality plan approval left Keystone's waste fuel substitution rates intact, Keystone subsequently filed an appeal with the Pennsylvania Environmental Hearing Board (EHB) challenging certain permit conditions as outside the PADEP's authority, among other things. On March 11, 1997 the EHB entered a Partial Consent Adjudication in which Keystone and the PADEP agreed to a process to resolve all outstanding issues. Under the Consent Adjudication, Keystone agreed to perform a multipath risk assessment in accordance with a negotiated protocol and the PADEP agreed to process and publish a permit modification allowing Keystone to increase its hazardous waste fuel usage to 75% of its fuel needs if the risk assessment meets certain risk thresholds. Keystone has been identified as a PRP under CERCLA at a site in Southington, Connecticut. According to the U. S. EPA Volumetric Ranking List, dated July 22, 1993, Keystone's percentage of waste disposed of at the site is three one-hundredths of a percent (.03%) of the total attributable to identifiable parties. Because liability under CERCLA is joint and several, the insolvency or discharge from liability of any other PRP could increase the Company's potential liability. Although no assurances can be given that this percentage represents a limitation on Keystones's liability, the Company believes that the final outcome of this matter will not have a material adverse effect on the Company's financial condition or results of operations. The basis for the Company's estimate as to the probable effect of these proceedings is its current analysis of such proceedings. Should the determination of these proceedings be adverse to the Company, such result could have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information included in the section entitled "Market and Dividend Information" in the 1996 Annual Report is incorporated herein by reference. ITEM 6.SELECTED FINANCIAL DATA The information included in the section entitled "Five-Year Summary of Consolidated Financial Data" in the 1996 Annual Report is incorporated herein by reference. ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information included in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1996 Annual Report is incorporated herein by reference. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company, quarterly results of operations, and the Report of Independent Accountants, appearing in the 1996 Annual Report, are incorporated herein by reference. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 PART III ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by these items, other than information set forth in this Form 10-K under Item I, "Executive Officers of Registrant," is omitted because the Company is filing a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Report which includes the required information. The required information contained in the Company's proxy statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents Filed as Part of this Report: (1) The following financial statements of Giant Cement Holding, Inc. required to be filed as part of this Report on Form 10-K are incorporated herein by reference to the 1996 Annual Report, attached hereto as Exhibit 13: Report of Independent Accountants Consolidated Balance Sheets, December 31, 1996 and 1995 Consolidated Statements of Income, for the years 1996, 1995 and 1994 Consolidated Statements of Cash Flows, for the years 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity, for the years 1996, 1995, and 1994 Notes to Consolidated Financial Statements Five-Year Summary of Consolidated Financial Data Quarterly Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations Market and Dividend Information (2) The following financial statement schedule of GIANT CEMENT HOLDING, INC. is attached: Schedule II - Valuation and Qualifying Accounts - Years ended December 31, 1996, 1995 and 1994 Report of Independent Accountants 14 (b) Exhibits Exhibit No . Description of Exhibit - ------- ---------------------- 3.1 Certificate of Incorporation (Exhibit 3.1 to Registration No. 33-78260 is incorporated herein by reference). 3.2 By-Laws (Exhibit 3.2 to Registration No. 33-78260 is incorporated herein by reference). 4 Specimen form of stock certificate for Common Stock (Exhibit 4 to Amendment 3 to Registration No. 33-78260 is incorporated herein by reference). 10.1 Registrant's 1994 Employee Stock Option Plan (Exhibit 10.1 to Registration No. 33-78260 is incorporated herein by reference). 10.2 Registrant's 1994 Outside Director Stock Option Plan (Exhibit 10.2 to Registration No. 33-78260 is incorporated herein by reference). 10.3 Form of Employment Agreement between the Company and Gary L. Pechota, as amended (Exhibit 10. 3 to Amendment 1 to Registration No. 33-78260 is incorporated herein by reference). 10.4 Form of Employment Agreement between the Company and Terry L. Kinder, as amended (Exhibit 10.4 to Amendment 1 to Registration No. 33-78260 is incorporated herein by reference). 10.5.1 Loan and Security Agreement, dated November 23,1993, between Giant and The CIT Group/Equipment Financing, Inc. ("CIT") (Exhibit 10.5.1 to Registration No. 33-78260 is incorporated herein by reference). 10.5.2 Secured Promissory Note, date November 23, 1993, from Giant to CIT (Exhibit 10.5.2 to Registration No. 33-78260 is incorporated herein by reference). 10.5.3 South Carolina Mortgage and Security Agreement, dated November 23, 1993, between Giant and CIT (Exhibit 10.5.3 to Registration No. 33-78260 is incorporated herein by reference). 10.5.4 Continuing Guarantee Agreement, dated November 23, 1993, between Giant and CIT (Exhibit 10.5.4 to Registration No. 33-78260 is incorporated herein by reference). 10.5.5 Collateral Value Maintenance Agreement, dated November 23,1993, between Giant and CIT (Exhibit 10.5.5 to Registration No. 33- 78260 is incorporated herein by reference). 10.5.6 Form of First Amendment to Loan and Security Agreement between Giant and CIT (Exhibit 10.5.6 to Amendment 4 to Registration No. 33-78260 is incorporated herein by reference). 10.5.7 Form of Continuing Guaranty Agreement by the Company in favor of CIT (Exhibit 10.5.7 to Amendment 4 to Registration No. 33-78260 is incorporated herein by reference). 10.5.8 Form of Second Amendment to Loan and Security Agreement between Giant and CIT. 10.5.9 Secured Promissory Note, dated August 31, 1995, from Giant to CIT. 10.6 Form of Release and Indemnification Agreement between GROUP, KCC Delaware Company, and the Company (Exhibit 10.7 to Amendment 5 to Registration No. 33-78260 is incorporated herein by reference). 15 10.7.1 Tax Sharing Agreement, dated November 23, 1993, between the Company and GROUP (Exhibit 10.6.4 to Registration No. 33-78260 is incorporated herein by reference). 10.7.2 Form of Tax Sharing and Indemnification Agreement between the Company and GROUP (Exhibit 10.6.5 to Amendment 3 to Registration No. 33-78260 is incorporated herein by reference). *10.8 Credit Agreement, dated December 20, 1996, between GCHI, Giant, Keystone, GRR, GCHI Investments and Giant NC and SouthTrust Bank of Alabama. *13 Copy of the Company's Annual Report to Shareholders for the Year ended December 31, 1996. *21 List of Subsidiaries. *23(a) Consent of Coopers & Lybrand L.L.P. *27 Financial Data Schedule *Filed herewith 16 (c) Filed on Form 8-K: During the quarter ended December 31,1996, the Company filed the following report on Form 8-K: None (d) Exhibits Required by Item 601 of Regulation S-K: Described in Item 14 (b) of this Annual Report on Form 10-K. (e) Separate Financial Statements and Schedules Not applicable. 17 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Giant Cement Holding, Inc. -------------------------- Registrant Date: March 25, 1997 By: /S/Gary Pechota ------------------------ Gary Pechota Chairman PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. Date: March 25, 1997 By: /S/Gary Pechota ------------------------ Gary Pechota Chairman of the Board, President and Chief Executive Officer (Director and Principal Executive Officer) Date: March 25, 1997 By: /S/Terry L. Kinder ------------------------ Terry L. Kinder Vice President and Chief Financial Officer Secretary and Treasurer (Director and Principal Financial and Accounting Officer) Date: March 25, 1997 By: /S/Dean M. Boylan ------------------------ Dean M. Boylan Director Date: March 25, 1997 By: /S/Edward Brodsky ------------------------ Edward Brodsky Director Date: March 25, 1997 By: /S/Robert L. Jones ------------------------ Robert L. Jones Director 18 ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1996 ITEM 14(a)(2) FINANCIAL STATEMENT SCHEDULE GIANT CEMENT HOLDING, INC. GIANT CEMENT HOLDING, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL.D COL.E Additions Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions (1) of Period - ----------- --------- ---------- -------------- --------- Year ended December 31, 1996 Deducted from related current asset accounts: Accounts receivable: Allowance for doubtful accounts $ 750,000 $ 344,000 $ 258,000 (1) $ 836,000 Allowance for cash discounts 233,000 2,389,000 2,325,000 (2) 287,000 ---------- ---------- ---------- ---------- $ 973,000 $2,733,000 $2,583,000 $1,123,000 ========== ========== ========== ========== Year ended December 31, 1995 Deducted from related current asset accounts: Accounts receivable: Allowance for doubtful accounts $ 755,000 $ 157,000 $ 182,000 (1) $ 752,000 Allowance for cash discounts 219,000 1,942,000 1,938,000 (2) 223,000 ---------- ---------- ---------- ---------- $ 994,000 $2,099,000 $2,120,000 $ 973,000 ========== ========== ========== ========== Year ended December 31, 1994 Deducted from related current asset accounts: Accounts receivable: Allowance for doubtful accounts $ 825,000 $ 378,000 $ 182,000 (1) $ 775,000 Allowance for cash discounts 298,000 1,647,000 1,938,000 (2) 219,000 ---------- ---------- ---------- ---------- $1,123,000 $1,965,000 $2,120,000 $ 994,000 ========== ========== ========== ==========
Notes: (1) Uncollectible accounts written off, net of recoveries (2) The Company's normal payment terms allow a $1 per ton discount for payment by the 10th day of the month following shipment (net 30), which the Company believes is a standard industry practice. The deductions above represent cash discounts allowed for prompt payment and other allowances. REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders Giant Cement Holding, Inc.: Our report on the consolidated financial statements of Giant Cement Holding, Inc. has been incorporated by reference in this Form 10-K from the 1996 Annual Report to Shareholders of Giant Cement Holding, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand, L.L.P. GIANT CEMENT HOLDING, INC. EXHIBITS TO FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1996 EXHIBIT INDEX Exhibit ------------- No. Description of Exhibit - ------ ---------------------- 10.8 Credit Agreement, dated December 20, 1996, from GCHI, Giant, Keystone, GCHI Investments and Giant NC to SouthTrust Bank of Alabama. 13 Copy of the Company's Annual Report to Shareholders for the Year ended December 31, 1996. 21 List of Subsidiaries. 23(a) Consent of Coopers & Lybrand LLP 27 Financial Data Schedule EX-10 2 Exhibit 10.8 CREDIT AGREEMENT - --------------------------------------------------------------------------- CREDIT AGREEMENT by and among GIANT CEMENT HOLDING, INC. GIANT CEMENT COMPANY, KEYSTONE CEMENT COMPANY, GIANT RESOURCE RECOVERY COMPANY, INC., GCHI INVESTMENTS, INC. and GIANT CEMENT NC, INC. as Borrowers and SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, as Agent and as Lender December 20, 1996 ___________________________________________________________________________ TABLE OF CONTENTS Page ARTICLE I Definitions and Terms 1.1 Definitions 2 1.2 Accounting Terms 16 1.3 UCC Terms 16 ARTICLE II The Revolving Credit Facility 2.1 Revolving Loans 17 2.2 Payment of Interest 19 2.3 Payment of Principal 20 2.4 Revolving Credit Notes 20 2.5 Pro Rata Payments 21 2.6 Reductions 21 2.7 Conversions 21 2.8 Fee. 22 2.9 Deficiency Advances 22 2.10 Use of Proceeds 22 2.11 Extension of Revolving Credit Termination Date 22 2.12 Appointment of Giant Holding and Authorized Representatives as Agents for the Borrowers. 23 ARTICLE IIA The Letter of Credit Facility 2A.1 Letters of Credit 23 2A.2 Reimbursement 23 2A.3 Letter of Credit Fee 26 2A.4 Administrative Fees 27 ARTICLE III Yield Protection and Illegality i 3.1 Additional Costs 27 3.2 Suspension of Loans 28 3.3 Illegality 29 3.4 Compensation 29 3.5 Alternate Loan and Lender 29 3.6 Taxes 30 ARTICLE IV Conditions Precedent 4.1 Conditions of Initial Advance and Issuance of Letters of Credit 31 4.2 Conditions of Revolving Loans and Issuance of Letters of Credit 34 ARTICLE V Representations and Warranties 5.1 Organization and Authority 35 5.2 Loan Documents 35 5.3 Solvency 36 5.4 Subsidiaries and Stockholders 36 5.5 Ownership Interests 36 5.6 Financial Condition 36 5.7 Title to Properties 36 5.8 Taxes 37 5.9 Other Agreements 37 5.10 Litigation 37 5.11 Margin Stock 37 5.12 Investment Company 37 5.13 Patents, Etc. 38 5.14 No Untrue Statement 38 5.15 No Consents, Etc. 38 5.16 Employee Benefit Plans 38 5.17 No Default 39 5.18 Hazardous Materials 39 5.19 RICO 39 5.20 Employment Matters 40 ARTICLE VI Affirmative Covenants 6.1 Financial Reports, Etc. 40 ii 6.2 Maintain Properties 41 6.3 Existence, Qualification, Etc. 41 6.4 Regulations and Taxes 42 6.5 Insurance 42 6.6 True Books 42 6.7 Pay Indebtedness to Lenders and Perform Other Covenants 42 6.8 Payment of Other Indebtedness 42 6.9 Right of Inspection 42 6.10 Observe all Laws 43 6.11 Officer's Knowledge of Default 43 6.12 Suits or Other Proceedings 43 6.13 Environmental Compliance 43 6.14 Indemnification 43 6.15 Further Assurances 43 6.16 Employee Benefit Plans 43 6.17 Termination Events 44 6.18 ERISA Notices 44 6.19 Continued Operations 44 6.20 Use of Proceeds 44 6.21 New Subsidiaries 44 6.22 Substitution Letters of Credit 45 ARTICLE VII Negative Covenants 7.1 Consolidated Indebtedness for Money Borrowed to Consolidated Tangible Net Worth Ratio 45 7.2 Consolidated Fixed Charge Ratio 46 7.3 Current Ratio 46 7.4 Capital Expenditures 46 7.5 Consolidated Tangible Net Worth 46 7.6 Liens 46 7.7 Consolidated Indebtedness 47 7.8 Transfer of Assets 48 7.9 Investments; Acquisitions. 48 7.10 Merger or Consolidation 49 7.11 Change in Control 49 7.12 Transactions with Affiliates 50 7.13 Compliance with ERISA 50 7.14 Fiscal Year 51 7.15 Limitations on Sales and Leasebacks 51 7.16 Negative Pledge Clauses 51 iii ARTICLE VIII Events of Default and Acceleration 8.1 Events of Default 51 8.2 Agent to Act 54 8.3 Cumulative Rights 54 8.4 No Waiver 54 8.5 Allocation of Proceeds 55 ARTICLE IX The Agent 9.1 Appointment 55 9.2 Attorneys-in-fact 55 9.3 Limitation on Liability 56 9.4 Reliance 56 9.5 No Representations 56 9.6 Indemnification 57 9.7 Lender 57 9.8 Resignation 57 9.9 Sharing of Payments, etc 58 9.10 Fees 58 ARTICLE X Miscellaneous 10.1 Confidentiality. 58 10.2 Assignments and Participations 59 10.3 Notices 61 10.4 Setoff 62 10.5 Survival 62 10.6 Expenses 63 10.7 Amendments 63 10.8 Counterparts 64 10.9 Termination 64 10.10 Governing Law 64 10.11 Indemnification 66 10.12 Headings and References 66 10.13 Severability. 66 10.14 Entire Agreement 66 iv 10.15 Agreement Controls 66 10.16 Usury Savings Clause 66 10.17 Joint and Several Obligations 67 EXHIBIT A Applicable Commitment Percentages A-1 EXHIBIT B Form of Assignment and Acceptance B-1 EXHIBIT C Notice of Appointment (or Revocation) of AuthorizedRepresentative C-1 EXHIBIT D Giant Cement Holding, Inc.Request For Advance/Interest Rate Election D-1 EXHIBIT E Form of Revolving Note E-1 EXHIBIT F Form of Security Agreement F-1 EXHIBIT G Form of Opinion of Borrowers' Counsel G-1 EXHIBIT H Compliance Certificate H-1 Schedule 5.5 Ownership Interests Schedule 5.6 Indebtedness Schedule 5.7 Liens Schedule 5.16 Employee Benefit Plans Schedule 5.18 Hazardous Materials Schedule 7.9 Investments v Credit Agreement THIS CREDIT AGREEMENT, dated as of December 20, 1996 (the "Agreement"), is made by and among GIANT CEMENT HOLDING, INC., a Delaware corporation ("Giant Holding"), GIANT CEMENT COMPANY, a Delaware corporation and wholly owned subsidiary of Giant Holding ("Giant Cement"), KEYSTONE CEMENT COMPANY, a Pennsylvania corporation and wholly owned subsidiary of Giant Holding ("Keystone"), GIANT RESOURCE RECOVERY COMPANY, INC., a Delaware corporation and wholly owned subsidiary of Giant Holding ("Giant Resource"), GCHI INVESTMENTS, INC., a Delaware corporation and wholly owned subsidiary of Giant Holding ("GCHI"), and GIANT CEMENT NC, INC., a South Carolina corporation and wholly owned subsidiary of Giant Holding ("Giant NC") (Giant Holding, Giant Cement, Keystone, Giant Resource, GCHI and Giant NC are also referred to individually herein as a "Borrower" and collectively as the "Borrowers"), SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States, in its capacity as a Lender, and each other lender executing and delivering a signature page hereto and each other lender which may hereafter execute and deliver an instrument of assignment with respect to this Agreement pursuant to Section 10.1 hereof (hereinafter such lenders may be referred to individually as a "Lender" or collectively as the "Lenders"), and SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America ("SouthTrust"), in its capacity as agent for the Lenders (in such capacity, and any successor appointed in accordance with the terms of Section 9.8 hereof, the "Agent"); W I T N E S S E T H: ------------------- WHEREAS, the Borrowers have requested that the Lenders make available to the Borrowers credit facilities consisting of a revolving credit facility in the maximum aggregate principal amount at any time outstanding of $30,000,000 and a letter of credit facility of up to $2,000,000, the proceeds of such credit facilities to be used to refinance certain existing long term indebtedness and outstanding letters of credit and for general working capital needs; and WHEREAS, the Lenders are willing to make the credit facilities available to the Borrowers upon the terms and conditions set forth herein; NOW, THEREFORE, each of the Borrowers, the Lenders and the Agent hereby agree as follows: ARTICLE I Definitions and Terms --------------------- I.1 Definitions. For the purposes of this Agreement, in addition to the definitions set forth above, the following terms shall have the respective meanings set forth below: "Accounts" means all Accounts of the Borrowers as defined in the Security Agreement; "Account Debtor" means any Person who is or who may become obligated to any Borrower under or on account of an Account; "Acquisition" means the acquisition of (i) a controlling equity interest in another Person (including the purchase of an option, warrant or convertible or similar type security to acquire such a controlling interest at the time it becomes exercisable by the holder thereof), whether by purchase of such equity interest or upon exercise of an option or warrant for, or conversion of securities into, such equity interest, or (ii) assets of another Person for which the Cost of Acquisition equals or exceeds $1,000,000; "Advance" means any borrowing under the Revolving Credit Facility consisting of a Base Rate Loan or a Eurodollar Rate Loan; "Affiliate" means any Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, any Borrower; (ii) which beneficially owns or holds 10% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 10% or more of the equity interest) of any Borrower; or (iii) 10% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 10% or more of the equity interest) of which is beneficially owned or held by any Borrower. The term "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 ownership of voting stock, by contract or otherwise; "Applicable Commitment Percentage" means, with respect to each Lender at any time, a fraction, the numerator of which shall be the sum of such Lender's Revolving Credit Commitment and Letter of Credit Commitment at such time and the denominator of which shall be the sum of the Total Revolving Credit Commitment and the Total Letter of Credit Commitment at such time, which Applicable Commitment Percentage for each Lender as of the Closing Date is as set forth in Exhibit A attached hereto and incorporated herein by reference; provided that the Applicable Commitment Percentage of each Lender shall be increased or decreased to reflect any assignments to or by such Lender effected in accordance with Section 10.1 hereof; 2 "Applications for Letters of Credit" means, collectively, the applications for letters of credit in the form provided by the Issuing Bank and executed by the Borrowers from time to time and delivered to Issuing Bank to support the issuance of Letters of Credit; "Assignment and Acceptance" shall mean an Assignment and Acceptance in the form of Exhibit B (with blanks appropriately filled in) delivered to the Agent in connection with an assignment of a Lender's interest under this Agreement pursuant to Section 10.1 hereof; "Authorized Representative" means the President or Vice President of Giant Holding or, with respect to financial matters, the chief financial officer or treasurer of Giant Holding or any other person expressly designated by the Board of Directors (or the appropriate committee thereof) of each Borrower as an Authorized Representative of all Borrowers, as set forth from time to time in a certificate in the form attached hereto as Exhibit C; "Base Rate" means the per annum rate of interest established from time to time by SouthTrust at its principal office as its Base Rate. Any change in the Base Rate shall become effective as of 12:01 A.M. of the Business Day on which each change in the Base Rate is announced by SouthTrust. The Base Rate is a reference rate used by SouthTrust in determining interest rates on certain loans and is not intended to be the lowest rate of interest charged on any extension of credit to any debtor; "Base Rate Loan" means a Loan for which the rate of interest is determined by reference to the Base Rate; "Board" means the Board of Governors of the Federal Reserve System (or any successor body); "Borrowers' Account" means a demand deposit account number 60797104 with SouthTrust Bank of South Carolina, N.A., or any successor account with the Agent or an affiliate, which may be maintained at one or more offices of the Agent or an agent of the Agent; "Business Day" means, (i) with respect to any Base Rate Loan, any day which is not a Saturday, Sunday or a day on which banks in the State of Alabama are authorized or obligated by law, executive order or governmental decree to be closed and, (ii) with respect to any Eurodollar Rate Loan, any day which is a Business Day, as described above, and on which the relevant international financial markets are open for the transaction of business contemplated by this Agreement in London, England, New York, New York and Birmingham, Alabama; "Capital Expenditures" means, with respect to the Borrowers, for any period, expenditures or costs in connection with Capital Leases and costs for fixed or capital assets or improvements made by any Borrower during such period which in accordance with GAAP applied on a Consistent Basis are characterized as capital expenditures; 3 "Capital Leases" means all leases which have been or should be capitalized in accordance with GAAP as in effect from time to time including Statement No. 13 of the Financial Accounting Standards Board and any successor thereof; "Closing Date" means the date as of which this Agreement is executed by each of the Borrowers, the Lenders and the Agent and on which the conditions set forth in Section 4.1 hereof have been satisfied; "Code" means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder; "Collateral" has, collectively, the meaning given to such term in each Security Instrument in which it may appear; "Consistent Basis" in reference to the application of GAAP means the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preparation of the audited consolidated financial statements of the Borrowers referred to in Section 5.6(a) hereof; "Consolidated Current Assets" means all items that would be classified as current assets on a consolidated balance sheet of the Borrowers in accordance with GAAP applied on a Consistent Basis; "Consolidated Current Liabilities" means all items that would be classified as current liabilities on a consolidated balance sheet of the Borrowers, including all current maturities of long term Consolidated Indebtedness for Money Borrowed, in accordance with GAAP applied on a Consistent Basis; "Consolidated EBITDA" means, with respect to the Borrowers for any period of computation thereof, the sum of, without duplication, (i) Consolidated Net Income during such period, plus (ii) Consolidated Interest Expense accrued during such period, plus (iii) taxes on income accrued during such period, plus (iv) amortization during such period, plus (v) Depreciation during such period, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; "Consolidated Fixed Charge Ratio" means, with respect to the Borrowers for the period of computation thereof, the ratio of (i) Consolidated EBITDA for such period plus Consolidated Lease Expense for such period, to (ii) Consolidated Fixed Charges for such period; "Consolidated Fixed Charges" means, with respect to the Borrowers for any period of computation thereof, the sum of, without duplication, (i) Consolidated Interest Expense during such period, plus (ii) Consolidated Lease Expense during such period, plus (iii) current maturities of Consolidated Indebtedness for Money Borrowed actually paid during such period, all determined in accordance with GAAP applied on a Consistent Basis; 4 "Consolidated Indebtedness" means, as of any date on which the amount thereof is to be determined, all Indebtedness of the Borrowers as determined on a consolidated basis; "Consolidated Indebtedness for Money Borrowed" means, as of any date on which the amount thereof is to be determined, all Indebtedness for Money Borrowed of the Borrowers, exclusing for purposes of Section 7.1 the undrawn amount of letters of credit, as determined on a consolidated basis; "Consolidated Interest Expense" means, for any period of computation thereof, the gross interest expense of the Borrowers, including without limitation (i) the current amortized portion of debt discounts to the extent included in gross interest expense, (ii) the current amortized portion of all fees (including, without limitation, fees payable in respect of a Swap Agreement) payable in connection with the incurrence of Consolidated Indebtedness to the extent included in gross interest expense and (iii) the portion of any payments made in connection with Capital Leases allocable to interest expense, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; "Consolidated Lease Expense" means, for any period of computation thereof, all amounts paid or accrued by the Borrowers during such period under operating leases (whether or not constituting rental expense), as determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; "Consolidated Net Income" means, for any period of computation thereof, the gross revenues from operations of the Borrowers (including payments received by the Borrowers of interest income and dividends and distributions from investments not related to an extraordinary event) less all operating and non-operating expenses of the Borrowers all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; but excluding as income for all purposes other than the computations required under Section 7.5(ii)(B) the aggregate amount of all of the following in excess of $500,000: (i) net gains on the sale, conversion or other disposition of capital assets, (ii) net gains on the acquisition, retirement, sale or other disposition of capital stock and other securities of any Borrower, (iii) net gains on the collection of proceeds of life insurance policies, (iv) any write-up of any asset, and (v) any other net gain or credit of an extraordinary nature, all determined in accordance with GAAP applied on a Consistent Basis; "Consolidated Shareholders' Equity" means, as of any date on which the amount thereof is to be determined, the sum of the following in respect of the Borrowers (excluding any upward adjustment after the Closing Date due to revaluation of assets): (i) the amount of issued and outstanding share capital, plus (ii) the amount of additional paid- in capital and retained earnings (or, in the case of a deficit, minus the amount of such deficit), plus (iii) the amount of any foreign currency translation adjustment (if positive, or, if negative, minus the amount of such translation adjustment), minus (iv) the amount of any treasury stock, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; "Consolidated Tangible Net Worth" means, with respect to the Borrowers as of any date on which the amount thereof is to be determined, Consolidated Shareholders' Equity minus the net book value of all assets of the Borrowers which would be treated as intangible assets determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; 5 "Contingent Obligation" of any Person means all contingent liabilities required (or which, upon the creation or incurring thereof, would be required) to be included in the financial statements (including footnotes) of such Person in accordance with GAAP applied on a Consistent Basis, including Statement No. 5 of the Financial Accounting Standards Board, and any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including obligations of such Person however incurred: (1) to purchase such Indebtedness or other obligation or any property or assets constituting security therefor; (2) to advance or supply funds in any manner (i) for the purchase or payment of such Indebtedness or other obligation, or (ii) to maintain a minimum working capital, net worth or other balance sheet condition or any income statement condition of the primary obligor; (3) to grant or convey any lien, security interest, pledge, charge or other encumbrance on any property or assets of such Person to secure payment of such Indebtedness or other obligation; (4) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner or holder of such Indebtedness or obligation of the ability of the primary obligor to make payment of such Indebtedness or other obligation; or (5) otherwise to assure the owner of the Indebtedness or such obligation of the primary obligor against loss in respect thereof; "Cost of Acquisition" means, with respect to any Acquisition, as at the date of entering into any agreement therefor, the sum of the following (without duplication): (i) the value of the capital stock, warrants or options to acquire capital stock of any Borrower to be transferred in connection therewith, (ii) any cash or other property (excluding property described in clause (i)) and the unpaid principal amount of any debt instrument given as consideration, (iii) any Indebtedness assumed by any Borrower in connection with such Acquisition, and (iv) out of pocket transaction costs for the services and expenses of attorneys, accountants and other consultants incurred in effecting such a transaction, and other similar transaction costs so incurred. For purposes of determining the Cost of Acquisition for any transaction, (A) the capital stock of Giant Holding shall be valued (I) at its market value as reported on the Nasdaq National Market System with respect to shares that are freely tradeable, and (II) with respect to shares that are not freely tradeable, as determined by the Board of Directors of Giant Holding and, if requested by the Agent, determined to be a reasonable valuation by an 6 independent firm selected by the Agent, (B) the capital stock of any Borrower other than Giant Holding shall be valued as determined by the Board of Directors of such Borrower and, if requested by the Agent, determined to be a reasonable valuation by an independent firm selected by the Agent, and (C) with respect to any Acquisition accomplished pursuant to the exercise of options or warrants or the conversion of securities, the Cost of Acquisition shall include both the cost of acquiring such option, warrant or convertible security as well as the cost of exercise or conversion; "Default" means any event or condition which, with the giving or receipt of notice or lapse of time or both, would constitute an Event of Default hereunder; "Depreciation" means, with respect to the Borrowers for any period of computation thereof, the aggregate amount of depreciation accrued during such period as determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; "Dollars" and the symbol "$" means dollars constituting legal tender for the payment of public and private debts in the United States of America; "Eligible Securities" means the following obligations and any other obligations previously approved in writing by the Agent: (i) direct obligations of, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by, the United States of America; (ii) obligations of any corporation organized under the laws of any state of the United States or under the laws of any other nation, payable in the United States, expressed to mature not later than 90 days following the date of issuance thereof and rated in an investment grade rating category by Standard & Poor's Corporation and Moody's Investors Service, Inc.; and (iii) interest bearing demand or time deposits issued by any Lender or certificates of deposit, bankers acceptances and other "money market instruments" maturing within one hundred eighty (180) days from the date of issuance thereof and issued by a bank or trust company organized under the laws of the United States or of any state thereof having capital surplus and undivided profits aggregating at least $1,000,000; "Employee Benefit Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA which (a) is maintained for employees of any Borrower or is assumed by any Borrower in connection with any acquisition or any of its ERISA Affiliates or (b) has at any time been maintained for the employees of any Borrower or any current or former ERISA Affiliate; "Environmental Laws" means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments 7 and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other "Superfund" or "Superlien" law or any other federal, or applicable state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any Hazardous Material; "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder; "ERISA Affiliate", as applied to any Borrower, means any Person or trade or business which is a member of a group which is under common control with such Borrower, who together with such Borrower, is treated as a single employer within the meaning of Section 414(b) and (c) of the Code; "Eurodollar Rate Loan" means a Loan for which the rate of interest is determined by reference to the Eurodollar Rate; "Eurodollar Rate" means the interest rate per annum calculated according to the following formula: Eurodollar = Interbank Offered Rate + 1.75% Rate -------------------------------- 1- Eurodollar Reserve Percentage "Eurodollar Reserve Percentage" means, for any day, that percentage (expressed as a decimal) which is in effect from time to time or any successor regulation, as the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency, special, or marginal reserves) applicable with respect to Eurocurrency liabilities as that term is defined in Regulation D (or against any other category of liabilities that includes deposits by reference to which the interest rate of Eurodollar Rate Loans is determined), whether or not the Agent has any Eurocurrency liabilities subject to such requirements without benefits of credits or proration, exceptions or offsets that may be available from time to time to Agent. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage; "Event of Default" means any of the occurrences set forth as such in Section 8.1 hereof; "Facilities" means the Revolving Credit Facility and the Letter of Credit Facility; "Fiscal Year" means the fiscal year of the Borrowers ending on each December 31; "Foreign Benefit Law" means any applicable statute, law, ordinance, code, rule, regulation, order or decree of any foreign nation or any province, state, territory, protectorate or other 8 political subdivision thereof regulating, relating to, or imposing liability or standards of conduct concerning, any Employee Benefit Plan; "Four-Quarter Period" means a period of four full consecutive fiscal quarters of the Borrowers, taken together as one accounting period; "GAAP" means Generally Accepted Accounting Principles, being those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board, the American Institute of Certified Public Accountants or which have other substantial authoritative support and are applicable in the circumstances as of the date of a report, as such principles are from time to time supplemented and amended; "Governmental Authority" shall mean any Federal, state, municipal, national or other governmental department, commission, board, bureau, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether a state of the United States, the United States or foreign; "Hazardous Material" means and includes any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law; "Indebtedness" means with respect to any Person, (i) all Indebtedness for Money Borrowed, (ii) the undrawn face amount of, and unpaid Reimbursement Obligations in respect of, all letters of credit issued for the account of such Person; (iii) all indebtedness of such Person for the acquisition of property, (iv) all indebtedness secured by any Lien on the property of such Person whether or not such indebtedness is assumed, (v) all liability of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business), (vi) all Contingent Obligations, (vii) all Rate Hedging Obligations and (viii) that portion of obligations with respect to Capital Leases and each other item which in accordance with GAAP is classified as a liability on a balance sheet; provided that in no event shall the term Indebtedness include surplus and retained earnings, lease obligations (other than pursuant to Capital Leases), reserves for deferred income taxes and investment credits, other deferred credits and reserves, trade payables, accrued expenses and deferred compensation obligations and trade payables and accrued expenses incurred in the ordinary course of business; "Indebtedness for Money Borrowed" means with respect to any Person determined on a consolidated basis, all Indebtedness in respect of money borrowed, including without limitation all Capital Leases and the deferred purchase price of any property or asset, evidenced by a promissory note, bond, debenture or similar written obligation for the payment of money, other than trade payables and accrued expenses incurred in the ordinary course of business; 9 "Interbank Offered Rate" means, with respect to any Eurodollar Rate Loan for the Interest Period applicable thereto, the average (rounded upward to the nearest one-sixteenth (1/16) of one percent) per annum rate of interest determined by the office of the Agent then determining such rate (each such determination to be conclusive and binding) as of three Business Days prior to the first day of such Interest Period, as the effective rate at which deposits in immediately available funds in Dollars are being, have been, or would be offered or quoted by Agent to major banks in the applicable interbank market for Eurodollar deposits at any time during the Business Day which is the second Business Day immediately preceding the first day of such Interest Period, for a term comparable to such Interest Period and in the amount of the Eurodollar Rate Loan; "Interest Period" for each Eurodollar Rate Loan means a period commencing on the date such Eurodollar Rate Loan is made or converted and each subsequent period commencing on the last day of the immediately preceding Interest Period for such Eurodollar Rate Loan, and ending on the date 30, 60 or 90 days thereafter either as notified to the Agent by the Authorized Representative three (3) Business Days prior to the beginning of such Interest Period by delivery of a Request for Advance/Interest Rate Election or as otherwise determined in accordance with Section 2.1(d)(iii) hereof; provided, that, (i) if an Interest Period for a Eurodollar Rate Loan would end on a day which is not a Business Day such Interest Period shall be extended to the next Business Day; and (ii) there shall not be more than five (5) Interest Periods in effect on any day; "Inventory" means all Inventory of the Borrowers as defined in the Security Agreement; "Issuing Bank" means South Trust Bank of Alabama, National Association, or any successor or replacement bank, as issuer of Letters of Credit in accordance with Article IIA hereof; "Lending Office" means, as to each Lender, the Lending Office of such Lender designated on the signature pages hereof or in an Assignment and Acceptance or such other office of such Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the Authorized Representative and the Agent as the office by which its Loans are to be made and maintained; "Letter of Credit" means any Standby Letter of Credit issued by Issuing Bank for the account of the Borrowers as described in Article IIA hereof; "Letter of Credit Commitment" means with respect to each Lender, the obligation of such Lender to acquire Participations up to an aggregate stated amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Letter of 10 Credit Commitment as the same may be increased or decreased from time to time pursuant to this Agreement; "Letter of Credit Facility" means the facilities described in Article IIA hereof providing for the issuance by Issuing Bank for the account of the Borrowers of Letters of Credit in an aggregate stated amount at any time outstanding not exceeding the Total Letter of Credit Commitment; "Letter of Credit Outstandings" means all undrawn amounts of Letters of Credit plus Reimbursement Obligations; "Lien" means any interest in property securing any obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For purposes of this definition, any Borrower shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes; "Loan" or "Loans" means any of the Revolving Loans; "Loan Documents" means this Agreement, the Notes, the Subordination Agreement, the Security Instruments and all other instruments and documents heretofore or hereafter executed or delivered to or in favor of any Lender or the Agent in connection with the Loans made and transactions contemplated under this Agreement, as the same may be amended, supplemented or replaced from the time to time; "Material Adverse Effect" means a material adverse effect (a) on the business, properties, operations or condition, financial or otherwise, of the Borrowers on a consolidated basis or (b) on the ability of the Borrowers on a consolidated basis to perform, or of the Agent to enforce, or of the Lenders to realize the benefits to be afforded by any remedy after default of, the obligations of the Borrowers under the Loan Documents; "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrowers or any ERISA Affiliate are making, or are accruing an obligation to make, contributions or have made, or been obligated to make, contributions within the preceding six (6) years; "Net Proceeds" (a) from any public or private offering of equity or debt securities means cash payments received by a Borrower therefrom as and when received, net of all legal, accounting, banking and underwriting fees and expenses, commissions, discounts and other issuance expenses incurred in connection therewith and all taxes required to be paid or accrued as a consequence of such issuance; and (b) from any disposition of assets means cash payments received by a 11 Borrower therefrom (including any cash payments received pursuant to any note or other debt security received in connection with any asset disposition) as and when received, net of (i) all legal fees and expenses and other fees and expenses paid to third parties and incurred in connection therewith, (ii) all taxes required to be paid or accrued as a consequence of such sale and (iii) amounts applied to repayment of Consolidated Indebtedness (other than the Obligations) secured by a Lien on the asset or property disposed; "Notes" means, collectively, the Revolving Notes; "Obligations" means the obligations, liabilities and Indebtedness of the Borrowers with respect to (i) the principal and interest on the Loans, (ii) the Reimbursement Obligations; (iii) all liabilities of any Borrower to any Lender which arise under a Swap Agreement, and (iv) the payment and performance of all other obligations, liabilities and Indebtedness of the Borrowers to the Lenders or the Agent hereunder or, under any one or more of the other Loan Documents; "Participation" means, with respect to any Lender (other than Issuing Bank), the extension of credit represented by the Participation of such Lender hereunder in the liability of Issuing Bank in respect of a Letter of Credit issued by Issuing Bank in accordance with the terms hereof; "PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto; "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of the Code and which is or was maintained for employees of the Borrowers or any ERISA Affiliate; "Person" means an individual, partnership, corporation, trust, unincorporated organization, association, joint venture or a government or agency or political subdivision thereof; "Principal Office" means the office of the Agent at 420 North 20th Street, Birmingham, Alabama 35203, or such other office and address as the Agent may from time to time designate and deliver notice of such designation in accordance with Section 10.2 hereof; "Rate Hedging Obligations" means any and all obligations of the Borrowers, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, Dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts, warrants and those commonly known as 12 interest rate "swap" agreements; and (ii) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing; "Regulation D" means Regulation D of the Board as the same may be amended or supplemented from time to time; "Regulatory Change" means any change effective after the Closing Date in United States federal or state laws or regulations (including Regulation D and capital adequacy regulations) or foreign laws or regulations or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks, which includes any of the Lenders, under any United States federal or state or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof or compliance by any Lender with any request or directive regarding capital adequacy, including with respect to "highly leveraged transactions," whether or not having the force of law, whether or not failure to comply therewith would be unlawful and whether or not published or proposed prior to the date hereof; "Reimbursement Obligation" shall mean at any time, the obligation of the Borrowers with respect to any Letter of Credit to reimburse Issuing Bank and the Lenders to the extent of their respective Participations (including by the receipt by Issuing Bank of proceeds of Loans pursuant to Section 2A.2 hereof) for amounts theretofore paid by Issuing Bank pursuant to a drawing under such Letter of Credit; "Request For Advance/Interest Rate Election" means a Request For Advance/Interest Rate Election in the form of Exhibit D hereto to be delivered by the Borrowers in connection with any Advance or interest rate election with respect to any of the Loans; "Required Lenders" means, as of any date, Lenders on such date having Credit Exposures (as defined below) of at least (i) if there shall be fewer than three (3) Lenders, 100% of the aggregate Credit Exposures of all Lenders on such date, and (ii) if there shall be three (3) or more Lenders, 66-2/3% of the aggregate Credit Exposures of all the Lenders on such date. For purposes of the preceding sentence, the amount of the "Credit Exposure" of each Lender shall be equal at all times (a) other than following the occurrence and during the continuance of an Event of Default, to the sum of the amounts of its Revolving Credit Commitment and Letter of Credit Commitment, and (b) following the occurrence and during the continuance of an Event of Default, to the sum of (i) the aggregate principal amount of such Lender's Applicable Commitment Percentage of Revolving Credit Outstandings plus (ii) the aggregate unutilized amount of such Lender's Revolving Credit Commitment plus (iii) the amount of such Lender's Applicable Commitment Percentage of Letter of Credit Outstandings; provided that, for the purpose of this definition only, (x) if any Lender shall have failed to fund its Applicable Commitment Percentage of any Advance of such Lender shall be deemed reduced by the amount it so failed to fund for so long as such failure shall continue and such Lender's Credit Exposure attributable to such failure shall be deemed held by any Lender making more than its Applicable Commitment Percentage of such Advance to the extent it 13 covers such failure, and (y) if any Lender shall have failed to pay to the Issuing Bank upon demand its Applicable Commitment Percentage of any drawing under any Letter of Credit resulting in an outstanding Reimbursement Obligation, such Lender's Credit Exposure attributable to such Letter of Credit Outstandings shall be deemed to be held by Issuing Bank; "Reserve Requirement" means, for any Eurodollar Rate Loan with respect thereto, the maximum aggregate rate at which reserves (including, without limitation, any marginal, supplemental or emergency reserves) are required to be maintained with respect thereto under Regulation D by the member banks of the Federal Reserve System with respect to Dollar funding in the London interbank market. Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the Base Rate is to be determined or (ii) any category of extensions of credit or other assets which include Eurodollar Rate Loans; "Restricted Payment" means (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Giant Holding now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class; (b) any redemption, conversion, exchange, retirement or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of Giant Holding now or hereafter outstanding (other than an exchange of shares of one class of capital stock of Giant Holding for shares of another class of capital stock of Giant Holding); and (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Giant Holding now or hereafter outstanding; "Revolving Credit Commitment" means, with respect to each Lender, the obligation of such Lender to make Revolving Loans to the Borrowers up to an aggregate principal amount at any one time outstanding as set forth on Exhibit A hereto as the same may be increased or decreased from time to time pursuant to this Agreement; "Revolving Credit Facility" means the facility described in Article II hereof providing for Loans to the Borrowers by the Lenders in the aggregate principal amount of the Total Revolving Credit Commitment; "Revolving Credit Outstandings" means, as of any date of determination, the aggregate principal amount of all Revolving Loans then outstanding; "Revolving Credit Termination Date" means (i) December 20, 1999 or (ii) such earlier date of termination of Lenders' obligations pursuant to Section 8.1 upon the occurrence of an Event of Default, or (iii) such date as the Borrowers may voluntarily and permanently terminate the Revolving Credit Facility by payment in full of all Obligations (including the discharge of all Obligations of Issuing Bank and the Lenders with respect to Letters of Credit and 14 Participations) or (iv) such later date as the Borrowers and the Lender shall agree in writing pursuant to Section 2.11 hereof; "Revolving Loan" means any borrowing pursuant to an Advance under the Revolving Credit Facility in accordance with Article II hereof; "Revolving Notes" means, collectively, the promissory notes of the Borrowers evidencing Revolving Loans executed and delivered to the Lenders as provided in Section 2.4 hereof substantially in the form attached hereto as Exhibit E, with appropriate insertions as to amounts, dates and names of Lenders; "Security Agreement" means that certain Security Agreement dated as of the date hereof between the Borrowers and the Agent for the benefit of the Lenders and substantially in the form of Exhibit F hereto, as hereafter amended, supplemented or replaced from time to time; "Security Instruments" means, collectively, the Security Agreement, and all other agreements, instruments and other documents, whether now existing or hereafter in effect, pursuant to which the Borrowers shall grant or convey to the Agent or the Lenders a Lien in property as security for the Obligations, as any of them may be amended, supplemented or replaced from time to time; "Single Employer Plan" means any employee pension benefit plan covered by Title IV of ERISA in respect of which the Borrowers are an "employer" as described in Section 4001(b) of ERISA and which is not a Multi-employer Plan; "Solvent" means, when used with respect to any Person, that at the time of determination: (ii) the fair value of its assets (both at fair valuation and at present fair saleable value on an orderly basis) is in excess of the total amount of its liabilities, including, without limitation, Contingent Obligations; and (iii) it is then able and expects to be able to pay its debts as they mature; and (iv) it has capital sufficient to carry on its business as conducted and as proposed to be conducted; "Standby Letter of Credit" means an irrevocable Standby Letter of Credit issued hereunder for the account of the Borrowers or any of its Subsidiaries, provided that the expiry date of a Standby Letter of Credit shall not be later than the latest of (i) twelve (12) months subsequent to the date of issuance thereof with such automatic renewal terms thereof as the Issuing Bank shall reasonably approve provided 15 such renewal does not extend the expiry date beyond the time in clause (ii) following; and (ii) the fifth Business Day preceding the Revolving Credit Termination Date; "Subordination Agreement" means that certain Subordination Agreement dated as of the date hereof between the Borrowers and the Agent for the benefit of the Lenders, as hereafter amended, supplemented or replaced from time to time; "Subsidiary" means any corporation or other entity in which more than 50% of its outstanding voting stock or more than 50% of all equity interests is owned directly or indirectly by any of the Borrowers and/or by one or more of any Borrower's Subsidiaries; "Swap Agreement" means one or more agreements between any Borrower and any Person with respect to Indebtedness evidenced by the Notes, on terms mutually acceptable to such Borrower and such Person and approved by each of the Lenders, which agreements create Rate Hedging Obligations; provided, however, that no such approval of the Lenders shall be required to the extent such agreements are entered into between such Borrower and any Lender; "Termination Event" means: (a) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder (unless the notice requirement has been waived by applicable regulation); or (b) the withdrawal of the Borrowers or any ERISA Affiliate from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f) of ERISA; or (c) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA; or (d) the institution of proceedings to terminate a Pension Plan by the PBGC; or (e) any other event or condition which would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; or (f) the partial or complete withdrawal of the Borrowers or any ERISA Affiliate from a Multiemployer Plan; or (g) the imposition of a Lien pursuant to Section 412 of the Code or Section 302 of ERISA; or (h) any event or condition which results in the reorganization or insolvency of a Multiemployer Plan under Section 4241 or Section 4245 of ERISA, respectively; or (i) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA; "Total Letter of Credit Commitment" means an aggregate stated amount equal to $2,000,000; "Total Revolving Credit Commitment" means a principal amount equal to $30,000,000, as reduced from time to time in accordance with Section 2.6 hereof; 1.2 Accounting Terms. All accounting terms not specifically defined herein shall have the meanings assigned to such terms and shall be interpreted in accordance with GAAP applied on a Consistent Basis. 16 1.3 UCC Terms. Each term defined in Article 1 or 9 of the South Carolina Uniform Commercial Code shall have the meaning given therein unless otherwise defined herein, except to the extent that the Uniform Commercial Code of another jurisdiction is controlling, in which case such terms shall have the meaning given in the Uniform Commercial Code of the applicable jurisdiction. ARTICLE II ---------- The Revolving Credit Facility ----------------------------- II.1 Revolving Loans. (a) Commitment. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Advances to the Borrowers under the Revolving Credit Facility from time to time from the Closing Date until the Revolving Credit Termination Date on a pro rata basis as to the total borrowing requested by the Borrowers on any day determined by such Lender's Applicable Commitment Percentage up to but not exceeding the Revolving Credit Commitment of such Lender, provided, however, that the Lenders will not be required and shall have no obligation to make any such Advance (i) so long as a Default or an Event of Default has occurred and is continuing or (ii) if the Agent has accelerated the maturity of any of the Notes as a result of an Event of Default. Within such limits, the Borrowers may borrow, repay and reborrow under the Revolving Credit Facility on any Business Day from the Closing Date until, but (as to borrowings and reborrowings) not including, the Revolving Credit Termination Date; provided, however, that (x) no Revolving Loan that is a Eurodollar Rate Loan shall be made which has an Interest Period that extends beyond the Revolving Credit Termination Date and (y) each Revolving Loan that is a Eurodollar Rate Loan may, subject to the provisions of Section 2.3 hereof, be repaid only on the last day of the Interest Period with respect thereto. (b) Amounts. Except as otherwise permitted by the Lenders from time to time, the aggregate unpaid principal amount of the Revolving Credit Outstandings shall not exceed at any time the Total Revolving Credit Commitment. Each Revolving Loan hereunder and each conversion under Section 2.7 hereof shall be in an amount of at least $10,000, and, if greater than $10,000, an integral multiple of $10,000. (c) Mandatory Paydown. The aggregate Revolving Credit Outstandings shall be reduced to not more than $20,000,000 for a period of 30 consecutive days during each twelve month period following the initial Advance under the Revolving Credit Facility. (d) Advances. (i) An Authorized Representative shall give the Agent (1) at least three (3) Business Days' irrevocable written notice of each Eurodollar Rate Loan (whether representing an additional borrowing hereunder or the conversion of borrowing hereunder from Base Rate Loans to Eurodollar Rate Loans) prior to 10:30 A.M., Birmingham, Alabama time and (2) irrevocable written notice of each Base Rate Loan (whether representing an additional borrowing 17 hereunder or the conversion of borrowing hereunder from Eurodollar Rate Loans to Base Rate Loans) prior to 10:30 A.M. Birmingham, Alabama time on the day of such proposed Revolving Loan. Each such written notice, which shall be effective upon receipt by the Agent, may be delivered by telefacsimile and shall be in the form of the Request For Advance/Interest Rate Election and shall specify the amount of the borrowing, the type of Revolving Loan (Base Rate or Eurodollar Rate), the date of borrowing and, if a Eurodollar Rate Loan, the Interest Period to be used in the computation of interest. Notice of receipt of such Request For Advance/Interest Rate Election shall be provided by the Agent to each Lender by telefacsimile with reasonable promptness, but not later than 1:00 P.M., Birmingham, Alabama time on the same day as Agent's receipt of such notice. (ii) Not later than 1:00 P.M., Birmingham, Alabama time on the date specified for each Advance under this Section 2.1, each Lender shall, pursuant to the terms and subject to the conditions of this Agreement, initiate a wire transfer to the Agent in the amount of its pro rata share, determined according to such Lender's Applicable Commitment Percentage, of the Revolving Loan or Revolving Loans to be made on such day. Such wire transfer shall be directed to the Agent at the Principal Office and shall be in the form of immediately available funds. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrowers by delivery of the proceeds thereof to the Borrowers' Account or otherwise as shall be directed in the applicable Borrowing Notice by the Authorized Representative. (iii) The duration of the initial Interest Period for each Revolving Loan that is a Eurodollar Rate Loan shall be as specified in the initial Request For Advance/Interest Rate Election delivered in accordance with clause (i) above. The Borrowers shall have the option to convert the Eurodollar Rate Loans in accordance with Section 2.7 hereof. In the event the Agent fails to receive a properly completed Request for Advance/Interest Rate Selection by such time as required by Section 2.7 hereof to convert a Eurodollar Rate Loan, the duration of each subsequent Interest Period for such Eurodollar Rate Loan after the initial Interest Period therefor shall be determined automatically by the Agent on the date three (3) Business Days' prior to the end of such preceding Interest Period and shall be that available Interest Period on such date (30, 60 or 90 days) which has the lowest corresponding Eurodollar Rate and, if more than one available Interest Period has the same lowest Eurodollar Rate, the shortest such Interest Period shall be the applicable subsequent Interest Period for such Eurodollar Rate Loan. (iv) Notwithstanding the foregoing, if a drawing is made under any Letter of Credit prior to the Revolving Credit Termination Date, notice of such drawing and resulting Reimbursement Obligation shall be provided promptly by Issuing Bank to the Agent and the Agent shall provide notice to each Lender and the Borrowers by telephone. If such notice to the Lenders of a drawing under any Letter of Credit is given by the Agent at or before 1:00 p.m. on any Business Day, the Borrowers 18 shall be deemed to have requested, and each Lender shall, pursuant to the conditions of this Agreement, make an Advance as a Base Rate Loan under the Revolving Credit Facility in the amount of such Lender's Applicable Commitment Percentage of such Reimbursement Obligation and shall pay such amount to the Agent for the account of Issuing Bank at the Principal Office in Dollars and in immediately available funds before 2:30 P.M. on the same Business Day. If notice to the Lenders is given by the Agent after 1:00 P.M. on any Business Day, the Borrowers shall be deemed to have requested, and each Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make an Advance as a Base Rate Loan under the Revolving Credit Facility in the amount of such Lender's Applicable Commitment Percentage of such Reimbursement Obligation and shall pay such amount to the Agent for the account of Issuing Bank at the Principal Office in Dollars and in immediately available funds before 12:00 noon on the next following Business Day. Such Base Rate Loan shall continue unless and until the Borrowers convert such Base Rate Loan in accordance with the terms of Section 2.7 hereof. II.2 Payment of Interest. (a) The Borrowers shall pay interest to the Agent for the account of each Lender on the outstanding and unpaid principal amount of each Revolving Loan made by such Lender for the period commencing on the date of such Revolving Loan until such Revolving Loan shall be due at the Base Rate applicable for each Business Day during such period minus one percent (1%) for Base Rate Loans or the applicable Eurodollar Rate for Eurodollar Rate Loans. The applicable Eurodollar Rate for any Eurodollar Rate Loan shall be that Eurodollar Rate available for the entire Interest Period for such Eurodollar Rate Loan, which Interest Period has either been designated by the Authorized Representative in the Request for Advance/Interest Rate Election and delivered to the Agent pursuant to Sections 2.1 or 2.7 hereof or, in the absence of such designation and delivery, has been determined for the corresponding Interest Period determined in accordance with Section 2.1(d)(iii) hereof. If any amount shall not be paid when due (at maturity, by acceleration or otherwise), all amounts outstanding hereunder shall bear interest commencing on the date when due until, but excluding, the date thereafter when such amounts past due are paid in full (i) in the case of a Eurodollar Rate Loan, until the end of the Interest Period with respect to any Eurodollar Rate Loan at a rate of two percent (2%) above the applicable Eurodollar Rate for such Eurodollar Rate Loan and thereafter at a rate per annum which shall be two percent (2%) plus the Base Rate, (ii) with respect to Base Rate Loans, at a rate of interest per annum which shall be two percent (2%) above the Base Rate, or (iii) in any case, the maximum rate permitted by applicable law, if lower. (b) Interest on each Revolving Loan shall be computed on the basis of a year of 360 days and calculated in each case for the actual number of days elapsed. Interest on each Revolving Loan shall be paid (i) monthly in arrears on the last Business Day of each month commencing December 31, 1996 for each Base Rate Loan, (ii) on the last day of the applicable Interest Period for each Eurodollar Rate Loan and (iii) upon payment in full of the principal amount of such Revolving Loan. 19 II.3 Payment of Principal. (a) The principal amount of each Revolving Loan shall be due and payable to the Agent for the benefit of each Lender in full on the Revolving Credit Termination Date, or earlier as specifically provided herein. The principal amount of any Base Rate Loan may be prepaid in whole or in part at any time. The principal amount of any Eurodollar Rate Loan may be prepaid only at the end of the applicable Interest Period unless the Borrowers shall pay to the Agent for the account of the Lenders the amount, if any, required under Section 3.4 hereof. If at any time the amount of Revolving Credit Outstandings exceeds the Total Revolving Credit Commitment, a principal amount of the outstanding Revolving Loans equal to such excess shall be due and payable immediately. All prepayments made by the Borrowers shall be in the amount of $100,000 or such greater amount which is an integral multiple of $100,000, or such other amount as necessary to comply with this Section 2.3 or with Section 2.1(c) and 2.6 hereof. (b) Each payment of principal (including any prepayment) and payment of interest and fees, and any other amount required to be paid to the Lenders with respect to the Revolving Loans, shall be made to the Agent at the Principal Office, for the account of each Lender, in Dollars and in immediately available funds before 3:00 P.M. Birmingham, Alabama time on the date such payment is due. The Agent may, but shall not be obligated to, debit the amount of any such payment which is not made by such time to any ordinary deposit account, if any, of any one or more Borrowers with the Agent. (c) The Agent shall deem any payment by or on behalf of the Borrowers hereunder that is not made both in Dollars and in immediately available funds and prior to 3:00 P.M. Birmingham, Alabama time to be a non-conforming payment. Any such payment shall not be deemed to be received by the Agent until the later of (i) the time such funds become available funds and (ii) the next Business Day. Any non-conforming payment may constitute or become a Default or Event of Default pursuant to Section 8.1(b) hereof. Interest shall continue to accrue on any principal as to which a non-conforming payment is made until the later of (x) the date such funds become available funds or (y) the next Business Day at the respective rates of interest per annum specified in the proviso to Section 2.2 hereof regarding interest on late payments, from the date such amount was due and payable. (d) In the event that any payment hereunder or under the Notes becomes due and payable on a day other than a Business Day, then such due date shall be extended to the next succeeding Business Day unless provided otherwise under clause (ii) of the definition of "Interest Period"; provided that interest shall continue to accrue during the period of any such extension and provided further, that in no event shall any such due date be extended beyond the Revolving Credit Termination Date. II.4 Revolving Credit Notes. Revolving Credit Loans made by each Lender shall be evidenced by the Revolving Credit Note payable to the order of such Lender in the respective amounts of its Revolving Credit Commitment, which Revolving Credit Notes shall be dated the Closing Date or 20 such later date pursuant to an Assignment and Acceptance and shall be duly completed, executed and delivered by the Borrowers. II.5 Pro Rata Payments. Except as otherwise provided herein, (a) each payment on account of the principal of and interest on the Revolving Loans and the fees described in Section 2.8 hereof shall be made to the Agent for the account of the Lenders pro rata based on their Applicable Commitment Percentages, (b) all payments to be made by the Borrowers for the account of each of the Lenders on account of principal, interest and fees, shall be made without set-off or counterclaim, and (c) the Agent will distribute payments received from the Borrowers to the Lenders on the same day such payments are received in accordance with the terms of this Agreement. II.6 Reductions. The Borrowers shall, by notice from an Authorized Representative, have the right from time to time, upon not less than two (2) Business Days written notice to the Agent, to reduce the Total Revolving Credit Commitment. Each such reduction shall be in the aggregate amount of $1,000,000 or such greater amount which is in an integral multiple of $100,000, and shall permanently reduce the Total Revolving Credit Commitment. No such reduction shall result in the payment of any Eurodollar Rate Loan other than on the last day of the Interest Period of such Eurodollar Rate Loan unless such prepayment is accompanied by amounts due, if any, under Section 3.4 hereof. Each reduction of the Total Revolving Credit Commitment shall be accompanied by payment of the Loans to the extent that the amount of Revolving Credit Outstandings exceeds the Total Revolving Credit Commitment after giving effect to such reduction, together with accrued and unpaid interest on the amounts prepaid. II.7 Conversions. Provided that no Default or Event of Default shall have occurred and be continuing and subject to the limitations set forth below and in Article III hereof, the Borrowers may: (a) upon delivery of a properly completed Request For Advance/Interest Rate Election to the Agent on or before 10:30 A.M. Birmingham, Alabama time on any Business Day, convert all or a part of Eurodollar Rate Loans to Base Rate Loans on the last day of the Interest Period for such Eurodollar Rate Loans; and (b) upon delivery of a properly completed Request For Advance/Interest Rate Election to the Agent on or before 10:30 A.M. Birmingham, Alabama time three (3) Business Days' prior to the date of such election or conversion, convert Base Rate Loans to Eurodollar Rate Loans on any date. Each conversion pursuant to this Section 2.7 shall be subject to the limitations on Eurodollar Rate Loans set forth in the definition of "Interest Period" herein and in Sections 2.1, 2.3 and Article III hereof. The Agent shall give written notice to each Lender of such notice of election or conversion prior to 3:00 P.M. Birmingham, Alabama time on the day such notice of conversion is received. All such conversions of Loans shall be effected pro rata based on the Applicable Commitment Percentages of the Lenders. 21 II.8 Fee. For the period beginning on the Closing Date and ending on the Revolving Credit Termination Date, the Borrowers agree to pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, an unused fee equal to .15% per annum multiplied by the sum of (i) the daily amount by which the Total Revolving Credit Commitment exceeds Revolving Credit Outstandings plus (ii) the daily amount by which the Total Letter of Credit Commitment exceeds Letter of Credit Outstandings. Such payments of fees provided for in this Section 2.8 shall be due in arrears on the last Business Day of each December, March, June and September beginning December 31, 1996 to and on the Revolving Credit Termination Date. Notwithstanding the foregoing, so long as any Lender fails to make available any portion of its Revolving Credit Commitment or Letter of Credit Commitment when requested, such Lender shall not be entitled to receive payment of its pro rata share of such fee until such Lender shall make available such portion, as applicable. Such fee shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. II.9 Deficiency Advances. No Lender shall be responsible for any default of any other Lender in respect to such other Lender's obligation to make any Loan hereunder nor shall the Revolving Credit Commitment of any Lender hereunder be increased as a result of such default of any other Lender. Without limiting the generality of the foregoing, in the event any Lender shall fail to advance funds to the Borrowers as herein provided, the Agent may in its discretion, but shall not be obligated to, advance under the Revolving Note in its favor as a Lender all or any portion of such amount or amounts (each, a "deficiency advance") and shall thereafter be entitled to payments of principal of and interest on such deficiency advance in the same manner and at the same interest rate or rates to which such other Lender would have been entitled had it made such advance under its Revolving Note; provided that, upon payment to the Agent from such other Lender of the entire outstanding amount of each such deficiency advance, together with accrued and unpaid interest thereon, from the most recent date or dates interest was paid to the Agent by the Borrowers on each Revolving Loan comprising the deficiency advance at the interest rate per annum for overnight borrowing by the Agent from the Federal Reserve Bank, then such payment shall be credited against the applicable Revolving Note of the Agent in full payment of such deficiency advance and the Borrowers shall be deemed to have borrowed the amount of such deficiency advance from such other Lender as of the most recent date or dates, as the case may be, upon which any payments of interest were made by the Borrowers thereon. II.10 Use of Proceeds. The proceeds of the Loans made pursuant to the Revolving Credit Facility hereunder shall be used by the Borrowers to refinance certain existing long term indebtedness and for general working capital needs. II.11 Extension of Revolving Credit Termination Date. At the request of the Borrowers the Lenders may, in their sole discretion, elect to extend the Revolving Credit Termination Date then in effect for additional periods of one year each and thereby restore the Revolving Credit Facility to a three year maturity. The Borrowers shall notify the Agent of their request for such an extension by delivering to the Agent notice of such request signed by an Authorized Representative not more than ninety (90) days nor less than sixty (60) days prior to an anniversary of the Closing Date. The Agent shall as promptly as practicable, and in any event within five (5) days, deliver a copy of such notice to each Lender. If each Lender shall elect to so extend and has notified the Agent in 22 writing of its election within fifty (50) days of its receipt of such notice, the Agent shall notify the Borrowers in writing within sixty (60) days of its receipt of such request for extension of the decision of any Lender to extend the Revolving Credit Termination Date. Failure by any Lender to give such notice shall constitute refusal by the Lender to extend the Revolving Credit Termination Date. In no event shall the Revolving Credit Termination Date be extended if a prior request for such extension was refused by the Lenders. II.12 Appointment of Giant Holding and Authorized Representatives as Agents for the Borrowers. Each Borrower hereby irrevocably appoints Giant Holding and each Authorized Representative as its agent and attorney- in-fact for the purpose of all transactions contemplated by this Agreement or any other Loan Document. Each Borrower grants to Giant Holding and each Authorized Representative (whether acting jointly or separately) an irrevocable power of attorney to act on behalf of such Borrower and to take any and all actions contemplated by any Loan Document on behalf of each Borrower, including without limitation the delivery of any Request for Advance/Interest Rate Election or other notice, request or directive, the receipt or disbursement of any Loans, the execution of any documents, and the grant or conveyance of any Lien or title. ARTICLE IIA ----------- The Letter of Credit Facility ----------------------------- 2A.1 Letters of Credit. Issuing Bank agrees, subject to the terms and conditions of this Agreement, upon request and for the account of Borrowers, to issue from time to time up to and including the Revolving Credit Termination Date Letters of Credit upon delivery to Issuing Bank of an Application for Letter of Credit in form and content acceptable to Issuing Bank; provided, that the Letter of Credit Outstandings shall not exceed the Total Letter of Credit Commitment. No Letter of Credit shall be issued by Issuing Bank with an expiry date (including any automatic renewal thereof in accordance with the terms of such Letter of Credit) or payment date occurring subsequent to the fifth Business Day preceding the Revolving Credit Termination Date. 2A.2 Reimbursement. (a) The Borrowers hereby unconditionally agree immediately to pay to Issuing Bank on demand at the Principal Office in immediately available funds all amounts required to pay all drafts drawn and honored under Letters of Credit and all reasonable expenses incurred by Issuing Bank in connection with Letters of Credit and in any event and without demand to place in possession of Issuing Bank sufficient funds to pay all debts and liabilities arising under any Letter of Credit; provided that to the extent permitted by Section 2.1(d)(iv) hereof, such amounts shall be paid pursuant to Advances. The Borrowers' obligation to pay Issuing Bank under this Section 2A.2, and Issuing Bank's right to receive such payment, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including without limitation the unavailability of any Advance. Issuing Bank shall give the Borrowers prompt written notice of any request for a draw under a Letter of Credit. In the event an Advance is not available, Issuing Bank may charge any account the Borrowers may have with it for any and all amounts Issuing Bank pays under a Letter of Credit, plus charges and reasonable expenses as from 23 time to time agreed to by Issuing Bank and the Borrowers. The Borrowers agree to pay Issuing Bank interest on any amounts paid by the Issuing Bank in connection with drafts drawn and honored under Letters of Credit when due hereunder, and which is not paid pursuant to Advances as herein contemplated or otherwise paid by the Borrowers in immediately available funds not later than the first Business Day after the date of such drawing, at the Default Rate from the first Business Day after the date of such drawing to the date such amount is paid in full. (b) In accordance with the provisions of Section 2.1(d)(iv) hereof, Issuing Bank shall notify the Agent and the Borrowers of any drawing under any Letter of Credit as promptly as practicable following the receipt by Issuing Bank of such drawing. (c) Each Lender (other than Issuing Bank) shall automatically acquire on the date of issuance thereof a Participation in the liability of Issuing Bank in respect of each Letter of Credit in an amount equal to such Lender's Applicable Commitment Percentage of such liability, and to the extent that the Borrowers are obligated to pay Issuing Bank under Section 2A.2(a) hereof, each Lender (other than Issuing Bank) thereby shall, as hereinafter described, absolutely, unconditionally and irrevocably assume, and shall be unconditionally obligated to pay to Issuing Bank, its Applicable Commitment Percentage of the liability of Issuing Bank under such Letter of Credit. (i) Prior to the Revolving Credit Termination Date, each Lender (other than Issuing Bank) shall, subject to the terms and conditions of Article II, make a Revolving Loan bearing interest at the Base Rate to the Borrowers by paying to the Agent for the account of Issuing Bank at the Principal Office in Dollars and in immediately available funds an amount equal to its Applicable Commitment Percentage of any Reimbursement Obligation, all as described in and pursuant to Section 2.1(d). (ii) With respect to drawings under any Letter of Credit for which a Revolving Loan is not made as set forth in clause (i) above, each Lender (other than Issuing Bank) upon receipt from the Agent of notice of a drawing in the manner described in Section 2.1(d)(iv), shall promptly pay to the Agent for the account of Issuing Bank, prior to the applicable time set forth in Section 2.1(d)(iv), its Applicable Commitment Percentage of such drawing. Simultaneously with the making of each such payment by a Lender to the Agent for the account of Issuing Bank, such Lender shall, automatically and without any further action on the part of Issuing Bank or such Lender, acquire a Participation in an amount equal to such payment (excluding the portion thereof constituting interest) in the related Reimbursement Obligation of the Borrowers. (iii) Each Lender's obligation to make payment to the Agent for the account of Issuing Bank pursuant to this Section 2A.2(c), and the right of Issuing Bank to receive the same, shall be made without any offset, abatement, withholding or reduction whatsoever. If any Lender is obligated to pay but does not pay 24 amounts to the Agent for the account of the Issuing Bank in full upon such request as required by this Section 2A.2(c), such Lender shall, on demand, pay to the Agent for the account of Issuing Bank interest on the unpaid amount for each day during the period commencing on the date of notice given to such Lender pursuant to Section 2A.2(c) hereof until such Lender pays such amount to the Agent for the account of Issuing Bank in full at the interest rate per annum for overnight borrowings by Issuing Bank from the Federal Reserve Bank. (iv) In the event the Lenders have purchased Participations in any Reimbursement Obligation as set forth in clause (ii) above, then at any time payment of such Reimbursement Obligation, in whole or in part, is received by Issuing Bank from the Borrowers, Issuing Bank shall pay to each Lender an amount equal to its Applicable Commitment Percentage of such payment from the Borrowers. (d) Promptly following the end of each calendar month, Issuing Bank shall deliver to the Agent, and the Agent shall deliver to each Lender, a notice describing the aggregate undrawn amount of all Letters of Credit at the end of such month. Upon the request of any Lender from time to time, Issuing Bank shall deliver to the Agent, and the Agent shall deliver to such Lender, any other information reasonably requested by such Lender with respect to Letter of Credit Outstandings. (e) The issuance by Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Section 4.1 hereof, be subject to the conditions that such Letter of Credit be in such form and contain such terms as shall be reasonably satisfactory to Issuing Bank consistent with the then current practices and procedures of Issuing Bank with respect to similar letters of credit, and the Borrowers shall have executed and delivered such other instruments and agreements relating to such Letters of Credit as Issuing Bank shall have reasonably requested consistent with such practices and procedures. All Letters of Credit shall be issued pursuant to and subject to the Uniform Customs and Practice for Documentary Credits, 1993 revision, International Chamber of Commerce Publication No. 500 and all subsequent amendments and revisions thereto. (f) The Borrowers agree that Issuing Bank may, in its sole discretion, accept or pay, as complying with the terms of any Letter of Credit, any drafts or other documents otherwise in order which may be signed or issued by an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, attorney in fact or other legal representative of a party who is authorized under such Letter of Credit to draw or issue any drafts or other documents. (g) Without duplication of Section 9.6 hereof, the Borrowers hereby agree to defend, indemnify and hold harmless Issuing Bank, each other Lender and the Agent from and against any and all claims and damages, losses, liabilities, reasonable costs and expenses which Issuing Bank, such other Lender or the Agent may incur (or which may be claimed against Issuing Bank, such other Lender or the Agent) by any Person by reason of or in connection with the issuance or transfer of or payment or failure to pay under any Letter of Credit; provided 25 that the Borrowers shall not be required to indemnify Issuing Bank, any other Lender or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by the willful misconduct or gross negligence of the party to be indemnified. The provisions of this Section 2A.2(g) shall survive repayment of the Obligations, the occurrence of the Revolving Credit Termination Date and expiration or termination of this Agreement. (h) Without limiting Borrowers' rights as set forth in Section 2A.2(g) above, the obligation of the Borrowers to immediately reimburse the Agent for drawings made under Letters of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and such Letters of Credit and the related Applications for Letters of Credit, notwithstanding the following circumstances: (i) any lack of validity or enforceability of the Letter of Credit, the obligation supported by the Letter of Credit or any other agreement or instrument relating thereto (collectively, the "Related Documents"); (ii) any amendment or waiver of or any consent to or departure from all or any of the Related Documents; (iii) the existence of any claim, setoff, defense or other rights which the Borrowers may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), Agent, Lenders or any other Person, whether in connection with the Loan Documents, the Related Documents or any unrelated transaction; (iv) any breach of contract or other dispute between the Borrowers and any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom such beneficiary or any such transferee may be acting), Agent, Lenders or any other Person; (v) any draft, statement or any other document presented under the Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; or (vi) any delay, extension of time, renewal, compromise or other indulgence or modification granted or agreed to by Agent, with or without notice to or approval by the Borrowers in respect of any of Borrowers' Obligations under this Agreement. 2A.3 Letter of Credit Fee. The Borrowers agree to pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, quarterly in arrears on the last Business Day of each March, June, September and December, beginning March 1997, a fee for each Standby Letter of Credit, equal to the product of the average daily amount available to be drawn on such Letter of Credit during such three month period multiplied by one percent (1.00%). Such fee shall be 26 calculated on the basis of a year of 360 days for the actual number of days during which Letters of Credit are outstanding. 2A.4 Administrative Fees. The Borrowers shall pay to Issuing Bank such administrative fee and other fees, if any, in connection with the Letters of Credit in such amounts and at such times as Issuing Bank and the Borrowers shall agree from time to time. ARTICLE III ----------- Yield Protection and Illegality ------------------------------- III.1 Additional Costs. (a) The Borrowers shall promptly pay to the Agent for the account of a Lender from time to time, without duplication, such amounts as such Lender may reasonably determine to be necessary to compensate it for any costs incurred by such Lender which it determines are attributable to its making or maintaining any Loan or its obligation to make any Loans, or the issuance or maintenance by Issuing Bank of or any other Lender's Participation in any Letter of Credit issued hereunder, or any reduction in any amount receivable by such Lender under this Agreement or the Notes in respect of any of such Loans, including reductions in the rate of return on a Lender's capital (such increases in costs and reductions in amounts receivable and returns being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or the Notes in respect of any of such Loans (other than taxes imposed on or measured by the income, revenues or assets); or (ii) imposes or modifies any reserve, special deposit, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (other than any such reserve, deposit or requirement reflected in the Base Rate or the Eurodollar Rate, in each case computed in accordance with the respective definitions of such terms set forth in Section 1.1 hereof); or (iii) has or would have the effect of reducing the rate of return on capital of any such Lender to a level below that which the Lender could have achieved but for such Regulatory Change (taking into consideration such Lender's policies with respect to capital adequacy). Each Lender will notify the Authorized Representative and the Agent of any event occurring after the Closing Date which would entitle it to compensation pursuant to this Section 3.1(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. (b) Without limiting the effect of the foregoing provisions of this Section 3.1, in the event that, by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of the Lender which includes deposits by reference to which the interest rate on Eurodollar Rate Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of any Lender which includes Eurodollar Rate Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, 27 then, if the Lender so elects by notice to the other Lenders, the obligation hereunder of such Lender to make, and to convert Base Rate Loans into, Eurodollar Rate Loans that are the subject of such restrictions shall be suspended until the date such Regulatory Change ceases to be in effect and the Borrowers shall, on the last day(s) of the then current Interest Period(s) for outstanding Eurodollar Rate Loans convert such Eurodollar Rate Loans into Base Rate Loans; provided, however, that the suspension of such obligation and the conversion of any Eurodollar Rate Loans into Base Rate Loans shall apply only to any Lender who is affected by such restrictions and who has provided such notice to the other Lenders, and the obligation of the other Lenders to make, and to convert Base Rate Loans into, Eurodollar Rate Loans shall not be affected by such restrictions. (c) Determinations by any Lender for purposes of this Section 3.1 of the effect of any Regulatory Change on its costs of making or maintaining, or being committed to make Loans, or by Issuing Bank as issuer of any Letter of Credit of the effect of any Regulatory Change on its costs in connection with the issuance or maintenance of, or any other Lender's Participation in, any Letter of Credit issued hereunder, or on amounts receivable by any Lender in respect of Loans or Letters of Credit, and of the additional amounts required to compensate the Lender in respect of any Additional Costs, shall be conclusive absent manifest error. The Lender requesting such compensa tion shall furnish to the Authorized Representative and the Agent within sixty (60) days of the incurrence of any Additional Costs for which compensation is sought an explanation of the Regulatory Change and calculations, in reasonable detail, setting forth such Lender's determination of any such Additional Costs. III.2 Suspension of Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any interest rate for any Eurodollar Rate Loan for any Interest Period, the Agent determines (which determination made on a reasonable basis shall be conclusive absent manifest error) that: (a) quotations of interest rates for the relevant deposits referred to in the definition of "Interbank Offered Rate" in Section 1.1 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for such Eurodollar Rate Loan as provided in this Agreement; or (b) the relevant rates of interest referred to in the definition of "Interbank Offered Rate" in Section 1.1 hereof upon the basis of which the Eurodollar Rate for such Interest Period is to be determined do not adequately reflect the cost to the Lenders of making or maintaining such Eurodollar Rate Loan for such Interest Period or such Eurodollar Rate Loan (which determination shall be made on a reasonable basis by the Agent, and the Person making such determination shall furnish the Authorized Representative evidence of the facts leading to such determination); then the Agent shall give the Authorized Representative prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make Eurodollar Rate Loans that are subject to such condition, or to convert Loans into Eurodollar Rate Loans, and the Borrowers shall on the last day(s) of the then current Interest Period(s) for outstanding Eurodollar Rate Loans, as applicable, convert such 28 Eurodollar Rate Loans into Base Rate Loans. The Agent shall give the Authorized Representative notice describing in reasonable detail any event or condition described in this Section 3.2 promptly following the determination by the Agent that the availability of Eurodollar Rate Loans is, or is to be, suspended as a result thereof. III.3 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender to honor its obligation to make or maintain Eurodollar Rate Loans hereunder, then such Lender shall promptly notify the Borrowers thereof (with a copy to the Agent) and such Lender's obligation to make or continue Eurodollar Rate Loans, or convert Base Rate Loans into Eurodollar Rate Loans, shall be suspended until such time as such Lender may again make and maintain Eurodollar Rate Loans, and such Lender's outstanding Eurodollar Rate Loans shall be converted into Base Rate Loans in accordance with Section 2.7 hereof. III.4 Compensation. The Borrowers shall promptly pay to each Lender, upon the request of such Lender, such amount or amounts as shall be sufficient (in the reasonable determination of Lender) to compensate it for any loss, cost or expense incurred by it as a result of: (a) any payment, prepayment or conversion of a Eurodollar Rate Loan on a date other than the last day of the Interest Period for such Eurodollar Rate Loan, including without limitation any conversion required pursuant to Section 3.3 hereof; or (b) any failure by the Borrowers to borrow a Eurodollar Rate Loan on the date for such borrowing specified in the relevant Request for Advance/Interest Rate Election under Article II hereof; such compensation to include, without limitation, an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the principal amount so paid, prepaid or converted or not borrowed for the period from the date of such payment, prepayment or conversion or failure to borrow or convert to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow or convert, the Interest Period for such Loan which would have commenced on the date scheduled for such borrowing or conversion) at the applicable rate of interest for such Eurodollar Rate Loan provided for herein over (ii) the Interbank Offered Rate (as reasonably determined by the Agent) for Dollar deposits of amounts comparable to such principal amount and maturities comparable to such period. A determination of a Lender as to the amounts payable pursuant to this Section 3.4 shall be conclusive absent manifest error. The Lender requesting compensation under this Section 3.4 shall promptly furnish to the Authorized Representative and the Agent calculations in reasonable detail setting forth such Lender's determination of the amount of such compensation. III.5 Alternate Loan and Lender. In the event any Lender suspends the making of any Eurodollar Rate Loan pursuant to this Article III (herein a "Restricted Lender"), the Restricted Lender's Applicable Commitment Percentage of any Eurodollar Rate Loan shall bear interest at the Base Rate until the Restricted Lender once again makes available the applicable Eurodollar Rate Loan. Notwithstanding the provisions of Section 2.2(b) hereof, interest shall be payable to the Restricted Lender at the time and 29 manner as paid to those Lenders making available Eurodollar Rate Loans. III.6 Taxes. (a) All payments by the Borrowers of principal of, and interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future excise, stamp or other taxes, fees, duties, levies, imposts, charges, deductions, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding (i) franchise taxes, (ii) any taxes (other than withholding taxes) that would not be imposed but for a connection between a Lender or the Agent and the jurisdiction imposing such taxes (other than a connection arising solely by virtue of the activities of such Lender or the Agent pursuant to or in respect of this Agreement or any other Loan Document), (iii) any withholding taxes payable with respect to payments hereunder or under any other Loan Document under laws (including, without limitation, any statute, treaty, ruling, determination or regulation) in effect on the Closing Date, (iv) any taxes imposed on or measured by any Lender's assets, net income, receipts or branch profits and (v) any taxes arising after the Closing Date solely as a result of or attributable to Lender changing its designated lending office after the date such Lender becomes a party hereto (such non-excluded items being collectively called "Taxes"). In the event that any withholding or deduction from any payment to be made by the Borrowers hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrowers will (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (iii) pay to the Agent for the account of each Lender such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. (b) Prior to the date that any Lender organized under the laws of a jurisdiction outside the United States becomes a party hereto, such Person shall deliver to the Borrowers and the Agent such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, properly completed, currently effective and duly executed by such Lender or participant establishing that such payment is (i) not subject to United States Federal backup withholding tax and (ii) not subject to United States Federal withholding tax under the Code because such payment is either effectively connected with the conduct by such Lender or participant of a trade or business in the United States or totally exempt from United States Federal withholding tax by reason of the application of 30 the provisions of a treaty to which the United States is a party or such Lender is otherwise exempt. (c) If any Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent, for the account of the respective Lender, the required receipts or other required documentary evidence, all the Borrowers shall jointly and severally indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 3.6, a distribution hereunder by the Agent or any Lender to or for the account of the Borrowers shall be deemed a payment on behalf of the Borrowers. ARTICLE IV ---------- Conditions Precedent -------------------- IV.1 Conditions of Initial Advance and Issuance of Letters of Credit. The obligation of the Lenders to make the initial Advance is subject to the following conditions precedent: (a) The Agent shall have received on the Closing Date, in form and substance satisfactory to the Agent and Lenders, the following: (i) executed originals of each of this Agreement, the Notes, the Security Agreement and the other Loan Documents, together with all schedules and exhibits thereto; (ii) written opinions of special counsel to the Borrowers, including special counsel in each of South Carolina and Pennsylvania with respect to Collateral located in such jurisdictions, dated the Closing Date, addressed to the Agent and the Lenders in the form of Exhibit G attached hereto or with such changes to such form as are satisfactory to the Agent; (iii) resolutions of the boards of directors or other appropriate governing body (or of the appropriate committee thereof) of each Borrower certified by its secretary or assistant secretary as of the Closing Date, appointing the initial Authorized Representative and approving and adopting the Loan Documents to be executed by such Person, and authorizing the execution and delivery thereof; (iv) specimen signatures of officers of each Borrower executing the Loan Documents on behalf of each Borrower, certified by the secretary or assistant secretary of each Borrower; (v) the charter documents of each Borrower certified as of a recent date by the Secretary of State of its state of incorporation; 31 (vi) the bylaws of each Borrower certified as of the Closing Date as true and correct by its secretary or assistant secretary; (vii) certificates issued as of a recent date by the Secretary of State of each of Delaware, Pennsylvania and South Carolina as to the due existence and good standing of each Borrower; (viii) appropriate certificates of qualification to do business, good standing and, where appropriate, authority to conduct business under assumed name, issued in respect of each Borrower as of a recent date by the Secretary of State or comparable official of each jurisdiction in which the failure to be qualified to do business or authorized so to conduct business could have a Material Adverse Effect; (ix) notice of appointment of the initial Authorized Representatives; (x) certificate of an Authorized Representative dated the Closing Date demonstrating compliance with the financial covenants contained in Sections 7.1 through 7.5 as of the Closing Date, substantially in the form of Exhibit H attached hereto; (xi) evidence of all policies of casualty insurance required by the Loan Documents together with endorsements naming Agent for the benefit of the Lenders as an additional insured, mortgagee or loss payee, as applicable; (xii) executed Uniform Commercial Code financing statements in such form and number as requested by the Agent; (xiii) an initial Request for Advance/Interest Rate Election; (xiv) an initial Application for Letters of Credit; (xv) all fees payable by the Borrowers on the Closing Date to the Agent, Issuing Bank and the Lenders; (xvi) UCC search results showing only those liens and security interests as are acceptable to the Lenders; (xvii) Intercreditor Agreement between The CIT Group/Equipment Financing ("CIT") and the Agent; (xviii) Termination and Release Agreement between CIT and the Agent regarding existing term loan; (xix) Termination and Release Agreement between General Electric Capital Corporation ("GECC") and the Agent regarding existing revolving credit facility; 32 (xx) Termination and Release Agreement between Meridian Bank ("Meridian") and the Agent regarding existing term loan and revolving credit facility; (xxi) UCC-3 Partial Release Statements by CIT; (xxii) UCC-3 Termination Statements by GECC; (xxiii) UCC-3 Termination Statements by Meridian; (xxiv) copy of Tax-Sharing and Indemnity Agreement with Giant Group, Ltd. certified by the Secretary or an Assistant Secretary of Giant Holding; (xxv) such other documents, instruments, certificates and opinions as the Agent or any Lender may reasonably request on or prior to the Closing Date in connection with the consummation of the transactions contemplated hereby. (b) Each of the following shall have occurred or be true: (i) there shall not be any action, suit, investigation or proceeding pending or threatened in any court or before any arbitrator or governmental authority that purports to affect (A) any Borrower that could have a Material Adverse Effect, or (B) any transaction contemplated hereby; and (ii) no Borrower shall be in default with respect to any existing financial obligations. (c) In the good faith judgment of the Agent and the Lenders: (i) there shall not have occurred any Material Adverse Effect since December 31, 1995; (ii) there shall not have occurred any disruption or adverse change in the financial or capital markets generally which the Agent, in its sole reasonable discretion, deems material in connection with the Revolving Credit Facility; and (iii) the Agent shall have received and reviewed, with results satisfactory to the Agent and its counsel, all information it may reasonably request regarding the Borrowers. IV.2 Conditions of Revolving Loans and Issuance of Letters of Credit. The obligations of the Lenders to make any Revolving Loans hereunder on or subsequent to the Closing Date are subject to the satisfaction of the following conditions: 33 (a) the Agent shall have received a Request for Advance/Interest Rate Election if required by Article II hereof; (b) the representations and warranties of the Borrowers set forth in Article V hereof and in each of the other Loan Documents shall be true and correct in all material respects on and as of the date of such Advance, with the same effect as though such represen tations and warranties had been made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date and except that the financial statements referred to in Section 5.6(a) hereof shall be deemed to be those financial statements most recently delivered to the Agent and the Lenders pursuant to Section 6.1 hereof; (c) in the case of the issuance of a Letter of Credit, Borrowers shall have executed and delivered to Issuing Bank an Application for Letter of Credit in form and content acceptable to Issuing Bank together with such other instruments and documents as it shall reasonably request; (d) at the time of each Advance, conversion, continuation or issuance of each Letter of Credit, as the case may be, no Default or Event of Default specified in Article VIII hereof, shall have occurred and be continuing; (e) immediately after issuing any Letter of Credit, the aggregate Letter of Credit Outstandings shall not exceed the Total Letter of Credit Commitment; (f) the Borrowers have maintained, on a consolidated basis, to the reasonable satisfaction of the Agent and the Lenders a financial condition in which they, considered as a whole, may repay the obligations, including each Advance to be made at such time, from Consolidated EBITDA derived from operations; and (g) immediately after giving effect to a Revolving Loan, the aggregate principal balance of all outstanding Revolving Loans for each Lender and in the aggregate shall not exceed, respectively, (i) such Lender's Revolving Credit Commitment or (ii) the Total Revolving Credit Commitment. ARTICLE V --------- Representations and Warranties ------------------------------ Each Borrower represents and warrants that: V.1 Organization and Authority. (a) Each Borrower is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation; 34 (b) Each Borrower (x) has the requisite power and authority to own its properties and assets and to carry on its business as now being conducted and as contemplated in the Loan Documents, and (y) is qualified to do business in every jurisdiction in which failure so to qualify would have a Material Adverse Effect; (c) Each Borrower has the power and authority to execute, deliver and perform this Agreement and the Notes, and to borrow hereunder, and to execute, deliver and perform each of the other Loan Documents to which it is a party; and (d) when executed and delivered, each of the Loan Documents to which each Borrower is a party is the legal, valid and binding obligation or agreement, as the case may be, of such Borrower, enforce able against such Borrower in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity which may limit the availability of equitable remedies (whether in a proceeding at law or in equity). V.2 Loan Documents. The execution, delivery and performance by each Borrower of each of the Loan Documents to which it is a party: (a) have been duly authorized by all requisite corporate action (including any required shareholder approval) of such Borrower required for the lawful execution, delivery and performance thereof; (b) do not violate any provisions of (i) applicable law, rule or regulation, (ii) any order of any court or other agency of government binding on such Borrower, or its properties, or (iii) the charter documents or bylaws of such Borrower, except to the extent such violation would not or would not be reasonably likely to have a Material Adverse Effect; (c) does not and will not be in conflict with, result in a breach of or constitute an event of default, or an event which, with notice or lapse of time, or both, would constitute an event of default, under any material indenture, agreement or other instrument to which such Borrower is a party, or by which the properties or assets of such Borrower are bound; (d) does not and will not result in the creation or imposition of any Lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of Borrower except any liens in favor of the Agent and the Lenders created by the Security Documents. V.3 Solvency. Each Borrower is Solvent after giving effect to the transactions contemplated by this Agreement and the other Loan Documents. V.4 Subsidiaries and Stockholders. None of the Borrowers has any Subsidiary which is not a Borrower. 35 V.5 Ownership Interests. None of the Borrowers owns any interest in any Person other than the Persons listed in Schedule 5.5 hereto. V.6 Financial Condition. (a) Giant Cement has furnished to the Agent (i) the audited consolidated balance sheet of the Borrowers as of December 31, 1995 and the notes thereto and the related consolidated statements of operations, cash flows, and shareholders' equity for the Fiscal Year then ended as examined and certified by Coopers & Lybrand as the independent certified public accountants of the Borrowers, (ii) the unaudited interim consolidated financial statements of Borrowers consisting of a consolidated balance sheet and related consolidated statements of operations, cash flows and notes thereto, for and as of the nine-month period ended September 30, 1996. Except as set forth therein, such financial statements (including the notes thereto), present fairly the consolidated financial position of the Borrowers, as of the end of such Fiscal Year and such nine-month period, all in conformity with GAAP applied on a Consistent Basis (subject, in the case of the interim statements, to year-end adjustments and the absence or reduced scope of footnote disclosures); (b) since December 31, 1995, there has not occurred any event, including but not limited to fire, explosion or other accident, earthquake, flood, drought, storm or other act of God, strike, lockout, combination of workers or other labor matter, or embargo or act of a public enemy which has had or could reasonably be expected to have a Material Adverse Effect; (c) since December 31, 1995, except as set forth in Schedule 5.6 hereto, no Borrower has incurred any material Consolidated Indebtedness that remains outstanding or unsatisfied. Schedule 5.6 hereto sets forth all Consolidated Indebtedness of the Borrower and its Subsidiaries. V.7 Title to Properties. The Borrowers have good and marketable title to all their real and personal properties, subject to no transfer restrictions or Liens of any kind, except for (a) the transfer restrictions and Liens described in Schedule 5.7 attached hereto and incorporated herein by reference, and (b) Liens permitted under Section 7.7 hereof. Keystone has fee simple title to its manufacturing facility located in Bath, Pennsylvania; Giant Cement has fee simple title to its manufacturing facility located in Harleyville, South Carolina; and no Borrower leases any facility except as so indicated on Schedule 2 to the Security Agreement. V.8 Taxes. The Borrowers have filed or caused to be filed or obtained extensions of the time to file all federal, state and local tax returns which are required to be filed by it and, except for taxes and assessments being contested in good faith and against which reserves have been established which are satisfactory to the Borrowers' independent certified public accountants as determined in the normal course of their annual audit of the Borrowers and evidenced by their most recent opinion delivered pursuant to and satisfying the standards in Section 6.1(a) hereof, have paid or caused to be paid all taxes as shown on said returns or on any assessment received by it, to the extent that such taxes have become due. 36 V.9 Other Agreements. None of the Borrowers is (a) a party to any judgment, order, decree or any agreement or instrument or subject to restrictions which could reasonably be likely to have a Material Adverse Effect; or (b) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which any Borrower is a party, which default has, or if not remedied within any applicable grace period could reasonably be likely to have, a Material Adverse Effect. V.10 Litigation. There is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or agency or arbitral body pending, or, to the knowledge of the Borrowers, threatened by or against any Borrower or affecting any Borrower or any properties or rights of any Borrower, which could reasonably be likely to have a Material Adverse Effect. V.11 Margin Stock. None of the Borrowers owns any "margin stock" as such term is defined in Regulation U, as amended (12 C.F.R. Part 221), of the Board. The proceeds of the borrowings made pursuant to Article II hereof will be used by the Borrowers only for the purposes set forth in Section 2.10 hereof. None of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might constitute any of the Loans under this Agreement a "purpose credit" within the meaning of said Regulation U or Regulation X (12 C.F.R. Part 224) of the Board. Neither the Borrowers nor any agent acting in their behalf has taken or will take any action which might cause this Agreement or any of the documents or instruments delivered pursuant hereto to violate any regulation of the Board or to violate the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or any state securities laws, in each case as in effect on the date hereof. V.12 Investment Company. None of the Borrowers is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. 80a-1, et seq.). The application of the proceeds of the Loans and repayment thereof by the Borrowers and the performance by the Borrowers of the transactions contemplated by this Agreement will not violate any provision of said Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder, in each case as in effect on the date hereof. V.13 Patents, Etc. Each of the Borrowers owns or has the right to use, under valid license agreements or otherwise, all material patents, licenses, franchises, trademarks, trademark rights, trade names, trade name rights, trade secrets and copyrights necessary to the conduct of its businesses as now conducted, without known conflict with any patent, license, franchise, trademark, trade secrets and confidential commercial or proprietary information, trade name, copyright, rights to trade secrets or other proprietary rights of any other Person. 37 V.14 No Untrue Statement. Neither this Agreement nor any other Loan Document or certificate or document executed and delivered by or on behalf of the Borrowers in accordance with or pursuant to any Loan Document contains any misrepresentation or untrue statement of material fact or omits to state a material fact necessary, in light of the circumstance under which it was made, in order to make any such representation or statement contained therein not misleading. V.15 No Consents, Etc. Neither the respective businesses or properties of any Borrower, nor any relationship between any Borrower and any other Person, nor any circumstance in connection with the execution, delivery and performance of the Loan Documents and the transactions contemplated hereby, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental or other authority or any other Person on the part of any Borrower as a condition to the execution, delivery and performance of, or consummation of the transactions contemplated by, this Agreement or the other Loan Documents which, if not obtained or effected, could reasonably be likely to have a Material Adverse Effect or if so, such consent, approval, authorization, filing, registration or qualification has been obtained or effected, as the case may be. V.16 Employee Benefit Plans. (a) Neither any Borrower nor any ERISA Affiliate maintains or contributes to, or has any obligation under, any Employee Benefit Plans other than those identified on Schedule 5.16 attached hereto; (b) Each Borrower and each ERISA Affiliate is in compliance with all applicable provisions of ERISA and the regulations and published interpretations thereunder and in compliance with all Foreign Benefit Laws with respect to all Employee Benefit Plans except where failure to comply would not result in a Material Adverse Effect and except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified, and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code. No material liability has been incurred by the Borrowers or any ERISA Affiliate which remains unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan or any Multiemployer Plan; (c) No Pension Plan has been terminated within the six year period prior to the execution of this Agreement, nor has any accumulated funding deficiency (as defined in Section 412 of the Code) been incurred (without regard to any waiver granted under Section 412 of the Code), nor has any funding waiver from the IRS been received or requested with respect to any Pension Plan, nor have the Borrowers or any ERISA Affiliate failed to make any contributions or to pay any amounts due and owing as required by Section 412 of the Code, Section 302 of ERISA or the terms of any Pension Plan prior to the due dates of such contributions under Section 412 of the Code or Section 302 of ERISA, nor has there been any event requiring any disclosure under Section 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA with respect to any Pension Plan; 38 (d) Neither any Borrower nor any ERISA Affiliate has: (i) engaged in a nonexempt prohibited transaction described in Section 406 of ERISA or Section 4975 of the Code, (ii) incurred any liability to the PBGC which remains outstanding other than the payment of premiums and there are no premium payments which are due and unpaid, (iii) failed to make a required contribution or payment to a Multiemployer Plan or (iv) failed to make a required installment or other required payment under Section 412 of the Code; (e) No Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan or Multiemployer Plan; (f) No material proceeding, claim, lawsuit and/or investigation exists or, to the best knowledge of each Borrower after due inquiry, is threatened concerning or involving any Employee Benefit Plan. V.17 No Default. As of the date hereof, there does not exist any Default or Event of Default hereunder. V.18 Hazardous Materials. Each Borrower is in compliance with all applicable Environmental Laws in all material respects, including without limitation its operations and properties in South Carolina and Pennsylvania. No Borrower has been notified of any action, suit, proceeding or investigation which calls into question compliance by such Borrower with any Environmental Laws that could reasonably be expected to have a Material Adverse Effect, or which seeks to suspend, revoke or terminate any license, permit or approval necessary for the generation, handling, storage, treatment or disposal of any Hazardous Material that could reasonably be expected to have a Material Adverse Effect. Except as disclosed in the permits set forth on Schedule 5.18, each real property occupied, leased or operated by any Borrower is free from all Hazardous Material that could reasonably be expected to have a Material Adverse Effect. V.19 RICO. None of the Borrowers is engaged in or have not engaged in any course of conduct that could subject any of their respective properties to any Lien, seizure or other forfeiture under any criminal law, racketeer influenced and corrupt organizations law, civil or criminal, or other similar laws. V.20 Employment Matters. (a) None of any employees of any Borrower is subject to any collective bargaining agreement and, except as disclosed on Schedule 5.20, there are no strikes, work stoppages, election or decertification petitions or proceedings, unfair labor charges, equal opportunity proceedings, or other material labor/employee related controversies or proceedings pending or, to the best knowledge of each Borrower, threatened against any Borrower or between any Borrower and any of its employees, other than employee grievances arising in the ordinary course of business which would not in the aggregate have a Material Adverse Effect. (b) Each Borrower is in compliance in all material respects with all applicable laws, rules and regulations pertaining to labor or employment matters, including without limitation those pertaining to wages, hours, occupational safety and taxation and there is neither pending or 39 threatened any material litigation, administrative proceeding nor, to the knowledge of each Borrower, any investigation, in respect of such matters which, if decided adversely, could reasonably be likely to have a Material Adverse Effect. ARTICLE VI ---------- Affirmative Covenants --------------------- Until the Obligations have been paid and satisfied in full and this Agreement has been terminated in accordance with the terms hereof, unless the Required Lenders shall otherwise consent in writing, each of the Borrowers will: VI.1 Financial Reports, Etc. (a) As soon as practical and in any event within 90 days after the end of each Fiscal Year, deliver or cause to be delivered to the Agent and each Lender (i) consolidated and consolidating balance sheets of the Borrowers, and the notes thereto, the related statements of operations, stockholders' equity and cash flows, and the respective notes thereto, for such Fiscal Year, setting forth in the case of the statements comparative financial statements for the preceding Fiscal Year, all prepared in accordance with GAAP applied on a Consistent Basis and containing, with respect to the consolidated financial reports, opinions of Coopers & Lybrand, or other such independent certified public accountants selected by Giant Holding and approved by the Agent, which are unqualified as to the scope of the audit performed and as to the "going concern" status of the Borrowers and are without exception not acceptable to the Required Lenders, and (ii) a certificate of an Authorized Representative demonstrating compliance with Sections 7.1, 7.2, 7.3, 7.4 and 7.5 hereof, which certificate shall be in the form attached hereto as Exhibit H hereof; (b) as soon as practical and in any event within 45 days after the end of each quarterly period (except the last reporting period of the Fiscal Year), deliver to the Agent and each Lender (i) consolidated balance sheets of the Borrowers as of the end of such reporting period, the related statements of operations, stockholders' equity and cash flows for such reporting period and for the period from the beginning of the Fiscal Year through the end of such reporting period, accompanied by a certificate of an Authorized Representative to the effect that such financial statements present fairly the financial position of the Borrowers as of the end of such reporting period and the results of their operations and the changes in their financial position for such reporting period, in conformity with the standards set forth in Section 5.6(a)(ii) hereof with respect to interim financials, and (ii) a certificate of an Authorized Representative containing computations for such quarter comparable to that required pursuant to Section 6.1(a)(ii) hereof; (c) together with each delivery of the financial statements required by Section 6.1(a)(i) hereof, deliver to the Agent and each Lender a letter from the Borrowers' accountants specified or otherwise determined as set forth in Section 6.1(a)(i) hereof stating that in 40 performing the audit necessary to render an opinion on the financial statements delivered under Section 6.1(a)(i) hereof, they obtained no knowledge of any Default or Event of Default by the Borrowers in the fulfillment of the terms and provisions of this Agreement insofar as they relate to financial matters (which at the date of such statement remains uncured); and if the accountants have obtained knowledge of such Default or Event of Default, a statement specifying the nature and period of existence thereof; (d) promptly upon their becoming available to the Borrowers, the Borrowers shall deliver to the Agent and each Lender a copy of (i) all regular or special reports or effective registration statements which any of the Borrowers shall file with the Securities and Exchange Commission (or any successor thereto) or any securities exchange, including without limitation each Annual Report on Form 10-K, each Quarterly Report on Form 10-Q and each Current Report on Form 8-K, (ii) any proxy statement distributed by any of the Borrowers to their shareholders, bondholders or the financial community in general, and (iii) any management letter or other report submitted to the Board of Directors of Giant Holding by independent accountants in connection with any annual, interim or special audit of the Borrowers; (e) promptly, from time to time, deliver or cause to be delivered to the Agent and each Lender such other information regarding Borrowers' operations, business affairs and financial condition as the Agent or such Lender may reasonably request. The Agent and the Lenders are hereby authorized to deliver a copy of any such financial information delivered hereunder to the Lenders (or any affiliate of any Lender) or to the Agent, to any regulatory authority having jurisdiction over any of the Lenders pursuant to any written request therefor, or to any other Person who shall acquire or consider the assignment of or Participation in any Loan or Letter of Credit permitted by this Agreement. VI.2 Maintain Properties. Maintain all properties necessary to its operations in good working order and condition, ordinary wear and tear excepted, and make all needed repairs, replacements and renewals as are reasonably necessary to conduct its business in accordance with customary business practices. VI.3 Existence, Qualification, Etc. Do or cause to be done all things necessary to preserve and keep in full force and effect its existence and all material rights and franchises, trade names, trademarks and permits and maintain its license or qualification to do business as a foreign corporation and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. VI.4 Regulations and Taxes. Comply in all material respects with or contest in good faith all statutes and governmental regulations and pay all taxes, assessments, governmental charges, claims for labor, supplies, rent and any other obligation which, if unpaid, would become a Lien against any of its properties except liabilities being contested in good faith by appropriate proceedings diligently conducted and against which adequate reserves have been established which are satisfactory to the independent public accountants of the Borrowers as determined in the normal course of their annual audit of the Borrowers and evidenced by their most recent 41 opinion delivered pursuant to and satisfying the standards in Section 6.1(a) hereof. VI.5 Insurance. Keep all of its insurable properties adequately insured at all times and maintain general public liability insurance at all times with responsible insurance carriers against loss or damage by fire and other hazards as are customarily insured against by similar businesses owning such properties similarly situated. Maintain insurance under all applicable workers' compensation laws. Each of the casualty policies insuring Collateral shall provide that the insurer shall give the Agent not less than thirty (30) days' prior written notice before any such policy shall be terminated, lapse or be altered in any manner and shall name the Agent as an additional insured or secured party, as applicable. VI.6 True Books. Maintain proper books of record and account in which full, true and correct entries will be made of all of its dealings and transactions as may be required by GAAP, and set up on its books such reserves as may be required by GAAP with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business in general, and include such reserves in all material respects in interim as well as year-end financial statements. VI.7 Pay Indebtedness to Lenders and Perform Other Covenants. (a) Make full and timely payment of the principal of and interest on the Notes and all other Obligations whether now existing or hereafter arising; and (b) duly comply with and perform all the terms and covenants contained in all Loan Documents. VI.8 Payment of Other Indebtedness. Pay when due (or within applicable grace periods) all Indebtedness due third Persons, except when the amount thereof is being contested in good faith by appropriate proceedings diligently conducted and with reserves in form and amount reasonably acceptable to the Agent therefor being set aside on the books of the Borrowers. VI.9 Right of Inspection. Permit any representative designated by any Lender or the Agent to visit and inspect any of the properties, corporate books and financial reports of the Borrowers and to discuss its affairs, finances and accounts with its principal officers and independent certified public accountants, all at reasonable times, at reasonable intervals and with reasonable prior notice. VI.10 Observe all Laws. Conform to and duly observe in all material respects all laws, rules and regulations and all other valid requirements of any regulatory authority with respect to the conduct of its business. VI.11 Officer's Knowledge of Default. Upon any senior officer of any Borrower obtaining knowledge of any Default or Event of Default hereunder or under any other obligation of the Borrowers to any Lender, cause such officer or an Authorized Representative promptly to notify the Agent of the nature thereof, the period of existence thereof, and what action the Borrowers propose to take with respect thereto. VI.12 Suits or Other Proceedings. Upon any senior officer of any Borrower obtaining knowledge of any litigation or other proceedings being instituted against any of the Borrowers, or any attachment, levy, execution 42 or other process being instituted against any assets of any of the Borrowers, making a claim or claims in an aggregate amount greater than, or reasonably expected to be greater than, $1,000,000 not reasonably expected to be covered by insurance, promptly deliver to the Agent written notice thereof stating the nature and status of such litigation, dispute, proceeding, levy, execution or other process. VI.13 Environmental Compliance. If any of the Borrowers shall receive notice from any Governmental Authority that any of the Borrowers have violated any applicable Environmental Laws which could reasonably be likely to have a Material Adverse Effect, promptly deliver a copy of such notice to the Agent and use its best efforts to remove or remedy such violation within the time period prescribed in such notice or, if none, within a reasonable time. VI.14 Indemnification. Each of the Borrowers hereby jointly and severally agrees to defend, indemnify and hold the Agent and the Lenders harmless from and against any and all claims, losses, liabilities, damages and expenses (including, without limitation, cleanup costs and reasonable attorneys' fees) arising directly or indirectly from, out of or by reason of the handling, storage, treatment, emission or disposal of any Hazardous Material by any of the Borrowers or property owned or leased or operated by any of the Borrowers. The provisions of this Section 6.14 shall survive repayment of the Obligations, occurrence of the Revolving Credit Termination Date and expiration or termination of this Agreement for so long as any applicable statute of limitations period. VI.15 Further Assurances. At the Borrowers' cost and expense, upon request of the Agent or any Lender, duly execute and deliver or cause to be duly executed and delivered, to the Agent for the benefit of the Lenders such further instruments, documents, certificates, financing and continuation statements, and do and cause to be done such further acts that may be reasonably necessary or advisable in the reasonable opinion of the Agent to carry out more effectively the provisions and purposes of this Agreement and the other Loan Documents. VI.16 Employee Benefit Plans. With reasonable promptness, and in any event within thirty (30) days thereof, give notice of and/or deliver to Agent copies of (a) the establishment of any new Employee Benefit Plan, (b) the commencement of contributions to any plan to which any of the Borrowers or any of their ERISA Affiliates were not previously contributing, (c) any material increase in the benefits of any existing Employee Benefit Plan, (d) each funding waiver request filed with respect to any Employee Benefit Plan and all communications received or sent by any of the Borrowers or any ERISA Affiliate with respect to such request and (e) the failure of any of the Borrowers or any ERISA Affiliate to make a required installment or payment under Section 302 of ERISA or Section 412 of the Code by the due date. VI.17 Termination Events. Promptly and in any event within fifteen (15) days of becoming aware of the occurrence of or forthcoming occurrence of any (a) Termination Event or (b) "prohibited transaction," as such term is defined in Section 406 of ERISA or Section 4975 of the Code, in connection with any Pension Plan or any trust created thereunder, deliver to the Agent a notice specifying the nature thereof, what action the Borrowers have taken, are taking or propose to take with respect 43 thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto. VI.18 ERISA Notices. With reasonable promptness but in any event within fifteen (15) days for purposes of clauses (a), (b) and (c), deliver to the Agent copies of (a) any unfavorable determination letter from the Internal Revenue Service regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code, (b) all notices received by the Borrowers or any ERISA Affiliate of the PBGC's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (c) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by the Borrowers or any ERISA Affiliate with the Internal Revenue Service with respect to each Pension Plan and (d) all notices received by any of the Borrowers or any ERISA Affiliate from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA. The Borrowers will notify the Agent in writing within five (5) Business Days of any Borrower obtaining knowledge or reason to know that any Borrower or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Pension Plan under a distress termination within the meaning of Section 4041(c) of ERISA. VI.19 Continued Operations. Continue at all times to conduct its business and engage principally in the same line or lines of business substantially as heretofore conducted and to preserve, protect and maintain free from Liens, other than Liens permitted under Section 7.6 hereof, its material patents, copyrights, licenses, trademarks, trademark rights, trade names, trade name rights, trade secrets and know-how necessary or useful in the conduct of its operations. VI.20 Use of Proceeds. Use the proceeds of the Loans solely for the purposes specified in Section 2.10 hereof. VI.21 New Subsidiaries. Simultaneously with the acquisition or creation of any Subsidiary, or upon any previously existing Persons becoming a Subsidiary, cause to be delivered to the Agent for the benefit of the Lenders each of the following: (i) an amendment to this Agreement executed by such Subsidiary whereby such Subsidiary becomes a Borrower in form and substance acceptable to the Agent; (ii) an amendment to the Security Instruments executed by such Subsidiary whereby such Subsidiary grants to the Agent for the benefit of the Lenders a Lien on all its Collateral and such related Uniform Commercial Code financing statements and other instruments as required by the Agent; (iii) an amendment to the Subordination Agreement executed by such Subsidiary whereby such Subsidiary becomes a party thereto and agrees to subordinate its debt or obligations to any Borrower to the Obligations contemplated under any of the Loan Documents; (iv) an opinion of counsel to such Subsidiary dated as of the date of delivery of the amendments provided in the foregoing clauses (i) and (ii) and addressed to the Agent and the Lenders, 44 in form and substance reasonably acceptable to the Agent and substantially similar to the opinions of counsel to the Borrowers delivered on the Closing Date to the Lenders pursuant to Section 4.1 hereof; and (v) current copies of the charter or other organizational documents and bylaws of such Subsidiary, minutes of duly called and conducted meetings (or duly effected consent actions) of the Board of Directors, or appropriate committees thereof (and, if required by such charter or other organizational documents, bylaws or by applicable laws, of the shareholders) of such Subsidiary authorizing the actions and the execution and delivery of documents described in clauses (i) and (ii) of this Section 6.21 and evidence satisfactory to the Agent (confirmation of the receipt of which will be provided by the Agent to the Lenders) that such Subsidiary is Solvent as of such date and after giving effect to the amendments to this Agreement and the Security Agreement. VI.22 Substitution Letters of Credit. On or before September 15, 1997 cause all letters of credit outstanding on the date hereof and issued by ABN AMRO Bank N.V., New York Branch, under the existing credit facility made available to certain of the Borrowers by General Electric Capital Corporation for the benefit of the Bureau of Solid & Hazardous Waste Management, South Carolina Department of Health & Environmental Control; the Pennsylvania Department of Environmental Resources, Bureau of Waste Management; the Commonwealth of Pennsylvania, Bureau of Solid Waste Management; and the Pennsylvania Department of Environmental Resources, Bureau of Solid Waste Management, respectively to be returned for cancellation and cause to be issued in lieu thereof Letters of Credit hereunder. ARTICLE VII ----------- Negative Covenants ------------------ Until the Obligations have been paid and satisfied in full and this Agreement has been terminated in accordance with the terms hereof, unless the Required Lenders shall otherwise consent in writing, none of the Borrowers will: VII.1 Consolidated Indebtedness for Money Borrowed to Consolidated Tangible Net Worth Ratio. Permit the ratio of Consolidated Indebtedness for Money Borrowed to Consolidated Tangible Net Worth to be greater than 1.50 to 1.00 at any time. VII.2 Consolidated Fixed Charge Ratio. Permit as of the last day of any calendar quarter the Consolidated Fixed Charge Ratio to be less than 1.50 to 1.00. VII.3 Current Ratio. Permit as of the last day of any calendar quarter the ratio of Consolidated Current Assets to Consolidated Current Liabilities to be less than 1.25 to 1.00. 45 VII.4 Capital Expenditures. Permit the aggregate amount of all Capital Expenditures of the Borrowers during any Fiscal Year commencing in the Fiscal Year ending December 31, 1997 to exceed twice the amount of all Depreciation for such Fiscal Year; provided that to the extent not expended in any Fiscal Year ("Excess Capital Expenditures"), such Excess Capital Expenditures may not be carried over and expended in any following Fiscal Year. VII.5 Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth to be less than (i) $60,000,000 at and from the Closing Date to but not including the last day of the Fiscal Year of the Borrowers in which the Closing Date occurs, and (ii) at all times thereafter, adjusted as of the last day of each Fiscal Year (the "Adjustment Date"), the sum of (A) the amount of Consolidated Tangible Net Worth required to be maintained pursuant to this Section 7.5 during the Fiscal Year of the Borrowers ending on such Adjustment Date, plus (B) 50% of Consolidated Net Income for the Fiscal Year ending on such Adjustment Date (including within "Consolidated Net Income" all items otherwise excluded, as provided for in the definition of "Consolidated Net Income"), plus (C) 100% of the aggregate Net Proceeds of all equity issuances consummated during the Fiscal Year ending on such Adjustment Date. VII.6 Liens. Incur, create or permit to exist any pledge, Lien, charge or other encumbrance of any nature whatsoever with respect to any real or personal property now owned or hereafter acquired by any Borrower, other than (a) Liens existing as of the date hereof and as set forth in Schedule 5.7 attached hereto; (b) any Lien created under the Loan Documents; (c) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (d) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen, repairmen and other Liens imposed by law or created in the ordinary course of business and in existence less than 90 days from the date of creation thereof for amounts not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (e) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; 46 (f) purchase money Liens to secure Indebtedness incurred to purchase fixed assets or Equipment, provided the Indebtedness represents not less than 75% nor more than 100% of the purchase price of such assets as of the date of purchase thereof and no property other than the assets so purchased secures such Indebtedness; (g) Liens to secure Indebtedness permitted under Section 7.7(d) hereof, provided such Liens attach only to assets of such newly acquired Borrower and do not attach to the assets of any other Borrower; (h) any Lien existing on any property or asset prior to the acquisition thereof by any Borrower; (i) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of any Borrower; and (j) any Lien represented by the interest of a lessor in property the subject of a capital lease permitted by this Agreement. VII.7 Consolidated Indebtedness. Incur, create, assume or permit to exist any Consolidated Indebtedness, howsoever evidenced, except: (a) Consolidated Indebtedness existing as of the date hereof and as set forth in Schedule 5.6 attached hereto and incorporated herein by reference and any extension, renewal or refinancing thereof that does not increase the principal amount thereof or interest rate payable thereon from that existing immediately prior to such extension, renewal or refinancing; provided, none of the instruments and agreements evidencing or governing such Indebtedness shall be amended, modified or supplemented after the Closing Date to change any terms of subordination, repayment or rights of conversion, put, exchange or other rights from such terms and rights as in effect on the Closing Date; (b) Consolidated Indebtedness owing to the Agent or any Lender in connection with this Agreement, any Note or other Loan Document; (c) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (d) Consolidated Indebtedness of Borrowers acquired after the Closing Date, provided that (i) such Consolidated Indebtedness (A) is recorded in the financial books and records of such Borrower prior to such acquisition, (B) was not incurred by such Borrower in anticipation of such acquisition, and (C) is incurred upon terms determined by Giant Holding in its good faith business judgment to be more economically advantageous to the Borrowers than the terms of an Advance hereunder, (ii) immediately after such acquisition and the 47 incurrence of such Consolidated Indebtedness, no Default or Event of Default has occurred or is continuing and (iii) the aggregate principal amount of such Consolidated Indebtedness does not exceed $7,500,000; (e) (i) purchase money Consolidated Indebtedness and (ii) Consolidated Indebtedness incurred with respect to financing of Capital Expenditures, collectively under both clause (i) and (ii) not to exceed an aggregate outstanding amount at any time of $10,000,000; (f) other Consolidated Indebtedness not otherwise covered by clauses (a) through (e) above, provided that the aggregate outstanding principal amount of all such other Consolidated Indebtedness permitted under this clause (f) shall in no event exceed $3,000,000 at any time. VII.8 Transfer of Assets. Sell, lease, transfer or otherwise dispose of any assets of any of the Borrowers other than (a) dispositions of Inventory in the ordinary course of business; (b) dispositions of equipment that is substantially worn, damaged, obsolete or, in the judgment of the Borrowers, no longer best used or useful in its business which, in the aggregate during any fiscal year, has a fair market value or book value, whichever is less, of $500,000 or less and is not replaced by equipment having at least equivalent value; (c) dispositions of equipment provided that (i) such Equipment is replaced by Equipment of like kind or function and equal or greater value, (ii) the replacement Equipment shall be acquired prior to or substantially contemporaneously with any disposition of the Equipment that is to be replaced, and (iii) the replacement Equipment shall be free and clear of Liens other than the Liens permitted by Section 7.6(e) hereof; and (d) other dispositions of assets not exceeding $250,000 in aggregate sales price in any Fiscal Year. VII.9 Investments; Acquisitions. Make any acquisition or otherwise purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities, or make or permit to exist any interest whatsoever in any other Person or permit to exist any loans or advances to any Person, except that Borrowers may maintain investments or invest in: (a) Eligible Securities; (b) investments existing as of the date hereof and as set forth in Schedule 7.9 attached hereto; (c) accounts receivable arising and trade credit granted in the ordinary course of business and any securities received in satisfaction or partial satisfaction thereof in connection with accounts of financially troubled Persons to the extent reasonably necessary in order to prevent or limit loss; (d) investments in, and loans and other extensions of credit to, another Borrower provided, however, each loan or extension of credit is subordinated to the Obligations on terms satisfactory to the Lenders; 48 (e) loans to employees in the ordinary course of business in an aggregate principal amount outstanding at any time of $500,000; and (f) other loans, advances and investments in an aggregate principal amount at any time outstanding not to exceed $500,000. Notwithstanding the foregoing, the Borrowers may make Acquisitions so long as: (i) immediately prior to and immediately after the consummation of such Acquisition, no Default or Event of Default has occurred and is continuing, (ii) substantially all of the sales and operating profits generated by such Person (or assets) so acquired or invested are derived from the same line or lines of business as then conducted by the Borrowers, (iii) pro forma historical financial statements as of the end of the most recently completed Fiscal Year giving effect to such Acquisition are delivered to the Agent not less than five (5) Business Days prior to the consummation of such Acquisition, together with a certificate of an Authorized Representative demonstrating compliance with Sections 7.1, 7.2, 7.3, 7.4 and 7.5 hereof on a pro forma basis after giving effect to such Acquisition, (iv) the aggregate amount of all Costs of Acquisition shall not exceed $10,000,000 during any Fiscal Year, and (v) in the event the Person so acquired is not a Subsidiary, the Borrowers' strategic plan includes additional investment in such Person sufficient for it to become a Subsidiary. All expenditures for or acquisitions of fixed or capital assets not constituting an Acquisition within the meaning of this Agreement shall be deemed to be Capital Expenditures and therefore subject to the provisions of Section 7.7 hereof. VII.10 Merger or Consolidation. (a) Consolidate with or merge into any other Person, or (b) liquidate, wind-up or dissolve; provided that any Borrower may merge into another Borrower and any Borrower may effect by merger any acquisition complying with Section 7.9 hereof. VII.11 Change in Control. (a) Cause, suffer or permit (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), to own or control, directly or indirectly, more than 40% of the outstanding securities of Giant Holding having voting rights in the election of directors, in each case to be determined on a fully diluted basis and taking into account any outstanding securities or contract rights exercisable, exchangeable or convertible into equity interests or (ii) individuals who at the Closing Date constituted the Board of Directors of Giant Holding (together with any new directors whose election by the Board of Directors or whose nomination for election by the stockholders of Giant Holding was approved by a vote of a majority of the directors of Giant Holding then still in office who were either directors of Giant Holding at the Closing Date or whose election or nomination for election was previously so approved) to cease for any reason to constitute at least two-thirds (2/3) of the Board of Directors of Giant Holding then in office. (b) Cause, suffer or permit any Person or group of Persons other than any Borrower as of the Closing Date to own or control, directly or indirectly, any capital stock of any Borrower other than Giant Holding having voting rights in the election of directors, or any other equity security or a security convertible into or exchangeable or redeemable for any equity security, other than the ownership or 49 control of all the issued and outstanding capital stock of any Borrower in the event the provisions of Section 7.8 hereof would not be violated if all assets of such Borrower were sold, leased, transferred or otherwise disposed. VII.12 Transactions with Affiliates. Enter into any transaction, including, without limitation, the purchase, sale, leasing or exchange of property, real or personal, or the rendering of any service, with any Affiliate (other than another Borrower) of any Borrower, except (a) that an Affiliate may render services to such Borrower for compensation at the same rates generally paid by Persons engaged in the same or similar businesses for the same or similar services and (b) in the ordinary course of and pursuant to the reasonable requirements of such Borrower's business consistent with past practice of such Borrower, other than any transactions with Affiliates of any Borrower which in the aggregate do not exceed $500,000. VII.13 Compliance with ERISA. With respect to any Pension Plan, Employee Benefit Plan or Multiemployer Plan: (a) permit the occurrence of any Termination Event which would result in a liability to the Borrowers or any ERISA Affiliate in excess of $1,000,000; (b) permit the present value of all benefit liabilities under all Pension Plans to exceed the current value of the assets of such Pension Plans allocable to such benefit liabilities by more than $15,000,000 and in any Fiscal Year make contributions in an amount less than is required by actuarial calculations; (c) permit any accumulated funding deficiency in excess of $250,000 (as defined in Section 302 of ERISA and Section 412 of the Code) with respect to any Pension Plan, whether or not waived; (d) fail to make any contribution or payment to any Multiemployer Plan which the Borrowers or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto which results in or is likely to result in a liability in excess of $250,000; or (e) engage, or permit any Borrower or any ERISA Affiliate to engage, in any prohibited transaction under Section 406 of ERISA or Sections 4975 of the Code for which a civil penalty pursuant to Section 502(i) of ERISA or a tax pursuant to Section 4975 of the Code in excess of $250,000 may be imposed; or (f) permit the establishment of any Employee Benefit Plan providing post-retirement welfare benefits or establish or amend any Employee Benefit Plan which establishment or amendment could result in liability to the Borrowers or any ERISA Affiliate or increase the obligation of the Borrowers or any ERISA Affiliate to a Multiemployer Plan which liability or increase, individually or together with all similar liabilities and increases, is in excess of $1,000,000; or 50 (g) fail, or permit the Borrowers or any ERISA Affiliate to fail, to establish, maintain and operate each Employee Benefit Plan in compliance with the provisions of ERISA, the Code, all applicable Foreign Benefit Laws and all other applicable laws and the regulations and official published interpretations thereof in the event such noncompliance could reasonably be expected to result in a Material Adverse Effect. VII.14 Fiscal Year. Change its Fiscal Year. VII.15 Limitations on Sales and Leasebacks. Enter into any arrangement with any Person providing for the leasing by any Borrower of real or personal property which has been or is to be sold or transferred by any Borrower to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrowers. VII.16 Negative Pledge Clauses. Enter into any agreement with any Person other than the Agent and the Lenders pursuant to this Agreement and the other Loan Documents which prohibits or limits the ability of any of the Borrowers to create, incur, assume or suffer to exist any Lien, upon any of its property, assets or revenues, whether now owned or hereafter acquired. ARTICLE VIII ------------ Events of Default and Acceleration ---------------------------------- VIII.1 Events of Default. If any one or more of the following events (herein called "Events of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), that is to say: (a) if default shall be made in the due and punctual payment of the principal of any Loan, Reimbursement Obligation or Obligation, when and as the same shall be due and payable whether pursuant to any provision of Article II or Article III hereof, at maturity, by acceleration or otherwise; or (b) if default shall be made in the due and punctual payment of any amount of interest on any Loan or of any fees or other amounts payable to any of the Lenders or the Agent under the Loan Documents on the date on which the same shall be due and payable and such default shall continue unremedied for more than two (2) Business Days; or (c) if default shall be made in the performance or observance of any covenant set forth in Sections 6.7(a), 6.9, 6.11, 6.12, 6.19, 6.20 or Article VII hereof; (d) if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in this Agreement or the Notes (other than as described in 51 clauses (a), (b) or (c) above) or any other agreement between any of the Borrowers and any Lender creating or relating to any Consolidated Indebtedness owing by any of the Borrowers to any Lender and such default shall continue for 30 or more days after the earlier of receipt of notice of such default by the Authorized Representative from the Agent or a senior officer of any of the Borrowers becomes aware of such default, or if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in any of the other Loan Documents (beyond any applicable grace period, if any, contained therein) or in any instrument or document evidencing or creating any obligation, guaranty, or Lien in favor of the Agent or any of the Lenders or delivered to the Agent or any of the Lenders in connection with or pursuant to this Agreement or any of the Obligations, or if any Loan Document ceases to be in full force and effect (other than by reason of any action by the Agent), or if without the written consent of the Agent and the Lenders, this Agreement or any other Loan Document shall be disaffirmed or shall terminate, be terminable or be terminated or become void or unenforceable for any reason whatsoever (other than in accordance with its terms in the absence of default or by reason of any action by the Lenders or the Agent); or (e) if a default shall occur, which is not waived, (i) in the payment of any principal, interest, premium or other amounts with respect to any Consolidated Indebtedness (other than the Loans and the Consolidated Indebtedness owing to any Lender) of any of the Borrowers in an amount not less than $500,000 in the aggregate outstanding, or (ii) in the performance, observance or fulfillment of any term or covenant contained in any agreement or instrument under or pursuant to which any such Consolidated Indebtedness may have been issued, created, assumed, guaranteed or secured by any of the Borrowers, and such default shall continue for more than the period of grace, if any, therein specified, and if such default shall permit the holder of any such Indebtedness to accelerate the maturity thereof; or (f) if any material representation, warranty or other statement of fact contained herein or any other Loan Document or in any writing, certificate, report or statement at any time furnished to the Agent or any Lender by or on behalf of the Borrowers pursuant to or in connection with this Agreement or the other Loan Documents, or otherwise, shall be false or misleading in any material respect when given; or (g) if any of the Borrowers shall be unable to pay its debts generally as they become due; file a petition to take advantage of any insolvency statute; make an assignment for the benefit of its creditors; commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property; file a petition or answer seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute; or (h) if a court of competent jurisdiction shall enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of any of the Borrowers or of the whole or any substantial part of its properties and such order, judgment or decree continues unstayed and in effect for a period of sixty (60) days, or approve a petition filed against any of the Borrowers seeking reorganization or arrangement or similar relief under the 52 federal bankruptcy laws or any other applicable law or statute of the United States of America or any state, which petition is not dismissed within sixty (60) days; or if, under the provisions of any other law for the relief or aid of debtors, a court of competent jurisdiction shall assume custody or control of any of the Borrowers or of the whole or any substantial part of its properties, which control is not relinquished within sixty (60) days; or if there is commenced against any of the Borrowers any proceeding or petition seeking reorganiza tion, arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state which proceeding or petition remains undismissed for a period of sixty (60) days; or if any of the Borrowers takes any action to indicate its consent to or approval of any such proceeding or petition; or (i) if (i) any judgment where the amount not reasonably expected to be covered by insurance (or the amount as to which the insurer denies liability) is in excess of $250,000 is rendered against any of the Borrowers and remains unpaid, unstayed, undischarged, unbonded or undismissed for a period of sixty (60) days, or (ii) there is any attachment, injunction or execution against any of the Borrowers' properties for any amount in excess of $250,000, and such attachment, injunction or execution remains unpaid, unstayed, undischarged, unbonded or undismissed for a period of sixty (60) days or (iii) any fine or fines for violation or alleged violation of Environmental Laws in excess of $2,000,000 in any Fiscal Year is rendered against any of the Borrowers; or (j) if any of the Borrowers shall, other than in the ordinary course of business (as determined by past practices), suspend all or any part of its operations material to the conduct of the business of such Borrower for a period of more than 120 days; or (k) if any of the Borrowers shall breach any of the material terms or conditions of any Swap Agreement among the Lenders and such breach shall continue beyond any grace period, if any, relating thereto pursuant to its terms; then, and in any such event and at any time thereafter, if such Event of Default or any other Event of Default shall have not been waived, (a) either or both of the following actions may be taken: (i) the Agent, with the consent of the Required Lenders, may, and at the direction of the Required Lenders shall, declare any obligation of the Lenders to make further Revolving Loans terminated, whereupon the obligation of each Lender to make further Revolving Loans and of Issuing Bank to issue Letters of Credit, hereunder shall terminate immediately, and (ii) the Agent shall at the direction of the Required Lenders, at their option, declare by notice to an Authorized Representative any or all of the Obligations to be immediately due and payable, and the same, including all interest accrued thereon and all other obligations of the Borrowers to the Agent and the Lenders, shall forthwith become immediately due and payable without presentment, demand, protest, notice or other formality of any kind, all of which are hereby expressly waived, anything contained herein or in any instrument evidencing the Obligations to 53 the contrary notwithstanding; provided, however, that notwithstanding the above, if there shall occur an Event of Default under clause (g) or (h) above, then the obligation of the Lenders to make Revolving Loans hereunder shall automatically terminate and any and all of the Obligations shall be immediately due and payable without the necessity of any action by the Agent or the Required Lenders or notice to the Agent or the Lenders; (b) The Borrowers shall, upon demand of the Agent or the Required Lenders, deposit cash with the Agent in an amount equal to the amount of any Letter of Credit Outstandings, as collateral security for the repayment of any future drawings or payments under such Letters of Credit, and such amounts shall be held by the Agent pursuant to the terms of the applicable Application for Letter of Credit; and (c) the Agent and each of the Lenders shall have all of the rights and remedies available under the Loan Documents or under any applicable law. VIII.2 Agent to Act. In case any one or more Events of Default shall occur and not have been waived, the Agent may, and at the direction of the Required Lenders shall, proceed to protect and enforce their rights or remedies either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provision contained herein or in any other Loan Document, or to enforce the payment of the Obligations or any other legal or equitable right or remedy. VIII.3 Cumulative Rights. No right or remedy herein conferred upon the Lenders or the Agent is intended to be exclusive of any other rights or remedies contained herein or in any other Loan Document, and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. VIII.4 No Waiver. No course of dealing between any of the Borrowers and any Lender or the Agent or any failure or delay on the part of any Lender or the Agent in exercising any rights or remedies under any Loan Document or otherwise available to it shall operate as a waiver of any rights or remedies and no single or partial exercise of any rights or remedies shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or of the same right or remedy on a future occasion. VIII.5 Allocation of Proceeds. If an Event of Default has occurred and not been waived, and the maturity of the Notes has been accelerated pursuant to Article IX hereof, all payments received by the Agent hereunder, in respect of any principal of or interest on the Obligations or any other amounts payable by the Borrowers hereunder shall be applied by the Agent in the following order: 54 (a) amounts due to Issuing Bank and the Lenders pursuant to Sections 2.8, 2A.3, 2A.4 and 10.6 hereof; (b) amounts due to the Agent pursuant to Section 9.10 hereof; (c) payments of interest on Loans and Reimbursement Obligations; (d) payments of principal on Loans and Reimbursement Obligations; (e) payment of cash amounts to the Agent in respect of Letters of Credit Outstandings pursuant to Section 8.1(B) hereof; (f) amounts due to the Lenders pursuant to Sections 6.14 and 10.10 hereof; (g) payments of all other amounts due under this Agreement, if any, to be applied for the ratable benefit of the Lenders; and (h) any surplus remaining after application as provided for herein, to the Borrowers or otherwise as may be required by applicable law. ARTICLE IX ---------- The Agent --------- IX.1 Appointment. Each Lender hereby irrevocably designates and appoints SouthTrust as the Agent of the Lenders under this Agreement, and each of the Lenders hereby irrevocably authorizes SouthTrust as the Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers as are expressly delegated to the Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. The Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any of the Lenders, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. IX.2 Attorneys-in-fact. The Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence of any agents or attorneys-in-fact selected by it with reasonable care. IX.3 Limitation on Liability. Neither the Agent nor any of its officers, directors, employees, agents or attorneys-in-fact shall be liable to the Lenders for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement except for its or their own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates shall be responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any of the 55 Borrowers or any officer or representative thereof contained in this Agreement or in any of the other Loan Documents, or in any certificate, report, statement or other document referred to or provided for in or received by the Agent under or in connection with this Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any of the other Loan Documents, or for any failure of any of the Borrowers to perform its obligations thereunder, or for any recitals, statements, representations or warranties made, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any collateral. The Agent shall not be under any obligation to any of the Lenders to ascertain or to inquire as to the observance or performance of any of the terms, covenants or conditions of this Agreement or any of the other Loan Documents on the part of any of the Borrowers or to inspect the properties, books or records of any of the Borrowers. IX.4 Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent certificate, affidavit, letter, cablegram, telegram, telecopy or telex message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrowers), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless an Assignment shall have been filed with and accepted by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive advice or concurrence of the Lenders or the Required Lenders as provided in this Agreement or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all present and future holders of the Notes. IX.5 No Representations. Each Lender expressly acknowledges that neither the Agent nor any of its affiliates has made any representations or warranties to it and that no act by the Agent hereafter taken, including any review of the affairs of the Borrowers, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the financial condition, creditworthiness, affairs, status and nature of the Borrowers and made its own decision to enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and to make such investigation as it deems necessary to inform itself as to the status and affairs, financial or otherwise, of each of the Borrowers. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of each of the Borrowers which may come into the possession of the Agent or any of its affiliates. 56 IX.6 Indemnification. Each of the Lenders agrees to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Borrowers and without limiting any obligations of the Borrowers so to do), ratably according to the respective principal amount of the Notes and Participations held by them (or, if no Notes or Participations are outstanding, ratably in accordance with their respective Applicable Commitment Percentages as then in effect) from and against any and all liabilities, obligations, losses (excluding any losses suffered by the Agent as a result of Borrowers' failure to pay any fee owing to the Agent), damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, the other Loan Documents or any other document contemplated by or referred to herein or the trans actions contemplated hereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence, fraud, intentional tortious conduct or willful misconduct. The agreements in this subsection shall survive the payment of the Obligations and the termination of this Agreement. IX.7 Lender. The Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with each of the Borrowers as though it were not the Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it, the Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. IX.8 Resignation. If the Agent shall resign as Agent under this Agreement, then the Required Lenders may appoint, with the consent, so long as there shall not have occurred and be continuing a Default or Event of Default, of the Borrowers, which consent shall not be unreasonably withheld, a successor Agent for the Lenders, which successor Agent shall be a commercial bank organized under the laws of the United States or any state thereof, having a combined surplus and capital of not less than $500,000,000, whereupon such successor Agent shall succeed to the rights, powers and duties of the former Agent and the obligations of the former Agent shall be terminated and canceled, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement; provided, however, that the former Agent's resignation shall not become effective until such successor Agent has been appointed and has succeeded of record to all right, title and interest in any collateral held by the Agent; provided, further, that if the Required Lenders and, if applicable, the Borrowers cannot agree as to a successor Agent within ninety (90) days after such resignation, the Agent shall appoint a successor Agent which satisfies the criteria set forth above in this Section 9.8 for a successor Agent and the parties hereto agree to execute whatever documents are necessary to effect such action under this Agreement or any other document executed pursuant to this Agreement; provided, however that in such event all provisions of this Agreement and the Loan Documents, shall remain in full force and effect. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 57 IX.9 Sharing of Payments, etc. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, set-off, counterclaim or otherwise, obtain payment with respect to its Obligations (other than pursuant to Article III) which results in its receiving more than its pro rata share of the aggregate payments with respect to all of the Obligations (other than any payment pursuant to Article III), then (a) such Lender shall be deemed to have simultaneously purchased from the other Lenders a share in their Obligations so that the amount of the Obligations held by each of the Lenders shall be pro rata and (b) such other adjustments shall be made from time to time as shall be equitable to insure that the Lenders share such payments ratably; provided, however, that for purposes of this Section 9.9 the term "pro rata" shall be determined with respect to the Revolving Credit Commitment of each Lender and to the Total Revolving Credit Commitments after subtraction in each case of amounts, if any, by which any such Lender has not funded its share of the outstanding Loans, Participations and Obligations. If all or any portion of any such excess payment is thereafter recovered from the Lender which received the same, the purchase provided in this Section 9.9 shall be rescinded to the extent of such recovery, without interest. The Borrowers expressly consent to the foregoing arrangements and agree that each Lender so purchasing a portion of the other Lenders' Obligations may exercise all rights of payment (including, without limitation, all rights of set-off, banker's lien or counterclaim) with respect to such portion as fully as if such Lender were the direct holder of such portion. IX.10 Fees. The Borrowers agree to pay to the Agent, for its individual account, an annual Agent's fee as from time to time agreed to by the Borrowers and Agent in writing. ARTICLE X --------- Miscellaneous ------------- X.1 Confidentiality. Each Lender agrees to take and to cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Borrowers and provided to it by any Borrower or by the Agent on the Borrowers' behalf under this Agreement or any other Loan Document, and neither such Lender nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with any Borrower; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by such Lender, or (ii) was or becomes available on a non-confidential basis from a source other than a Borrower, provided that such source is not bound by a confidentiality agreement with any Borrower known to such Lender; provided, however, that any Lender may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which such Lender is subject or in connection with an examination of such Lender by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable requirement of law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Agent or any Lender or any of their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy 58 hereunder or under any other Loan Document; (F) to such Lender's independent auditors and other professional advisors; (G) to any participant or assignee of any Lender, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Lenders hereunder ; (H) as to any Lender or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which any Borrower is party or is deemed party with such Lender or such Affiliate; and (I) to its Affiliates. X.2 Assignments and Participations. (a) At any time after the Closing Date each Lender may, with the prior consent of the Agent and the Borrowers, which consents shall not be unreasonably withheld, assign to one or more banks or financial institutions all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of the Note payable to its order); provided, that (i) each such assignment shall be of a constant and not a varying percentage of all of the assigning Lender's rights and obligations (including the Revolving Loans and Participations) under this Agreement, (ii) for each assignment involving the issuance and transfer of a Note, the assigning Lender shall execute an Assignment and Acceptance and the Borrowers hereby consent to execute a replacement Note to give effect to the assignment, (iii) the minimum Revolving Credit Commitment which shall be assigned is $5,000,000 (together with which the assigning Lender's applicable portion of Participations and the Letter of Credit Commitment shall also be assigned), (iv) such assignee shall have an office located in the United States, (v) an assignment (other than an assignment of 100% of its Interest) by Issuing Bank shall not include any portion of the obligation to issue Letters of Credit, and (vi) no consent of the Borrowers or the Agent shall be required in connection with any assignment by a Lender to another Lender or to such Lender's affiliate. Upon such execution, delivery, approval and acceptance, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder or under such Note have been assigned or negotiated to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and a holder of such Note and (y) the assignor thereunder shall, to the extent that rights and obligations hereunder or under such Note have been assigned or negotiated by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement. Any Lender who makes an assignment (other than an assignment pursuant to clause (v) above) shall pay to the Agent a one-time administrative fee of $5,000.00 which fee shall not be reimbursed by the Borrowers. (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) the assignment made under such Assignment and Acceptance is made under such Assignment and Acceptance without recourse; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any of the Borrowers or the performance or observance by any of the Borrowers of any of its obligations under any Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements delivered pursuant to Section 5.6(a) or 59 Section 6.1, as the case may be, and such other Loan Documents and other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the Notes and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender and a holder of such Notes. (c) The Agent shall maintain at its address referred to herein a copy of each Assignment and Acceptance delivered to and accepted by it. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender, the Agent shall give prompt notice thereof to the Authorized Representative. (e) Nothing herein shall prohibit any Lender from pledging or assigning, without notice or consent, any Note to any Federal Reserve Bank in accordance with applicable law. (f) Each Lender may sell participations at its expense to one or more banks or other entities as to all or a portion of its rights and obligations under this Agreement; provided, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any Note issued to it for the purpose of this Agreement, (iv) such participations shall be in a minimum amount of $1,000,000 and shall include an allocable portion of such Lender's Participation, and (v) each of the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and with regard to any and all payments to be made under this Agreement; provided, that the participation agreement between a Lender and its participants may provide that such Lender will obtain the approval of such participant prior to such Lender's agreeing to any amendment or waiver of any provisions of this Agreement which would (A) extend the maturity of any Note, (B) reduce the interest rate hereunder or (C) increase the Revolving Credit Commitment of the Lender granting the participation, and (vi) the sale of any such participations which require any of the Borrowers to file a registration statement with the United States Securities and Exchange Commission or under the securities regulations or laws of any state shall not be permitted. (g) None of the Borrowers may assign any rights, powers, duties or obligations under this Agreement or the other Loan Documents without the prior written consent of all the Lenders. 60 X.3 Notices. Any notice shall be conclusively deemed to have been received by any party hereto and be effective on the day on which delivered to such party (against receipt therefor) at the address set forth below or such other address as such party shall specify to the other parties in writing (or, in the case of notice by telecopy, telegram or telex (where the receipt of such message is verified by return) expressly provided for hereunder, when received at such telecopy or telex number as may from time to time be specified in written notice to the other parties hereto or otherwise received), or if sent prepaid by certified or registered mail return receipt requested on the fifth Business Day after the day on which mailed, addressed to such party at said address: (a) if to any of the Borrowers: Giant Cement Holding, Inc. 320-D Midland Parkway Summerville, South Carolina 29485 Attn: Terry L. Kinder Vice President and Chief Financial Officer Telephone: (803) 851-9898 Telefacsimile: (803) 851-9876 and a copy to: Keystone Cement Company Post Office Box A Bath, Pennsylvania 18014-0058 Attn: Gary L. Pechota President and CEO Telephone: (610) 837-2260 Telefacsimile: (610) 837-2217 (b) if to the Agent: SouthTrust Bank of Alabama, National Association 420 North 20th Street Birmingham, Alabama 35203 Attention: Steven W. Davis Telephone: (205) 254-5555 Telefacsimile: (205) 254-4240 with a copy to: SouthTrust Bank of Alabama, National Association 150 2nd Avenue North Suite 470 St. Petersburg, Florida 33701 Attention: Juliette S. Stapf Telephone: (813) 898-4630 Telefacsimile: (813) 898-5319 61 (c) if to the Lenders: At the addresses set forth on the signature pages hereof and on the signature page of each Assignment and Acceptance. X.4 Setoff. Each of the Borrowers agrees that the Agent and each Lender shall have a lien for all the Obligations of the Borrowers upon all deposits or deposit accounts, of any kind, or any interest in any deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to the Agent or such Lender or otherwise in the possession or control of the Agent or such Lender (other than for safekeeping) for any purpose for the account or benefit of such Borrower and including any balance of any deposit account or of any credit of such Borrower with the Agent or such Lender, whether now existing or hereafter established, hereby authorizing the Agent and each Lender at any time or times with or without prior notice to apply such balances or any part thereof to such of the Obligations of the Borrowers to the Lenders then past due and in such amounts as they may elect, and whether or not the collateral or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this paragraph, all remittances and property shall be deemed to be in the possession of the Agent or such Lender as soon as the same may be put in transit to it by mail or carrier or by other bailee. X.5 Survival. All covenants, agreements, representations and warranties made herein shall survive the making by the Lenders of the Loans and the execution and delivery to the Lenders of this Agreement and the Notes and shall continue in full force and effect so long as any of Obligations remain outstanding or any Lender has any commitment hereunder or the Borrowers have continuing obligations hereunder unless otherwise provided herein. Whenever in this Agreement, any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party and all covenants, provisions and agreements by or on behalf of the Borrowers which are contained in this Agreement, the Notes and the other Loan Documents shall inure to the benefit of the successors and permitted assigns of the Lenders or any of them. X.6 Expenses. Each of the Borrowers jointly and severally agrees (a) to pay or reimburse the Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of, and any amendment, supplement or modification to, this Agreement or any of the other Loan Documents (including travel expenses relating to closing), and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agents, (b) to pay or reimburse the Agent 62 and each of the Lenders for all their costs and expenses incurred in connection with the enforcement (only from and after the occurrence of a Default or Event of Default) or preservation of any rights under this Agreement and the other Loan Documents, including without limitation, the reasonable fees and disbursements of their counsel and any payments in indemnification or otherwise payable by the Lenders to the Agent pursuant to the Loan Documents and (c) to pay, indemnify and hold the Agent and each of the Lenders harmless from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any failure to pay or delay in paying, documentary, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of this Agreement or any other Loan Documents, or consummation of any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement or any other Loan Documents. X.7 Amendments. No amendment, modification or waiver of any provision of this Agreement or any of the Loan Documents and no consent by the Lenders to any departure therefrom by any of the Borrowers shall be effective unless such amendment, modification or waiver shall be in writing and signed by the Agent, shall have been approved by the Required Lenders through their written consent, and the same shall then be effective only for the period and on the conditions and for the specific instances and purposes specified in such writing; provided, however, that, no such amendment, modification or waiver (i) which changes, extends or waives any provision of Section 9.9 or this Section 10.6, the amount of or the due date of any scheduled installment of or the rate of interest payable on any Obligation, which changes the definition of Required Lenders, which permits an assignment by any of the Borrowers of its Obligations hereunder, which reduces the required consent of Lenders provided hereunder, which increases, decreases or extends the Revolving Credit Commitment or the Letter of Credit Commitment of any Lender, which waives any Default or Event of Default under Section 8.1(g) or (h) hereof or which waives any condition to the making of any Loan shall be effective unless in writing and signed by each of the Lenders; or (ii) which affects the rights, privileges, immunities or indemnities of the Agent shall be effective unless in writing and signed by the Agent. Notwithstanding any provision of the other Loan Documents to the contrary, as between the Agent and the Lenders, execution by the Agent shall not be deemed conclusive evidence that the Agent has obtained the written consent of the Required Lenders. No notice to or demand on any of the Borrowers in any case shall entitle any of the Borrowers to any other or further notice or demand in similar or other circumstances, except as otherwise expressly provided herein. No delay or omission on any Lender's or the Agent's part in exercising any right, remedy or option shall operate as a waiver of such or any other right, remedy or option or of any Default or Event of Default. X.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such fully-executed counterpart. 63 X.9 Termination. The termination of this Agreement shall not affect any rights of any of the Borrowers, the Lenders or the Agent or any obligation of any of the Borrowers, the Lenders or the Agent, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into or rights created or obligations incurred prior to such termination have been fully disposed of, concluded or liquidated and the Obligations arising prior to or after such termination have been irrevocably paid in full. The rights granted to the Agent for the benefit of the Lenders hereunder and under the other Loan Documents shall continue in full force and effect, notwithstanding the termination of this Agreement, until all of the Obligations have been paid in full after the termination hereof (other than Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable) or the Borrowers have furnished the Lenders and the Agent with an indemnification satisfactory to the Agent and each Lender with respect thereto. All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until payment in full of the Obligations unless otherwise provided herein. Notwithstanding the foregoing, if after receipt of any payment of all or any part of the Obligations, any Lender is for any reason compelled to surrender such payment to any Person because such payment is determined to be void or voidable as a preference, impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force and each of the Borrowers shall be liable to, and shall indemnify and hold such Lender harmless for, the amount of such payment surrendered until such Lender shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Lenders in reliance upon such payment, and any such contrary action so taken shall be without prejudice to the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable. X.10 Governing Law. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF SOUTH CAROLINA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE. (b) EACH BORROWER HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF MECKLENBURG OF NORTH CAROLINA, UNITED STATES OF AMERICA AND, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY HAVE NOW OR HEREAFTER TO THE LAYING OF THE VENUE OR TO THE JURISDICTION OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. 64 (c) EACH BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL (POSTAGE PREPAID) TO THE ADDRESS OF SUCH BORROWER PROVIDED IN SECTION 10.2 HEREOF, OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE STATE OF NORTH CAROLINA. (d) NOTHING CONTAINED IN SUBSECTIONS (B) OR (C) HEREOF SHALL PRECLUDE A LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS IN THE COURTS OF ANY PLACE WHERE ANY BORROWER OR ANY OF THE BORROWERS' PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO THE EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND EXPRESSLY WAIVES, IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING, THE JURISDICTION OF ANY OTHER COURT OR COURTS WHICH NOW OR HEREAFTER, BY REASON OF ITS PRESENT OR FUTURE DOMICILE, OR OTHERWISE, MAY BE AVAILABLE TO IT. (e) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, EACH BORROWER HEREBY AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND EACH BORROWER HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY HAVE THAT EACH ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. X.11 Indemnification. In consideration of the execution and delivery of this Agreement by the Agent and each Lender and the extension of the Revolving Credit Commitments and the Letter of Credit Commitments, each of the Borrowers hereby jointly and severally indemnifies, exonerates and holds the Agent and each Lender and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to the execution, delivery, enforcement performance or administration of this Agreement and 65 the other Loan Documents, or any transaction financed or to be financed in whole or in part, directly or indirectly, or supported by any Letter of Credit, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the gross negligence or willful misconduct of and if and to the extent that the foregoing undertaking may be unenforceable for any reason, each of the Borrowers hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The provisions of this Section 10.10 shall survive repayment of the Obligations, occurrence of the Revolving Credit Termination Date and expiration or termination of this Agreement. X.12 Headings and References. The headings of the Articles and Sections of this Agreement are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of this Agreement. Words such as "hereof", "hereunder", "herein" and words of similar import shall refer to this Agreement in its entirety and not to any particular Section or provisions hereof, unless so expressly specified. As used herein, the singular shall include the plural, and the masculine shall include the feminine or a neutral gender, and vice versa, whenever the context requires. X.13 Severability. If any provision of this Agreement or the other Loan Documents shall be determined to be illegal or invalid as to one or more of the parties hereto, then such provision shall remain in effect with respect to all parties, if any, as to whom such provision is neither illegal nor invalid, and in any event all other provisions hereof shall remain effective and binding on the parties hereto. X.14 Entire Agreement. This Agreement, together with the other Loan Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all previous proposals, negotiations, representations, commitments and other communications between or among the parties, both oral and written, with respect thereto. X.15 Agreement Controls. In the event that any term of any of the Loan Documents other than this Agreement conflicts with any term of this Agreement, the terms and provisions of this Agreement shall control. X.16 Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged under any of the Notes, including all charges or fees in connection therewith deemed in the nature of interest under North Carolina law shall not exceed the Highest Lawful Rate (as such term is defined below). If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate (as defined below), the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrowers shall pay to the Agent an amount equal to the difference between 66 the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrowers to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be canceled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to the Borrowers. As used in this paragraph, the term "Highest Lawful Rate" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. X.17 Joint and Several Obligations. All obligations and liabilities incurred by the Borrowers hereunder and under any other Loan Document, including without limitation payment of any Obligation, shall be joint and several among the Borrowers. [Signature pages follow.] 67 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written. GIANT CEMENT HOLDING, INC. ATTEST: By: /s/ Terry L. Kinder -------------------------------- Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] GIANT CEMENT COMPANY ATTEST: By: /s/ Terry L. Kinder -------------------------------- Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] KEYSTONE CEMENT COMPANY ATTEST: By: /s/ Terry L. Kinder -------------------------------- Name: Terry L. Kinder ______________________ Title: Vice President Assistant Secretary [CORPORATE SEAL] Signature page 1 of 3 GIANT RESOURCE RECOVERY COMPANY, INC. ATTEST: By: /s/ Terry L. Kinder -------------------------------- Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] GCHI INVESTMENTS, INC. ATTEST: By: /s/ Terry L. Kinder -------------------------------- Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] GIANT CEMENT NC, INC. ATTEST: By: /s/ Terry L. Kinder -------------------------------- Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] Signature page 2 of 3 SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, as Agent for the Lenders By: /s/ Steven W. Davis -------------------------------- Name: Steven W. Davis Title: Assistant Vice President SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, as Lender By: /s/ Steven W. Davis -------------------------------- Name: Steven W. Davis Title: Assistant Vice President Lending Office: SouthTrust Bank of Alabama, National Association 420 N. 20th Street Birmingham, Alabama 35203 Attention: Steven W. Davis Wire Transfer Instructions: SouthTrust Bank of Alabama, National Association Birmingham, Alabama ABA# 062000080 Account No.: 131009 Reference: Giant Cement Attention: Southeastern Corporate Banking Signature page 3 of 3 EXHIBIT A Applicable Commitment Percentages Revolving Letter of Applicable Credit Credit Commitment Lender Commitment Commitment Percentage ------ ---------- ---------- ---------- SouthTrust Bank of Alabama, National $30,000,000 $2,000,000 100% Association A-1 EXHIBIT B Form of Assignment and Acceptance DATED __________________,_______ Reference is made to the Credit Agreement dated as of December, 1996 (the "Agreement") among Giant Cement Holding, Inc., a Delaware corporation, Giant Cement Company, a Delaware corporation and wholly owned subsidiary of Giant Holding, Keystone Cement Company, a Pennsylvania corporation and wholly owned subsidiary of Giant Holding, Giant Resource Recovery Company, Inc., a Delaware corporation and wholly owned subsidiary of Giant Holding, GCHI Investments, Inc., a Delaware corporation and wholly owned subsidiary of Giant Holding, and Giant Cement NC, Inc., a South Carolina corporation and wholly owned subsidiary of Giant Holding (each a "Borrower" and collectively, the "Borrowers"), the Lenders (as defined in the Agreement), and SouthTrust Bank of Alabama, National Association, as Agent for the Lenders ("Agent"). Unless otherwise defined herein, terms defined in the Agreement are used herein with the same meanings. ________________ (the "Assignor") and ________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, WITHOUT RECOURSE, a _______% (1) interest in and to all of the Assignor's rights and obligations under the Agreement as of the Effective Date (as defined below), including, without limitation, such percentage interest in the Loans owing to and Participations held by the Assignor on the Effective Date, and the Revolving Note held by the Assignor. 2. The Assignor (i) represents and warrants that, as of the date hereof, the aggregate principal amount of Revolving Loans owing to it (without giving effect to the assignments thereof which have not yet become effective) are as follows: (A) $__________ under a Revolving Note dated ____________, 19__ in the aggregate principal amount of $_________, (B) the aggregate principal amount of Letters of Credit in which it is deemed to have a Participation under the Credit Agreement is $_____________; (ii) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (iii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or any of the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement or any of the Loan Documents or any other instrument or document furnished pursuant thereto; (iv) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or the performance or observance by the Borrowers of any of its obligations under the Agreement or any of the Loan Documents or any other instrument or document furnished pursuant thereto and (v) attaches hereto the Revolving Note referred to in paragraph 1 above and requests that the Agent exchange such Note for Notes as follows: a Revolving Note dated _____________, 19__ in the principal amount of $________________, payable to the order of the Assignor, and a Revolving Note, dated ____________________________ 19__, in the principal amount of $_________________ payable to the order of the Assignee. - ---------------------- (1) Specify percentage in no more than 4 decimal places. B-1 3. The Assignee (i) confirms that it has received a copy of the Agreement, together with copies of the financial statements referred to in Section 6.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor, or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement; (iii) appoints and authorizes the Agent to take such actions on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) will perform all of the obligations which by the terms of the Agreement are required to be performed by the Lender; and (v) specifies as its address for notices the office set forth beneath its name on the signature pages hereof. 4. The effective date for this Assignment and Acceptance shall be _____________________________ (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. 5. Upon such acceptance and recording, as of the Effective Date, (i) the Assignee shall be a party to the Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and under the Loan Documents and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Agreement. 6. Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments under the Agreement and Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest, commitment fees and Letter of Credit fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Agreement and the Notes for periods prior to the Effective Date directly between themselves. B-2 7. This Assignment and Acceptance shall be governed by and construed in accordance with, the laws of the State of North Carolina. [NAME OF ASSIGNOR] By: _________________________________ Name: Title: Notice Address: _________________________________ _________________________________ _________________________________ After the Effective Date: Outstanding Revolving Loans:$_______________ Outstanding Participations in Letter of Credit Outstandings $_______________________ [NAME OF ASSIGNEE] By: _________________________________ Name: Title: Notice Address/Lending Office _________________________________ _________________________________ _________________________________ Wire transfer Instructions: _________________________________ _________________________________ _________________________________ After the Effective Date: Outstanding Revolving Loans:$_________________ Outstanding Participations in Letter of Credit Outstandings $_________________________ B-3 Accepted this ____ day of _______, 19___ SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, as Agent By: ________________________________________ Name: Title: Consented to: Giant Cement Holding, Inc. By: _______________________ Name: Title: B-4 EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative Reference is made to the Credit Agreement dated as of December 20, 1996 (the "Agreement") among Giant Cement Holding, Inc., a Delaware corporation, Giant Cement Company, a Delaware corporation and wholly owned subsidiary of Giant Holding, Keystone Cement Company, a Pennsylvania corporation and wholly owned subsidiary of Giant Holding, Giant Resource Recovery Company, Inc., a Delaware corporation and wholly owned subsidiary of Giant Holding, GCHI Investments, Inc., a Delaware corporation and wholly owned subsidiary of Giant Holding, and Giant Cement NC, Inc., a South Carolina corporation and wholly owned subsidiary of Giant Holding (each a "Borrower" and collectively, the "Borrowers"), the Lenders (as defined in the Agreement), and SouthTrust Bank of Alabama, National Association, as Agent for the Lenders ("Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. Each of the Borrowers hereby nominates, constitutes and appoints each individual named below as an Authorized Representative under the Loan Documents, and hereby represents and warrants that (i) set forth opposite each such individual's name is a true and correct statement of such individual's office (to which such individual has been duly elected or appointed), a genuine specimen signature of such individual and an address for the giving of notice, and (ii) each such individual has been duly authorized by such Borrower to act as Authorized Representative under the Loan Documents: Name and Address Office Specimen Signature Terry L. Kinder Vice President ____________________ Giant Cement Holding, Inc. 320-D Midland Parkway Summerville, South Carolina 29485 Victor Whitworth Assistant Secretary ____________________ Giant Cement Holding, Inc. 320-D Midland Parkway Summerville, South Carolina 29485 Borrowers hereby revoke (effective upon receipt hereof by the Agent) the prior appointment of ________________ as an Authorized Representative. C-1 This the ___ day of __________________, 19__. Giant Cement Holding, Inc. By: ________________________________ Name: ______________________________ Title: _____________________________ Giant Cement Company By: ________________________________ Name: ______________________________ Title: _____________________________ Keystone Cement Company By: ________________________________ Name: ______________________________ Title: _____________________________ Giant Resource Recovery Company, Inc. By: ________________________________ Name: ______________________________ Title: _____________________________ GCHI Investments, Inc. By: ________________________________ Name: ______________________________ Title: _____________________________ Giant Cement NC, Inc. By: ________________________________ Name: ______________________________ Title: _____________________________ C-2 EXHIBIT D Giant Cement Holding, Inc. Request For Advance/Interest Rate Election SouthTrust Bank of Alabama, National Association, as Agent for the Lenders 420 North 20th Street Birmingham, Alabama 35203 Attention: Southeastern Corporate Banking Reference is made to the Credit Agreement dated as of December 20, 1996 (the "Agreement") among Giant Cement Holding, Inc., a Delaware corporation, Giant Cement Company, a Delaware corporation and wholly owned subsidiary of Giant Holding, Keystone Cement Company, a Pennsylvania corporation and wholly owned subsidiary of Giant Holding, Giant Resource Recovery Company, Inc., a Delaware corporation and wholly owned subsidiary of Giant Holding, GCHI Investments, Inc., a Delaware corporation and wholly owned subsidiary of Giant Holding, and Giant Cement NC, Inc., a South Carolina corporation and wholly owned subsidiary of Giant Holding (each a "Borrower" and collectively, the "Borrowers"), the Lenders (as defined in the Agreement), and SouthTrust Bank of Alabama, National Association, as Agent for the Lenders ("Agent"). Revolving Credit Advance Confirmation Pursuant to the Agreement, the undersigned hereby requests as of this __________, 19__ that: An Advance consisting of a Revolving Loan in the amount of $_________________ be made on __________________, 19__. The undersigned requests that $_________________ of such Advance be credited to the account of the undersigned with the Agent, Account No. _________________. The amount of the requested Advance when added to the outstanding Revolving Loans existing at the time of the request for the Advance, does not exceed the Total Revolving Credit Commitment. Interest Rate Election for Revolving Credit Advance Pursuant to Section 2.7 of the Loan Agreement, the Borrowers hereby request an Advance as follows: (a) Amount of Advance: $__________. (b) Date as of which the Advance is to be made: __________. D-1 (c) The following interest rate information is provided by respect to the Advance: (i) the interest rate shall be: ___ Base Rate ___ Eurodollar Rate (ii) Interest Period for the Eurodollar Rate Segment shall be (if applicable): ___ 30 days ___ 60 days ___ 90 days The undersigned certifies that (i) the representations and warranties contained in the Agreement are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof, except such representations and warranties that relate solely to an earlier date; and (ii) no Event of Default or Default has occurred and is continuing under the Agreement or will result from the proposed borrowing. All capitalized terms used herein and not otherwise defined herein shall have the same meaning as defined in the Agreement. Dated __________. Giant Cement Holding, Inc. Giant Cement Company Keystone Cement Company Giant Resource Recovery Company, Inc. GCHI Investments, Inc. Giant Cement NC, Inc. By: __________________________________ Its _____________________________ D-2 EXHIBIT E Form of Revolving Note Promissory Note (Revolving Loan) $30,000,000 _______________________ December 20, 1996 FOR VALUE RECEIVED, Giant Cement Holding, Inc., a Delaware corporation, Giant Cement Company, a Delaware corporation and wholly owned subsidiary of Giant Holding, Keystone Cement Company, a Pennsylvania corporation and wholly owned subsidiary of Giant Holding, Giant Resource Recovery Company, Inc., a Delaware corporation and wholly owned subsidiary of Giant Holding, GCHI Investments, Inc., a Delaware corporation and wholly owned subsidiary of Giant Holding, and Giant Cement NC, Inc., a South Carolina corporation and wholly owned subsidiary of Giant Holding (each a "Borrower" and collectively, the "Borrowers"), hereby jointly and severally promise to pay to the order of _____________________ (the "Lender"), in its individual capacity, at the office of SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, as agent for the Lenders (the "Agent"), located at 420 North 20th Street, Birmingham, Alabama 35203 (or at such other place or places as the Agent may designate in writing) at the times set forth in the Credit Agreement dated as of December 20, 1996 among the Borrowers, the other financial institutions party thereto (collectively, the "Lenders") and the Agent (the "Agreement" -- all capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement), in lawful money of the United States of America, in immediately available funds, the principal amount of THIRTY MILLION DOLLARS ($30,000,000) or, if less than such principal amount, the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrowers pursuant to the Agreement on the Revolving Credit Termination Date or such earlier date as may be required pursuant to the terms of the Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof, in like money, at said office, on the dates and at the rates provided in Article II of the Agreement. All or any portion of the principal amount of Loans may be prepaid as provided in the Agreement. If payment of all sums due hereunder is accelerated under the terms of the Agreement or under the terms of the other Loan Documents executed in connection with the Agreement, the then remaining principal amount and accrued but unpaid interest shall bear interest which shall be payable on demand at the rates per annum set forth in Section 2.2 of the Agreement. Further, in the event of such acceleration, this Revolving Note shall become immediately due and payable, without presentation, demand, protest or notice of any kind, all of which are hereby waived by the Borrowers. In the event this Revolving Note is not paid when due at any stated or accelerated maturity, the Borrowers jointly and severally agree to pay, in addition to the principal and interest, all costs of collection, including E-1 reasonable attorneys' fees, and interest due hereunder thereon at the rates set forth above. Interest hereunder shall be computed as provided in the Credit Agreement. This Revolving Note is one of the Revolving Notes in the aggregate principal amount of $30,000,000 referred to in the Agreement and is issued pursuant to and entitled to the benefits and security of the Agreement to which reference is hereby made for a more complete statement of the terms and conditions upon which the Revolving Loans evidenced hereby were or are made and are to be repaid. This Revolving Note is subject to certain restrictions on transfer or assignment as provided in the Agreement. All Persons bound on this obligation, whether primarily or secondarily liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive to the full extent permitted by law the benefits of all provisions of law for stay or delay of execution or sale of property or other satisfaction of judgment against any of them on account of liability hereon until judgment be obtained and execution issues against any other of them and returned satisfied or until it can be shown that the maker or any other party hereto had no property available for the satisfaction of the debt evidenced by this instrument, or until any other proceedings can be had against any of them, also their right, if any, to require the holder hereof to hold as security for this Revolving Note any collateral deposited by any of said Persons as security. Protest, notice of protest, notice of dishonor, diligence or any other formality are hereby waived by all parties bound hereon. E-2 IN WITNESS WHEREOF, each of the Borrowers have caused this Revolving Note to be made, executed and delivered by its duly authorized representative as of the date and year first above written, all pursuant to authority duly granted. Giant Cement Holding, Inc. ATTEST: By: ____________________________________ Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] Giant Cement Company ATTEST: By: ____________________________________ Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] Keystone Cement Company ATTEST: By: ____________________________________ Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] E-3 Giant Resource Recovery Company, Inc. ATTEST: By: ____________________________________ Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] GCHI Investments, Inc. ATTEST: By: ____________________________________ Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] Giant Cement NC, Inc. ATTEST: By: ____________________________________ Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] E-4 EXHIBIT F Form of Security Agreement SECURITY AGREEMENT THIS SECURITY AGREEMENT (the "Security Agreement"), dated as of December 20, 1996, by and among GIANT CEMENT HOLDING, INC., a Delaware corporation ("Giant Holding"), GIANT CEMENT COMPANY, a Delaware corporation, KEYSTONE CEMENT COMPANY, a Pennsylvania corporation, ("Keystone"), GIANT RESOURCE RECOVERY COMPANY, INC., a Delaware corporation ("Giant Resource"), GCHI INVESTMENTS, INC., a Delaware corporation ("GCHI"), GIANT CEMENT NC, INC., a South Carolina corporation ("Giant Cement NC") (referred to individually herein as a "Borrower" and collectively as the "Borrowers") and SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, as Agent for each Lender from time to time party to the Credit Agreement referenced below (the "Secured Party"). W I T N E S S E T H: ------------------- WHEREAS, each Borrower, the Lenders and the Secured Party simultaneously with the entering into of this Security Agreement have entered into a Credit Agreement dated as of the date hereof (as at any time hereafter amended, supplemented or replaced, the "Credit Agreement"; capitalized terms not otherwise defined in this Agreement shall have the meaning given to such terms in the Credit Agreement); and WHEREAS, as a condition to entering into the Credit Agreement, the Lenders and the Secured Party have required that each Borrower secure the Obligations under the Credit Agreement pursuant to the terms of this Security Agreement; NOW, THEREFORE, in consideration of the premises and in order to induce the Secured Party to enter into the Credit Agreement, each Borrower hereby agrees with the Secured Party for the benefit of the Lenders as follows: 1. Grant of Security Interest. As collateral security for payment and satisfaction of the Obligations, each Borrower hereby grants to the Secured Party for the benefit of the Lenders a continuing security interest in and to all of the following property of such Borrower, whether now owned or existing or hereafter acquired or arising: (A) All accounts, accounts receivable, contract rights, notes, bills, acceptances, choses in action, chattel paper, instruments, documents, all present and future patents, trademarks, copyrights and all applications therefor, other general intangibles, all licenses (to the extent not prohibited by the relevant licenses or applicable law), and other forms of obligations at any time owing to such Borrower, the proceeds thereof and all of such Borrower's rights with respect to any goods represented thereby, whether or not delivered, goods returned by customers and all rights as an unpaid vendor or lienor, including rights of stoppage in transit and of recovering possession by proceedings including replevin and reclamation, together with all customer lists, books and records, ledgers and account cards, computer tapes, software, disks, printouts and records, whether now in existence or hereafter created, relating to any of the foregoing (collectively, the "Accounts"); (B) All goods, merchandise and other personal property, including, without limitation, goods in transit, wheresoever located and whether now owned or hereafter acquired by such Borrower which is or may at any time be held for sale or lease, furnished under any contract of service or held as raw materials, work-in-process, or supplies or materials used or consumed in such Borrower's business, including, without limitation, all such property the sale or disposition of which has given rise to Accounts and which has been returned to or repossessed or stopped in transit by such Borrower (collectively, the "Inventory"); (C) All books and records (including without limitation, customer data, credit files, computer programs, printouts, and other computer materials and records) of such Borrower pertaining to any of the foregoing; and (D) All accessions to, substitutions for and all replacements, products and proceeds of the foregoing, including, without limitation, proceeds of insurance policies insuring the foregoing. All of the property and interests in property described in subsections (A) through (D) and all other property and interests in personal property which shall, from time to time, secure the Obligations are herein collectively referred to as the "Collateral." 2. Financing Statements. At or prior to the time of execution of this Security Agreement, each Borrower shall have furnished the Secured Party with properly executed financing statements as prescribed by the Uniform Commercial Code as presently in effect in each of the states where the Collateral owned by such Borrower is located (the "Financing Statements"), the Financing Statements shall be approved by the Secured Party and in form and number sufficient for filing wherever required with respect to the Collateral, in order that the Secured Party for the benefit of the Lenders shall have a duly perfected security interest of record in the Collateral following the filing of such Financing Statements with the appropriate governmental authorities, subject only to those liens permitted by Section 7.6 of the Credit Agreement, and such Borrower shall execute, as reasonably required by the Secured Party, any additional financing statements or other documents to effect the same, together with any necessary continuation statements so long as this Security Agreement remains in effect. 3. Maintenance of Security Interest. Each Borrower will, from time to time, upon the reasonable request of the Secured Party, deliver evidence of ownership of the Collateral (copies of originals documents being sufficient evidence) and specific collateral assignments of Collateral, together with such other instruments and documents, financing statements, amendments thereto, assignments or other writings as the Secured Party may reasonably request, to carry out the terms of this Security Agreement or to 2 protect or enforce the security interest in the Collateral granted pursuant to this Security Agreement. With respect to any and all Collateral to be secured and conveyed under this Security Agreement, each Borrower agrees to do and cause to be done all things necessary under the laws, rules and regulations of the applicable jurisdiction to perfect and keep in full force the security interest granted herein, including, but not limited to, the prompt payment of all fees and expenses reasonably incurred in connection with any filings made to perfect a security interest in the Collateral in favor of the Secured Party for the benefit of the Lenders. Each Borrower agrees to make appropriate entries upon its financial statements and books and records disclosing the Secured Party's security interest in the Collateral for the benefit of the Lenders. 4. Collections; Secured Party's Right to Notify Account Borrowers and to Endorse Each Borrower's Name. Upon the occurrence and during the continuation of an Event of Default, each Borrower hereby authorizes the Secured Party to (i) open its mail and collect any and all amounts due to it from persons obligated on any Accounts ("Account Debtors"); (ii) take over its post office boxes or make other arrangements as the Secured Party deems necessary to receive its mail, including notifying the post office authorities to change the address for delivery of its mail to such address as the Secured Party may designate; and (iii) notify any or all Account Debtors that the Accounts have been assigned to the Secured Party for the benefit of the Lenders and that the Secured Party has a security interest therein for the benefit of the Lenders and to send requests for verification of Accounts to Account Debtors and to request from Account Debtors in such Borrower's name or Secured Party's name or that of Secured Party's designee, any information concerning the Accounts and the amounts owing thereon. The Secured Party shall promptly, but in no event more than two Business Days, furnish such Borrower with a copy of any such notice sent and such Borrower hereby agrees that any such notice, in the Secured Party's sole discretion, may be sent on the stationery of such Borrower, in which event such Borrower shall co-sign such notice with the Secured Party. 5. Covenants. Each Borrower covenants that: (A) Inspection. The Secured Party (by any of its officers, employees and agents) shall have the right, at any time or times during each Borrower's usual business hours upon reasonable prior notice at reasonable intervals, to inspect the Collateral belonging to such Borrower, all records related thereto (and to make extracts or copies from such records), and the premises upon which any of the Collateral is located, to discuss each Borrower's affairs and finances with any officer of such Borrower and to verify the amount, quality, quantity, value and condition of, or any other matter relating to, the Collateral. Upon or after the occurrence and during the continuation of an Event of Default (as defined in Section 10 hereof) (whether or not any or all the Obligations are accelerated in consequence thereof), the Secured Party may at any time and from time to time employ and maintain on any of any Borrower's premises a custodian selected by the Secured Party who shall have full authority to do all acts reasonably necessary to protect the interest of the Secured Party 3 and the Lenders. All expenses incurred by the Secured Party by reason of the employment of such custodian shall be paid by the Borrowers, added to the Obligations and secured by the Collateral. (B) Assignments, Records and Schedules of Accounts. Each Borrower shall keep accurate and complete records of its Accounts ("Account Records") in accordance with GAAP and from time to time at intervals reasonably designated by the Secured Party, it shall provide the Secured Party with a Schedule of Accounts in form and substance acceptable to the Secured Party describing all Accounts created or acquired by it ("Schedule of Accounts"); provided, however, that any Borrower's failure to execute and deliver any such Schedule of Accounts shall not affect or limit the Secured Party's security interest or other rights in and to any Accounts. Upon request, each Borrower shall furnish the Secured Party with copies of proof of shipment and delivery and copies of all documents, including, without limitation, copies of invoices, repayment histories and present status reports, relating to the Accounts so scheduled (collectively, "Accounts Documents") and such other matters and information relating to the status of then existing Accounts as the Secured Party shall reasonably request. No Borrower shall remove any Accounts Records or Accounts Documents from the locations set forth on Schedule 1 hereto. (C) Notice Regarding Disputed Accounts. In the event of a dispute involving an amount due and owing in excess of $500,000 between any Account Debtor and any Borrower (which shall include, without limitation, any dispute in which an offset claim or counterclaim may result), such Borrower shall promptly, but in no event later than ten (10) Business Days, provide the Secured Party with written notice thereof explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. (D) Verification of Accounts. Whether or not an Event of Default has occurred, any of the Secured Party's officers, employees, or agents shall have the right, at any time or times hereafter, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise; provided, however, that prior to an Event of Default (a) the applicable Borrower shall be furnished the form of any verification request prior to the use thereof and (b) the number of verifications requested shall not exceed the number necessary for a reasonable sampling consistent with prudent audit procedures. (E) Sale of Inventory. So long as no Event of Default has occurred and is continuing, each Borrower may sell its Inventory in the ordinary course of business. (F) Safekeeping of Inventory. Each Borrower shall be responsible for the safekeeping of its Inventory, and in no event shall the Secured Party have any responsibility for: (i) Any loss or damage to Inventory or destruction thereof occurring or arising in any manner or fashion from any cause (except if the Secured Party has taken possession of or otherwise 4 has control of Inventory and then such loss or damage is a result of Secured Party's gross negligence or willful misconduct); (ii) Any diminution in the value of Inventory; or (iii) Any act or default of any carrier, warehouseman, bailee or forwarding agency thereof or other Person in any way dealing with or handling Inventory. (G) Records and Schedules of Inventory. Each Borrower shall keep correct and accurate records, itemizing and describing the kind, type, location, quality and quantity of Inventory owned by it from time to time, and such Borrower's cost therefor and selling price thereof, and shall furnish to the Secured Party upon request from time to time at reasonable intervals designated by the Secured Party a current Schedule of Inventory ("Schedule of Inventory") based upon its most recent physical inventory and records. Each Borrower shall promptly advise the Secured Party in sufficient detail of any material adverse change relating to the type, quality or quantity of the Inventory. Each Borrower shall conduct a physical inventory, of which the Secured Party shall be given prior written notice and shall have the right to be present, no less frequently than required by the Borrowers' outside auditors, and upon the occurrence and during the continuation of an Event of Default more often if requested by the Secured Party, and shall furnish to the Secured Party such other documents and reports as the Secured Party shall request with respect to the Inventory, including, without limitation, invoices relating to such Borrower's purchase of Inventory. No Borrower shall move any of the Inventory from, or keep any Inventory at any locations other than, the locations thereof set forth on Schedule 2 or Schedule 3 hereto, except that (i) such Borrower may move any amount of Inventory to, and keep any amount of Inventory at, the Harleyville, South Carolina location set forth on Schedule 2 hereto (the "Principal Location") and Keystone may keep any amount of Inventory at the Bath, Pennsylvania location set forth on Schedule 2 hereto; (ii) except as provided in (i) above with respect to Keystone, the Borrowers collectively may move Inventory to or keep Inventory at, any location other than the Principal Location (each such other location a "Remote Location") provided that (x) after giving effect thereto, Inventory at any Remote Location does not exceed $250,000 in aggregate cost therefor and Inventory at all Remote Locations does not exceed $500,000 in aggregate cost therefor, and (y) if any such Remote Location is not set forth on Schedule 2 or Schedule 3 hereto, prior to moving Inventory to any such Remote Location, the Borrowers shall have provided prior written notice thereof to the Secured Party and shall have furnished the Secured Party with executed Financing Statements acceptable in form and content to the Agent with respect to such Inventory; and (iii) such Borrower may move Inventory upon receipt of the written consent of the Agent. (H) Payment of Taxes and Assessments. Each Borrower will promptly pay, when due, all taxes or assessments levied against any of the Collateral; provided, however, such Borrower shall not be required to pay or cause to be paid any such tax or assessment, so long as the validity thereof shall be actively contested in good faith by proper 5 proceedings diligently conducted, any Lien (other than statutory liens having priority as a matter of law) arising in connection therewith shall be and remain in all respects inferior to the liens in favor of the Secured Party for the benefit of the Lenders, and adequate reserves with respect thereto shall be established and maintained; but provided further that any such tax or assessment shall be paid forthwith upon the commencement of proceedings to foreclose any lien securing the same. 6. General Warranties Regarding Collateral. Each Borrower hereby warrants and represents to the Secured Party that it is and will continue to be the owner of the Collateral located on the locations identified beneath its name on Schedules 1, 2 and 3 hereto, free and clear of all Liens other than the security interest granted hereunder in favor of the Secured Party for the benefit of the Lenders and the Liens permitted by Section 7.6 of the Credit Agreement, and that it will defend the Collateral and any products and proceeds thereof against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured Party and the Lenders. Except as so designated on Schedule 2 hereto, none of the Collateral is located on leased property. 7. Accounts Warranties and Representations. Each Borrower warrants and represents to the Secured Party that it may rely on all written statements or representations made by such Borrower on or with respect to the Accounts or any Schedule of Accounts prepared and delivered by such Borrower and, unless otherwise indicated in writing by such Borrower, that: (A) All Account Records and Account Documents are located and shall be kept only at such Borrower's principal place of business and chief executive office as set forth in Schedule 1 attached hereto and incorporated herein by reference; (B) The Accounts are genuine, are in all respects what they purport to be, are not evidenced by a judgment, instrument or document (other than an invoice or purchase order) or, if evidenced by such instrument or document, are only evidenced by one original instrument or document, which has been delivered to the Secured Party; (C) The Accounts cover bona fide sales and deliveries of Inventory usually dealt in by such Borrower, or the rendition by such Borrower of services, to an Account Debtor in the ordinary course of business; (D) The amounts of the face value of the Accounts shown on any Schedule of Accounts provided to the Secured Party, and all invoices and statements delivered to the Secured Party with respect to any Accounts, are actually and absolutely owing to such Borrower and are not contingent for any reason except for claims arising as a result of warranties made by Borrower in its ordinary course of business which do not in the aggregate materially affect such Borrower's business, profits or condition, financial and otherwise; (E) There are no material setoffs, discounts, allowances, claims, counterclaims or disputes of any kind existing or asserted with respect to the Accounts, other than customary discounts and 6 allowances granted in the ordinary course of such Borrower's business, and such Borrower has not made any agreement with any Account Debtor thereunder for any deduction therefrom; (F) To the best of such Borrower's actual knowledge, (i) the Accounts represent valid and legally enforceable indebtedness according to their terms and (ii) there are no facts, events, or occurrences which in any way materially impair the validity or enforcement thereof or tend to reduce the amount payable thereunder from the amount of the invoice face value shown on any Schedule of Accounts, and on all contracts, invoices and statements delivered to the Secured Party with respect thereto; (G) To the best of such Borrower's actual knowledge, all Account Debtors (i) had the capacity to contract at the time any contract or other document giving rise to the Accounts was executed and (ii) were reasonably expected to be able to pay at the time any contract was executed all Accounts under such contract. (H) The goods or services giving rise thereto are not, and were not at the time of the sale or performance thereof, subject to any Lien, except Liens permitted by Section 7.6 of the Credit Agreement, those granted to the Secured Party hereunder and those removed or terminated prior to the date hereof; (I) The Accounts have not been pledged to any Person other than to the Secured Party, and will be owned by the Borrower free and clear of any Liens, except those in favor of the Secured Party or as permitted by Section 7.6 of the Credit Agreement; (J) The Secured Party's security interest in the Accounts, will not be subject to any offset, deduction, counterclaim, lien or other adverse condition; (K) None of the Accounts shall represent a delivery of goods upon "consignment," "guaranteed sale," "sale or return transactions," "payment on reorder" or similar terms and will not be subject to any prohibition or limitation upon assignment. 8. Inventory Warranties and Representations. With respect to Inventory, each Borrower warrants and represents to the Secured Party that it may rely on all written statements or representations made by such Borrower on or with respect to any Inventory and, unless otherwise indicated in writing by such Borrower, that: (A) All Inventory of such Borrower is located only at the locations listed beneath its name on Schedules 2 and 3 attached hereto and incorporated herein by reference (each an "Inventory Location"), or is Inventory in transit; (B) No Inventory of such Borrower is or will be subject to any Lien whatsoever, except for the security interest granted to the Secured Party hereunder and Liens permitted by Section 7.6 of the Credit Agreement, and notwithstanding such exception all statutory 7 liens of warehousemen, bailees, lessors or similar parties at either Principal Location shall be waived or subordinated in form and substance acceptable to the Secured Party to the security interest granted to the Secured Party hereunder; (C) No Inventory of an aggregate cost in excess of $250,000 is now either located on Leased Premises, or stored with a bailee, warehouseman, or similar party; all present locations of Inventory at leased premises are set forth on Schedule 2 hereto and all preset locations of Inventory so stored with a bailee, warehousemen or similar party are set forth on Schedule 3 hereto; and (D) No Inventory of such Borrower is under consignment to any Person. 9. Casualty and Liability Insurance Required. (A) Each Borrower will keep the Collateral continuously insured against such risks as are customarily insured against by businesses of like size and type engaged in the same or similar operations including, without limiting the generality of any other covenant herein contained: (i) casualty insurance on the Inventory in an amount not less than the full insurable value thereof, against loss or damage by theft, fire and lightning and other hazards ordinarily included under uniform broad form standard extended coverage policies, limited only as may be provided in the standard broad form of extended coverage endorsement at the time in use in the states in which the Collateral is located; (ii) comprehensive general liability insurance against claims for bodily injury, death or property damage occurring with or about such Collateral (such coverage to include provisions waiving subrogation against the Secured Party and the Lenders) in amounts as shall be reasonably satisfactory to Agent; (iii) liability insurance with respect to the operation of its facilities under the workers' compensation laws of the states in which such Collateral is located; and (iv) business interruption insurance. (B) Each insurance policy obtained in satisfaction of the requirements of Section 9(A) hereof: (i) may be provided by blanket policies now or hereafter maintained by each Borrower or its parent companies; 8 (ii) shall be issued by such insurer (or insurers) as shall be financially responsible and of recognized standing; (iii) shall be in such form and have such provisions (including without limitation the loss payable clause, the waiver of subrogation clause, the deductible amount, if any, and the standard mortgagee endorsement clause), as are generally considered standard provisions for the type of insurance involved and are reasonably acceptable in all respects to the Agent; (iv) shall prohibit cancellation or substantial modification, termination or lapse in coverage by the insurer without at least 30 days' prior written notice to the Agent, except for non-payment of premium, in which case such policies shall provide ten (10) days' prior written notice; (v) without limiting the generality of the foregoing, all insurance policies where applicable under Section 9(A)(i) carried on the Collateral shall name the Agent, for the benefit of the Lenders, as loss payee and a party insured thereunder in respect of any claim for payment in excess of $250,000. (C) Prior to expiration of any such policy, such Borrower shall furnish the Agent with evidence satisfactory to the Agent that the policy or certificate has been renewed or replaced or is no longer required by this Agreement. (D) Each Borrower hereby irrevocably makes, constitutes and appoints the Agent (and all officers, employees or agents designated by the Agent), for the benefit of the Lenders, effective upon the occurrence and during the continuance of an Event of Default, as such Borrower's true and lawful attorney (and agent-in-fact) for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of such Borrower on any check, draft, instrument or other item or payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. (E) In the event such Borrower shall fail to maintain, or fail to cause to be maintained, the full insurance coverage required hereunder or shall fail to keep any of its Collateral in good repair and good operating condition, the Agent may (but shall be under no obligation to), without waiving or releasing any Obligation or Event of Default by such Borrower hereunder, contract for the required policies of insurance and pay the premiums on the same or make any required repairs, renewals and replacements; and all sums so disbursed by Agent, including reasonable attorneys' fees, court costs, expenses and other charges related thereto, shall be payable on demand by such Borrower to the Agent and shall be additional Obligations secured by the Collateral. (F) Each Borrower agrees that to the extent that it shall not carry insurance required by Section 9(A) hereof, it shall in the event of any loss or casualty pay promptly to the Agent, for the benefit of the Lenders, for application in accordance with the provisions of Section 9(H) hereof, such amount as would have been received as Net Proceeds (as hereinafter defined) by the Agent, for the benefit of the Lenders, under the provisions of Section 9(H) hereof had such insurance been carried to the extent required. 9 (G) The Net Proceeds of the insurance carried pursuant to the provisions of Sections 9(A)(ii) and 9(A)(iii) hereof shall be applied by such Borrower toward extinguishment of the defect or claim or satisfaction of the liability with respect to which such insurance proceeds may be paid. (H) The Net Proceeds of the insurance carried with respect to the Collateral pursuant to the provisions of Section 9(A)(i) hereof shall be paid to such Borrower and held by such Borrower in a separate account and applied as follows: (i) as long as no Event of Default shall have occurred and be continuing, after any loss under any such insurance and payment of the proceeds of such insurance, each Borrower shall have a period of 180 days after payment of the insurance proceeds with respect to such loss to elect to either (x) repair or replace the Collateral so damaged, (y) deliver such Net Proceeds to the Agent, for the benefit of the Lenders, as additional Collateral or (z) apply such Net Proceeds to the acquisition of tangible assets used or useful in the conduct of the business of such Borrower, subject to the provisions of this Agreement. If such Borrower elects to repair or replace the Collateral so damaged, such Borrower agrees the Collateral shall be repaired to a condition substantially similar to its condition prior to damage or replaced with Collateral in a condition substantially similar to the condition of the Collateral so replaced prior to damage; and (ii) at all times during which an Event of Default shall have occurred and be continuing, after any loss under such insurance and payment of the proceeds of such insurance, such Borrower shall immediately deliver such Net Proceeds to such Agent, for the benefit of the Lenders, as additional Collateral. (I) "Net Proceeds" when used with respect to any insurance proceeds shall mean the gross proceeds from such proceeds, award or other amount, less all taxes, fees and expenses (including attorneys' fees) incurred in the realization thereof. (J) In case of any material damage to or destruction of all or any material part of the Collateral pledged hereunder by a Borrower, such Borrower shall give prompt notice thereof to the Agent. Each such notice shall describe generally the nature and extent of such damage, destruction, taking, loss, proceeding or negotiations. Each Borrower is hereby authorized and empowered to adjust or compromise any loss under any such insurance. 10. Events of Default. The following shall constitute Events of Default ("Events of Default") under this Security Agreement: (A) The occurrence of an Event of Default under the Credit Agreement; or (B) Failure by any Borrower to perform, observe or comply with any term, covenant, condition or provision contained in this Security Agreement and in each event other than such failure to perform, observe and comply with the last sentence of Section 5(G) hereof, such failure shall continue for 30 or more days after the earlier of receipt of notice of such failure by the Secured Party or any senior officer of such Borrower becomes aware of such failure; or 10 (C) Any material warranty, representation or other written statement made by any Borrower herein or in any instrument furnished by such Borrower to the Secured Party pursuant to this Security Agreement shall be false or misleading in any material respect on the date as of which it is made. 11. Rights and Remedies Upon Event of Default. During the occurrence and continuation of an Event of Default, the Secured Party shall have the following rights and remedies: (A) All of the rights and remedies of a secured party under the Uniform Commercial Code of the state where such rights and remedies are asserted, or under other applicable law, all of which rights and remedies shall be cumulative, and none of which shall be exclusive, to the extent permitted by law, in addition to any other rights and remedies contained in this Security Agreement, the Credit Agreement or any other Loan Documents; (B) The right, to the extent permitted by law, to enter upon the premises of any Borrower through self-help and without judicial process, without first obtaining a final judgment or giving any Borrower notice and opportunity for a hearing on the validity of the Secured Party's claim and without any obligation to pay rent to any Borrower, or any other place or places where any Collateral is located and kept, and remove the Collateral therefrom to the premises of the Secured Party or any agent of the Secured Party, for such time as the Secured Party may desire, in order effectively to collect or to liquidate the Collateral; (C) The right to (i) demand payment of the Accounts; (ii) enforce payment of the Accounts, by legal proceedings or as otherwise provided herein; (iii) exercise all of the Borrowers' rights and remedies with respect to the collection of the Accounts; (iv) settle, adjust, compromise, extend or renew the Accounts; (v) settle, adjust or compromise any legal proceedings brought to collect the Accounts; (vi) if permitted by applicable law, sell or assign the Accounts upon such terms, for such amounts and at such time or times as the Secured Party deems advisable; (vii) discharge and release the Account Debtors or extend the time of payment of any and all Accounts or to make allowances or adjustments relating thereto; (viii) if any Borrower fails to promptly do so, prepare, file and sign such Borrower's name on a Proof of Claim in bankruptcy or similar document against any Account Debtor; (ix) prepare, file and sign any Borrower's names on any notice of lien, notice of assignment, financing statements, assignment or satisfaction of lien or similar document in connection with the Accounts; (x) endorse the name of any Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or notices to Account Debtors or agreement relating to the Accounts or Inventory; (xi) use any Borrower's stationery for verifications of the Accounts and notices thereof to Account Debtors; (xii) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts and Inventory to which any Borrower has access; (xiii) open any Borrower's mail and collect any and all amounts due to it from persons obligated and any Accounts; (xiv) take 11 over any Borrower's post office boxes or make other arrangements as the Secured Party deems necessary to receive its mail including notifying the post office authorities to change the address for delivery of its mail to such address as the Secured Party may designate; and (xv) do all acts and things and execute all documents necessary, in the Secured Party's discretion, to collect the Accounts; (D) Upon ten (10) days notice to the Authorized Representative, the right to sell (or to direct any Borrower to sell as agent of the Secured Party), assign, lease or otherwise to dispose of all or any Collateral in its then condition, or after any repairs or refurbishing shall have been made, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, with or without representations and warranties, at any time or place, in one or more sales all as the Secured Party, in its sole discretion, may deem advisable. The Secured Party shall have the right to conduct such sales on any Borrower's premises or elsewhere and shall have the right to use any Borrower's premises without charge for such sales for such time or times as the Secured Party may see fit. The Secured Party may, if it deems it reasonable, postpone or adjourn any sale of the Collateral from time to time by an announcement at the time and place of such postponed or adjourned sale, without being required to give a new notice of sale. Each Borrower agrees that the Secured Party has no obligation to preserve rights to the Collateral against prior parties or to marshall any Collateral for the benefit of any Person. If any of the Collateral shall require repairs, maintenance, preparation or the like, the Secured Party shall have the right, but shall not be obligated, to perform such repairs, maintenance, preparation or other processing for the purpose of putting the same in such saleable form as the Secured Party shall deem appropriate, but the Secured Party shall have the right to sell or dispose of the Collateral without such processing. Each Borrower agrees that in the event notice is necessary under applicable law, written notice mailed to an Authorized Representative in the manner specified in Section 17 hereof ten (10) days prior to the date of public sale of any of the Collateral or prior to the date after which any private sale or other intended disposition of the Collateral will be made shall constitute commercially reasonable notice to such Borrower of such sale or other disposition. All notice is hereby waived with respect to any of the Collateral which the Secured Party has reason to believe will decline speedily in value. The Secured Party may purchase all or any part of the Collateral at public or, if permitted by law, private sale, free from any right of redemption which is hereby expressly waived by each Borrower and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Obligations. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral shall be applied in accordance with Section 14 hereof. Each Borrower shall be liable to the Secured Party and shall pay to the Secured Party on demand any deficiency with respect to the Obligations which may remain after such sale, disposition, collection or liquidation of the Collateral. The Secured Party shall remit to Giant Holding or the Person entitled thereto any surplus of such cash proceeds remaining after all Obligations have been paid in full. 12. Anti-Marshalling Provisions. The right is hereby given by each Borrower to the Secured Party to make releases (whether in whole or in part) of all or any part of the Collateral agreeable to the Secured Party 12 without notice to, or the consent, approval or agreement of other parties and interests, including junior lienors, which releases shall not impair in any manner the validity of or priority of the liens and security interest in the remaining Collateral conferred under such documents, nor release any Borrower from liability for the Obligations hereby secured. Notwithstanding the existence of any other security interest in the Collateral held, the Secured Party shall have the right to determine the order in which any or all of the Collateral shall be subjected to the remedies provided in this Security Agreement. Each Borrower hereby waives any and all right to require the marshalling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 13. Appointment of the Secured Party as Borrowers' Lawful Attorney. During the continuance of an Event of Default, each Borrower irrevocably designates, makes, constitutes and appoints the Secured Party (and all Persons designated by the Secured Party) as its true and lawful attorney (and agent-in-fact) for the purposes specified herein. All acts of the Secured Party or its designee taken pursuant to Section 11 are hereby ratified and confirmed and the Secured Party or its designee shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or law except to the extent that the Secured Party or its designee engages in gross negligence, wilful misconduct or a wilful default or wilful breach under this Agreement or any other Loan Document. This power, being coupled with an interest, is irrevocable by the Borrowers until all Obligations are paid in full. 14. Application of Proceeds. All monies collected by the Secured Party upon any sale or other disposition of the Collateral, together with all other monies received by the Secured Party hereunder in respect of the Collateral, shall be applied as provided in Section 8.5 of the Credit Agreement. 15. Expenses; Indemnity. The Borrowers will upon demand jointly and severally pay the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which it may reasonably incur in connection with (a) the execution of the terms of this Security Agreement, (b) the custody or preservation of, or the sale of, collection from, or other realization upon any of the Collateral hereunder or (c) the failure by any Borrower to perform or to observe any of the provisions hereof. Each Borrower agrees jointly and severally to indemnify and hold harmless the Secured Party and each Lender from and against any and all claims and demands, losses, judgments and liabilities (including liabilities for penalties) of whatever kind or nature, growing out of or arising from this Security Agreement or the exercise by the Secured Party of any right or remedy granted to it hereunder or under the Credit Agreement or any other Loan Document, other than any such claim, demand, loss, judgment or liability resulting from the gross negligence or wilful misconduct of the Secured Party. If and to the extent that the obligations of the Borrowers under this Section 15 are unenforceable for any reason, each Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 16. Security Interest Absolute. All rights of the Secured Party hereunder, and all obligations of each Borrower hereunder, shall be absolute and unconditional irrespective of: 13 (A) any lack of validity or enforceability of the Credit Agreement, any other Loan Document or any other agreement or instrument relating to any of the Obligations; (B) any change in the term, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument relating to any of the Obligations; (C) any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; or (D) any other circumstances (other than circumstances resulting from the gross negligence or wilful misconduct of the Secured Party) which might otherwise constitute a defense available to, or a discharge of, any Borrower in respect of the Obligations or of this Security Agreement. 17. Amendments, Waivers and Consents. No amendment or waiver of any provision of this Security Agreement or consent to any departure of any Borrower herefrom shall in any event be effective unless the same shall be in writing and signed by each Borrower and the Secured Party with the consent of the Required Lenders and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Secured Party to exercise, and no delay in exercising, any rights, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Secured Party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. 18. Notices. Any notice shall be conclusively deemed to have been received by any party hereto and be effective on the day on which delivered to such party (against receipt therefor) at the address set forth below or such other address as such party shall specify to the other parties in writing (or, in the case of notice by telecopy, telegram or telex (where the receipt of such message is verified by return) expressly provided for hereunder, when received at such telecopy or telex number as may from time to time be specified in written notice to the other parties hereto or otherwise received), or if sent prepaid by certified or registered mail return receipt requested on the fifth Business Day after the day on which mailed, addressed to such party at said address: 14 (A) if to any of the Borrowers: Giant Cement Holding, Inc. 320-D Midland Parkway Summerville, South Carolina 29485 Attention: Terry L. Kinder Vice President and Chief Financial Officer Telephone: (803) 851-9898 Telefacsimile: (803) 851-9876 with a copy to: Keystone Cement Company Post Office Box A Bath, Pennsylvania 18014-0058 Attention: Gary L. Pechota President and CEO Telephone: (610)837-2260 Telefacsimile: (610) 837-2217 (B) if to the Secured Party: SouthTrust Bank of Alabama, National Association 420 North 20th Street Birmingham, Alabama 35203 Attention: Steven W. Davis Telephone: (205)254-5403 Telefacsimile: (205)254-4240 with a copy to: SouthTrust Bank of Alabama 150 2nd Avenue North Suite 470 St. Petersburg, Florida 33701 Attention: Juliette S. Stapf Telephone: (813) 898-4630 Telefacsimile: (813) 898-5319 19. Termination. This Security Agreement shall terminate when all the Obligations have been fully paid, satisfied and performed, or otherwise satisfied or provided for to the satisfaction of the Secured Party, and the Credit Agreement shall have been terminated at which time the Secured Party 15 shall promptly release all of the Collateral from the security interest granted hereunder and take all action reasonably necessary to effectuate the same. Notwithstanding the foregoing provisions of this Section 19, in the event that any payment made or deemed made to the Secured Party in payment of any Obligation shall be rescinded or declared to be or become void, voidable or otherwise recoverable from the Secured Party for any reason whatsoever, the Lien in favor of the Secured Party created hereunder shall be and become reinstituted in respect of such Obligations until the same shall be thereafter fully and finally paid, satisfied and discharged. 20. Interpretation; Partial Invalidity. Whenever possible each provision of this Security Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. 21. Miscellaneous; Remedies Cumulative. Unless the context of this Security Agreement otherwise clearly requires, references to the plural includes the singular, the singular the plural and the part the whole and "or" has the inclusive meaning represented by the phrase "and/or". The section headings used herein are for convenience of reference only and shall not define, limit or extend the provisions of this Security Agreement. All remedies hereunder are cumulative and are not exclusive of any other rights and remedies of the Secured Party provided by law or under the Credit Agreement, the Loan Documents, or other applicable agreements or instruments. The making of the Loans to the Borrowers pursuant to the Credit Agreement shall be conclusively presumed to have been made or extended, respectively, in reliance upon the obligations of the Borrower incurred pursuant to this Security Agreement. 22. Successors and Assigns. This Agreement shall be binding upon the successors and assigns of the Secured Party and each Borrower, and the right, remedies, powers, and privileges of the Secured Party hereunder shall inure to the benefit of the successors and assigns of the Secured Party; provided, however, that (i) no Borrower shall make any assignment hereof without the prior written consent of the Secured Party and (ii) the Secured Party may make assignments in compliance with Section 10.1 of the Credit Agreement. 23. Counterparts. This Agreement may be executed in any number of counterparts and all the counterparts taken together shall be deemed to constitute one and the same instrument. 24. Governing Law. (A) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF SOUTH CAROLINA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE. 16 (B) EACH BORROWER HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF MECKLENBURG OF NORTH CAROLINA, UNITED STATES OF AMERICA AND, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY HAVE NOW OR HEREAFTER TO THE LAYING OF THE VENUE OR TO THE JURISDICTION OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. (C) EACH BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL (POSTAGE PREPAID) TO THE ADDRESS OF SUCH BORROWER PROVIDED IN THE CREDIT AGREEMENT, OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE STATE OF NORTH CAROLINA. (D) NOTHING CONTAINED IN SUBSECTIONS (B) OR (C) HEREOF SHALL PRECLUDE THE SECURED PARTY FROM BRINGING ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS IN THE COURTS OF ANY PLACE WHERE ANY BORROWER OR ANY OF SUCH BORROWER'S PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO THE EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND EXPRESSLY WAIVES, IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING, THE JURISDICTION OF ANY OTHER COURT OR COURTS WHICH NOW OR HEREAFTER, BY REASON OF ITS PRESENT OR FUTURE DOMICILE, OR OTHERWISE, MAY BE AVAILABLE TO IT. (E) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, EACH BORROWER HEREBY AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A 17 JURY AND EACH BORROWER HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY HAVE THAT EACH ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. [Signature pages follow] 18 IN WITNESS WHEREOF, the Borrower and the Secured Party have caused this Security Agreement to be duly executed by delivered by its respective officer thereunto duly authorized as of the date first above written. GIANT CEMENT HOLDING, INC. ATTEST: By: _______________________________________ Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] GIANT CEMENT COMPANY ATTEST: By: _______________________________________ Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] KEYSTONE CEMENT COMPANY ATTEST: By: _______________________________________ Name: Terry L. Kinder ______________________ Title: Vice President Assistant Secretary [CORPORATE SEAL] SIGNATURE PAGE 1 OF 3 GIANT RESOURCE RECOVERY COMPANY, INC. ATTEST: By: _______________________________________ Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] GCHI INVESTMENTS, INC. ATTEST: By: _______________________________________ Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] GIANT CEMENT NC, INC. ATTEST: By: _______________________________________ Name: Terry L. Kinder ______________________ Title: Vice President and Chief Financial Officer Assistant Secretary [CORPORATE SEAL] SIGNATURE PAGE 2 OF 3 SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, as Agent for the Lenders By: _______________________________________ Name: Steven W. Davis Title: Assistant Vice President SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, as Lender By: _______________________________________ Name: Steven W. Davis Title: Assistant Vice President SIGNATURE PAGE 3 OF 3 SCHEDULE 1 TO SECURITY AGREEMENT Principal place of business, chief executive office and location of all Account Records and Account Documents: 1. Giant Cement Holding, Inc. a. Principal Office: 320D Midland Parkway Summerville, SC 29485 b. Principal place of 320D Midland Parkway business: Summerville, SC 29485 c. Locations of Account 320D Midland Parkway Records and Account Summerville, SC 29485 Documents: 2. Giant Cement Company a. Principal Office: 320D Midland Parkway Summerville, SC 29485 b. Principal place of P. O. Box 218 business: 654 Judge Street Harleyville, SC 29448 c. Locations of Account 320D Midland Parkway Records and Account Summerville, SC 29485 Documents: 3. Keystone Cement Company a. Principal Office: 7311 Airport Road P. O. Box A Bath, PA 18014-0058 b. Principal place of Route 329, Box A business: Bath, PA 18014-0058 c. Locations of Account 7311 Airport Road Records and Account P.O. Box A Documents: Bath, PA 18014-0058 4. Giant Resource Recovery Company, Inc. a. Principal Office: 320D Midland Parkway Summerville, SC 29485 b. Principal place of P. O. Box 352 business: 654 Judge Street Harleyville, SC 29448 c. Locations of Account 320D Midland Parkway Records and Account Summerville, SC 29485 Documents: 5. GCHI Investments, Inc. a. Principal Office: Organizational Services P. O. Box 7048 Wilmington, DE 19803 b. Principal place of 320D Midland Parkway business: Summerville, SC 29485 c. Location of Account Organizational Services Records and Account P.O. Box 7048 Documents: Wilmington, DE 19803 6. Giant Cement NC, Inc. a. Principal Office: 320D Midland Parkway Summerville, SC 29485 b. Principal place of Durham Terminal business: P. O. Box 11097 Ellis Road, Durham, NC 27703 c. Location of Account 320D Midland Parkway Records and Account Summerville, SC 29485 Documents: SCHEDULE 2 TO SECURITY AGREEMENT Locations of Inventory (Leased locations noted as such) 1. Giant Cement Holding, Inc. None 2. Giant Cement Company 654 Judge Street, P. O. Box 218 Harleyville, SC 29448 Atlanta Terminal 1815 Montreal Road Tucker, GA 30084 [Leased Location] 3. Keystone Cement Company Route 329, P. O. Box A Bath, PA 18014-0058 4. Giant Resource Recovery Company, Inc. None 5. GCHI Investments, Inc. None 6. Giant Cement NC, Inc. Charlotte Terminal 721 West Eleventh Street Charlotte, NC 28206 [Leased Location] Durham Terminal P. O. Box 11097, 824 Ellis Road Durham, NC 27703 410 Clay Street Durham, NC 27703 [Leased Location] SCHEDULE 3 TO SECURITY AGREEMENT Inventory stored with bailee, warehouseman, or similar party 1. Giant Cement Holding, Inc. None 2. Giant Cement Company Southern Color and Chemical Company Seven Swisher Drive Cartersville, GA 30120 3. Keystone Cement Company None 4. Giant Resource Recovery Company, Inc. None 5. GCHI Investments, Inc. None 6. Giant Cement NC, Inc. None EXHIBIT G Form of Opinion of Borrowers' Counsel December 20, 1996 SouthTrust Bank of Alabama, National Association, as Agent, and each of the Lenders party to the Credit Agreement referenced below 420 North 20th Street Birmingham, AL 35203 Re: $30,000,000 Revolving Credit Facility and $2,000,000 Letter of Credit Facility for Giant Cement Holding, Inc., Giant Cement Company, Keystone Cement Company, Giant Resource Recovery Company, Inc., GCHI Investments, Inc. and Giant Cement NC, Inc. (collectively, the "Borrowers" and individually, a "Borrower") Gentlemen: We have acted as special counsel to each Borrower in connection with the revolving credit facility in the maximum aggregate principal amount at any time outstanding of $30,000,000 and the letter of credit facility in the amount of $2,000,000 being made available by you to the Borrowers on this date pursuant to the Credit Agreement of even date herewith among the Borrowers, each lender party thereto and SouthTrust Bank of Alabama, National Associates, as Agent for the Lenders (the "Credit Agreement") and the transactions contemplated by the Credit Agreement. This opinion is being delivered in accordance with the condition set forth in Section 4.1 (a) (ii) of the Credit Agreement. All capitalized terms not otherwise defined herein shall have the meanings provided therefor in the Credit Agreement. As such counsel, we have reviewed the following documents: 1. the Credit Agreement; 2. each Revolving Note; 3. the Security Agreement; and 4. the Financing Statements (as hereinafter defined). G-1 All the foregoing documents are collectively referred to hereinafter as the "Loan Documents". For purposes of the opinions expressed below, we have assumed that all natural persons executing the Loan Documents have legal capacity to do so; all signatures on all documents submitted to us are genuine; all documents submitted to us as originals are authentic; and all documents submitted to us as certified copies or photocopies conform to the original documents, which themselves are authentic. In addition, for purposes of giving this opinion, we have examined corporate records of each Borrower, certificates of public officials, certificates of appropriate officials of each Borrower and such other documents or made such inquiries as we have deemed appropriate. Based upon and subject to the foregoing, it is our opinion that: 1. Each Borrower is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is organized and is duly qualified to transact business as a foreign corporation and is in good standing in all of jurisdictions in which the nature of its business requires such qualification. Each Borrower has full corporate power and authority to own its assets and conduct the businesses in which it is now engaged, and each Borrower has full corporate power and authority to enter into each of the Loan Documents to which it is a party and to perform its obligations thereunder. 2. Each of the Loan Documents has been duly authorized by the Board of Directors of each Borrower, has been executed and delivered by each Borrower, and constitutes the legal, valid and binding obligation of the Borrower, enforceable against in accordance with its respective terms, except (i) as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization and other similar laws relating to or affecting creditors' rights generally and (ii) as the enforceability of the remedial provisions thereof may be limited by general equitable principles; provided, however, the application of such equitable principles or limitations of law does not, in our opinion, materially interfere with the practical realization of the benefits and security intended to be conferred under the Loan Documents. 3. Neither the execution or delivery of, nor performance by each Borrower of its respective obligations under, the Loan Documents, (a) does or will conflict with, violate or constitute a breach of (i) the charter or bylaws of such Borrower, (ii) any laws, rules or regulations applicable to such Borrower or (iii) any contract, agreement, indenture, lease, instrument, other document, judgment, writ, determination, order, decree or arbitral award to which such Borrower is a party or by which such Borrower or any of its properties is bound, or (b) requires the prior consent of, notice to or filing with any Governmental Authority, or (c) does or will result in the creation or imposition of any Lien of any nature upon or with respect to any of the properties of any Borrower, except for the Liens in favor of you expressly created pursuant to the Security Agreement. G-2 4. There is no pending or, to the best of our knowledge, threatened, action, suit, investigation or proceeding (including without limitation any action, suit, investigation or proceeding under any environmental or labor law), nor is there any basis therefor, before or by any court, or governmental department, commission, board, bureau, instrumentality, agency or arbitral authority, (i) which calls into question the validity or enforceability of the Loan Documents, or the titles to their respective offices or authority of any officers of any Borrower or (ii) an adverse result in which would have a Material Adverse Effect. 5. No Borrower is subject to any charter, bylaw or other corporate restrictions nor, to the best of our knowledge, is any Borrower party to or bound by any contract or agreement which (i) materially and adversely affects its business, properties or condition (financial or otherwise), or (ii) restricts, limits, or prohibits payment of the Loans and Obligations or performance of its obligations pursuant to the terms of the Loan Documents. 6. None of the transactions contemplated by the Credit Agreement, including, without limitation, the use of the proceeds of the Loans made available to the Borrowers, will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, any regulations issued pursuant thereto, or regulations G, T, U or X of the Board of Governors of the Federal Reserve System, and to the best of our knowledge the Borrowers do not own or intend to purchase or carry any "margin securities" as defined in said regulations. 7. The Security Agreement is effective to create a valid security interest in favor of the Agent for the benefit of the Lenders in the Collateral described therein. The Uniform Commercial Code Financing Statements on Form UCC-1 described on Schedule A attached hereto (collectively, the "Financing Statements") have been duly executed and delivered to the Agent and are in form, number and content sufficient (together with the tender of necessary filing fees) for filing with the respective filing offices described on Schedule A with the effect that, upon such filing, the Agent shall have a duly perfected security interest for the benefit of the Lenders in the Collateral described in the Security Agreement to the extent that a security interest in such Collateral can be perfected by the filing of financing statements under the Uniform Commercial Code as in effect in the appropriate jurisdictions and the proceeds thereof and no further filings or recordations are necessary to perfect the security interests created by the Security Agreement. Such security interest will have priority over any other consensual security interests in the same property that are perfected by the filing of a financing statement subsequent to the date of such filings on your behalf, except for purchase money security interests. We are not expressing any opinion as to any matter relating to any jurisdiction other than the laws of the State of __________________ and the United States of America and we assume no responsibility as to the applicability of the laws of any other jurisdiction as to the subject transaction or the effect of such laws thereon. Our opinions contained herein are rendered only as of the date hereof and we undertake no obligation to update our opinions after the date hereof. G-3 Our opinions contained herein are rendered solely for your information in connection with the Loan Documents and may not be relied upon in any manner by any other person, entity or agency, or by you for any other purpose. Without our prior written consent our opinions herein shall not be quoted or otherwise included, summarized or referred to in any publication or document, in whole or in part, for any purposes whatsoever, or furnished to any other person, entity or agency, except as may be required by you by applicable law or regulation or in accordance with any auditing or oversight function or request of regulatory agencies to which you are subject. In rendering the foregoing opinion in paragraph 7 above, we have relied upon the opinion of _____________________ of even date herewith, a copy of which is attached hereto, as to matters involving the application of the laws of the State of ______________; such opinion is acceptable to us in form and substance and in our opinion you may reasonably rely thereon. Very truly yours, G-4 EXHIBIT H Compliance Certificate SouthTrust Bank of Alabama, National Association, as Agent for the Lenders 420 North 20th Street Birmingham, Alabama 35203 Attention: Southeastern Corporate Banking Reference is made to the Credit Agreement dated as of December 20, 1996 (the "Agreement") among Giant Cement Holding, Inc., a Delaware corporation, Giant Cement Company, a Delaware corporation and wholly owned subsidiary of Giant Holding, Keystone Cement Company, a Pennsylvania corporation and wholly owned subsidiary of Giant Holding, Giant Resource Recovery Company, Inc., a Delaware corporation and wholly owned subsidiary of Giant Holding, GCHI Investments, Inc., a Delaware corporation and wholly owned subsidiary of Giant Holding, and Giant Cement NC, Inc., a South Carolina corporation and wholly owned subsidiary of Giant Holding (each a "Borrower" and collectively, the "Borrowers"), the Lenders (as defined in the Agreement), and SouthTrust Bank of Alabama, National Association, as Agent for the Lenders ("Agent"). Capitalized terms used but not otherwise defined herein shall have the respective meanings therefor set forth in the Agreement. The undersigned, a duly authorized and acting Authorized Representative, hereby certifies to you as of September 30, 1996 (the "Determination Date") as follows: 1. Calculations: A. Compliance with Section 7.1: Consolidated Indebtedness for Money Borrowed to Consolidated Tangible Net Worth 1. Consolidated Indebtedness for Money Borrowed $__________ 2. Consolidated Tangible Net Worth $__________ a. Consolidated Shareholders Equity $__________ b. Reserves $__________ c. Net book value of intangible assets$__________ d. Difference of a. - b. - c. $__________ 3. Ratio of A.1. to A.2. _____ to 1.00 Required: Line A.3. must not be greater than 1.50 to 1.00. H-1 B. Compliance with Section 7.2: Consolidated Fixed Charge Ratio 1. Consolidated EBITDA $__________ a. Consolidated Net Income $__________ b. Consolidated Interest Expense $__________ c. Income Taxes $__________ d. Amortization $__________ e. Depreciation $__________ f. Sum of a+b+c+d+e $__________ 2. Consolidated Lease Expense $__________ 3. B.1.f. + B.2 $__________ 4. Consolidated Fixed Charges $__________ a. Consolidated Interest Expense $__________ b. Consolidated Lease Expense $__________ c. Current Maturities of Consolidated Indebtedness for Money Borrowed $__________ d. Sum of a+b+c+d $__________ 5. Ratio of B.3. to B.4.d. _____ to 1.00 Required: Line B.5. must not be less than 1.50 to 1.00. C. Compliance with Section 7.3: Consolidated Current Ratio 1. Consolidated Current Assets $__________ 2. Consolidated Current Liabilities $__________ 3. Ratio of C.1. to C.2. _____ to 1.00 Required: Line C.3. must not be less than 1.25 to 1.00. D. Compliance with Section 7.4: Capital Expenditures 1. Capital Expenditures as of most recent Fiscal Year end $__________ 2. Depreciation as of most recent Fiscal Year end $__________ H-2 3. D.2. x 2 $__________ Required: Line D.1. must not exceed line D.3. E. Compliance with Section 7.5: Consolidated Tangible Net Worth 1. Consolidated Tangible Net Worth $__________ Required: Line E.1 must not be less than line E.6 as calculated below: 2. $60,000,000 or Consolidated Tangible Net Worth required as of the end of all Fiscal Years after December 31, 1996 $__________ 3. Consolidated Net Income $__________ 4. E.3 x .50 $__________ 5. Net Proceeds of equity issues $__________ 6. E.2 + E.4 + E.5 $__________ 2. No Default A. Since __________ (the date of the last similar certification), (a) the Borrowers have not defaulted in the keeping, observance, performance or fulfillment of its obligations pursuant to any of the Loan Documents; and (b) no Default or Event of Default specified in Article VIII of the Agreement has occurred and is continuing. B. If a Default or Event of Default has occurred since __________ (the date of the last similar certification), the Borrowers propose to take the following action with respect to such Default or Event of Default: _______________________________ _________________________________________________________________ _____________________________________. (Note, if no Default or Event of Default has occurred, insert "Not Applicable"). The Determination Date is the date of the last required financial statements submitted to the Lenders in accordance with Section 6.1 of the Agreement. H-3 IN WITNESS WHEREOF, I have executed this Certificate this _____ day of __________, 19___. Giant Cement Holding, Inc. Giant Cement Company Keystone Cement Company Giant Resource Recovery Company, Inc. GCHI Investments, Inc. Giant Cement NC, Inc. By: ______________________________________ Authorized Representative Name:_____________________________________ H-4 Schedule 5.5 ------------ Ownership Interests (NONE) Schedule 5.6 ------------ Indebtedness Giant Cement Company - -------------------- 1. Schedule 5.16 ERISA Liabilities 2. Revolving Loan Agreement between Giant Cement Company and General Electric Capital Corporation, dated November 23, 1993, as amended September 29, 1994, as amended January 17, 1995, as amended February 5, 1995, and as further amended April 30, 1995 * 3. Term Loan Agreement between Giant Cement Company and The CIT Group/Equipment Financing, Inc., dated November 23, 1993, as amended October 6, 1994, and as further amended August 31, 1995. Original principal balance $12,500,000 ** 4. General Electric Capital Corporation (ABN AMRO Bank NV) Letter of Credit number S930360, dated November 26, 1993, in favor of S C Dept. of Health and Environmental Control (SC DHEC), in the amount of $800,000 5. Schedule 5.7 Liens 6. Various Leases, equipment financing, etc. NationsBanc Original balance $176,192 NationsBanc Original balance $387,746 CIT Original balance $349,000 Safeco Credit Original balance $348,812 SouthTrust Original balance $696,899 Keystone Cement Company - ----------------------- 1. Schedule 5.16 ERISA Liabilities 2. Schedule 5.7 Liens 3. Revolving Loan Agreement between Keystone Cement Company and General Electric Capital Corporation, dated November 23, 1993, as amended September 29, 1994, as amended January 17, 1995, as amended February 5, 1995, and as further amended April 30, 1995 * 4. General Electric Capital Corporation (ABN AMRO Bank N V) Letters of Credit numbers S930353, S9303354 and S930355, each dated November 26, 1993, in favor of Pennsylvania Dept. of Environmental Control, in the amounts of $383,164, $10,000, and $357,240, respectively 5. Term Loan Agreement between Keystone Cement Company, Giant Cement Holding, Inc., Giant Cement Company, Giant Resource Recovery Company, Inc. and Meridian Bank dated December 29, 1995. original principal balance $5,000,000 * 6. Various Leases, equipment financing, etc. Caterpillar Original balance $335,100 Original balance $264,000 Original balance $241,448 Original balance $180,872 Meridian Bank Original balance $ 38,883 Original balance $ 12,809 Park Corp Original balance $665,000 * Obligations under this agreement are being terminated concurrently with the consummation of the transactions contemplated under the Credit Agreement ** Certain obligations and security interests relating to accounts receivable and inventory are being terminated concurrently with the consummation of the transactions contemplated under the Credit Agreement 2 SCHEDULE 5.7 ------------ LIENS ----- 1. By Pneu-Meck Systems Manufacturing, Inc., as secured party, against Giant Resource, as debtor, with respect to specific equipment. 2. By Signet Leasing and Financial Corporation, as secured party, against Giant Cement, as debtor, with respect to specific equipment. 3. By General Electric Capital Corporation ("GECC"), as secured party, against Giant Cement, as debtor, with respect to specific equipment (assigned by Signet Leasing and Financial Corporation to GECC; and assigned by ITT Commercial Finance Corp. to Signet Leasing and Financial Corporation). 4. By GECC, as secured party, pursuant to the Credit Agreement dated November 23, 1993 among Giant Cement Company, Keystone Cement Company and GECC. Such Liens will be terminated immediately following the consummation of the transactions contemplated by the Credit Agreement. 5. By Meridian Bank (now by merger known as "CoreStates Bank"), as secured party, pursuant to the Loan Agreement dated December 29, 1995 among Giant Cement Holding, Inc., Giant Cement Company, Keystone Cement Company, Giant Resource Recovery Company, Inc., and Meridian Bank. Such Liens will be terminated immediately following the consummation of the transactions contemplated by the Credit Agreement. 6. By The CIT Group/Equipment Financing, Inc. ("CIT"), as secured party, pursuant to the Secured Promissory Note dated November 23, 1993 made by Giant Cement Company in favor of CIT and pursuant to the Loan and Security Agreement dated November 23, 1993 between Giant Cement Company and CIT, as amended. Such Liens relating to accounts receivable and inventory will be terminated immediately following the consummation of the transactions contemplated by the Credit Agreement. 7. By CIT, as secured party, pursuant to the South Carolina Mortgage, Security Agreement and Assignment of Leases and Rents dated November 23, 1993 between CIT and Giant Cement. 8. By CIT, as secured party, pursuant to the North Carolina Deed of Trust, Security Agreement and Assignment of Rents dated November 23, 1993 among Giant Cement, as grantor, William Stoebig, as trustee and CIT, as beneficiary. Schedule 5.16 ------------- Employee Benefit Plans None, except. Giant Cement Holding, Inc. - - Giant Cement Holding, Inc. Flexible Benefits Plan Giant Cement Company, GRR and Giant-NC Pension Plans: - - Giant Cement Company 401(k) Profit Sharing Plan - - Retirement Plan for the Hourly Employees of Giant Cement Company (Projected Benefit Obligation in excess of Plan assets was $2,104,306 at 10/01/95) - - Retirement Plan for Salaried Employees of Giant Cement Company (Projected Benefit Obligation in excess of Plan assets was $2,302,756 at 10/01/95) - - Giant Cement Company Hourly Employee 401(k) Plan Welfare Plans: - - Group Insurance Plan for Giant Cement Company - - Giant Cement Company Supplemental Unemployment Benefit Plan - - Group Accidental Death & Dismemberment Plan for Giant Cement Company Keystone Cement Company Pension Plans: - - Keystone Cement Company 401(k) Profit Sharing Plan - - Retirement Plan for Salaried Employees of Keystone Cement Company (Projected Benefit Obligation in excess of Plan assets was $1,177,456 at 10/01/95) - - Retirement Plan for the Hourly Employees of Keystone Cement Company (Projected Benefit Obligation in excess of Plan assets was $3,512,211 at 10/01/95) - - Keystone Cement Company Hourly Employee 401(k) Plan Welfare Plans: - - Keystone Cement Company Group Insurance Plan - - Keystone Cement Company Accidental Death & Dismemberment Plan - - Keystone Cement Company Supplemental Unemployment Benefit Plan Schedule 5.18 ------------- Hazardous Materials Hazardous materials include all materials the Companies are permitted to store or use in the following permits: Giant Cement Company - -------------------- Air Quality Permit No. 0900-0002 - -------------------------------- Solvent Burning Permit No. 0900-0002-CF, issued 10/27/87 Issued by the Bureau of Air Quality Control at SCDHEC Issued May 31, 1986 Expired May 31, 1991 Renewal in process, operate under conditions of existing permit EPA and State RCRA Part B Permit (SCD 003 351 699) - -------------------------------------------------- effective October 30, 1992 (5 Year Permits) EPA BIF Interim Status Permit (SCD 003 351 699) - ----------------------------------------------- granted on October 11, 1991 Hazardous Waste Permit Application Part A - ----------------------------------------- last filed with EPA and SCDHEC on 6/24/93 Industrial Waste Permit - IWP-244 - --------------------------------- issued by Bureau of Solid and Hazardous Waste Management of SCDHEC January 9, 1993 SC Radioactive material License No. 055 - --------------------------------------- issued June 23, 1993, by the Bureau of Radiological Health of SCDHEC Expires June 30, 1998 US DOT Hazardous Materials Certificate of Registration No. 062194 010 013C - -------------------------------------------------------------------------- issued annually in June of each year (6/23/95) Keystone Cement Company - ----------------------- Permit for Hazardous Waste Treatment, Storage and/or Disposal Facility - ---------------------------------------------------------------------- #PAD002389559, issued on December 27, 1991 expires 12/26/01 Permit for Storage Tanks - 1A, 1B, 2A, 2B, 33,000 Gallon - -------------------------------------------------------- #48-312-001, issued on August 4, 1986 expired 6/30/92, submitted renewal on 5/12/92 Permit for Solvent Storage Tanks - -------------------------------- #48-312-001A, issued December 27, 1991 expired 4/30/94, submitted renewal on 5/6/94 Permit for Residual Landfill - ---------------------------- #301085, issued December 30, 1986, no expiration Permit for Residual Waste Facility - ---------------------------------- #300985, issued February 13, 1986, no expiration Permit for Residual Fuel Storage - -------------------------------- #48-309-079, issued January 1, 1995 expires 6/30/97 Permit for Fuel Storage Bin - --------------------------- #48-309-079A, issued December 27, 1991 expired 4/30/94, submitted renewal on 5/6/94 Schedule 7.9 ------------ Investments None. EX-13 3 Exhibit 13 GIANT CEMENT HOLDING, INC. 1996 ANNUAL REPORT TO SHAREHOLDERS CORPORATE PROFILE GIANT CEMENT HOLDING, INC. manufactures and sells a complete line of portland and masonry cements used in residential, commercial and infrastructure construction applications. The Company is the 15th largest producer of cement in the United States. Its two manufacturing facilities are fully integrated from limestone mining through cement production and serve the rapidly growing South-Atlantic and the Middle- Atlantic regions of the United States. The Company pioneered resource recovery techniques for use in the manufacturing of cement and is one of the largest users of waste-derived fuels in the cement industry. Contents Financial Highlights, 1 Letter To Shareholders, 2 Business Review, 4 Consolidated Financial Statements, 6 Notes to Consolidated Financial Statements, 10 Report of Independent Accountants, 19 Management's Discussion and Analysis, 20 Corporate Information, 26 Directors and Officers, 28 FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL DATA
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (Amounts in thousands, except per share data) Income statement data: Total revenues $110,198 $100,185 $90,802 $81,900 $72,256 Gross profit 32,380 27,314 20,443 14,845 5,348 Operating income (loss)(1) 24,539 19,767 13,752 8,725 (3,833) Net income (loss) 15,421 12,715 9,195 5,148 (5,693) Net income (loss) per common share $ 1.57 $ 1.27 $ .92 $ .51 $ (.57) Cash dividends - - - - - Weighted average common shares outstanding 9,833 9,990 10,000 10,000 10,000 Balance sheet and other data: Working capital $ 26,706 $ 17,539 $ 20,513 $ 12,228 $ 7,830 Total assets 118,616 111,714 90,525 80,944 76,757 Long-term debt 11,751 15,525 8,403 9,312 10,879 Shareholders' equity 77,128 64,614 54,203 42,394 38,225 Return on beginning of year shareholders' equity 23.9% 23.5% 21.7% 13.5% (12.7)% Cash flow (2) 26,664 22,708 17,746 13,663 3,466 Percent cash flow to revenues 24.2% 22.7% 19.5% 16.7% 4.8%
(1) The 1992 operating results include a nonrecurring charge of $3.0 million to reflect the actuarial cost of early retirement programs for certain employees. (2) Net income plus depreciation and amortization, deferred income taxes, other non-cash charges or credits, and incremental charge for postretirement benefits. 1 LETTER TO SHAREHOLDERS GIANT CEMENT HOLDING, INC. had another record year in 1996. Earnings increased 21% to $15.4 million or $1.57 per share, up from $12.7 million or $1.27 per share from a year earlier. The 1996 earnings reflect a 14% return on sales and a 24% return on equity. The results were reflected in the improvement in our stock price as GCHI stock ended the year at $16.13, up 40% for the year. At year-end, the stock traded at a modest ten times 1996 earnings. The Company's progress in 1996 was a result of improvements in almost every aspect of its operations. Sales volume, clinker production, cement production, and resource recovery volumes were all at record levels. These improvements, in addition to holding per unit costs level with the prior year and reducing SG&A to 7.1% of sales, increased operating margins to 22.3% from 19.7% a year earlier. The strong operating performance and reduced capital expenditures allowed the Company to further strengthen its balance sheet, ending the year with $10.0 million in cash, only $10.7 million in long-term debt, and a current ratio of 2.5 to 1. While we are pleased with our operational and financial performance, several other events took place during the year which should allow the Company to continue to deliver value to our shareholders. The lawsuit filed against the Company in 1995 by a newly-formed environmental group was dismissed with no financial impact or operational changes required of the Company. The results of testing performed during the discovery stages were very positive for the Company and reinforce the belief that our resource recovery activities are protective of the environment and health. We were disappointed that funding to the environmental group was provided by a competing industry, which confirms our opinion that the issue was about market share, not the environment or health. The Company established a $32 million revolving credit facility late in the year. The new banking relationship and credit facility should provide the Company with adequate financing to continue to take advantage of growth opportunities. In December, the Company entered into a letter of intent to acquire three lightweight aggregate manufacturing plants, each with associated resource recovery facilities, five concrete block plants, and a drum processing/fuel blending facility from Solite Corporation. These facilities, with revenues of approximately $48 million, would give the Company a presence in the construction products business from Florida to New York. We believe the acquisition would be a strategic fit for the Company as it expands our product lines in both construction materials and resource recovery services across the East Coast. Due to its complex nature and certain required governmental and other approval processes, the transaction, if consummated, would be completed in the third quarter. We continue to believe that the Company's stock price does not fully reflect the Company's earnings potential. After substantially completing the original $5 million stock repurchase program late in 1996, the Company's Board of Directors authorized an additional $5 million for repurchases of common stock over the next eighteen months. 2 We are optimistic about 1997. We believe the economic climate in both of our market areas will be positive again in 1997. The supply/demand situation in the South-Atlantic region continues to be tight. The supply/demand balance in the Middle-Atlantic region appears to be significantly more balanced than at this time last year, and we believe the $4 price increase announced for April 1997 will be substantially realized. The employees of Giant Cement Holding, Inc. worked hard to achieve record results in 1996, and we appreciate their efforts. We would also like to thank our customers, suppliers, and investors for the confidence they have shown in the Company. Our goal for 1997 is the same as 1996, which is to achieve record revenues, production and earnings, which should be positive for all of us. Gary Pechota Chairman, President and Chief Executive Officer March 7, 1997 3 BUSINESS REVIEW A strong economy incorporating a favorable interest rate environment contributed to cement consumption reaching record levels in the United States in 1996. Portland cement consumption increased 6% from 1995, to approximately 91 million tons through November, while imports increased only 2.8% to approximately 15 million tons. The strong supply/demand fundamentals have allowed the industry to achieve record profits. The favorable conditions affecting the industry contributed to Giant Cement Holding, Inc. achieving a 23% increase in net income, record sales and all time high production levels. Sales volume in 1996 increased 6.7%. Increases were achieved in both the Middle-Atlantic (Keystone Cement Company) and South-Atlantic (Giant Cement Company) markets. Both companies increased their respective market shares in their areas and were able to sell all of their production during the year. Approximately 33,000 tons of cement were shipped from Keystone to Giant where demand was particularly robust. The strong demand allowed the Company to increase its pricing by 4.1% overall, with essentially all of the increase coming from the South- Atlantic market. By the end of 1996, inventory levels in Keystone's market areas were significantly lower than those of the prior year, and as a result a $4 price increase was announced in the Keystone market effective April 1, 1997. A slight increase in price is also expected at Giant. During 1996, the Company was successful in continuing its efforts to improve its manufacturing capabilities. Clinker production increased 1.5% following a 5.2% increase in 1995, while cement production increased 2.5% for 1996. With a reasonable cost per-ton of capacity investment, within the same level of capital expenditures as in 1996, increased production levels are expected again in 1997. Contributing to the record clinker production was an increase in kiln utilization which improved to 90% for 1996 (94% excluding the annual maintenance shutdown) from 88% a year ago. The new finish mill at Keystone added to cement production. Per unit costs were kept at approximately the same level as the prior year by aggressively managing all costs and offsetting inflationary cost increases with more efficient operations. Selling, general and administrative costs increased only slightly in 1996 and decreased as a percentage of sales to 7.1% from 7.5% in 1995. The Company's resource recovery operations finished 1996 with record volumes and revenues. Total liquid solvents utilized increased 3.8% to 36.0 million gallons while the solids business doubled for the second consecutive year. The Company's strategy to move into higher-revenue-per- ton solids has been successful. Pricing in the liquid solvent business declined 16.1%, as a result of strong competition in the marketplace for liquids. The market did show improvement throughout the year, and the outlook is favorable for slightly higher pricing in 1997. Solid fuel pricing improved by 3.2% in 1996. While the solids revenue was higher, the cost of processing the material was higher that anticipated as well. Programs to help lower processing costs have been implemented and their progress is being closely monitored. The Company continues to improve its health and safety performance. Lost- time accidents were reduced to seven in 1996, but the Company continues to focus upon safety for further improvement. 4 Capital expenditures in 1996 were $11.0 million. This is slightly higher than depreciation expense for 1996 of $9.0 million. The projects competed were a combination of environmental, equipment replacement and productivity improvements projects. Recent capital investment projects have yielded good results with clinker production increasing 6.8% over the last two years and cement production increasing 6.3%. Major capital investment projects included the investment of $930,000 for dust collection at Giant and $800,000 toward the construction of the quarry belt project at Giant, which is anticipated to be completed during the first quarter of 1997. Capital spending of approximately $10.0 - $11.0 million is planned for 1997. Capital spending at this level should allow the Company to add incremental capacity and replace equipment on an ongoing, as-needed basis. The improved operating performance of the Company in 1996 greatly contributed to a strengthened balance sheet. Cash at year end was $10.4 million. The Company's current ratio improved to 2.5 from 1.8 a year ago, and total bank borrowings declined to $11.8 million in 1996 from $17.8 in 1995. High profitability has allowed the Company to enter into a $32 million revolving-credit agreement at favorable rates. The combination of a strong balance sheet, good operating margins, and internal and external growth opportunities positions the Company to continue to deliver increased value to its shareholders. 5 GIANT CEMENT HOLDING, INC. CONSOLIDATED STATEMENTS OF INCOME for the years ended December 31,
1996 1995 1994 ---- ---- ---- (In thousands, except per share data) Revenues: Product sales ..................................... $ 96,186 $ 86,635 $ 77,883 Resource recovery services......................... 14,012 13,550 12,919 -------- -------- -------- Total revenues.............................. 110,198 100,185 90,802 Costs and expenses: Cost of sales and services......................... 77,818 72,871 70,359 Selling, general and administrative................ 7,841 7,547 6,691 -------- -------- -------- Operating income ........................... 24,539 19,767 13,752 Other income (expense): Interest expense................................... (1,141) (181) (761) Other, net......................................... 298 (24) (219) -------- -------- -------- Income before income taxes ................. 23,696 19,562 12,772 Provision for income taxes......................... 8,275 6,847 3,577 -------- -------- -------- Net income ................................. $ 15,421 $ 12,715 $ 9,195 ======== ======== ======== Net income per common share........................ $ 1.57 $ 1.27 $ .92 ======== ======== ======== Weighted average common shares outstanding......... 9,833 9,990 10,000
See accompanying notes to consolidated financial statements. 6 GIANT CEMENT HOLDING, INC. CONSOLIDATED BALANCE SHEETS December 31, 1996 1995 ---- ---- (all amounts in thousands) ASSETS Current assets: Cash and cash equivalents......................... $ 10,432 $ 8,102 Accounts receivable, less allowances of $1,123 in 1996 and $973 in 1995............ 14,897 12,557 Inventories ................................... 17,656 17,102 Other current assets ........................... 2,071 1,750 -------- -------- Total current assets ......................... 45,056 39,511 Property, plant and equipment, net................ 70,418 69,475 Deferred charges and other assets ................ 3,142 2,728 -------- -------- Total assets ................................. $118,616 $111,714 ======== ======== LIABILITIES Current liabilities: Accounts payable ............................... $ 10,437 $ 8,172 Short-term borrowings........................... - 2,279 Accrued expenses ............................... 6,843 7,333 Current maturities of long-term debt ........... 1,070 4,188 -------- -------- Total current liabilities .................... 18,350 21,972 Long-term debt, net of current maturities ........ 10,681 11,337 Accrued pension and postretirement benefits....... 6,332 9,259 Deferred income taxes ............................ 6,125 4,532 -------- -------- Total liabilities ........................... 41,488 47,100 -------- -------- Contingencies (Note 13) SHAREHOLDERS' EQUITY Preferred stock, $.01 par value; 2.0 million shares authorized.................. - - Common stock, $.01 par value; 20.0 million shares authorized, 10.0 million shares issued .................... 100 100 Capital in excess of par value................... 41,022 40,985 Retained earnings ............................... 42,035 26,614 -------- -------- 83,157 67,699 Less: Treasury stock, at cost; 336 shares in 1996, 63 shares in 1995................ 4,491 616 Reduction for additional pension liability 1,538 2,469 -------- -------- Total shareholders' equity................. 77,128 64,614 -------- -------- Total liabilities and shareholders' equity ...... $118,616 $111,714 ======== ======== See accompanying notes to consolidated financial statements. 7 GIANT CEMENT HOLDING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31,
1996 1995 1994 ---- ---- ---- (all amounts in thousands) OPERATIONS: Net income ..................................... $15,421 $12,715 $ 9,195 Depreciation and depletion...................... 9,031 7,855 7,236 Deferred income taxes........................... 1,023 876 (290) Amortization of deferred charges and other...... 431 492 537 Changes in operating assets and liabilities: Receivables................................. (2,340) (2,023) 836 Inventories................................. (554) (3,058) (630) Other current assets and deferred charges... (1,291) (1,303) (62) Accounts payable............................ 2,110 (41) 155 Accrued expenses............................ (1,538) (2,029) 1,038 ------- ------- ------- Net cash provided by operations...... 22,293 13,484 18,015 ------- ------- ------- INVESTING: Purchase of property, plant and equipment....... (9,819) (23,898) (7,527) Change in restricted cash equivalents........... - - 525 ------- ------- ------- Net cash used by investing........... (9,819) (23,898) (7,002) ------- ------- ------- FINANCING: Repayment of long-term debt..................... (12,059) (3,041) (1,969) Proceeds from long-term debt.................... 8,285 8,500 - Payments to former parent....................... - (201) (2,378) Capital contribution............................ - - 2,000 Proceeds from short-term borrowings............. 3,000 2,279 - Repayment of short-term borrowings.............. (5,279) - - Purchase of treasury shares..................... (4,091) (616) - ------- ------- ------- Net cash provided (used) by financing.. (10,144) 6,921 (2,347) ------- ------- ------- Increase (decrease) in cash and cash equivalents.................... 2,330 (3,493) 8,666 CASH AND CASH EQUIVALENTS: Beginning of period............................. 8,102 11,595 2,929 ------- ------- ------- End of period................................... $10,432 $ 8,102 $11,595 ======= ======= ======= SUPPLEMENTAL INFORMATION: Cash paid for: Interest (net of capitalized interest of $53 in 1996 and $733 in 1995)............ $ 1,141 $ 186 $ 867 Income taxes................................. 6,987 7,519 3,077 Non cash investing and financing activities: Assets financed by notes and accounts payable............................ 2,096 2,021 984 Capital lease obligations.................... - 599 1,061
See accompanying notes to consolidated financial statements. 8 GIANT CEMENT HOLDING, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY for the years ended December 31,
Reduction for Total Capital in Additional Share- Common Excess of Retained Treasury Pension holders' Stock Par Value Earnings Stock Liability Equity ----- --------- -------- -------- --------- ------ (all amounts in thousands) Balance, January 1, 1994............... $100 $38,813 $ 5,485 $ - $(2,004) $42,394 Net income for 1994..................... 9,195 9,195 Capital transactions relating to the public sale of the Company.......... 2,000 (781) 1,219 Increase in equity to reflect the change in the additional minimum pension liability, net of deferred income taxes of $630....................... 1,223 1,223 Transfer of property from former parent. 172 172 ---- ------- ------- ----- ------- ------- Balance, December 31, 1994.............. 100 40,985 13,899 - (781) 4,203 Net income for 1995..................... 12,715 12,715 Purchase of 630 treasury shares......... (616) (616) Reduction in equity to reflect additional minimum pension liability, net of deferred income taxes of $927....... (1,688) (1,688) ---- ------- ------- ----- ------- ------- Balance, December 31, 1995 100 40,985 26,614 (616) (2,469) 64,614 Net income for 1996..................... 15,421 15,421 Issuance of 22 treasury shares to employee profit-sharing plans....... 37 216 253 Purchase of 295 treasury shares......... (4,091) (4,091) Increase in equity to reflect the change in the additional minimum pension liability, net of deferred income taxes of $501........................ 931 931 ---- ------- ------- ----- ------- ------- Balance, December 31, 1996............... $100 $41,022 $42,035 $(4,491) $(1,538) $77,128 ==== ======= ======= ====== ======= =======
See accompanying notes to consolidated financial statements. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation: Giant Cement Holding, Inc. (the "Company") was incorporated April 6, 1994 as an indirect subsidiary of GIANT GROUP, LTD. ("GROUP"), the Company's former parent. The common stock of Giant Cement Company, Keystone Cement Company and Giant Resource Recovery Company, Inc. was transferred to the Company in exchange for 10.0 million shares of common stock. This transaction has been accounted for at historical cost in a manner similar to the pooling of interest method. Accordingly, the accompanying consolidated financial statements include the combined financial position, results of operations and cash flows of Giant Cement Company ("Giant"), Keystone Cement Company ("Keystone"), and Giant Resource Recovery Company, Inc. ("GRR") for all periods presented. Where referred to herein, the "Company" includes these three predecessor subsidiaries. All significant intercompany transactions and balances have been eliminated. In October 1994, GROUP completed the initial public offering ("IPO") of all 10.0 million shares of the Company's common stock that GROUP had previously held. Common stock, capital in excess of par value and earnings per share for all prior periods have been adjusted to give retroactive recognition to the issuance of 10.0 million shares of common stock. In connection with the offering, the Company received a capital contribution from GROUP of $2.0 million in cash. 2. Significant Accounting Policies: The Company is involved in a single business segment comprised of the domestic manufacture and sale of portland and masonry cements and related aggregates. The Company is also involved in waste recycling and resource recovery, utilizing industrial waste as supplemental fuels in its cement kilns. Cash Equivalents: For purposes of the consolidated statements of cash flows, highly liquid securities with an original maturity date of three months or less are considered cash equivalents. Cash equivalents are recorded at market value and consist of short-term U.S. Government obligations and repurchase agreements collateralized by short-term U.S. Government obligations. Inventories: Inventories are carried at the lower of average cost or market. Property, Plant and Equipment: Depreciation for financial reporting purposes is provided principally by the straight-line method over the estimated useful lives of the assets, ranging from 3 to 50 years. Depletion of the cost of quarry property is based upon the tonnage quarried in relation to the estimated total tonnage available. Deferred Charges: Deferred charges include debt issuance costs and certain costs incurred to obtain multi-year operating permits upon certification of compliance with environmental regulations. Deferred permit certification costs are amortized over the period benefitted, presently three to ten years. Deferred loan costs are amortized by the straight-line method over the life of the related debt. 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income Taxes: Income taxes are accounted for in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Prior to October 1994, Giant, Keystone and GRR joined GROUP in filing a consolidated U.S. corporate income tax return. Pursuant to their tax-sharing agreement with GROUP, each company was charged or credited for its respective share of the consolidated federal income tax liability based upon the amount of tax that would be reported on a separate return basis. Environmental Liabilities: The Company evaluates environmental contingencies and, if appropriate, accrues the estimated cost by charging income for the gross liability for all matters where a future loss is probable and reasonably estimable. If it is probable that the Company will be indemnified and/or recover all or a portion of a probable loss, and the amount of such recovery is reasonably estimable, the Company accrues the related asset on a gross basis. The Company utilizes all of the information available to it to estimate the range or amount of loss and the timing of loss payments. Revenue Recognition: The Company derives revenues from product sales and resource recovery services. Revenues for cement sales are recognized in the period in which the cement is shipped to customers. Revenues for resource recovery services are recognized in the period in which the service is provided or the waste-derived fuel is utilized. Inventories of waste-derived fuel are immaterial. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3.Inventories: 1996 1995 ---- ---- At December 31: (In thousands) Finished goods ....................... $ 3,141 $ 3,913 In process ........................... 1,236 1,270 Raw Materials ........................ 2,025 1,527 Supplies, repair parts and coal....... 11,254 10,392 ------- ------- $17,656 $17,102 ======= ======= 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Property, Plant and Equipment: At December 31 (at cost): 1996 1995 ---- ---- (In thousands) Land and quarries .......................... $ 2,335 $ 2,335 Buildings .................................. 10,772 10,446 Machinery and equipment .................... 139,008 120,347 Projects in process ........................ 3,655 15,650 -------- -------- 155,770 148,778 Less accumulated depreciation and depletion. 85,352 79,303 -------- -------- $ 70,418 $ 69,475 ======== ======== 5. Accrued Expenses: At December 31: 1996 1995 ---- ---- (In thousands) Compensation ............................... $ 2,161 $ 1,913 Pension plan contributions ................. 2,781 3,446 Other ...................................... 1,901 1,974 -------- -------- $ 6,843 $ 7,333 ======== ======== 6. Debt: Long-term debt consisted of the following at December 31: 1996 1995 ---- ---- (In thousand Term loans ................................. $ 2,705 $ 14,069 Revolving credit facility borrowings ....... 8,285 - Other ...................................... 761 1,456 -------- -------- 11,751 15,525 Less current maturities ................... 1,070 4,188 Long-term debt, net of current maturities.. $ 10,681 $ 11,337 ======== ======== The Term Loan bears interest at 8.4% annually and matures in 2000. Property, plant and equipment having an aggregate net book value of $33.5 million have been pledged as collateral under the Term Loan Agreement. In December 1996, the Company entered into a three-year, annually renewable, $32 million Revolving Credit Facility and Letter of Credit Agreement (the "Credit Facility") with a bank. Advances under the Credit Facility bear interest at the lessor of LIBOR plus 1.75% or the bank's base rate minus 1.0%. Borrowings under the Credit Facility are partially collateralized by eligible accounts receivable and inventories (as defined). The Company is required to reduce outstanding borrowings under the Credit Facility to $22.0 million for a period of 30 days annually. At December 31, 1996, amounts outstanding and available under the Credit Facility totaled $8.3 million and $21.7 million, respectively. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's Term Loan and Credit Facility impose restrictions with respect to the maintenance of financial ratios and net worth of the Company and its subsidiaries. The most restrictive covenants currently require maintaining tangible net worth (as defined) aggregating $60.0 million. Aggregate maturities of long-term debt are as follows: 1997 - $1.1 million, 1998 - $896,000, 1999 - $9.2 million, 2000 - $581,000. 7. Stock Option Plans: In April 1994, the Company adopted the 1994 Employee Stock Option Plan (the "Employee Plan"), which authorizes the Stock Option Committee of the Board of Directors to grant incentive or non-qualified stock options for the purchase of up to 1.0 million shares of common stock to key employees. Additionally, the Company adopted the 1994 Directors Stock Option Plan for non-employee directors (the "Director Plan"), which provides for an initial grant of non-qualified options for 10,000 shares of common stock and thereafter an annual grant for 5,000 shares. Options to purchase up to 300,000 shares of Common Stock may be granted under the Director Plan. The exercise price under each stock option plan will be equal to the market price at the date of grant. In 1994, 292,000 options were granted under the plans, with one-third exercisable immediately, one-third after one year and one-third after two years, at an exercise price of $14. In 1996, 71,000 options were granted under the plans, at exercise prices ranging from $11.88 to $15.00. At December 31, 1996, 352,000 of these options were outstanding of which 316,000 were exercisable. As permitted by Statement of Financial Accounting Standards No. 123, "Accounting For Stock-Based Compensation" ("SFAS 123"), the Company has chosen to apply APB Opinion No. 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for options granted under the plans. Had compensation cost for the plans been determined based on the fair value at the grant dates for awards under the plans consistent with SFAS 123, the pro forma impact on the Company's net income and net income per share would be immaterial. 8. Income Taxes: The provision (credit) for income taxes is comprised of the following: 1996 1995 1994 ---- ---- ---- (In thousands) Current: Federal $6,951 $5,391 $3,090 State 761 982 777 Deferred: Federal 847 495 (217) State (284) (21) (73) ------ ------ ------ $8,275 $6,847 $3,577 ====== ====== ====== 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a reconciliation between the federal income tax rate and the Company's effective income tax rate: 1996 1995 1994 ---- ---- ---- Statutory tax rate .................. 35.0% 35.0% 35.0% State income taxes, net of federal benefit............................ 1.3 3.2 3.6 Excess depletion for tax purposes ... (2.8) (3.5) (4.6) Change in valuation allowance........ .3 - (8.6) Other, net .......................... 1.1 .3 2.6 ---- ---- ---- Effective rate....................... 34.9% 35.0% 28.0% ==== ==== ==== Cumulative gross deferred tax assets and liabilities relate to the following at December 31: 1996 1995 ---- ---- (In thousands) Pension and postretirement benefits.. $2,130 $3,273 Allowances for discounts and doubtful accounts and other liabilities..... 993 936 Other................................ 189 204 ------ ------ Gross deferred tax assets.......... 3,312 4,413 Valuation allowance.................. 0 (188) ------ ------ Net deferred tax assets............ 3,312 4,225 ------ ------ Depreciation......................... 7,363 7,148 Other................................ 1,246 851 ------ ------ Gross deferred tax liabilities....... 8,609 7,999 ------ ------ Net deferred tax liability........... 5,297 3,774 Deferred tax asset-current........... 828 758 ------ ------ Deferred tax liability non-current... $6,125 $4,532 ====== ====== 9. Pension Plans: The Company maintains noncontributory, defined benefit pension plans which cover substantially all employees. The Company's policy is to fund at least the minimum required by applicable regulations. Plan assets consist principally of listed stocks and bonds and commingled stock and bond funds. 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the plans' funded status as of September 30 and amounts recognized in the Company's financial statements at December 31: 1996 1995 ---- ---- Actuarial present value of benefit obligations: (In thousands) Vested............................................ $32,784 $33,999 Nonvested......................................... 449 457 ------- ------- Accumulated benefit obligation...................... 33,233 34,456 Effect of future compensation increases ............ 608 739 ------- ------- Projected benefit obligation ....................... 33,841 35,195 Plan assets, at fair value ......................... 27,852 24,773 ------- ------- Projected benefit obligation in excess of plan assets ............................ 5,989 10,422 Unrecognized net transition asset .................. 411 526 Unrecognized prior service cost .................... (1,335) (1,424) Unrecognized net loss ....... ...................... (3,437) (5,160) Cash contribution in the fourth quarter............. (7) (52) Adjustment required to recognize additional minimum liability * ................... 3,753 5,379 ------- ------- Accrued pension expense ............................ $ 5,374 $ 9,691 ======= ======= * An intangible asset of $1.4 million in 1996 and $1.6 million in 1995 and a reduction of equity (net of deferred income taxes) of $1.5 million in 1996 and $2.5 million in 1995 were recognized to record the additional pension liability. Pension expense for the defined benefit plans includes the following: 1996 1995 1994 ---- ---- ---- (In thousands) Benefits earned during the year (service cost) ...................... $ 500 $ 405 $ 529 Interest cost on projected benefit obligation .......................... 2,433 2,501 2,321 Actual return on plan assets ........... (2,863) (3,498) (761) Net amortization and deferral .......... 717 1,474 (1,259) ------- -------- ------- Total $ 787 $ 882 $ 830 ======= ======== ======= The assumed discount rates, long-term rates of return on assets and rates of increase for future compensation were 7.5%, 9.25% and 4.5%, respectively, for 1996; and were 7.25%, 9.5% and 5.0%, respectively, for 1995; and were 8.0%, 9.5% and 5.0%, respectively, for 1994. The Company also maintains tax deferred profit-sharing plans for certain eligible employee groups. Expenses related to the plans, which are based upon pre-tax income of the cement and resource recovery operations, were $612,000 for 1996, $500,000 for 1995, and $301,000 for 1994. 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Postretirement Health Benefits: Postretirement medical and life insurance is provided to substantially all employees. The Company accrues these benefits over an employee's career, rather than expense on a pay-as-you-go basis. The Company has elected to recognize the accumulated postretirement benefit obligation ("APBO"), determined as of January 1, 1993, prospectively as an element of periodic benefit cost over 20 years. The Company funds these costs on a pay-as-you-go basis which amounted to $1.1 million in 1996, $1.4 million in 1995 and $1.2 million in 1994. Postretirement medical and life insurance expense includes the following: 1996 1995 1994 (In thousands) ---- ---- ---- Service cost $ 261 $ 266 $ 367 Interest cost 991 1,222 1,213 Amortization of items not previously recognized: Transition obligation 577 604 670 Net actuarial losses 8 31 66 ------ ------ ------ $1,837 $2,123 $2,316 ====== ====== ====== The following sets forth the APBO applicable to each employee group and amounts included in the Company's December 31 balance sheet: 1996 1995 ---- ---- Accumulated postretirement benefit obligations: (In thousands) Retired employees $11,453 $11,965 Active employees - fully eligible 1,208 891 Active employees - not yet eligible 2,681 2,680 ------- ------- Total APBO 15,342 15,536 Unrecognized transition obligation (9,233) (10,250) Unrecognized net loss (2,370) (2,305) ------- ------- Accrued postretirement benefits $ 3,739 $ 2,981 ======= ======= The discount rate used in determining the APBO at December 31, 1996 and 1995 was 7.5%. The obligation is unfunded. The assumed health care cost trend rate used in measuring the APBO as of December 31, 1996 and 1995 was 9% and 8%, respectively, declining to a rate of 5% and 4%, respectively, in 2001. Increasing the assumed trend rate for health care costs by one percentage point would result in an increase to the APBO at December 31, 1996 of $1.4 million and an increase to the related expense for 1996 of $151,000. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Leases: The Company leases office space, warehouse space and equipment under operating leases which have remaining terms of up to five years. The leases generally include renewal options. Total rental expense for the years 1996, 1995 and 1994 amounted to $2.2 million, $1.9 million and $1.6 million, respectively. Future minimum rental commitments under noncancelable leases with a remaining term in excess of one year as of December 31, 1996 are as follows (in thousands): 1997 $1,705 1998 1,014 1999 626 2000 368 2001 256 ------ $3,969 ====== 12. Treasury Stock: In December 1996, the Company's Board of Directors approved a plan to expend up to $5.0 million for the repurchase of shares of the Company's outstanding common stock over an 18-month period. Repurchases under a prior program totaled 358,000 shares at a cost of $4.7 million. 13. Contingencies: The Company's operations and properties are subject to extensive and changing federal, state and local laws (including common law), regulations and ordinances relating to noise and dust suppression, air and water quality, as well as to the handling, treatment, storage and disposal of wastes ("Environmental Laws"). In connection with the Company's quarry sites and utilization of hazardous waste-derived fuel, Environmental Laws require certain permits and other authorizations mandating procedures under which the Company shall operate. Environmental Laws also provide significant penalties for violators, as well as liabilities and costs of cleaning up releases of hazardous wastes into the environment. Violations of mandated procedures under operating permits, even if immaterial or unintentional, may result in fines, shutdowns, remedial actions or revocation of such permits. The Company was previously named as a defendant in a civil complaint seeking to enjoin Keystone from burning hazardous waste and from further alleged violations of Environmental Laws. In August 1996, the complaint was dismissed with prejudice and the case closed. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Pending Acquisition: In December 1996, the Company announced it had entered into a Letter of Intent to acquire certain lightweight aggregate plants, concrete block plants and a drum processing/fuel blending facility of a privately held manufacturer with operations principally in the South-Atlantic United States. The acquisition is subject to finalization of a definitive agreement and, among other matters, approvals by various regulatory authorities. If completed, the acquisition (which will be accounted for as a purchase) will require approximately $38 million to be financed through the issuance of approximately 1.3 million common shares and bank borrowings of approximately $18 million. Additional shares of common stock and cash are payable over a three-year period, contingent upon the acquired operations achieving certain earnings levels. 18 Report of Independent Accountants Board of Directors and Shareholders GIANT CEMENT HOLDING, INC. We have audited the accompanying consolidated balance sheets of Giant Cement Holding, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Giant Cement Holding, Inc. as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Coopers & Lybrand LLP Charlotte, North Carolina February 7, 1997 19 Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company's cement operations are directly related to the construction industry. The regional markets in which the Company operates, the Middle- Atlantic and South-Atlantic regions, are highly cyclical, experiencing peaks and valleys in demand corresponding to regional and national construction cycles. Additionally, the demand for cement is seasonal because construction activity diminishes during the winter months of December, January, and February. The seasonal impact can be particularly acute in the Company's Middle-Atlantic market. In addition, the Company performs a substantial portion of its routine annual major maintenance projects during the period of low plant utilization, typically the first quarter of its fiscal year, which results in significant additional expense during this period. The Company believes that the routine annual maintenance performed in the first quarter results in lower maintenance costs throughout the remainder of the year. Accordingly, the Company has historically experienced its lowest levels of revenue and gross profit during the first quarter. The Company derives revenues from the sales of products, primarily cement and construction aggregates, as well as from the provision of resource recovery services. Resource recovery services revenue is primarily derived from third parties that pay the Company to utilize their waste as fuel, which additionally reduces the cost of traditional fossil fuels used in the manufacture of cement. Due to the nature of the Company's operations and the fact that the burning of waste-derived fuels is inseparable from the manufacture of cement, it is impractical to disaggregate the costs of sales and services by revenue classification. The Company's resource recovery operations are dependent on general and regional economic conditions; federal, state, and local environmental policies; and competition from other waste disposal alternatives. Cement is a commodity product sold primarily on the basis of price. The price of cement tends to rise in periods of high demand and can fall if supply exceeds demand. The economic recovery that began in 1993 resulted in improved demand and increased pricing for the Company's products. Demand for cement has exceeded available supplies in the Company's South- Atlantic markets at various times since 1993, causing cement shortages. Demand in the Company's Middle-Atlantic markets has been good for most of the past three years. In 1995, the Company realized a price increase of $6 per ton in its Middle-Atlantic markets and a price increase of $8 per ton in its South-Atlantic markets. In 1996, the Company realized a $4 per ton price increase in its South-Atlantic markets. Effective for April 1, 1997, the Company has announced a $4 per ton increase in its Middle-Atlantic markets; and for package products only, a $4 per ton increase in its South-Atlantic markets, although there can be no assurance that these price increases will be realized or that current price levels will not decline should cement demand decline in relation to supply. 20 The Company's cement manufacturing hourly employees are represented by the United Paperworkers International Union ("UPIU"). The Agreement between Giant Cement Company and UPIU Local 50216 expires May 1, 1997. While the Company will endeavor to negotiate a new agreement with the UPIU, there can be no assurance that an agreement will be reached on terms favorable to the Company, nor can there be assurance that the Company will not incur work stoppages, slowdowns or a strike. Results of Operations 1996 Versus 1995 Total operating revenues increased $10.0 million or 10.0% to $110.2 million in 1996, compared with $100.2 million in 1995. Product sales increased $9.6 million or 11.0% to $96.2 million in 1996, compared with $86.6 million in 1995, as a result of increased shipping volumes and higher average selling prices of cement. Cement shipping volumes increased 6.7% in 1996, as a result of volume increases in both of the Company's market areas. The Company's average selling price per ton of cement increased 4.1% in 1996, as a result of price increases in its South-Atlantic market. No price increases were realized in the Company's Middle-Atlantic market in 1996. Resource recovery revenues increased $462,000 or 3.4% to $14.0 million in 1996, compared with $13.6 million in 1995, primarily as a result of a 124.2% increase in the volume of solid waste fuels utilized, partially offset by lower liquid fuels pricing. Liquid fuel volumes increased 3.8%; however, average liquid fuel pricing decreased 16.1% in 1996 compared with 1995. Improved shipping volumes and cement pricing resulted in a $5.1 million or 18.5% increase in gross profit from $27.3 million in 1995 to $32.4 million in 1996. The Company's gross margin percentage increased from 27.3% in 1995 to 29.4% in 1996. The total cost of sales and services increased $4.9 million to $77.8 million primarily as a result of higher shipping volumes and increased depreciation expense. Cement costs per ton increased less than one percent in 1996. Clinker and cement manufactured increased 1.5% and 2.5%, respectively, compared with 1995, as a result of capital and operating improvements made in 1995 and 1996. Both of the Company's plants have operated at effective capacity throughout 1996. Selling, general and administrative expenses increased $294,000 to $7.8 million, but decreased to 7.1% of operating revenues as a result of higher revenues. The increase related primarily to higher selling and promotional expenses. Operating income improved $4.8 million or 24.1% to $24.5 million in 1996, compared with $19.8 million in 1995, primarily as the result of the increase in operating revenues. Operating income margins improved from 19.7% in 1995 to 22.3% in 1996, as a result of higher cement selling prices with only minimal per unit cost increases. Interest expense increased $1.0 million as a result of higher average borrowings outstanding and the capitalization of $733,000 of interest cost in 1995. Federal and state income tax expenses resulted in an effective tax rate of 35.0% in 1995 and 34.9% in 1996. The Company's effective tax rate of 34.9% in 1996 is not expected to change materially under current tax law. Net income increased $2.7 million or 21.3% to $15.4 million in 1996, compared with $12.7 million in 1995. Net income as a percentage of net sales increased from 12.7% in 1995 to 14.0% in 1996. 21 Results of Operations 1995 Versus 1994 - ---------------- Total operating revenues increased $9.4 million or 10.3% to $100.2 million in 1995 as compared with $90.8 million in 1994. Product sales increased $8.8 million or 11.2%, to $86.6 million in 1995, compared with $77.9 million in 1994. The increase resulted primarily from an 11.3% increase in the average selling price of cement as cement shipping volumes increased 1.1% from 1994. Resource recovery revenues increased $631,000, or 4.9%, to $13.6 million in 1995, compared with $12.9 million in 1994, primarily as a result of higher volumes of liquid and solid waste fuels utilized. The Company experienced a decline in resource recovery revenues in the fourth quarter of 1995 as a result of lower prices realized for liquid fuels processed. Improved cement pricing resulted in a $6.9 million, or 33.6%, increase in gross profit from $20.4 million in 1994 to $27.3 million in 1995. The Company's gross margin percentage increased from 22.5% in 1994 to 27.3% in 1995. The total cost of sales and services increased $2.5 million to $72.9 million in 1995, compared with $70.4 million in 1994, primarily as a result of the Company importing $2.5 million of cement clinker to supplement its own production at Giant Cement. Cement costs per ton increased 2.9% in 1995, primarily as a result of the aforementioned clinker purchase and higher raw material costs versus 1994. Selling, general and administrative expenses increased $856,000 to $7.5 million, but remained at 7.5% of operating revenues as a result of higher revenues. The increase related primarily to higher corporate overhead costs associated with the Company's stock being publicly traded for the full year of 1995. Operating income improved $6.0 million, or 43.7%, to $19.8 million in 1995, compared with $13.8 million in 1994, primarily as the result of the increase in operating revenues. Operating income margins improved from 15.1% in 1994 to 19.7% in 1995, which represented a 30% improvement. Interest expense decreased $580,000 as a result of the capitalization of $733,000 of interest costs associated with the construction of the 4400 horsepower finish mill at Keystone. Federal and state income tax expenses resulted in effective rates of 35.0% in 1995 and 28.0% in 1994. The Company incurred a lower effective tax rate in 1994 as a result of the greater utilization of net operating loss carryforwards. The Company's effective tax rate of 35.0% in 1995 is not expected to change materially under current tax law. Net income increased $3.5 million, or 38.3%, to $12.7 million in 1995, compared with $9.2 million in 1994. Net income as a percentage of net sales improved to 12.7% in 1995, compared with 10.1% in 1994. 22 Liquidity and Capital Resources - ------------------------------- The Company's liquidity requirements arise primarily from the funding of capital expenditures, debt service obligations and working capital needs. The Company has historically met these needs through internal generation of cash and borrowings on revolving credit facilities. The Company's borrowings have historically increased during the first half of the year because of the seasonality of its business and the annual plant maintenance performed in the first quarter. Cash and cash equivalents totalled $10.4 million at December 31, 1996, compared with $8.1 million at December 31, 1995. At December 31, 1996 and 1995 the Company had working capital of $26.7 million and $17.5 million, respectively, with current ratios of 2.5 and 1.8, respectively. Accounts receivable increased $2.3 million or 18.6% to $14.9 million, compared with $12.6 million at December 31, 1995, primarily as a result of higher cement revenues in the last two months of 1996 compared to 1995. Inventories increased $554,000 or 3.2% to $17.7 million at December 31, 1996, primarily as a result of an increase in repair parts and raw materials inventories, partially offset by reduced finished cement inventories. Total current liabilities decreased $3.6 million or 16.5% to $18.4 million, primarily as a result of the repayment of all short-term borrowings and lower current maturities of long-term debt. Net cash provided by operations increased $8.8 million or 65.3% to $22.3 million in 1996, compared with $13.5 million in 1995, primarily as a result of the Company's improved earnings, increased depreciation, higher accounts payable and a lesser increase in inventory. Net cash used by investing decreased to $9.8 million in 1996, compared with $23.9 million in 1995, as a result of reduced capital expenditures. Net cash used by financing activities increased to $10.1 million in 1996, compared with $6.9 million net cash provided in 1995, primarily as a result of $3.8 million net repayments of long-term borrowings, $2.3 million net repayments of short-term borrowings and $4.1 million utilized to purchase treasury shares. In December 1996, the Company entered into a three-year, annually renewable, $32 million Revolving Credit Facility and Letter of Credit Agreement. Advances under the Credit Facility bear interest at the lesser of LIBOR plus 1.75% or the bank's base rate minus 1.0%. Borrowings under the Credit Facility are partially collateralized by eligible accounts receivable and inventories (as defined). The Company is required to reduce outstanding borrowings under the Credit Facility to $22.0 million for a period of 30 days annually. At December 31, 1996, amounts outstanding and available under the Credit Facility totaled $8.3 million and $21.7 million, respectively. See Note 6 of the Notes to Consolidated Financial Statements. The Company anticipates that its capital expenditures for plant and equipment, including certain environmental compliance capital expenditures, will be $10.0 to $12.0 million in 1997. In addition to the Company's capital expenditure programs, the Company expends substantial resources on maintenance annually. These costs are expensed as incurred and were $13.9 million, $12.2 million and $13.9 million for 1994, 1995 and 1996, respectively. While a portion of these costs is discretionary, the Company anticipates that maintenance expenditures will continue at or near these levels. 23 In December 1996, the Company announced it had entered into a Letter of Intent to acquire certain lightweight aggregate and concrete block facilities of a privately held manufacturer with operations principally in the South-Atlantic United States. The acquisition is subject to finalization of a definitive agreement and, among other matters, approvals by various regulatory authorities. If completed, the acquisition (which will be accounted for as a purchase) will require approximately $38 million to be financed through the issuance of approximately 1.3 million common shares and bank borrowings of approximately $18 million. Additional shares of common stock and cash are payable over a three-year period, contingent upon the acquired operations achieving certain earnings levels. The Company intends to utilize a combination of new term financing and its existing Credit Facility to finance the $18 million. At December 31, 1996, the Company's defined benefit pension plans had projected benefit obligations of $6.0 million in excess of plan assets as compared with $10.4 million at December 31, 1995. The Company intends to fund the excess benefit obligation from time to time as excess funds are available. Additionally, under the provisions of Statement of Financial Accounting Standards No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions," the Company's projected accumulated postretirement benefit obligation totalled $15.3 million at December 31, 1996, of which $3.7 million was accrued. The Company funds postretirement benefits as the claims are incurred and anticipates continuing to do so. Environmental Matters The Company's operations and properties are subject to extensive and changing federal, state and local laws (including common law), regulations and ordinances relating to noise and dust suppression, air and water quality, as well as to the handling, treatment, storage and disposal of wastes ("Environmental Laws"). In connection with the Company's quarry sites and utilization of hazardous waste-derived fuel, Environmental Laws require certain permits and other authorizations mandating procedures under which the Company shall operate. Environmental Laws also provide significant penalties for violators, as well as liabilities and costs of cleaning up releases of hazardous wastes into the environment. Violations of the permit conditions or of the regulations, even if immaterial or unintentional, may result in fines, shutdowns, remedial actions or revocation of the permits, the loss of any one of which could have a material adverse effect on the Company's financial condition or results of operations. In 1996, resource recovery services revenues totalled $14.0 million or 12.7% of consolidated revenues. While the Company endeavors to maintain full compliance with the environmental laws and regulations at all times, violations have occurred in the past and there is no assurance violations will not occur in the future, due to the inherent complexity and differing interpretations of the laws and regulations. The Company maintains environmental liability insurance with limits of $5.0 million per occurrence and $10.0 million annual aggregate at each of its cement manufacturing facilities. These policies cover certain off-site environmental damage. The policies do not cover liabilities arising under CERCLA, fines or penalties, and thus the Company has no claims for recovery of these items. In September 1995, Pennsylvania Environmental Enforcement Project, Inc. ("PEEP") filed suit against Keystone Cement Company in the United States District Court for the Eastern District of Pennsylvania. In August 1996, the PEEP suit was dismissed with no financial or operating impact on the Company. 24 In December 1994, Keystone settled all charges relating to alleged violations of certain environmental statutes from 1989 to early 1992. As a result of the settlement, Keystone will pay fines and other costs totalling $840,000 in installments over a six-year period. The charges relating to this matter were fully accrued at December 31, 1994. Disclosure Regarding Forward Looking Statements - ----------------------------------------------- This report contains certain forward-looking statements, containing the words "believes," "anticipates," "expects," and words of similar import, based upon current expectations that involve a number of known and unknown business risks and uncertainties. The factors that could cause results to differ materially include the following: national and regional economic conditions, changes in the levels of construction spending, changes in supply or pricing of waste fuels and other risks as further described in the Company's Annual Report on Form 10-K filed with the SEC for the year ended December 31, 1996. 25 CORPORATE INFORMATION Quarterly Results of Operations (Unaudited; Amounts in thousands, except per share data)
Quarter Ended ----------------------------------------------------------- 1996 March 31 June 30 September 30 December 31 - ---- -------- ------- ------------ ----------- Operating revenues $20,791 $32,414 $29,335 $27,658 Gross profit 4,010 9,923 9,699 8,748 Operating income 1,876 7,841 7,879 6,943 Net income 986 4,913 5,098 4,424 Net income per common share $ .10 $ .50 $ .52 $ .46 1995 - ---- Operating revenues $19,318 $27,919 $28,800 $24,148 Gross profit 2,682 7,487 9,513 7,632 Operating income 770 5,766 7,721 5,510 Net income 467 3,762 5,015 3,471 Net income per common share $ .05 $ .38 $ .50 $ .35
Market and Dividend Information The Company's common stock is traded on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol: GCHI. On February 15, 1997, the approximate number of registered holders of the Company's common stock was 65 and the approximate number of beneficial shareholders was 3,000. The Company's common stock began trading on September 30, 1994 and closed at $14. The high and low price of the Company's common stock during the calendar quarters of 1995 and 1996 are set forth below. The closing price on December 31, 1996 was $16.13. The Company expects that earnings will be retained in the business, and no cash dividends will be paid to its common shareholders for the foreseeable future. Sales Price of Common Stock Calendar Quarter 1996 1995 - ------------------------------------------------------------------------- High Low High Low First $ 12.75 $ 10.44 $ 13.50 $ 10.37 Second $ 14.63 $ 12.38 $ 13.87 $ 11.25 Third $ 16.38 $ 12.63 $ 13.50 $ 11.63 Fourth $ 16.13 $ 14.75 $ 11.87 $ 8.75 26 Corporate Information Form 10-K and Company Information Corporate Offices A copy of Giant Cement Holding, Inc.'s 320-D Midland Parkway Annual Report on Form 10-K for the year Summerville, South Carolina 29485 ended December 31, 1996, filed withthe (803) 851-9898 Securities and Exchange Commission, may be obtained by writing Terry L. Kinder, Vice Auditors President and Chief Financial Officer, at Coopers & Lybrand LLP the corporate address. Charlotte, North Carolina Annual Meeting Transfer Agent The Annual Meeting of Shareholders for Giant Registrar and Transfer Company Cement Holding, Inc. will be held May 13, 10 Commerce Drive 1997, in New York, New York. Cranford, New Jersey 07016 Recent Analyst Reports John O. Bermudez, Merrill Lynch & Co. (2/11/97) Walter Kirchberger, Paine Webber (2/10/97) Stephen D. Weinress, L.H. Friend, Weinress, Frankson & Presson, Inc. (12/31/96) William L. Oliver, Edgar M. Norris & Co., Inc. (12/16/96) David L. Beeghly, Scott & Sringfellow, Inc. (12/9/96) John Stanley, Dillion, Reed & Co., Inc. (12/5/96) John F. Kasprzak, Jr., Davenport & Co. (11/26/96) 27 GIANT CEMENT HOLDING, INC. DIRECTORS AND OFFICERS DIRECTORS Gary Pechota Chairman of the Board, President and Chief Executive Officer of the Company Terry L. Kinder Vice President, Chief Financial Officer, Secretary and Treasurer of the Company Dean M. Boylan Vice Chairman and Director of Boston Sand & Gravel Company, Inc. Edward Brodsky Partner in the law firm of Proskauer Rose Goetz & Mendelsohn LLP Robert L. Jones Chairman of Davidson - Jones - Beers Corporation OFFICERS Gary Pechota Chairman of the Board, President and Chief Executive Officer Terry L. Kinder Vice President, Chief Financial Officer, Secretary and Treasurer Rich Familia Vice President, Environmental Affairs 28 EX-21 4 Exhibit 21 LIST OF SUBSIDIARIES Exhibit 21 SUBSIDIARIES ------------ Corporation State of Incorporation Ownership - ----------- ---------------------- --------- Giant Cement Company, Inc. Delaware 100% Keystone Cement Company, Inc. Pennsylvania 100% Giant Resource Recovery Company, Inc. Delaware 100% GCHI Investments, Inc. Delaware 100% Giant Cement NC, Inc. South Carolina 100%(1) (1) Indirect. Owned 100% by Giant Cement Company, Inc. EX-23 5 Exhibit 23(a) CONSENT OF COOPERS & LYBRAND L.L.P. CONSENT OF INDEPENDENT ACCOUNTANT We consent to the incorporation by reference into the registration statement of Giant Cement Holding, Inc. on Form S-8 (filed May 16, 1995) of our reports dated February 7, 1997, on our audits of the consolidated financial statements and financial statement schedule of Giant Cement Holding, Inc. as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996, which reports are included in this Annual Report on Form 10-K. Coopers & Lybrand, L.L.P. Charlotte, North Carolina March 24, 1997 EX-27 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S DECEMBER 31, 1996 FINANCIAL STATEMENTS. 1000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 10,432 0 14,897 1,123 17,656 45,056 155,770 85,352 118,616 18,350 0 0 0 100 77,028 118,616 110,198 110,198 77,818 77,818 0 0 1,141 23,696 8,275 15,421 0 0 0 15,421 1.57 1.57
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