-----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, QGOcLEyMgYwRiOog7Ga7yBIruSAuDAXl90wQlyEE3EA++l1FP9mqw2mwCp8J/QG4 O2bI2wkkP1pTZ0TjisvDmA== 0000932440-02-000147.txt : 20020415 0000932440-02-000147.hdr.sgml : 20020415 ACCESSION NUMBER: 0000932440-02-000147 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UCAR INTERNATIONAL INC CENTRAL INDEX KEY: 0000931148 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 061385548 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13888 FILM NUMBER: 02585451 BUSINESS ADDRESS: STREET 1: 1521 CONCORD PIKE STREET 2: SUITE 301 CITY: WILMINGTON STATE: DE ZIP: 19803 BUSINESS PHONE: 3027788227 MAIL ADDRESS: STREET 1: 1521 CONCORD PIKE STREET 2: SUITE 301 CITY: WILMINGTON STATE: DE ZIP: 19803 10-K 1 ucar10kmar02.txt FORM 10-K =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________________________ FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 _____________________________ (MARK ONE) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 1-13888 _____________________________ UCAR INTERNATIONAL INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 06-1385548 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) _____________________________ 1521 Concord Pike Brandywine West Suite 301 Wilmington, Delaware 19803 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 778-8227 _____________________________ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common stock, par value $.01 per share New York Stock Exchange _____________________________ SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None _____________________________ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of our outstanding common stock held by non-affiliates, computed by reference to the closing price of our common stock on February 28, 2002, was approximately $601 million. At such date, there were 55,829,678 shares of common stock outstanding. _____________________________ DOCUMENTS INCORPORATED BY REFERENCE The information required under Part III is incorporated by reference from the UCAR International Inc. Proxy Statement for the Annual Meeting of Stockholders to be held on May 7, 2002, which will be filed on or about March 29, 2002. ============================================================================== PRELIMINARY NOTES IMPORTANT TERMS We use the following terms to identify various companies or groups of companies or other matters. These terms help to simplify the presentation of information in this Report. "UCAR" refers to UCAR International Inc. only. UCAR is our public parent company and the issuer of the publicly traded common stock covered by this Report. We will request our stockholders to approve, at our Annual Meeting of Stockholders for 2002, a change in the name of UCAR to GrafTech International Ltd. "UCAR GLOBAL" refers to UCAR Global Enterprises Inc. only. UCAR Global is a direct, wholly owned subsidiary of UCAR and the direct or indirect holding company for all of our operating subsidiaries. "UCAR CARBON" refers to UCAR Carbon Company Inc. only. UCAR Carbon is our wholly owned subsidiary through which we conduct most of our U.S. operations. In connection with the corporate realignment of our subsidiaries as described below, UCAR Carbon will change its name to UCAR Technology Company Inc. and transfer its businesses to one or more newly formed wholly owned U.S. subsidiaries. "UCAR FINANCE" refers to UCAR Finance Inc. only. UCAR Finance is a direct, wholly owned special purpose finance subsidiary of UCAR and the borrower under our senior secured bank credit facilities (as amended, the "SENIOR FACILITIES"). UCAR Finance is the issuer of our outstanding 10.25% senior notes due 2012 (the "SENIOR NOTES"). "GRAFTECH" refers to Graftech Inc. only. Graftech is our 97.5% owned (wholly owned, prior to June 2001) subsidiary engaged in the development, manufacture and sale of natural graphite-based products. In connection with the corporate realignment of our subsidiaries as described below, Graftech will change its name to Graftech Technology Company Inc. and transfer its business to its newly formed 100% owned U.S. subsidiary (to be named Graftech Inc.). These companies will retain their names after UCAR International Inc. changes its name to GrafTech International Ltd. "CARBONE SAVOIE" refers to Carbone Savoie S.A.S. and its subsidiaries. Carbone Savoie is our 70% owned subsidiary engaged in the development, manufacture and sale of graphite and carbon cathodes. "SUBSIDIARIES" refers to those companies which, at the relevant time, are or were majority owned or wholly owned directly or indirectly by UCAR or by its predecessors to the extent that those predecessors' activities related to the graphite and carbon business. All of UCAR's subsidiaries have been wholly owned (with DE MINIMIS exceptions in the case of certain foreign subsidiaries) from at least January 1, 1998 through December 31, 2001, except for: o our German subsidiary, which was acquired in early 1997 and 70% owned until early 1999, when it became wholly owned to facilitate its liquidation; 1 o Carbone Savoie, which has been and is 70% owned; and o Graftech, which was 100% owned until it became 97.5% owned in June 2001. Our 100% owned Brazilian cathode manufacturing operations were contributed to Carbone Savoie and, as a result, became 70% owned on March 31, 2001. "WE," "US" or "OUR" refers to UCAR and its subsidiaries collectively or, if the context so requires, UCAR, UCAR Global or UCAR Finance, individually. We are realigning the corporate organizational structure of our subsidiaries. Upon completion of this corporate realignment, most of the businesses of each division will be segregated into separate companies along divisional lines. In addition, because most of the operations, net sales and growth opportunities of our Graphite Power Systems Division are located outside the U.S., most of its operations will be held by our Swiss subsidiary or its subsidiaries. Most of our technology will continue to be held by our U.S. subsidiaries. PRESENTATION OF FINANCIAL, MARKET AND LEGAL DATA We present our financial information on a consolidated basis. This means that we consolidate financial information for all subsidiaries where our ownership is greater than 50%. We use the equity method to account for 50% or less owned interests, such as our planned 25% owned manufacturing joint venture with Jilin Carbon Co., Ltd. (together with its affiliates, "JILIN") in China, and we do not restate financial information for periods prior to the acquisition of subsidiaries. This means that the financial information for our German subsidiary and Carbone Savoie is consolidated, since their acquisitions, on each line of the Consolidated Financial Statements and the equity of the other 30% owners (until early 1999, in the case of our German subsidiary) in those subsidiaries is reflected on the lines entitled "minority stockholders' equity in consolidated entities" and "minority stockholders' share of income." Unless otherwise stated, when we refer to "EBITDA" we mean operating profit (loss), plus depreciation, amortization, impairment losses on long-lived assets, impairment losses on investments, inventory write-downs and that portion of restructuring charges (credits) applicable to non-cash asset write-offs. "ADJUSTED EBITDA" means EBITDA plus the cash portion of restructuring charges (credits), charges (credits) for estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims, securities class actions and stockholder derivative lawsuits and the $2 million charge related to the withdrawn public offering of Graftech. The amount of restructuring charges (credits) applicable to non-cash asset write-offs was a charge of $29 million in 1998, a credit of $6 million in 1999 and a charge of $4 million in 2001. We believe that EBITDA and Adjusted EBITDA are generally accepted as providing useful information regarding a company's ability to incur and service debt. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows from continuing operations or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. Our method for calculating EBITDA and Adjusted EBITDA may not be comparable to methods used by other companies and is not the same as the method for calculating EBITDA under the Senior Facilities or the Senior Notes. 2 References to cost in the context of our low-cost supplier strategy do not include the impact of special or non-recurring charges or credits, such as those related to investigations, lawsuits or claims, restructurings, impairment losses, inventory write-downs or expenses incurred in connection with lawsuits initiated by us, or the impact of accounting changes. All historical cost savings and reductions are estimates based on a comparison, with respect to provision for income taxes, to costs in 1998 or, for all other costs, to costs in the 1998 fourth quarter (annualized). All cost savings and reductions targeted or estimated under our new major cost savings plan announced in January 2002 are based on a comparison to costs in 2001. Neither any statement made in this Report nor any charge taken by us relating to any legal proceedings constitutes an admission as to any wrongdoing. Unless otherwise specifically noted, market and market share data in this Report are our own estimates. Market data relating to the steel industry, our general expectations concerning such industry and our market position and market share within such industry, both domestically and internationally, are derived from publications by the International Iron and Steel Institute and other industry sources as well as assumptions made by us, based on such data and our knowledge of the industry, which we believe to be reasonable. Market data relating to the fuel cell power generation industry, our general expectations concerning such industry and our market position and market share within such industry, both domestically and internationally, are derived from publications by securities analysts relating to Ballard Power Systems Inc., other industry sources and public filings, press releases and other public documents of Ballard Power Systems as well as assumptions made by us, based on such data and our knowledge of the industry, which we believe to be reasonable. Market and market share data relating to the graphite and carbon industry as well as cost information relating to our competitors, our general expectations concerning such industry and our market position and market share within such industry, both domestically and internationally, are derived from the sources described above and public filings, press releases and other public documents of our competitors as well as assumptions made by us, based on such data and our knowledge of the industry, which we believe to be reasonable. Although we are not aware of any misstatements regarding any industry or market share data, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under "Risk Factors." We cannot guarantee the accuracy or completeness of this data and have not independently verified it. None of the sources mentioned above has consented to the disclosure or use of data in this Report. Unless otherwise noted, when we refer to dollars, we mean U.S. dollars. Unless otherwise noted, references to "MARKET SHARES" are based on unit volumes in 2001. As used herein, references to "MAJOR PRODUCT LINES" mean graphite and carbon electrodes and cathodes and flexible graphite. The GRAFTECH logo, GRAFCELL(R), eGraf(TM), GRAFOIL(R), GRAFGUARD(R) and GRAFSHIELD(R), are our trademarks and trade names. This Report also contains trademarks and trade names belonging to other parties. 3 We maintain a Web site at http://www.ucar.com, our subsidiary Graftech maintains a Web site at HTTP://WWW.GRAFTECH.COM and our High Tech High Temp ("HT2") business unit maintains a Web site at HTTP://WWW.HT2.COM. The information contained on these Web sites is not part of this Report. 4 ORGANIZATIONAL CHART The following chart summarizes our corporate organizational structure following completion of the corporate realignment of our subsidiaries (but without giving effect to any change in the names of our subsidiaries). We completed the realignment of our management and operations in 2001 and expect to complete the realignment of our corporate organizational structure in the 2002 first half. [ORGANIZATION CHART GOES HERE] 5 PART I ITEM 1. BUSINESS INTRODUCTION We are one of the world's largest manufacturers and providers of high quality natural and synthetic graphite- and carbon-based products and services, offering energy solutions to industry-leading customers worldwide. We manufacture graphite and carbon electrodes and cathodes, used primarily in electric arc furnace steel production and aluminum smelting. We also manufacture other natural and synthetic graphite and carbon products used in, and provide services to, the fuel cell power generation, electronics, semiconductor and transportation markets. We believe that we have the leading market share in all of our major product lines. We have over 100 years of experience in the research and development of graphite and carbon technology, and currently hold numerous patents related to this technology. We are a global business, selling our products and engineering and technical services in more than 70 countries. We have 13 manufacturing facilities strategically located in Brazil, Mexico, South Africa, France, Spain, Russia and the U.S., and a planned joint venture manufacturing facility located in China, which, subject to receipt of required Chinese governmental approvals, is expected to commence operations in 2003. Our customers include industry leaders such as Nucor Corporation and Arcelor in steel, Alcoa Inc. and Pechiney in aluminum, Ballard Power Systems in fuel cells, Intel Corporation in electronics, MEMC Electronic Materials in semiconductors and The Boeing Company in transportation. In June 1998, we began to implement management changes, which resulted in a new senior management team. Since then, this management team has: LOWERED COSTS. We have delivered total recurring annualized run rate cost savings of $132 million by the end of 2001 under a global restructuring and rationalization plan originally announced in September 1998 and completed at the end of 2001. Cost saving achievements include a 15% reduction in our average graphite electrode production cost per metric ton and a 20% reduction in overhead. Cost of sales and overhead savings represent about 70% of the $132 million, with the balance being interest savings. In January 2002, we announced a new major cost savings plan that targets more than $80 million of further total recurring annual cost savings by 2004 (for a three-year cumulative total of $200 million in cost savings under the 2002 plan). REDUCED DEBT. From the end of 1998 through 2001, we reduced total debt and other long term obligations by over $200 million, $91 million of which represents the net proceeds from our public offering of common stock in July 2001. REALIGNED OUR BUSINESSES TO MAXIMIZE VALUE. In 2001, we realigned our businesses into two new operating divisions, our Graphite Power Systems Division and our Advanced Energy Technology Division. We believe that the realignment will allow each division to develop and implement strategies uniquely designed to maximize the value of its businesses, enter into strategic alliances and identify and implement manufacturing and sales rationalization and cost savings initiatives. We also believe that the realignment will allow us to identify 6 opportunities to improve efficiencies in intellectual property management, global cash management and other corporate services. To reflect our new emphasis on graphite and carbon technology, our new competitive strategy and our new corporate vision, we are requesting our stockholders to approve a change in the name of UCAR to GrafTech International Ltd. GRAPHITE POWER SYSTEMS DIVISION Our Graphite Power Systems Division manufactures and delivers high quality graphite and carbon electrodes and cathodes and related services that are key components of the conductive power systems used to produce steel, aluminum and other non-ferrous metals. Graphite electrodes are consumed in the production of steel in electric arc furnaces, the steel making technology used by all "mini-mills." Mini-mills constitute the higher long term growth sector of the steel industry. Our graphite electrodes accounted for about 79% of this division's net sales during 2001. Electrodes act as conductors of electricity in a furnace, generating sufficient heat to melt scrap metal and other raw materials. We believe there is currently no commercially viable substitute for graphite electrodes in electric arc furnaces. Graphite electrodes are also used for refining steel in ladle furnaces and in other smelting processes. Carbon electrodes are used in the production of silicon metal, a raw material primarily used in the manufacture of aluminum. Graphite and carbon cathodes are used in aluminum smelting furnaces. Because of its strong competitive position, we believe that this division is well positioned to benefit from the expected cyclical recovery in production of steel and other metals. BUSINESS STRATEGIES To maintain our strong competitive position, we have instituted a number of strategic initiatives to improve the cost structure, increase the revenues and maximize the cash flow generated by this division. These strategic initiatives include: PURSUING COST SAVINGS. We are focused on continuous cost improvement. We have aggressively reduced our graphite electrode production costs by closing higher cost facilities and redeploying much of that capacity to our larger, lower cost, strategically located facilities. Completed actions include the shutdown of graphite electrode manufacturing capacity in Canada, Germany and the U.S., coupled with incremental expansion of graphite electrode manufacturing capacity in Mexico, South Africa and Spain. As a result of our actions, we have reduced our average graphite electrode production cost per metric ton at the end of 2001 by about 15% since the 1998 fourth quarter. We believe that key actions identified under our 2002 plan will enable us to reduce our average graphite electrode production cost per metric ton by an additional 15% by 2004 as compared to 2001. These actions include: o the mothballing of our graphite electrode manufacturing capacity in Caserta, Italy, scheduled for completion during the 2002 first half, combined with the redeployment of much of that capacity to our larger, lower cost graphite electrode manufacturing facilities in Mexico, France and Spain; and 7 o the delivery of the balance of the full benefits from the completed closure of our U.S. graphite electrode manufacturing operations. We believe that our graphite electrode production cost structure is the lowest of all major producers and that these shutdowns and our other cost reduction activities along with the expansion of our facilities in low cost jurisdictions will further enhance our position as a low cost supplier. In addition, the establishment of our joint venture in China with Jilin will provide us with access to low cost manufacturing capacity for high quality graphite electrodes in Asia for the first time. We believe that the barriers to entrants in the graphite and carbon electrode industries are high. There have been no significant entrants since 1950. We estimate that our average capital investment to incrementally increase our annual graphite electrode manufacturing capacity would be less than 10% of the initial investment for "greenfield" capacity. We also believe that production of these materials requires a significant amount of expertise and know-how, which we believe is difficult for entrants to replicate in order to compete effectively. LEVERAGING OUR GLOBAL PRESENCE WITH INDUSTRY LEADING CUSTOMERS. Capitalizing on our global leadership position and the continuing consolidation within the steel and other metal industries, we are prioritizing our sales and marketing efforts toward the world's larger global steel and other metal producers. These efforts focus on offering consistently high quality electrodes and technical services on a global basis at competitive prices. We believe that, as a result of these efforts and our diverse geographic locations, we are the producer of graphite electrodes best positioned to serve the global graphite electrode purchasing requirements of these steel producers. We believe that this division, which represented 80% of our total net sales in 2001, has the leading market share in its major product lines. We believe that, in 2001, its global market share was: o about 19% in graphite electrodes; o about 28% in carbon electrodes; and o about 18% in graphite and carbon cathodes. We are one of only two global producers of graphite and carbon electrodes and cathodes. This division sells its products in every major geographic market. Sales of this division's products outside the U.S. accounted for about 80% of its net sales in 2001. No single customer or group of affiliated customers accounted for more than 6% of our net sales in 2001. We believe that our network of state-of-the-art manufacturing facilities in diverse geographic regions, including Brazil, France, Mexico, Russia, South Africa and Spain, coupled with a planned joint venture manufacturing facility located in China, which is expected to commence operations in 2003, provides us with significant operational flexibility and a significant competitive advantage. Our investments in, among other things, incremental expansion of capacity in lower cost jurisdictions as well as the planned joint venture in China are intended to maintain and enhance this global competitive advantage. 8 We have a strategic alliance with Pechiney in the cathode business, which has allied us with the world's recognized leader in aluminum smelting technology and which we believe positions us as the quality leader in the low cost production of high quality graphite cathodes. We believe that our improved graphite cathode technology will enable us to incrementally increase our market share of graphite cathodes sold upon the commencement of operation of the new, more efficient aluminum smelting furnaces that are being built, even as older furnaces are being shut down. EXPANDING VALUE-DRIVEN ENTERPRISE SELLING. The electric arc furnace steel production industry has experienced significant consolidation in recent years, and this trend is expected to continue. This consolidation has led to the creation of fewer but larger global producers. We have expanded our sales and marketing efforts directed toward these producers, focused on offering consistently high quality electrodes and technical services on a global basis at competitive prices. We believe that we are the only graphite electrode manufacturer in the world that is positioned to offer a global high quality supply. As a result of these efforts, for example, we believe that we have increased our market share of graphite electrodes sold to the ten largest electric arc furnace steel producers by about 2 percentage points in 2001 as compared to 2000. In 2001, seven of our top ten customers were among the ten largest purchasers of graphite electrodes worldwide. In addition to increased volumes, this shift in our customer base enables us to further optimize production efficiencies and costs. We expect that the larger producers will be the survivors of the continuing consolidation and rationalization within the steel industry. As a result, we believe that, in many cases, the larger producers are more creditworthy than smaller producers and that we are able to better manage our exposure for uncollectible trade receivables as we increase the percentage of our total net sales sold to them. Sales of our graphite electrodes to the ten largest electric arc furnace steel producers constituted 31% of our total net sales of graphite electrodes in 2001. In addition, our cathode capacity is completely sold out for the 2002 first half and we have booked over 80% of our cathode capacity for the 2002 second half. DELIVERING EXCEPTIONAL AND CONSISTENT QUALITY. We believe that we operate the world's premier electrode and cathode research and development laboratories and that our products are among the highest quality available. We have worked diligently in recent years to improve the quality and uniformity of our products on a worldwide basis, providing significant production efficiencies for our customers and the flexibility to source most orders from the facility that optimizes our profitability. We believe that the consistently high quality of our products enables customers to achieve significant production efficiencies, which we believe provides us with an important competitive advantage. PROVIDING SUPERIOR TECHNICAL SERVICE. We believe that this division is the recognized industry leader in providing value added technical services to customers. We believe that we have the most extensive technical and customer service organization in our industry, which we use strategically to service key customers to our competitive advantage. We employ about 30 engineers who provide technical services to customers globally in all areas of electric arc and aluminum smelting furnace specification, design and operation. We believe that this division has more technical service engineers located in more countries than any of its competitors. In 9 addition to providing operating and processing technical services, we are frequently called upon to provide advisory services to companies that are commissioning a new electric arc or aluminum smelting furnace. We believe that the attractiveness of the services we can provide while a furnace is being commissioned frequently results in our obtaining these companies as customers for our products. STRATEGIC ALLIANCES We are pursuing strategic alliances that enhance or complement our existing or related businesses and have the potential to generate strong cash flow. Strategic alliances may be in the form of joint venture, licensing, supply or other arrangements that leverage our strengths to achieve cost savings, improve margins and cash flow, and increase net sales and earnings growth. We have developed a strategic alliance with Pechiney in the cathode business, which includes our relationship with it as a significant customer under a long term supply contract. Our joint venture with Pechiney has allied us with the recognized leader in aluminum smelting technology worldwide. To broaden our alliance, in March 2001, we contributed our Brazilian cathode manufacturing operations to Carbone Savoie. Pechiney, the 30% minority owner of Carbone Savoie, contributed approximately $9 million in cash to Carbone Savoie as part of this transaction. The cash contribution is being used to upgrade manufacturing operations in Brazil and France, which is expected to be completed by the end of the 2002 first quarter. Ownership in Carbone Savoie remains 70% by us and 30% by Pechiney. Under our now broadened alliance, Carbone Savoie holds our entire cathode manufacturing capacity, which is about 40,000 metric tons of cathodes annually. With these upgrades, we believe that we will be positioned as the quality leader in the low cost production of graphite cathodes, the preferred technology for deployment in new aluminum smelting furnaces due to their ability to provide substantial improvements in process efficiency. We are using Pechiney's smelting technology and our graphite technology and expertise in high temperature industrial applications to develop further improvements in graphite cathodes. Our graphite cathodes are used by Pechiney in its own plants and marketed to its licensees as well as to third parties. In April 2001, we entered into a joint venture agreement with Jilin to produce and sell high-quality graphite electrodes in China. We believe that China is the largest market for graphite electrodes in the world, representing about 40% of the world's graphite electrode market. We also believe that China has the fastest growing electric arc furnace steel industry in the world, with estimated average growth at about double the world rates. Jilin is the largest producer of graphite electrodes and other graphite and carbon products in China. It currently produces about 50,000 metric tons of graphite electrodes annually. This joint venture is expected to provide us, for the first time, with access to graphite electrode manufacturing capability in Asia. We believe that our share of the Asian market for graphite electrodes was only about 3% in 2001 as compared to our worldwide market share (excluding the Asian market) of about 24% 10 in 2001. We believe that this low cost facility will provide us with an excellent platform to expand our market share, both in China and the rest of Asia. Over the past several decades, the leading electric arc furnace steelmakers have upgraded, and most other steelmakers (including those in China) are upgrading, their furnaces to more modern and efficient ones. These furnaces require larger and higher quality graphite electrodes, typically in diameters of 22 inches and above. Jilin currently makes 22 inch and 24 inch graphite electrodes as well as smaller sizes. Under the joint venture agreement, Jilin has agreed that the new joint venture facility will be its exclusive facility for manufacturing 22 inch and 24 inch ultra high power graphite electrodes. As a result, Jilin will be replacing a portion of its existing production with production by the joint venture. The joint venture is expected to: o have capacity to manufacture about 20,000 metric tons of graphite electrodes annually; o configure its facility so as to be expandable to about 30,000 metric tons; o utilize renovated capacity at Jilin's main facility in Jilin City; and o complete additions at another site in Changchun that were begun by Jilin. The new joint venture facility is expected to commence operations in 2003. We are contributing $6 million of cash plus technical assistance for a 25% ownership interest in the joint venture. The completion of the parties' capital contributions to the joint venture is subject to the receipt of required Chinese governmental approvals. In the 2001 fourth quarter, we entered into a strategic alliance with AMI GE, S.A. de C.V., a Mexican company that is 50%-owned by General Electric Company. AMI GE is a supplier of furnace regulators and other furnace equipment. Based in Mexico, AMI GE is seeking to expand its services globally. Under the alliance, AMI GE will market our technical services to steel producers and others. We believe that the range and quality of our technical services will provide a competitive advantage to AMI GE, and AMI GE will provide us with opportunities to increase sales of our products and services to new and existing customers. MARKETS AND INDUSTRY OVERVIEW We estimate that, in 2001, the worldwide market for graphite and carbon electrodes and cathodes was about $3 billion. These products are sold primarily to customers in the steel, silicon metal, ferronickel, thermal phosphorous, titanium dioxide, aluminum and other metals industries. Customers in these industries are located in all major geographic markets. USE OF GRAPHITE ELECTRODES IN ELECTRIC ARC FURNACES. There are two primary technologies for steel making: o basic oxygen furnace steel production (sometimes called "INTEGRATED STEEL PRODUCTION"); and 11 o electric arc furnace steel production. Electric arc furnace steel makers are called "mini-mills" because of their historically smaller capacity as compared to basic oxygen furnace steel makers and because they historically served more localized markets. Graphite electrodes are used primarily in electric arc furnace steel production. They are also used to refine steel in ladle furnaces and in other smelting processes such as production of titanium dioxide. Electrodes act as conductors of electricity into the furnace, generating sufficient heat to melt scrap metal, iron ore or other raw materials used to produce steel, silicon metal or other metals. The electrodes are gradually consumed in the course of that production. Electric arc furnaces typically range in size from those that produce about 25 metric tons of steel per production cycle to those that produce about 150 metric tons per production cycle. Electric arc furnaces operate using either alternating or direct electric current. The vast majority of electric arc furnaces use alternating current. Each of these furnaces typically uses nine electrodes (in three columns of three electrodes each) at one time. The other electric arc furnaces, which use direct current, typically use one column of three electrodes. The size of the electrodes varies depending on the size of the furnace, the size of the furnace's electric transformer and the planned productivity of the furnace. In a typical furnace using alternating current and operating at a typical number of production cycles per day, one of the nine electrodes is fully consumed (requiring the addition of a new electrode), on average, every eight to ten operating hours. The actual rate of consumption and addition of electrodes for a particular furnace depends primarily on the efficiency and productivity of the furnace. Therefore, demand for graphite electrodes is directly related to the amount and efficiency of electric arc furnace steel production. Electric arc furnace steel production requires significant heat (as high as 5,000 degrees Fahrenheit, which we believe is the hottest operating temperature in any industrial or commercial manufacturing process worldwide) to melt scrap metal, iron ore or other raw materials. Heat is generated as electricity (as much as 150,000 amps) passes through the electrodes and creates an electric arc between the electrodes and the raw materials. Graphite electrodes are currently the only products available that have the high levels of electrical conductivity and the capability of sustaining the high levels of heat generated in an electric arc furnace producing steel. Therefore, graphite electrodes are essential for electric arc furnace steel production. We believe that there are currently no commercially viable substitutes for graphite electrodes in electric arc furnace steel making. We estimate that, on average, the cost of graphite electrodes represents about 3% of the cost of producing steel in a typical electric arc furnace. Electric arc furnace steel production has, for many years, been the higher long term growth sector of the steel industry, at an estimated average annual growth rate of 3%. Graphite electrode demand is expected to grow over the long term at an average estimated annual growth rate of about 1% to 2%. There are currently in excess of 2,000 electric arc furnaces operating worldwide. Worldwide electric arc furnace steel production grew from about 90 million metric tons (about 14% of total steel production) in 1970 to about 275 million metric tons (about 33% of total production) in 2001. We estimate that steel makers worldwide added net new electric arc furnace steel production capacity of about 18 million metric tons in 1999, 12 about 13 million metric tons in 2000 and about 11 million metric tons in 2001. We believe that a portion of the new capacity added in the past three years has not yet become operational. We are aware of about 29 million metric tons of announced new electric arc furnace production capacity that is scheduled to be added in 2002 through 2005. After an electric arc furnace has been commissioned, the cost and time required to suspend and recommence production due to operational, economic or other factors is relatively low and short as compared to a basic oxygen furnace. As a result, electric arc furnace steel producers are better enabled to reduce and increase production to respond to changes in demand and prices for steel. This ability has resulted in significant fluctuations in electric arc furnace steel production over the past five years, as economic conditions affecting demand for steel have fluctuated. The following table illustrates the growth in electric arc steel production over the past 30 years: WORLDWIDE STEEL PRODUCTION (MILLIONS OF METRIC TONS) [CHART GOES HERE] Sources: International Iron and Steel Institute and UCAR estimates We believe that, in a strong recovery from the current global economic downturn, electric arc furnace steel production will rebound significantly. RELATIONSHIP BETWEEN GRAPHITE ELECTRODE DEMAND AND ELECTRIC ARC FURNACE STEEL PRODUCTION. We believe that the worldwide growth in electric arc furnace steel production has been due primarily to improvements in the cost effectiveness and operating efficiency of electric arc furnace steel making. We believe that growth has also been due to the fact that, as a result of recent technical advances, electric arc furnace steel makers are capable of producing the majority of the product lines that are produced by basic oxygen furnace steel makers. 13 The improved efficiency of electric arc furnaces has resulted in a decrease in the average rate of consumption of graphite electrodes per metric ton of steel produced (called "SPECIFIC CONSUMPTION"). We estimate that specific consumption declined from about 4.3 kilograms of graphite electrodes per metric ton of steel produced in 1990 to about 2.5 kilograms per metric ton in 2000. We believe that, on average, as the costs (relative to the benefits) increase for electric arc furnace steel makers to achieve significant further efficiencies in specific consumption, the decline in specific consumption will continue at a more gradual pace. We further believe that the rate of decline in the future will be impacted by the addition of new electric arc furnace steel making capacity. To the extent that this new capacity replaces old capacity, it has the effect of reducing industry wide specific consumption due to the efficiency of new electric arc furnaces. To the extent that this new capacity increases industry wide electric arc furnace steel production capacity and that capacity is utilized, it creates additional demand for graphite electrodes. While we believe that the rate of decline of specific consumption over the long term has become lower, we believe that there was a slightly more significant decline in 2001 than would otherwise have been the case due to the shutdown of older, less efficient electric arc furnaces due to the severe downturn affecting the steel industry. PRODUCTION CAPACITY AND PRICING. Currently, there is one other global manufacturer and about ten other notable regional or local manufacturers of graphite electrodes. There have been no significant entrants in the manufacture of graphite electrodes since 1950. The fluctuations in electric arc steel production reflected in the preceding table resulted in corresponding fluctuations in demand for graphite electrodes. Other than in China, for which reliable information is generally not available, we believe that the graphite electrode manufacturing capacity utilization rate was about 86% in 1999, about 93% in 2000 and about 89% in 2001. As part of our global restructuring and rationalization plan initiated in September 1998, we closed our graphite electrode manufacturing operations in Canada and Germany and downsized our graphite electrode operations in Russia. This reduced our annual graphite electrode manufacturing capacity by about 30,000 metric tons. In 2000, we re-sourced some of our global manufacturing capacity for graphite electrodes to our other product lines. In response to growing global demand for graphite cathodes from the aluminum industry, we re-sourced our U.S. cathode production to our facility in Brazil and one of our facilities in France. In addition, in connection with the restructuring of our advanced graphite materials business, we transferred the majority of our advanced graphite materials production from our facility in Clarksburg, West Virginia to the same facility in France. As a result, certain equipment previously used in Brazil and France to produce graphite electrodes is now being used to produce graphite cathodes and advanced graphite materials. This reduced our annual graphite electrode manufacturing capacity by about another 15,000 metric tons, to about 230,000 metric tons in 2000 from about 275,000 metric tons in 1998. In the 2001 third quarter, we shut down our graphite electrode manufacturing operations in our facilities in Clarksville and Columbia, Tennessee. These operations were our highest cost graphite electrode manufacturing operations. These operations had the capacity to manufacture about 40,000 tons of graphite electrodes annually. We incrementally expanded graphite electrode manufacturing capacity at our facilities in Mexico, South Africa and Spain. After the 14 shutdown and incremental expansion, our total annual graphite electrode manufacturing capacity was reduced from about 230,000 metric tons to about 210,000 metric tons. In January 2002, we announced that we intend to mothball our graphite electrode manufacturing operations in our facility in Caserta, Italy. The mothballing is part of our 2002 major cost savings plan. After the shutdown of our operations in Tennessee, these operations are our highest cost graphite electrode manufacturing operations. We expect the mothballing to be completed during the 2002 first half. These operations have the capacity to manufacture about 26,000 tons of graphite electrodes annually. We expect to further incrementally expand graphite electrode manufacturing capacity at our facilities in Mexico, France and Spain over the next twelve months. After the mothballing and incremental expansion, we expect that our total annual graphite electrode manufacturing capacity will remain about 210,000 metric tons. We are not aware of any construction of new graphite electrode manufacturing facilities, excluding incremental expansion of existing capacity. Since September 1998, two of our competitors have reduced their annual graphite electrode manufacturing capacity. Their announced reductions total more than 35,000 metric tons. We believe that together the capacity reductions by us and our competitors described above represented about 8% of estimated worldwide graphite electrode manufacturing capacity in 1998. OUR GRAPHITE ELECTRODE MARKET SHARE. We estimate that about 70% of the electric arc furnace steel makers (other than in Russia and China, for which reliable information is not generally available) and about 78% of the electric arc furnace steel makers in markets where we have manufacturing facilities, purchased all or a portion of their graphite electrodes from us in 2001. We further estimate that we supplied about 39% of all graphite electrodes purchased in markets where we have manufacturing facilities and about 19% worldwide, in each case in 2001. Sales of graphite electrodes in markets where we have manufacturing facilities accounted for about 80% of our net sales of graphite electrodes in 2001. We estimate that the global market for graphite electrodes was about $2.2 billion in 2001. We estimate that, in 2001, sales in the U.S. accounted for about 17% of our total net sales of graphite electrodes and that we sold graphite electrodes in over 60 countries, with no other country accounting for more than 12% of our total net sales of graphite electrodes. CARBON ELECTRODES. Carbon electrodes are used primarily to produce silicon metal, which is used in the manufacture of aluminum. Carbon electrodes are also used in the production of ferronickel and thermal phosphorous. Carbon electrodes are used and consumed in a manner similar to that of graphite electrodes, although at lower temperatures and with different consumption rates. We believe that demand for carbon electrodes fluctuates based primarily on changes in silicon metal production. We also believe that the silicon metal industry is a relatively stable industry and that silicon metal production is directly impacted by changes in global and regional economic conditions. We estimate that demand for carbon electrodes was about 82,000 metric tons in 1999, about 86,000 metric tons in 2000 and about 69,000 metric tons in 2001. 15 We estimate that we sold about 28% of the carbon electrodes in the world in 2001. We estimate that the worldwide market for carbon electrodes was about $120 million in 2001. We are the only manufacturer of carbon electrodes in North America. We are currently restructuring our carbon electrode production to improve profitability. CATHODES. Cathodes consist primarily of blocks used as a lining for, and conductors of electricity in, furnaces (called "POTS") used to smelt aluminum. In a typical aluminum smelting furnace operating at a typical rate and efficiency of production, the cathodes must be replaced every 5 to 8 years. As a result of our acquisition of 70% of Carbone Savoie, we are the largest manufacturer of cathodes and are allied with Pechiney, which is one of the world's leading producers of aluminum and the leading supplier of smelting technology to the aluminum industry. We are using Pechiney's smelting technology and our graphite technology and expertise in high temperature industrial applications to develop further improvements in graphite cathodes. We believe that use of graphite cathodes (instead of carbon cathodes) allows a substantial improvement in process efficiency. There are five producers of cathodes in the world. We believe that worldwide demand for aluminum will continue to grow over the long term at an average annual rate of about 3%, primarily because of greater use of aluminum by the transportation industry. We also believe that, over the long term, new aluminum smelting furnaces will need to be built to meet the growth in demand. We believe, therefore, that demand for graphite cathodes will continue to grow, both for new smelting furnaces as well as for substitution for carbon cathodes in existing smelting furnaces. We estimate that we sold about 18% of the carbon and graphite cathodes sold in the world in 2001. We estimate that the worldwide market for graphite and carbon cathodes was about $425 million in 2001. MANUFACTURING PROCESSES The manufacture of a graphite electrode takes, on average, about two months. Graphite electrodes range in size from three inches to 30 inches in diameter and two feet to nine feet in length and weigh between 20 pounds and 4,800 pounds (2.2 metric tons). The manufacture of graphite electrodes involves the six main processes described below: FORMING: Calcined petroleum coke is crushed, screened, sized and blended in a heated vessel with coal tar pitch. The resulting plastic mass is extruded through a forming press and cut into cylindrical lengths (called "green" electrodes) before cooling in a water bath. BAKING: The "green" electrodes are baked at about 1,400 degrees Fahrenheit in specially designed furnaces to purify and solidify the pitch and burn off impurities. After cooling, the electrodes are cleaned, inspected and sample-tested. 16 IMPREGNATION: Baked electrodes are impregnated with a special pitch when higher density, mechanical strength and capability to withstand higher electric currents are required. REBAKING: The impregnated electrodes are rebaked to solidify the special pitch and burn off impurities, thereby adding strength to the electrodes. GRAPHITIZING: Using a process that we developed, the rebaked electrodes are heated in longitudinal electric resistance furnaces at about 5,000 degrees Fahrenheit to restructure the carbon to its characteristically crystalline form, graphite. After this process, the electrodes are gradually cooled, cleaned, inspected and sample-tested. MACHINING: After graphitizing, the electrodes are machined to comply with international specifications governing outside diameters, overall lengths and joint details. Tapered sockets are machine-threaded at each end of the electrode to permit the joining of electrodes in columns by means of correspondingly double-tapered machine-threaded graphite nipples (called "PINS"). We believe that we provide the broadest range of sizes in graphite electrodes and that the quality of our graphite electrodes is competitive with or better than that of comparable products of any other major manufacturer. Carbon electrodes (which can be up to 55 inches in diameter) and graphite and carbon cathodes are manufactured by a comparable process (excluding, in the case of carbon electrodes and cathodes, impregnation and graphitization). We generally warrant to our customers that our electrodes and cathodes will meet our specifications. Electrode and cathode returns and replacements have aggregated less than 1% of net sales in each of the last three years. As a result of improvements in the quality of our graphite electrodes, we have reduced returns and replacements of graphite electrodes by about 65% over the past three years. We have the capacity to manufacture about 210,000 metric tons of graphite electrodes annually. After the shutdown of our operations in Italy and incremental expansion of capacity in other countries as part of the 2002 plan, we will have about the same capacity. We have the capacity to manufacture about 30,000 metric tons of carbon electrodes annually and about 40,000 metric tons of cathodes annually. The following table sets forth certain information regarding our sales volumes:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 ---- ---- ---- (Metric tons) Volume of graphite electrodes sold.............. 206,000 217,000 174,000 Volume of carbon electrodes sold................ 22,000 23,000 19,000 Volume of cathodes sold......................... 31,000 35,000 33,000
17 We have 13 manufacturing facilities located in Brazil, Mexico, South Africa, France, Spain, Russia and the U.S., and a planned joint venture manufacturing facility located in China, which, subject to receipt of required Chinese governmental approvals, is expected to commence operations in mid-2003. Graphite electrodes are manufactured in each of those countries (other than the U.S.). Carbon electrodes are manufactured in the U.S. Cathodes are manufactured in France and Brazil. We believe that our multiple fully integrated state-of-the-art electrode and cathode manufacturing facilities in diverse geographic regions provide us with significant operational flexibility. We use robotics and statistical process controls in manufacturing processes and have a total quality control program that involves significant in-house training. We have installed and continue to install and upgrade proprietary process technologies at our electrode and cathode manufacturing facilities. We practice "lean" manufacturing techniques and deploy synchronous manufacturing work processes at most of these facilities. We have developed and installed, and continue to install, J.D. Edwards One World advanced planning and production scheduling capabilities and related software solution for managing our global supply chains. These efforts have improved and continue to improve product quality, waste and inventory minimization in the manufacturing process, efficiency in utilization of manufacturing personnel and equipment, efficiency in customer order processing, manufacturing cycle times, and coordination between production scheduling and forecast sales. We have reduced our average time required to produce a graphite electrode by 19% in 2001 as compared to 2000 and expect to reduce it by a further 12% by 2003 as compared to the end of 2001. Through our restructuring and re-engineering projects and plans, we have sought to modularize our graphite electrode and graphite and carbon cathode manufacturing capacity. This enables us to seek to incrementally adjust capacity in use, as well as related costs, to accommodate anticipated changes in sales volume. The advanced planning capabilities that we have developed for our global electrode and cathode manufacturing capacity allow us to seek to optimize, under then current conditions, changes in variables affecting profitability, including variable production costs, changes in currency exchange rates, changes in product mix and plant capacity utilization. In addition, generally we seek to manage our manufacturing operations on a global basis, allocating production among our worldwide manufacturing facilities to minimize the number of products made at each facility and to maximize capacity utilization at as many of our facilities as possible. This enables us to, among other things, seek to minimize our fixed costs per metric ton produced. We also believe that our global manufacturing base helps us to minimize risks associated with dependence on any single economic region. We estimate that we have adequate existing permanent graphite and carbon electrode and cathode manufacturing capacity to meet any increased demand over the near term. We believe that our average capital investment to incrementally increase our annual graphite electrode manufacturing capacity would be less than 10% of the initial investment for "greenfield" capacity. Major maintenance at our facilities is conducted on an ongoing basis. Manufacturing operations at any facility may be subject to curtailment due to new laws or regulations, changes in interpretations of existing laws or regulations or changes in governmental enforcement policies. 18 INTELLECTUAL PROPERTY We own or have obtained licenses to various domestic and foreign patents, patent applications and trademarks related to the products, processes and businesses of this division. These patents expire at various times over the next 16 years. These patents and patent applications, in the aggregate, are important to this division's competitive position and growth opportunities. The tradename and trademark UCAR are owned by Union Carbide Corporation (which has been acquired by Dow Chemical Company) and licensed to us on a royalty-free basis under a license expiring in 2015. This license automatically renews for successive ten-year periods. It permits non-renewal by Union Carbide commencing after the first ten-year renewal period upon five years' notice of non-renewal. The tradename and trademark CARBONE SAVOIE are owned by Carbone Savoie and used in connection with cathodes manufactured by it. It is a registered trademark in Europe. We have know-how and proprietary information that is important to this division's competitive position and growth opportunities. We seek to protect our know-how and proprietary information, as we believe appropriate, through written confidentiality and restricted use agreements with employees, consultants and others and through various operating and other procedures. We cannot assure you that protection for our intellectual property under our patents and our measures to protect know-how and proprietary information will be effective or that our use of intellectual property does not infringe the rights of others. RESEARCH AND DEVELOPMENT We have two dedicated technology centers, one in Parma, Ohio, which is used by both of our divisions, and the other in France, which is used by Carbone Savoie. Past developments by us include larger and stronger electrodes, new chemical additives to enhance raw materials used in the manufacture of graphite electrodes and cold pastes with reduced environmental impact for use with cathodes. We have received recognition for the high quality of our products under several programs around the world and have been awarded preferred or certified supplier status by many major steel and other manufacturing companies. In 2001, we received an award from Alcoa for "Best Supplier" in South America. Alcoa has ordered from us 100% of its requirements for cathodes in South America for 2002. Two areas of current focus by this division are further quality improvements in supersize graphite electrodes and in graphite cathodes. Supersize electrodes are used in the modern high-powered, larger electric arc furnaces that constitute the majority of newly built furnaces. Graphite cathodes can be used instead of carbon cathodes in smelting aluminum. Use of graphite cathodes allows for substantial improvements in process efficiency. We believe that the market for supersize graphite electrodes and graphite cathodes represent growth sectors of the graphite electrode and cathode businesses. There are about five other manufacturers of supersize graphite electrodes and two other manufacturers of graphite cathodes in the world. 19 SALES AND CUSTOMER SERVICE This division sells products in every major geographic market through its direct sales force, whose members are trained and experienced with our products. Its direct sales force operates from about 17 sales offices located in the U.S., Europe and other markets. This division also sells products through independent sales agents and distributors. We have a strong commitment to provide a high level of technical service to customers and this division has customer technical service personnel based in the U.S., Europe and other markets. This division assists its customers to maximize their production and minimize their costs. It employs about 30 engineers to provide technical services to customers globally in, among other things, all areas of electric arc furnace design and operation, electrode specification and use and related matters. This technical service includes periodically monitoring certain customers' electric arc furnace efficiency levels. We believe that this division has more technical service engineers located in more countries than any of its competitors. This division's sales and service groups include those dedicated to cathodes who are employed by Carbone Savoie. Carbone Savoie's sales and service groups work closely with those of Pechiney to maximize use of their respective products and technologies. RAW MATERIALS AND SUPPLIERS The primary raw materials for electrodes and cathodes are engineered by-products and residues of the petroleum and coal industries. We use these raw materials because of their high carbon content. The primary raw materials for graphite electrodes and graphite cathodes are calcined petroleum cokes (needle coke for electrodes and regular grade cokes for cathodes), coal tar pitch and petroleum pitch. The primary raw materials for carbon electrodes and carbon cathodes are calcined anthracite coal and coal tar pitch and, in some instances, a petroleum coke-based material. Typically, we purchase the raw materials for this division from a variety of sources, under short term contracts or on the spot market, in each case at fluctuating prices. We believe that adequate supplies of these raw materials are available at market prices. We purchase the majority of our petroleum coke from Conoco. Since the beginning of 2001, these purchases have been made pursuant to a seven year supply agreement. In addition, in 2001, we shut down our coal calcining operations primarily because we entered into a five-year agreement to purchase calcined coal from a third party at a lower net effective cost than we could produce it for ourselves. These agreements contain customary terms and conditions. We believe that the quality and cost of this division's raw materials on the whole is competitive with or better than those available to its major competitors and that, under current conditions, this division's raw materials are available in adequate quantities. Since electrodes and cathodes use the same primary raw materials, we believe that we are able to purchase these raw materials on a more cost efficient basis than some of this division's competitors with more limited product lines and production volumes. Electric power or natural gas used in manufacturing processes is purchased from local suppliers under short-term contracts or in the spot market. 20 DISTRIBUTION Our graphite electrode customers generally seek to negotiate prices and anticipated volumes on an annual basis. Our customers then generally place orders for graphite electrodes three to six months prior to the specified delivery date. Such orders are cancelable by the customer. Therefore, we manufacture graphite electrodes and seek to manage graphite electrode inventory levels to meet rolling sales forecasts. We generally seek to maintain an appropriately low level of finished graphite electrode inventories, taking into account these factors and the length of graphite electrode manufacturing cycles. Other electrode and cathode products are generally manufactured or fabricated to meet customer orders. Accordingly, inventory levels will vary with demand for these finished products. Recently, we have entered into long term supply contracts with purchasers of our carbon electrodes. We may, from time to time in the future, enter into long term supply contracts with purchasers of our other products. Finished products are generally stored at our manufacturing facilities. We ship our finished products to customers primarily by truck and ship, using "just in time" techniques where practical. Proximity of manufacturing facilities to customers can provide a competitive advantage in terms of cost of delivery of electrodes and cathodes. The significance of these costs is affected by fluctuations in exchange rates, methods of shipment, import duties and whether the manufacturing facilities are located in the same economic trading region as the customer. We believe that we are generally better positioned globally in terms of such proximity than our major competitors to supply graphite electrodes and graphite and carbon cathodes. COMPETITION Competition in the graphite and carbon electrode and cathode business is based primarily on price, product quality and customer service. There is one other global manufacturer and about ten other notable regional or local manufacturers of graphite electrodes, including SGL Carbon AG (whose plants are located in North America and Europe), The Carbide/Graphite Group, Inc. (whose plants are located in the U.S.) and four manufacturers in Japan (one of whom, Showa Denko Carbon, Inc., has a plant located in the U.S.). The downturn in global and regional economic conditions and the antitrust investigations, lawsuits and claims are having an impact on the graphite electrode industry. We believe that, at a minimum these impacts include increased price competition and increased debt or cost burdens, or both, for most manufacturers in the industry. In December 1998, the U.S. subsidiary of SGL Carbon AG filed for protection under the U.S. Bankruptcy Code. This proceeding was dismissed in March 2000 on the grounds that it was not commenced in good faith. In October 2001, Carbide/Graphite Group filed for protection under the U.S. Bankruptcy Code. It is possible that other competitors could make similar bankruptcy filings. It is also possible that, as a result of these bankruptcy filings or increased debt or costs, one or more of our competitors could divest graphite electrode manufacturing facilities. This could increase the number or change the capabilities of our competitors. It is not uncommon for companies subject to 21 bankruptcy filings to enjoy, at least temporarily, a cost advantage as compared to their competitors. This advantage enables them to compete more aggressively on price. In addition to the external circumstances described above, our competitive position could be impacted by internal circumstances. These include decisions by us with respect to increasing prices or maintaining profit margins rather than market share or with respect to other competitive or market strategies. All of the circumstances described above could adversely affect our market share or results of operations. They could also affect our ability to institute price increases or compel us to reduce prices or increase spending on research and development or marketing and sales, all of which could adversely affect us. There are two significant manufacturers of carbon electrodes in the world. We believe that we are the largest and SGL Carbon is the second largest. There are six manufacturers of cathodes in the world. We believe that we are the largest and SGL Carbon is the second largest. The manufacture of high quality graphite and carbon products is a mature, capital intensive business that requires extensive process know-how regarding working with various raw materials and with raw material suppliers, furnace manufacturers and steel, aluminum or other metal producers or other end users (including working on the specific applications for finished products). It also requires high quality raw material sources and a developed energy supply infrastructure. There have been no significant entrants in the manufacture of graphite electrodes since 1950. We believe that it is unlikely that new "greenfield" graphite electrode manufacturing facilities will be built during the next several years due to, among other things, the relatively high cost of building a new facility and the need for extensive manufacturing process know-how. ADVANCED ENERGY TECHNOLOGY DIVISION Our Advanced Energy Technology Division develops, manufactures and sells high quality, highly engineered natural and synthetic graphite- and carbon-based energy technologies, products and services for both established and high-growth-potential markets. We currently sell these products primarily to the transportation, chemical, petrochemical, fuel cell power generation and electronic thermal management markets. In addition, we provide cost effective technical services to a broad range of markets and license our proprietary technology in markets where we do not anticipate engaging in manufacturing ourselves. We believe that this division will be successful because of our patented and proprietary technologies related to graphite and carbon materials science and our processing and manufacturing technology. Natural graphite-based products, including flexible graphite, are developed and manufactured by our subsidiary, Graftech. We are the world's leading manufacturer of natural graphite-based products, including flexible graphite. Flexible graphite is an excellent gasket and sealing material that to date has been used primarily in high temperature and corrosive environments in the automotive, chemical and petrochemical markets. Advanced flexible graphite can be used in the production of materials, components and products for proton exchange membrane ("PEM") fuel cells and fuel cell systems, electronic thermal management 22 applications, industrial thermal management applications, and battery and supercapacitor power storage applications. Our synthetic graphite- and carbon-based products are developed and manufactured by our Advanced Graphite Materials (formerly known as our graphite specialties business) and Advanced Carbon Materials business units, respectively. Their products range from established products, such as graphite and carbon refractories, graphite molds and rocket nozzles and cones, to new carbon composites used in fuel cell power generation and electronic thermal management markets. Our technology licensing and technical services are marketed and sold by our HT2 business unit. BUSINESS STRATEGIES We are focused on leveraging our strengths to build the value of this division through the development and commercialization of proprietary technologies into high-growth-potential markets. These strengths include: o developing intellectual property; o developing and commercializing prototype and next generation products and services; and o establishing strategic alliances with leading customers and suppliers as well as key technology focused companies. We seek to identify technologies where this division's products and services offer advantages in performance or cost as compared to competitive technologies, materials, products or services. DEVELOPING INTELLECTUAL PROPERTY. Development of intellectual property is an integral part of our corporate philosophy, and we aggressively seek worldwide patent coverage for our technical innovations. We filed about 34 U.S. patent applications in 2001 and expect to file an additional 40 U.S. patent applications in 2002. We believe that our proprietary technology, experience, know-how and other intellectual property give us a competitive advantage in the development of graphite-based products. At our technology center located in Parma, Ohio, at our five manufacturing facilities engaged in the business of this division and at the facilities of our strategic partners, we conduct a focused technology development program to enable us to provide new technologies, products and services, expand and develop existing products and services and develop cost effective manufacturing processes. We believe that our facility in Parma is the premier facility for the development of graphite and carbon products and technologies. We also operate a state-of-the-art testing facility capable of conducting physical and analytical testing to develop natural and synthetic graphite and carbon products and process technology. 23 DEVELOPING AND COMMERCIALIZING PROTOTYPE AND NEXT GENERATION PRODUCTS AND SERVICES. This division is currently focusing its technology development efforts in the following key areas: o materials and components for proton exchange membrane fuel cells and fuel cell systems, including flow field plates and gas diffusion layers, for the fuel cell power generation market; o electronic thermal management products, including thermal interface products, heat spreaders, heat sinks and heat pipes, for computer, communications, industrial, military, office equipment and automotive electronic applications; o fire retardant products for transportation applications and building and construction materials applications; o industrial thermal management products for direct solidification, semiconductor, heat treating and other high temperature process applications; and o conductive products for battery and supercapacitor power storage applications. We use a highly disciplined stage gate process for selecting product and service opportunities to be developed into commercial businesses. In December 2000, we introduced and began selling our new line of eGraf(TM) thermal management products designed to aid the cooling of chip sets and other heat generating components in computers, communications equipment and other electronic devices. In December 2001, we announced the development of our new, advanced eGraf(TM) HiTherm series of thermal interface products designed to provide lower thermal resistance and superior thermal conductivity. We expect these products to become commercially available in the 2002 second quarter. ESTABLISHING STRATEGIC ALLIANCES WITH CUSTOMERS, SUPPLIERS AND OTHER THIRD PARTIES. We intend to accelerate the development and commercialization of proprietary technologies into high-growth-potential markets through strategic alliances in the form of collaborations, joint ventures, licensing, supply or other arrangements that leverage our strengths. Since December 2000, this division has entered into strategic alliances with Ballard Power Systems, the world's leader in fuel cell development, and leading chip makers in electronic thermal management. This division has also entered into a strategic alliance with Conoco Inc. for carbon fiber technology and manufacturing facilities. BALLARD POWER SYSTEMS. We have been working with Ballard Power Systems since 1992 on developing natural graphite-based materials for use in Ballard Power Systems fuel cells. We expect significant growth from this opportunity in the second half of this decade. Advances in fuel cell technology, growth in worldwide power demand and deregulation of power utilities as well as environmental problems created from other sources of energy are driving the market. Potential fuel cell applications include transportation, stationary and portable applications. 24 Ballard Power Systems is the world leader in developing zero-emission fuel cells known as proton exchange membrane fuel cells, including direct methanol fuel cells. Eleven out of the fourteen prototype fuel cell vehicles in the California Fuel Cell Partnership are powered by Ballard Power Systems fuel cells, including the FC5 developed by Ford Motor Company and the NECAR 4A, Jeep Commander and, most recently, NECAR 5 developed by DaimlerChrysler. In 2001, the California Air Resource Board reiterated its mandate that, between the years of 2003 and 2008, a minimum of 10% of the vehicles sold in California meet low or zero-emission vehicle standards. In 1999, we entered into a collaboration agreement with Ballard Power Systems to coordinate our respective research and development efforts on flow field plates and a supply agreement for flexible graphite materials. In 2000, Ballard Power Systems launched its Mark 900 proton exchange membrane fuel cell stack and announced that it was the foundation for Ballard Power Systems fuel cells for transportation, stationary and portable applications. The flow field plates used in the Mark 900 are made from our GRAFCELL(R) advanced flexible graphite products. In October 2001, Ballard Power Systems launched its most advanced fuel cell platform to date, the Mark 902. GRAFCELL(R) advanced flexible graphite is a strategic material for the Mark 902. Building upon the Mark 900, the advantages of the Mark 902 include lower cost, improved design for volume manufacturing, improved reliability, higher power density and enhanced compatibility with customer system requirements. The unit cell design of the Mark 902 allows scalable combinations to achieve a variety of power outputs ranging from 10 kilowatt to 300 kilowatt and is designed to allow configuration for stationary and transportation applications. Ballard Power Systems reported that the Mark 902 will power the DaimlerChrysler ten-city European Union bus program scheduled for 2002 and 2003. GRAFCELL(R) advanced flexible graphite will also be included in the Cdn. $34.5 million sale by Ballard Power Systems of Mark 900 series fuel cells to Ford, the largest single fuel cell stack order in the industry to date. It will also be included in the Cdn. $25.9 million sale by Ballard Power Systems of fuel cells to Honda Motor Co. Ltd. GRAFCELL(R) advanced flexible graphite is included in Ballard Power Systems' 60 kilowatts engineering prototype stationary fuel cell power generator that incorporates the Mark 900 architecture. We believe that there may be additional opportunities, beyond the fuel cell stack, to participate in heat management systems for the entire fuel cell system as a result of Ballard Power Systems' acquisition of Ecostar Electric Drive Systems LLC and XCELLSIS GmbH. In June 2001, our subsidiary, Graftech, entered into a new exclusive development and collaboration agreement and a new exclusive long term supply agreement with Ballard Power Systems, which significantly expand the scope and term of the 1999 agreements. In addition, Ballard Power Systems became a strategic investor in Graftech, investing $5 million in shares of Ballard Power Systems common stock for a 2.5% equity ownership interest, to support the development and commercialization of natural graphite-based materials and components for proton exchange membrane fuel cells. As an investor in Graftech, Ballard Power Systems has rights of first refusal with respect to certain equity ownership transactions, tag along and drag along rights, and preemptive and other rights to acquire additional equity ownership under certain limited circumstances. 25 The scope of the new exclusive development and collaboration agreement includes natural graphite-based materials and components, including flow field plates and gas diffusion layers, for use in proton exchange membrane fuel cells and fuel cell systems for transportation, stationary and portable applications. The initial term of this agreement extends through 2011. As part of this agreement, Graftech has agreed to develop and manufacture prototype graphitic materials and components and provide early stage testing of these prototypes in an on-site fuel cell testing center. Under the new supply agreement, Graftech be the exclusive manufacturer and supplier of natural graphite-based materials for Ballard Power Systems fuel cells and fuel cell systems. Graftech will also be the exclusive manufacturer of natural graphite-based components, other than those components Ballard Power Systems manufactures for itself. The initial term of this agreement, which contains customary terms and conditions, extends through 2016. We have the right to manufacture and sell, after agreed upon release dates, natural graphite-based materials and components for use in proton exchange membrane fuel cells to other parties in the fuel cell industry. In connection with the manufacture and sale of components, Ballard Power Systems will grant Graftech a royalty-bearing license for related manufacturing process technology. CONOCO. We have developed a strategic relationship with Conoco. In December 2000, we entered into a license and technical services agreement with Conoco to license our proprietary technology for use at the carbon fiber manufacturing facility that Conoco is building in Ponca City, Oklahoma. We also will continue to provide a wide variety of technical services to Conoco. Under a separate manufacturing tolling agreement entered into in February 2001, we are providing manufacturing services to Conoco at our facility in Clarksburg, West Virginia for carbon fibers. Under the three-year manufacturing tolling agreement, we are using raw materials provided by Conoco to manufacture carbon fibers. Conoco's new carbon fiber technology could be used in portable power applications, such as batteries for personal computers and cell phones, as well as a wide range of other electronic devices and automotive applications. OTHERS. In July 2001, Graftech entered into a thermal design joint development agreement with Menova Engineering Inc. relating to the design and development of thermal components and heat solution products for the computer and communications industries using eGraf(TM) thermal management products. Menova will work exclusively with Graftech in the design and testing of new, graphite-based thermal solutions. In May 2001, Graftech also entered into a product manufacturing services agreement with JBC Seals, Packing & Kits Inc., which expands Graftech's ability to produce high volume, custom eGraf(TM) thermal interface and other electronic thermal management products. In the 2001 second quarter, Graftech entered into a joint development program with a leading chip manufacturer to introduce thermal interface products for the next generation hand-held and portable devices. SETTING AND ACHIEVING MILESTONES. We believe that success at commercializing proprietary technologies and services into high-growth-potential markets is dependent upon this division's ability to aggressively set and consistently achieve its own milestones and the milestones set by its strategic partners and customers. These milestones are established to allocate resources and to be leading indicators of progress toward this division's strategic goal. This division's milestones for 2002 include targets for revenue growth, intellectual property 26 development and protection, expansion of strategic alliances, and new prototype and next generation product development. MARKETS AND INDUSTRY OVERVIEW We currently sell natural and synthetic graphite- and carbon-based products to the transportation, fuel cell power generation, electronics and other markets. We are currently one of the largest producers of flexible graphite for use in the automotive, chemical and petrochemical markets. We also produce extruded and molded synthetic graphite products for use in products in transportation and other markets and natural graphite-based products for use in the fuel cell power generation and electronics markets. For the fuel cell power generation market, we are developing materials and components for proton exchange membrane fuel cells and fuel cell systems, including flow field plates and gas diffusion layers. For the electronic thermal management market, we are developing and selling thermal interface products and developing and introducing prototype and next generation heat spreaders, heat sinks and heat pipes for computer, communications, industrial, military, office equipment and automotive electronic applications. Other identified markets include: fire retardant products for transportation applications and building and construction materials applications; industrial thermal management products for direct solidification, semiconductor, heat treating and other high temperature process applications; and conductive products for battery and supercapacitor power storage applications. FUEL CELL POWER GENERATION. Fuel cells were invented in 1839 and were first used in practical applications in the 1960s in the Gemini and Apollo space programs to provide electricity aboard spacecrafts. Fuel cells efficiently convert fuel to electricity. Recently, the potential for pollution free power has been the major driver behind the development of fuel cell technology for transportation, stationary and portable applications. A fuel cell is an environmentally clean power generator, which combines hydrogen (which can be obtained from a variety of sources such as methanol, natural gas and other fuels) with oxygen (from air, not necessarily pure) to produce electricity through an electrochemical process without combustion. The only by-products from this process are water and heat. We believe that proton exchange membrane fuel cells have emerged as the leading fuel cell technology because they offer high power density, reduced weight, lower costs and improved performance relative to alternative fuel cell technologies. Proton exchange membrane fuel cells have the potential for use as replacements for existing power generation systems in the following applications: o power generation for transportation applications, including automobiles, buses and other vehicles; o stationary power generation applications for residences, commercial buildings and industrial operations; and o portable power generators for equipment and electronic devices. 27 TRANSPORTATION MARKET. Currently, manufacturers of automobiles, buses and other vehicles are searching for a viable alternative to the internal combustion engine. Proton exchange membrane fuel cells have the potential to provide the power of an internal combustion engine, to reduce or eliminate polluting emissions, and to lower vehicle operating costs through higher fuel efficiency and lower maintenance costs. The use of fuel cells in the U.S. in light vehicles for transportation applications has been projected by Frost & Sullivan to reach 2.6 million vehicles by 2010. We believe, based on statements by Ballard Power Systems' customers and other automobile manufacturers, that initial commercial sales of proton exchange membrane fuel cells for use in automobiles will occur sometime in 2003 to 2005. We also believe that there are significant market opportunities for proton exchange membrane fuel cell vehicles and that the strength of these markets will be supported by regulatory pressures for cleaner, lower-emission vehicles. Commercial sales are expected to begin with bus applications in 2002 to 2003. We estimate that, in 2000, global production of automobiles and light vehicles was about 55 million units. In January 2002, the Bush administration launched a new program called Freedom Cooperative Automotive Research aimed at spurring the growth of hydrogen fuel cells for the next generation of cars and trucks. In March 2002, Honda Motor Co. Ltd. announced that it intends to begin selling a limited number of fuel cell vehicles to fleet customers in 2003. STATIONARY POWER MARKET. Fuel cells may be a potential replacement for residential, commercial and industrial stationary electric power applications. Increases in demand are expected to be driven by increasing adoption by the U.S. and other countries of new digital and communications systems and infrastructures, industrialization of developing nations, expanding worldwide economies, population growth and per capital income growth. Commercial sales are expected to begin with residential and general stationary systems in 2003. According to the U.S. Department of Energy, sales of electric power and electric power equipment in the U.S. in 1999 were about $217 billion. We believe that power quality and reliability will become increasingly important factors for customers involved with all aspects of technology and communications applications and that distributed generation technologies such as fuel cells will be favored due to their ability to deliver high quality, reliable power. We believe that expansion of the existing electric power infrastructure may not reliably meet the growth in demand for electric power. Not only is there a shortage of generating assets in some areas, but recent experience suggests that an aging transmission and distribution grid is not keeping pace with the growth in demand, resulting in bottlenecks and load pockets. Increasing the existing and aging infrastructure to meet capacity requirements is expected to be capital intensive and time consuming, and may be restricted by environmental concerns. We believe that fuel cells offer a solution for overcoming many of these obstacles because they provide energy, in the form of heat and electric power, at the point of demand rather than relying on large, capital-intensive central generation facilities. PORTABLE POWER MARKET. Portable power markets include products for construction, marine and industrial applications as well as for a wide variety of consumer products. The fastest growing segment is expected to be portable electronic devices, including laptop computers, cell phones and handheld devices. Commercial sales are expected to begin with small portable system applications in 2002 to 2003. 28 Fuel cells may be a potential replacement for power needs currently served by rechargeable and nonrechargeable batteries in many portable electronic devices. According to Allied Business Intelligence, Inc., over 40 billion batteries are produced worldwide each year, including rechargeable and nonrechargeable batteries. In 1999, according to Allied Business Intelligence, Inc., the global rechargeable battery market was estimated to be about $4 billion alone, with annual growth rates approaching 16%. ELECTRONIC THERMAL MANAGEMENT. As electronics manufacturers develop highly advanced integrated circuits, processing chips and power supplies, their ability to dissipate heat is constrained by the limitations of current thermal management products and technology. We are developing and introducing high quality, highly engineered products, designs and solutions for thermal management in computer communications, industrial, military, office equipment and automotive electronic applications. We are developing thermal interface products, heat sinks, heat spreaders and heat pipe products. Thermal interface products are those products that reside between the chip set or other heat generating device and the remaining components in the heat dissipation system. Heat sinks are finned devices that dissipate heat into the surrounding environment either through being mounted on processors or elsewhere in the electronic enclosure. Heat spreaders are engineered plates that move heat from hot spots, such as processor chips, to desired locations for dissipation into the external environment. Heat pipes are also devices that move heat, through a tube, from heat sources to the edge of the device where the heat can be dissipated into the environment. We expect that our products' superior ability to manage heat will allow engineers to redesign electronics to reduce cost, size and weight while improving performance. Our products offer many advantages over competitive products, such as copper or aluminum, in the market for mobile communications and other electronic devices. These advantages include our products': o excellent ability to conduct heat; o mechanical and thermal stability; o lightweight, compressible and conformable nature; o cost competitiveness; and o ease of handling. We believe that the thermal component market for computer, communication, industrial, military, office equipment and automotive electronic applications was about $3.25 billion in 2000. We are targeting: o thermal interface products, with a projected market of about $400 million in annual sales by 2005 and an annual growth rate of about 17% through 2005; o heat sink products, with a projected market of about $850 million in annual sales by 2005 and an annual growth rate of about 10% through 2005; and 29 o heat spreader and heat pipe products, with a projected market of about $585 million in annual sales by 2005 and an annual growth rate of about 20% through 2005, in each case as projected by Business Communications Company, Inc. FIRE RETARDANT PRODUCTS FOR TRANSPORTATION APPLICATIONS AND BUILDING AND CONSTRUCTION MATERIALS APPLICATIONS. Our GRAFGUARD(R) expandable graphite flake is a fire retardant additive for materials that require improved fire protection characteristics, including wood products, foam, plastics and other construction and building materials. Expandable graphite can be used to improve the performance of traditional fire retardant additives, including phosphates, halogens and nitrogen compounds. We believe that the growing use of expandable graphite will be driven by increasingly stringent performance requirements for fire retardant materials. According to SRI Consulting, the worldwide market for flame retardants in 1998 was about $2.1 billion and the market is expected to grow at an average annual rate of about 3.5% through 2003. INDUSTRIAL THERMAL MANAGEMENT PRODUCTS FOR HIGH TEMPERATURE PROCESS APPLICATIONS. We believe that industrial thermal management products for high temperature processing was nearly a $600 million market worldwide in 2001. We intend to target the high temperature processing market segment and the direct solidification component (metallurgical high temperature processing) segment of this market. We believe that our engineered graphite products can provide superior heat management solutions for insulation packages, induction furnaces, high temperature vacuum furnaces and direct solidification furnaces. CONDUCTIVE PRODUCTS FOR BATTERY AND SUPERCAPACITOR POWER STORAGE APPLICATIONS. We have modified the performance characteristics of our natural graphite materials to provide solutions for conductive products for battery and supercapacitor power storage applications. According to Allied Business Intelligence, Inc., over 40 billion batteries are produced worldwide each year, including rechargeable and nonrechargeable batteries. In addition, according to Allied Business Intelligence, Inc., the global rechargeable battery market was about $4 billion in 1999, with annual growth rates approaching 16%. Rechargeable lithium-ion batteries are used in a growing number of portable electronics applications, including laptop computers and cell phones. Lithium-ion batteries can store more power and be recharged more times than other battery technologies. Graphite powders are a critical component of alkaline and lithium-ion batteries since they provide the electrical conductivity necessary to optimize battery performance. We believe that the emergence of supercapacitors is based on the need for energy storage devices in the electronics industry. Capacitors have been used for many years in electrical circuits to store small amounts of charge and regulate the flow of current. Supercapacitors are now being developed that can store thousands of times more power in a smaller space, and can be recharged hundreds of thousands of times. We believe that natural graphite can perform better than synthetic graphite in alkaline and lithium-ion batteries and that it may also prove useful as a highly conductive component of 30 supercapacitors. As a result, we believe that the lithium-ion battery and supercapacitor markets offer high growth opportunities for our products. PRODUCTS AND SERVICES This division currently produces a wide variety of natural and synthetic graphite- and carbon-based products, including: o synthetic graphite-based products, including molded and extruded graphite products; o natural graphite-based products, including expandable graphite, flexible graphite and advanced flexible graphite products; and o graphite and carbon refractories. The versatility of this division's proprietary processes and equipment enables it to modify its synthetic and natural graphite-based products to meet a variety of customer specifications. This division works with its customers to develop technologically advanced solutions, utilizing its knowledge and expertise in the production of these products. This division also provides technology licensing and technical services. SYNTHETIC GRAPHITE. We use a variety of proprietary processes to convert petroleum coke into primary and machined graphite specialty products, including molded or extruded graphite products. We market our molded and extruded specialty products in a wide range of grades. Synthetic graphite is used in a wide variety of markets, primarily the transportation markets. EXPANDABLE GRAPHITE. We use a proprietary process to convert natural graphite flake into expandable graphite. During this process, we can manufacture expandable graphite with a number of specific properties. For example, by changing expandable graphite's sensitivity to temperature, modifying its particle size and giving it long term stability, we created GRAFGUARD(R) graphite flake for use in fire retardant applications. The expansion property of our GRAFGUARD(R) graphite flake is the basis for its use in a growing number of fire retardant applications. FLEXIBLE GRAPHITE. We produce flexible graphite from expandable graphite flake, and can further fabricate the flexible graphite into a variety of sheet, laminate and tape products. Flexible graphite is lightweight, conformable, temperature-resistant and inert to most chemicals. Due to these characteristics, it is an excellent sealing material that to date has been used primarily in high temperature and corrosive environments in the automotive, chemical and petrochemical industries. For example, automotive applications for our flexible graphite products include head gaskets and exhaust gaskets as well as engine and exhaust heat shields. We market our flexible graphite products under the GRAFOIL(R) name. In December 2000, we introduced our new line of eGraf(TM) thermal management products designed to aid the cooling of chip sets and other heat generating components in computers, communications equipment and other electronic devices. We can provide custom or off-the-shelf thermal interface products, heat sinks, heat spreaders and heat pipes and sophisticated thermal solutions for cooling complex devices. Our new product line offers advantages for 31 portable electronic devices over competitive products such as copper, aluminum and other current thermal interface materials. These advantages include our new products' excellent ability to conduct heat, their mechanical and thermal stability, their lightweight, compressible and conformable nature, their cost competitiveness, and their ease of handling. ADVANCED FLEXIBLE GRAPHITE. We produce advanced flexible graphite by subjecting expandable or flexible graphite to additional proprietary processing. These additional processing steps alter the properties and characteristics of the graphite to make materials with modified electrical, thermal and strength characteristics. Advanced flexible graphite can be used in the production of materials, components and products for proton exchange membrane fuel cells and fuel cell systems, electronic thermal management applications, industrial thermal management applications and battery and supercapacitor power storage applications. We market our advanced flexible graphite products under the GRAFCELL(R) name for fuel cell applications and under the GRAFSHIELD(R) name for high temperature industrial furnace applications. In December 2001, we announced the development of our new, advanced eGraf(TM) HiTherm series of thermal interface products designed to provide lower thermal resistance and superior thermal conductivity. We expect these products to become commercially available in the 2002 second quarter. Tests on the new product series conducted by us, and confirmed by customers such as IBM Corporation and Intel, indicate about a 40% improvement in thermal conductivity and a 45% reduction in thermal resistance as compared to the earlier eGraf(TM) thermal interface product lines. GRAPHITE AND CARBON REFRACTORIES. We produce a wide variety of graphite and carbon refractory grade brick for chemical industry tank and reactor lining and blast furnace and submerged arc furnace hearth wall applications. Our hot pressed brick manufacturing capability is located at our facility in Lawrenceburg, Tennessee. Carbon brick, used primarily in blast furnace and submerged arc furnace hearth walls, is one of the established standards for North American blast furnace hearth walls. Our semi-graphite brick is used where higher conductivity is required or when additional abrasion resistance is desired. Carbon brick is also widely used in the chemical industry for tank and reactor linings because it has excellent resistance to corrosion and abrasion. Hot pressed bricks are made in a multitude of standard shapes and sizes, and can also be cut to custom sizes. Carbon refractory blocks are manufactured in our facility in Columbia, Tennessee. The largest application for these carbon refractory blocks is hearth bottom pads in blast furnaces and submerged arc furnaces, for which they are machined to shape and assembled in a variety of designs. Our facility is also capable of providing special shapes (such as sidewall blocks, tap blocks, tuyere surrounds and runner liners) for blast furnaces, submerged arc furnaces and cupola furnaces. Graphite refractory grade brick is used primarily for its high thermal conductivity and the ease with which it can be machined to large or complex shapes. Common applications in blast furnace and submerged arc furnaces are cooling courses in the hearth bottoms for heat distribution and removal, backup linings in hearth walls for improved heat transfer and safety, and lintels over copper cooling plates where a single brick cannot span the cooling plate. 32 HT2 AND OUR TECHNOLOGY LICENSING TECHNICAL SERVICES We have over 100 years of product and process technology and know-how in a wide range of carbon and graphite industries. This division offers, through licensing contracts, rights to use our intellectual property to other firms developing or manufacturing products. This division also provides, through service supply contracts, research and development services, extensive product testing services, and graphite and carbon process and product technology information services to customers, suppliers and universities to assist in their development of new or improved process and product technology. In 2000, we entered into an agreement with Conoco for carbon fiber technology and manufacturing services. We are a leader in the development of carbon and graphite technology, including high temperature processing technology. To realize the value of this technology outside of this division's product lines, we launched our new HT2 technology licensing and services business unit in 2001. This business unit provides cost-effective technical services for a broad range of markets and licenses our proprietary technology for a broad range of applications. In the 2001 third quarter, our HT2 business unit launched its information and services web site: www.HT2.com. This web site offers technology solutions and technical services built on our extensive expertise in high temperature production and carbon technology to a broad range of customers. The web site includes technical papers on graphite and carbon science, technical literature, searches, industry news, and access to services like high temperature testing and analysis, high temperature heat treating, consulting for process and product development and technology licensing. MANUFACTURING PROCESSES This division operates five state-of-the-art manufacturing facilities at locations in the U.S. and Europe. Our facilities for manufacturing carbon and synthetic graphite products have the capability to process a wide range of raw materials, mill, mix and extrude or mold small to very large carbon and graphite blocks, impregnate, bake process and graphitize the blocks, extensively purify the blocks to reduce the impurities to parts per million levels, and provide products finished to high tolerances by advanced machining stations. Our facilities for manufacturing natural graphite products have the capability to chemically treat natural graphite flake, bake flake in high temperature furnaces to expand the graphite flake, mechanically form and calender the expanded flake, and form and shape the final products. In August 2001, Graftech's advanced flexible graphite line for fuel cell component and electronic thermal management product manufacturing successfully began production. INTELLECTUAL PROPERTY We own or have obtained licenses to various domestic and foreign patents, patent applications and trademarks related to the products, processes and businesses of this division. These patents expire at various times over the next 16 years. These patents and patent applications, in the aggregate, are important to this division's competitive position and growth opportunities, particularly in connection with its natural graphite business. In 2001, we were awarded 14 patents worldwide and filed an additional 34 U.S. patent applications for these 33 technologies. This division currently holds about 160 of our issued patents and about 270 of our pending patent applications and perfected patent application priority rights worldwide. We hold the highest number of patents worldwide for flexible graphite and for proton exchange membrane fuel cell applications. We also hold patents and pending patent applications for electronic thermal management products, electronic thermal management applications, fire retardant products, industrial thermal management products and conductive products. We own various tradenames and trademarks used in the businesses of this division. We have know-how and proprietary information that is important to the competitive position and growth opportunities of this division. We seek to protect our know-how and proprietary information, as we believe appropriate, through written confidentiality and restricted use agreements with employees, consultants and others and through various operating and other procedures. We cannot assure you that protection for our intellectual property under our patents and our measures to protect know-how and proprietary information will be effective or that our use of intellectual property does not infringe the rights of others. RESEARCH AND DEVELOPMENT We conduct our research and development program both independently and in conjunction with our strategic partners. Currently, about 55 of our technical professionals located at our technology development facility in Parma, which is used by both of our divisions, are directly involved in research and development primarily for this division. A significant portion of this division's research and development program is focused on our alliance with Ballard Power Systems, on its development alliances with companies that use thermal management technologies, on its technology licensing and technical services business and on new product development. These activities are integrated with the efforts of our engineers at manufacturing facilities who are focused on improving manufacturing processes. Our facility in Parma has the capability to provide small quantity or trial quantity production through its pilot plant facility. We operate a state-of-the-art testing facility capable of conducting physical and analytical testing to develop natural and synthetic graphite and carbon products and process technology. We believe that our research and development capabilities were an important factor in Ballard Power Systems' selection of us to enter into an exclusive long term product development and collaboration agreement. Our combined development efforts have led to significant advancements in materials and components used in Ballard Power Systems fuel cells. We also believe that our research and development capabilities and our technology were important factors in the selection of us as a strategic partner by other companies, including Conoco. SALES AND CUSTOMER SERVICE This division sells products to customers in the U.S. and Europe through its direct sales force, whose members have been trained and are experienced with its products. Currently, this division has about 14 direct field sales employees in the U.S. and about seven in Europe. This division also sells products in Eastern Europe, Asia and South America through independent 34 sales agents and distributors. It is presently expanding, and intends to continue to expand, its international market presence through the use of direct sales and select, full-service distributors. This division has a strong commitment to provide a high level of technical service to its customers, and this division has staff in both Europe and the U.S. to support its customers. This division assists its customers in learning about and using its products, improving their manufacturing processes and operations and solving their technical dilemmas. Its staff of development scientists and manufacturing engineers are also available to support customers as needed. This division works closely with its customers to develop and test prototype materials. This division's customer sales team coordinates sales, technology and manufacturing efforts to meet customer needs. It has a quality assurance system designed to meet the most stringent requirements of its customers. Select plants are certified and registered to QS-9000 as well as the ISO-9002 international quality standard based on the products being supplied. RAW MATERIALS AND SUPPLIERS The primary raw materials for this division are petroleum coke and natural graphite. We believe that adequate supplies of these raw materials are available at market prices. Typically, this division purchases raw materials from a variety of sources at market prices. We have entered into an arrangement with Mazarin Mining Corporation Inc. to develop and commercialize a natural graphite deposit in Canada. The initial phase of the feasibility study, relating to the quality of the natural graphite flake in the deposit, was completed in 2000 with favorable results. The second phase of the feasibility study is expected to be completed by the end of 2005. The feasibility study is expected to cost about $2 million, for which we will receive a 25% interest in the mine. After completion of the study, we may decide to commence commercial production of the deposit with Mazarin, exercise an option to extend the period for the development decision for five one-year periods until 2007, or terminate the arrangement. In the case of extension, we will have to make option payments totaling Cdn. $7.5 million if the option is extended for the full five years. We have the right to purchase the entire production of natural graphite flake from the deposit. We believe that at full capacity, if developed, the deposit should produce about 50,000 tons of natural graphite flake per year, which would make it one of the largest single sources of natural graphite flake in the world. We believe that, if developed, the deposit would have sufficient reserves to meet projected needs of this division for the next 10 to 15 years. Consummation of the arrangement is subject to, among other things, the receipt of any required governmental approvals. DISTRIBUTION Our products are generally manufactured or fabricated to meet customer orders. Finished products are generally stored at our manufacturing facilities and we seek to maintain adequate inventory levels. We ship our finished products to customers primarily by truck and ship, using "just in time" techniques where practical. Limited quantities of finished products are also stored at local warehouses around the world to meet customer needs. 35 COMPETITION Competitors of this division include companies located around the world that develop and manufacture graphite- and carbon-based products, including SGL Carbon, Toyo Tonso Co. Ltd., Le Carbone S.A. (Pty) Ltd., Tokai Carbon Co., Ltd. and Nippon Carbon Co., Ltd., and companies that develop, manufacture or provide substitute or alternative materials products, services or solutions. This division's proton exchange membrane fuel cell products compete with other graphitic products, including fibers, composites and synthetic graphite, and metal-based products such as stainless steel. Its electronic thermal management products compete with a wide variety of materials, including copper and other metals, ceramics, conductive rubbers and greases. Its fire protection products compete with compounds containing phosphates, halogens and hydrated aluminas as well as many other materials. Its sealing products compete with various fiber products such as asbestos, cellulose and synthetic composites as well as stainless steel and other metals. Its industrial thermal management products compete with a wide variety of materials, including natural and synthetic fibers, other carbon forms and metal-based products. Its conductive products compete with other carbon products, such as carbon black. Competition with respect to its existing products sold to the transportation, semiconductor, aerospace and electronic thermal management markets is based primarily on quality and price. Competition with respect to its services and its new products is, and is expected to be, based primarily on product innovation, performance and cost effectiveness as well as customer service, with the relative importance of these factors varying among products and customers. ENVIRONMENTAL MATTERS We are subject to a wide variety of federal, state, local and foreign laws and regulations relating to the presence, storage, handling, generation, treatment, emission, release, discharge and disposal of hazardous, toxic and other substances and wastes governing our current and former properties and neighboring properties and our current operations. These laws and regulations (and the enforcement thereof) are periodically changed and are becoming increasingly stringent. We have experienced some level of regulatory scrutiny at most of our current and former facilities, have been required to take remedial action and have incurred related costs in the past and may experience further regulatory scrutiny, and may be required to take further remedial action and incur additional costs in the future. Although this has not been the case in the past, these costs could have a material adverse effect on us in the future. The principal U.S. laws and regulations to which we are subject include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Safe Drinking Water Act and similar state and local laws which regulate air emissions, water discharges and hazardous waste generation, treatment, storage, handling, transportation and disposal. In addition the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 and the Small Business Liability Relief and Brownfields Revitalization Act of 2002, and similar state laws provide for responses to and liability for releases of hazardous substances into the environment. 36 The Toxic Substances Control Act and related laws are designed to assess the risk of new products to health and to the environment at early developmental stages. Finally, laws adopted or proposed in various states impose or may impose, as the case may be, reporting or remediation requirements if operations cease or property is transferred or sold. Our manufacturing operations outside the U.S. are subject to the laws and regulations of the countries in which those operations are conducted. These laws and regulations primarily relate to pollution prevention and the control of the impacts of industrial activities on the quality of the air, water and soil. Regulated activities include, among other things: use of hazardous substances; packaging, labeling and transportation of products; management and disposal of toxic wastes; discharge of industrial and sanitary wastewater; and emissions to the air. We believe that we are currently in material compliance with the federal, state, local and foreign environmental laws and regulations to which we are subject. We have received and continue periodically to receive notices from the U.S. Environmental Protection Agency or state environmental protection agencies, as well as claims from others, alleging that we are a potentially responsible party (a "PRP") under Superfund and similar state laws for past and future remediation costs at hazardous substance disposal sites. Although Superfund liability is joint and several, in general, final allocation of responsibility at sites where there are multiple PRPs is made based on each PRP's relative contribution of hazardous substances to the site. Based on information currently available to us, we believe that any potential liability we may have as a PRP will not have a material adverse effect on us. We have sold or closed a number of facilities that had solid waste landfills. In the case of sold facilities, we have retained ownership of the landfills. We have closed these landfills, and we believe that we have done so in material compliance with applicable laws and regulations. We continue to monitor these landfills pursuant to applicable laws and regulations. To date, the costs associated with the landfills have not been, and we do not anticipate that future costs will be, material to us. We establish accruals for environmental liabilities where it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. We adjust accruals as new remediation and other commitments are made and as information becomes available which changes estimates previously made. Estimates of future costs of environmental protection are necessarily imprecise due to numerous uncertainties, including the impact of new laws and regulations, the availability and application of new and diverse technologies, the extent of insurance coverage, the identification of new hazardous substance disposal sites at which we may be a PRP and, in the case of sites subject to Superfund and similar state laws, the ultimate allocation of costs among PRPs and the final determination of remedial requirements. Subject to the inherent imprecision in estimating such future costs, but taking into consideration our experience to date regarding environmental matters of a similar nature and facts currently known, we believe that costs and capital expenditures (in each case, before adjustment for inflation) for environmental protection will not increase materially over the next several years. 37 INSURANCE We obtain insurance against civil liabilities relating to personal injuries to third parties, for loss of or damage to property and for environmental matters to the extent that it is currently available and provides coverage that we believe is appropriate upon terms and conditions and for premiums that we consider fair and reasonable. We believe that we have insurance providing coverage for claims and in amounts that we believe appropriate as described above. We cannot assure you, however, that we will not incur losses beyond the limits of or outside the coverage of our insurance. We currently believe that recovery under our insurance, if any, will not materially offset liabilities that have or may become due in connection with antitrust investigations, lawsuits or claims. EMPLOYEES At December 31, 2001, we had 3,907 employees, of which 1,911 were in Europe (including Russia), 796 were in Mexico and Brazil, 366 were in South Africa, 4 were in Canada, 824 were in the U.S. and 6 were in the Asia Pacific region. At December 31, 2001, we had 2,688 hourly employees. At December 31, 2001, about 62% of our worldwide employees were covered by collective bargaining or similar agreements, which expire at various times in each of the next several years. At December 31, 2001, about 1,600 employees, or 41% of our employees, were covered by agreements, which expire, or are subject to renegotiation, at various times through December 31, 2002. We believe that our relationships with our unions are satisfactory and that we will be able to renew or extend our collective bargaining or similar agreements on reasonable terms as they expire. We cannot assure you, however, that renewed or extended agreements will be reached without a work stoppage or strike or will be reached on terms satisfactory to us. Excluding our subsidiaries prior to the time when we acquired them, we have not had any material work stoppages or strikes during the past decade. CORPORATE HISTORY GENERAL. Our business was founded in 1886 by National Carbon Company. In 1917, National Carbon Company and four other businesses were combined to become the predecessor to Union Carbide Corporation. National Carbon Company eventually became the Carbon Products Division of Union Carbide. In 1989, Union Carbide realigned each of its worldwide businesses into separate subsidiaries. As part of the realignment, the business of the Carbon Products Division was separated from Union Carbide's other businesses and became owned by us. We remained wholly owned by Union Carbide. In 1991, Union Carbide sold 50% of our common equity held by it to Mitsubishi Corporation for $232.5 million. At that time, we had total debt of $297 million that we had assumed from Union Carbide. That debt consisted of $209 million of long term debt, $4 million of payments due within one year on long term debt and $84 million of short term debt. In other words, treating each parent as responsible for 50% of our debt, Union Carbide received and Mitsubishi paid $381 million. 38 In January 1995, we consummated a leveraged equity recapitalization pursuant to an agreement among Union Carbide, Mitsubishi, UCAR and a corporation affiliated with Blackstone Capital Partners II Merchant Banking Fund L.P. and its affiliates. In the 1995 leveraged equity recapitalization: o UCAR issued common stock representing about 75% of the then outstanding common stock to Blackstone, an affiliate of JPMorgan Chase Bank (formerly Chase Manhattan Bank) and certain members of management for $203 million; o UCAR Global and certain of its foreign subsidiaries borrowed $585 million under senior secured credit facilities arranged through Chemical Bank, a predecessor of JPMorgan Chase Bank; o UCAR Global issued $375 million of senior subordinated notes; o UCAR repaid about $250 million of then existing indebtedness; o UCAR repurchased all of our common equity then held by Mitsubishi for $406 million; o UCAR paid to Union Carbide a cash dividend of $347 million on our common equity then held by Union Carbide, which common equity was converted into about 25% of the common stock outstanding after the 1995 leveraged equity recapitalization; and o certain members of management received restricted stock matching a portion of the common stock purchased by them and options to purchase up to an aggregate of about 12% of the common stock outstanding after the 1995 leveraged equity recapitalization on a fully diluted basis, subject to certain vesting requirements. In addition, in the 1995 leveraged equity recapitalization, we transferred all of our operating subsidiaries to UCAR Global or subsidiaries of UCAR Global. UCAR currently has no material assets other than common stock of each of UCAR Global and UCAR Finance and its interest in the lawsuit initiated by us against our former parents. In August 1995, UCAR completed an initial public offering of common stock. In connection with the offering, UCAR sold common stock representing 22% of the common stock outstanding after the offering for net proceeds of $227 million and Union Carbide sold all of the common stock then owned by it for net proceeds of $199 million. UCAR Global used net proceeds received by UCAR to redeem $175 million aggregate principal amount of senior subordinated notes at a redemption price equal to 110% of the aggregate principal amount redeemed, plus accrued interest of $4 million. We used the balance of the net proceeds received by UCAR for general corporate purposes and to reduce other outstanding indebtedness. In March 1996, Blackstone, an affiliate of Chemical Bank and certain members of management sold shares of common stock in a secondary public offering. After the offering, Blackstone owned about 20% of the then outstanding common stock. 39 In February 1997, UCAR's Board of Directors authorized a program which, as amended in December 1997, authorized the repurchase of up to $200 million of common stock at prevailing prices from time to time in the open market or otherwise depending on market conditions and other factors, without any established minimum or maximum time period or number of shares. UCAR purchased an aggregate of $92 million of common stock (including common stock repurchased from Blackstone as described below) under this program. The last repurchase was made in 1997. We may reactivate this program at any time. In April 1997, Blackstone sold about 14% of the then outstanding common stock in a secondary public offering. Concurrently with the offering, we repurchased 1,300,000 shares of common stock from Blackstone for $48 million. This repurchase constituted part of the stock repurchase program described above. After the offering and the repurchase, Blackstone ceased to be a principal stockholder of UCAR. In June 1997, we became subject to antitrust investigations by authorities in the U.S. and the European Union. In addition, civil antitrust lawsuits were commenced and threatened against us and other producers and distributors of graphite and carbon products. In March 1998, we began to implement management changes, which resulted in a new senior management team. Our more recent corporate history is described in various places elsewhere throughout this Report. RISK FACTORS AND FORWARD LOOKING STATEMENTS RISKS RELATING TO US WE ARE DEPENDENT ON THE GLOBAL STEEL AND OTHER METALS INDUSTRIES. OUR RESULTS OF OPERATIONS MAY DETERIORATE DURING GLOBAL AND REGIONAL ECONOMIC DOWNTURNS. Our principal product, graphite electrodes, which accounted for about 63% of our total net sales in 2001, is sold primarily to the electric arc furnace steel production industry. Many of our other products are sold primarily to other metals industries and the transportation industry. These are global basic industries, and customers in these industries are located in every major geographic market. As a result, our customers are affected by changes in global and regional economic conditions. This, in turn, affects demand for, and prices of, our products sold to these industries. Accordingly, we are directly affected by changes in global and regional economic conditions. In addition, demand for our products sold to these industries may be adversely affected by improvements in those products as well as in the manufacturing operations of customers, which reduce the rate of consumption or use of our products for a given level of production by our customers. We estimate that specific consumption declined from about 4.3 kilograms of graphite electrodes per metric ton of steel produced in 1990 to about 2.5 kilograms per metric ton in 2000. While we believe that the rate of decline of specific consumption over the long term has become lower, we believe that there was a slightly more significant decline in 2001 than 40 would otherwise have been the case due to the shutdown of older, less efficient electric arc furnaces due to the severe downturn affecting the steel industry. As a result of global and regional economic conditions, reductions in rates of consumption and other factors, demand for our graphite electrodes and some of our other products sold to these industries has fluctuated significantly and prices have declined since 1998. These circumstances reduced our net sales and net income. Throughout 1998 and the 1999 first quarter, electric arc furnace steel production declined as a result of adverse global and regional economic conditions. A recovery began in the 1999 second quarter that lasted through mid-2000. Beginning in mid-2000, economic conditions began to weaken in North America, becoming more severe in the 2000 fourth quarter. The economic weakening in North America became more severe in 2001. In addition, the impact of the economic weakness in North America on other regional economies became more severe during 2001. This global economic weakness was exacerbated by the impact on economic conditions of the terrorist acts in the U.S. in September 2001. We believe that worldwide electric arc furnace steel production declined in 2001 by 4% as compared to 2000 (to a total of 275 million metric tons, about 33% of total steel production). These fluctuations in electric arc furnace steel production resulted in corresponding fluctuations in demand for graphite electrodes. Overall pricing worldwide was weak. Although we implemented increases in local currency selling prices of our graphite electrodes in 2000 and early 2001 in Europe, the Asia Pacific region, the Middle East and South Africa, we have not been able to maintain all of these price increases. We continue to face pricing pressures worldwide. Demand and prices for most of our other products sold to other metals and transportation industries were adversely affected by the same global and regional economic conditions that affected graphite electrodes. We believe that business conditions for most of our products (other than cathodes) will remain challenging through 2002 and that a recovery in the metals and transportation industries will not occur until the 2002 second half, at the earliest. We cannot assure you that the electric arc furnace steel production industry will continue to be the higher long term growth sector of the steel industry or that the other metals or transportation industries served by us will experience stability, growth or recovery from current economic conditions affecting them. Accordingly, we cannot assure you that there will be stability or growth in demand for or prices of graphite electrodes or our other products sold to these industries. An adverse change in global or certain regional economic conditions could materially adversely affect us. 41 ANY SUBSTANTIAL GROWTH IN NET SALES, CASH FLOW FROM OPERATIONS OR NET INCOME FROM OUR ADVANCED ENERGY TECHNOLOGY DIVISION DEPENDS PRIMARILY ON SUCCESSFULLY DEVELOPING, INTRODUCING AND SELLING GRAPHITE AND CARBON TECHNOLOGY AND PRODUCTS FOR EMERGING APPLICATIONS ON A PROFITABLE BASIS. IF WE ARE NOT SUCCESSFUL, WE WILL NOT ACHIEVE OUR PLANNED GROWTH. Our planned growth depends on successful and profitable development and sale of: o materials and components for proton exchange membrane fuel cells and fuel cell systems; o electronic thermal management products, including thermal interface products, heat spreaders, heat sinks and heat pipes, for computer, communications, industrial, military, office equipment and automotive electronic applications; o fire retardant products for transportation applications and building and construction materials applications; o industrial thermal management products for high temperature process applications; and o conductive products for battery and supercapacitor power storage applications. Successful and profitable commercialization of technology and products is subject to various risks, including risks beyond our control such as: o the possibility that we may not be able to develop viable products or, even if we develop viable products, that our products may not gain commercial acceptance; o the possibility that our commercially accepted products could be subsequently displaced by other technologies or products; o the possibility that, even if our products are incorporated in new products of our customers, our customers' new products may not become viable or commercially accepted or may be subsequently displaced; o the possibility that a mass market for commercially accepted products, or for our customers' products which incorporate our products, may not develop; o restrictions under our agreement with Ballard Power Systems on sales of our fuel cell materials and components to, and collaboration with, others; and o failure of our customers, including Ballard Power Systems, to purchase our products in the quantities that we expect. These risks could be impacted by adoption of new laws and regulations, changes in governmental programs, failure of necessary supporting systems (such as fuel delivery 42 infrastructure for fuel cells) to be developed, and consumer perceptions about costs, benefits and safety. OUR FINANCIAL CONDITION COULD SUFFER IF WE EXPERIENCE UNANTICIPATED COSTS AS A RESULT OF ANTITRUST INVESTIGATIONS, LAWSUITS AND CLAIMS. Since 1997, we have been subject to antitrust investigations, lawsuits and claims. We recorded a pre-tax charge of $340 million against results of operations for 1997 and an additional pre-tax charge of $10 million against results of operations for the 2001 second quarter as a reserve for estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. We cannot assure you that remaining liabilities and expenses in connection with antitrust investigations, lawsuits and claims will not materially exceed the remaining uncommitted balance of the reserve or that the timing of payment thereof will not be sooner than anticipated. At December 31, 2001, $101 million remained in the unfunded reserve. The balance of the reserve is available for the remaining balance of the fine payable by us to the U.S. Department of Justice that was imposed in 1998 (excluding imputed interest thereon), the fine assessed against us by the antitrust authority of the European Union in July 2001 and other antitrust related matters. The aggregate amount of remaining committed payments for imputed interest at December 31, 2001 (without giving effect to the more favorable restructured payment schedule for the fine payable to the U.S. Department of Justice established in January 2002) was about $9 million. Our insurance has not and will not materially cover liabilities that have or may become due in connection with antitrust investigations or related lawsuits or claims. If such liabilities or expenses materially exceed the remaining uncommitted balance of the reserve or if the timing of payment thereof is sooner than anticipated, we may not be able to comply with the financial covenants under the Senior Facilities. A failure to so comply, unless waived by the lenders thereunder, would be a default thereunder. This would permit the lenders to accelerate the maturity of the Senior Facilities. It would also permit the lenders to terminate their commitments to extend credit under our revolving credit facility. This would have an immediate material adverse effect on our liquidity. An acceleration of maturity of the Senior Facilities would permit the holders of the Senior Notes to accelerate the maturity of the Senior Notes. If we were unable to repay our debt to the lenders and holders or otherwise obtain a waiver from the lenders and holders, we could experience the consequences or be forced to take the actions described in the three following risk factors and the lenders and holders could proceed against the collateral securing the Senior Facilities and the Senior Notes, respectively, and exercise all other rights available to them. We cannot assure you that we would be able to obtain any such waiver on acceptable terms or at all. WE ARE HIGHLY LEVERAGED AND OUR SUBSTANTIAL DEBT AND OTHER OBLIGATIONS COULD LIMIT OUR FINANCIAL RESOURCES, OPERATIONS AND ABILITY TO COMPETE AND MAY MAKE US MORE VULNERABLE TO ADVERSE ECONOMIC EVENTS. We are highly leveraged, and we have substantial obligations in connection with antitrust investigations, lawsuits and claims. At December 31, 2001, we had total debt of $638 million and a stockholders' deficit of $332 million. A majority of our debt has variable interest rates. In addition, we typically discount or factor a substantial portion of our accounts receivable. During 2001, certain of our subsidiaries sold receivables totaling $223 million, of which we estimate that 43 $45 million would have been outstanding at December 31, 2001. We are dependent on our revolving credit facility, the availability of which depends on continued compliance with the financial covenants under the Senior Facilities, for liquidity. Our high leverage and our antitrust related obligations could have important consequences, including the following: o our ability to restructure or refinance our debt or obtain additional debt or equity financing for payment of these obligations, or for working capital, capital expenditures, acquisitions, strategic alliances or other general corporate purposes, may be impaired in the future; o a substantial portion of our cash flow from operations must be dedicated to debt service and payment of these antitrust related obligations, thereby reducing the funds available to us for other purposes; o an increase in interest rates could result in an increase in the portion of our cash flow from operations dedicated to servicing our debt, in lieu of other purposes; o we may have substantially more leverage and antitrust related obligations than certain of our competitors, which may place us at a competitive disadvantage; and o our leverage and our antitrust related obligations may hinder our ability to adjust rapidly to changing market conditions or other events and make us more vulnerable to insolvency, bankruptcy or other adverse consequences in the event of a downturn in general or certain regional economic conditions or in our business or in the event that these obligations are greater, or the timing of payment is sooner, than expected. OUR ABILITY TO SERVICE OUR DEBT, INCLUDING THE SENIOR NOTES, AND MEET OUR OTHER OBLIGATIONS DEPENDS ON CERTAIN FACTORS BEYOND OUR CONTROL. Our ability to service our debt, including the Senior Notes, and meet our other obligations as they come due is dependent on our future financial and operating performance. This performance is subject to various factors, including certain factors beyond our control such as, among other things, changes in global and regional economic conditions, developments in antitrust investigations, lawsuits and claims involving us, changes in our industry, changes in interest or currency exchange rates and inflation in raw materials, energy and other costs. If our cash flow and capital resources are insufficient to enable us to service our debt and meet these obligations as they become due, we could be forced to: o reduce or delay capital expenditures; o sell assets or businesses; o limit or discontinue, temporarily or permanently, business plans, activities or operations; 44 o obtain additional debt or equity financing; or o restructure or refinance debt. We cannot assure you as to the timing of such actions or the amount of proceeds that could be realized from such actions. Accordingly, we cannot assure you that we will be able to meet our debt service and other obligations as they become due or otherwise. WE ARE SUBJECT TO RESTRICTIVE COVENANTS UNDER THE SENIOR FACILITIES AND THE SENIOR NOTES. THESE COVENANTS COULD SIGNIFICANTLY AFFECT THE WAY IN WHICH WE CONDUCT OUR BUSINESS. OUR FAILURE TO COMPLY WITH THESE COVENANTS COULD LEAD TO AN ACCELERATION OF OUR DEBT. The Senior Facilities and the Senior Notes contain a number of covenants that, among other things, significantly restrict our ability to: o dispose of assets; o incur additional indebtedness; o repay or refinance other indebtedness or amend other debt instruments; o create liens on assets; o enter into leases or sale/leaseback transactions; o make investments or acquisitions; o engage in mergers or consolidations; o make certain payments and investments, including dividend payments; and o make capital expenditures or engage in certain transactions with subsidiaries and affiliates. The Senior Facilities also require us to comply with specified financial covenants, including minimum interest coverage and maximum leverage ratios. In addition, pursuant to the Senior Facilities, we cannot borrow under our revolving credit facility: o if the aggregate amount of our payments made (excluding certain imputed interest) and additional reserves created in connection with antitrust, securities and stockholder derivative investigations, lawsuits and claims exceed $340 million by more than $130 million (which $130 million is reduced by the amount of certain debt, other than the Senior Notes, incurred by us that is not incurred under the Senior Facilities); or o if the additional borrowings would cause us to breach the financial covenants contained therein. Further, substantially all of our assets in the U.S. are pledged to secure guarantees of the Senior Facilities by our domestic subsidiaries. In addition, our principal foreign operating 45 subsidiaries are obligors under intercompany term notes and guarantees of those notes issued to UCAR Finance that are pledged to secure the Senior Notes. Our Swiss subsidiary is an obligor under an intercompany revolving note and our principal foreign subsidiaries are guarantors of that note that are pledged to secure the Senior Facilities. Most of the assets of the obligors under the intercompany revolving note and the related guarantees, which constitute a majority of our assets outside the U.S., are pledged to secure that note and those guarantees. We are currently in compliance with the covenants contained in the Senior Facilities and the Senior Notes. However, our ability to continue to comply may be affected by events beyond our control. The breach of any of the covenants contained in the Senior Facilities, unless waived by the lenders, would be a default under the Senior Facilities. This would permit the lenders to accelerate the maturity of the Senior Facilities. It would also permit the lenders to terminate their commitments to extend credit under our revolving facility. This would have an immediate material adverse effect on our liquidity. An acceleration of maturity of the Senior Facilities would permit the holders of the Senior Notes to accelerate the maturity of the Senior Notes. A breach of the covenants contained in the Senior Notes will also permit the holders of the Senior Notes to accelerate the maturity of the Senior Notes. Acceleration of maturity of the Senior Notes would permit the lenders to accelerate the maturity of the Senior Facilities and terminate their commitments to extend credit under our revolving credit facility. If we were unable to repay our debt to the lenders and holders or otherwise obtain a waiver from the lenders and holders, we could be forced to take the actions described in the preceding risk factor and the lenders and holders could proceed against the collateral securing the Senior Facilities and the Senior Notes and exercise all other rights available to them. We cannot assure you that we will have sufficient funds to make these accelerated payments or that we will be able to obtain any such waiver on acceptable terms or at all. WE ARE SUBJECT TO RISKS ASSOCIATED WITH OPERATIONS IN MULTIPLE COUNTRIES. In 2001, about 70% of our net sales were derived from sales outside of the U.S., and at December 31, 2001, about 74% of our total property, plant and equipment and other long-lived assets were located outside the U.S. As a result of having significant international operations, we are subject to risks associated with operating multiple countries, including: o currency devaluations and fluctuations in currency exchange rates, including impacts of transactions in various currencies, translation of various currencies into dollars for U.S. reporting purposes, and impacts on results of operations due to the fact that costs of our foreign subsidiaries for our principal raw material, petroleum coke, are incurred in dollars even though their products are primarily sold in other currencies; o imposition of or increases in customs duties and other tariffs; o imposition of or increases in currency exchange controls, including imposition of or increases in limitations on conversion of various currencies into dollars or euros, making of intercompany loans by subsidiaries or remittance of dividends, interest or principal payments or other payments by subsidiaries; 46 o imposition of or increases in revenue, income or earnings taxes and withholding and other taxes on remittances and other payments by subsidiaries; o imposition or increases in investment restrictions and other restrictions or requirements by non-U.S. governments; and o nationalization and other risks which could result from a change in government or other political, social or economic instability. We cannot assure you that such risks will not have a material adverse effect on us in the future. In general, our results of operations and financial condition are affected by inflation in each country in which we have a manufacturing facility. We maintain operations in Brazil, Russia and Mexico, countries which have had in the past, and may have now or in the future, highly inflationary economies, defined as cumulative inflation of about 100% or more over a three calendar year period. We cannot assure you that future increases in our costs will not exceed the rate of inflation or the amounts, if any, by which we may be able to increase prices for our products. OUR ABILITY TO GROW AND COMPETE EFFECTIVELY DEPENDS ON PROTECTING OUR INTELLECTUAL PROPERTY, INCLUDING THAT RELATING TO FUEL CELL POWER GENERATION, ELECTRONIC THERMAL MANAGEMENT AND OTHER IDENTIFIED OPPORTUNITIES. FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR PLANNED GROWTH. Failure to protect our intellectual property may result in the loss of the exclusive right to use our technologies. We rely on patent, trademark and trade secret law to protect our intellectual property. Our issued patents relating to fuel cell power generation and electronic thermal management applications, which we believe are particularly important to our planned growth, will expire at various times between 2004 and 2018. Some of our intellectual property is not covered by any patent or patent application. Our patents are subject to complex factual and legal considerations, and there can be uncertainty as to the validity, scope and enforceability of any particular patent. Accordingly, we cannot assure you that: o any of the U.S. or foreign patents now or hereafter owned by us, or that third parties have licensed to us or may in the future license to us, will not be circumvented, challenged or invalidated; o any of the U.S. or foreign patents that third parties have licensed to us or may license to us in the future will not be licensed to others; or o any of our pending or future patent applications will be issued at all or with the breadth of claim coverage sought by us. In addition, effective patent, trademark and trade secret protection may be unavailable, limited or not applied for in some foreign countries in which we operate. 47 Our ability to maintain our proprietary intellectual property may be achieved in part by prosecuting claims against others whom we believe are infringing upon our rights and by defending against claims of intellectual property infringement brought by others against us. Our involvement in intellectual property litigation could result in significant expense to us, adversely affecting development of sales of the related products and diverting the efforts of our technical and management personnel, regardless of the outcome of such litigation. We also seek to protect our proprietary intellectual property, including intellectual property that may not be patented or patentable, in part by confidentiality agreements and, if applicable, inventors' rights agreements with our strategic partners and employees. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any such breach or that such partners or employees will not assert rights to intellectual property arising out of these relationships. If necessary or desirable, we may seek licenses to intellectual property of others. However, we can give no assurance that we will obtain such licenses or that the terms of any such licenses will be acceptable to us. The failure to obtain a license from a third party for its intellectual property that is necessary to make or sell any of our products could cause us to incur substantial liabilities and to suspend the manufacture or shipment of products or our use of processes requiring the use of such intellectual property. OUR CURRENT AND FORMER MANUFACTURING OPERATIONS ARE SUBJECT TO INCREASINGLY STRINGENT HEALTH, SAFETY AND ENVIRONMENTAL REQUIREMENTS. We use and generate hazardous substances in our manufacturing operations. In addition, both the properties on which we currently operate and those on which we have ceased operations are and have been used for industrial purposes. Further, our manufacturing operations involve risks of personal injury or death. We are subject to increasingly stringent environmental, health and safety laws and regulations relating to our current and former properties and neighboring properties and our current operations. These laws and regulations provide for substantial fines and criminal sanctions for violations and sometimes require the installation of costly pollution control or safety equipment or costly changes in operations to limit pollution and decrease the likelihood of injuries. In addition, we may become subject to potentially material liabilities for the investigation and cleanup of contaminated properties and to claims alleging personal injury or property damage resulting from exposure to or releases of hazardous substances or personal injury as a result of an unsafe workplace. In addition, noncompliance with or stricter enforcement of existing laws and regulations, adoption of more stringent new laws and regulations, discovery of previously unknown contamination or imposition of new or increased requirements could require us to incur costs or become the basis of new or increased liabilities that could be material. 48 WE ARE DEPENDENT ON SUPPLIERS OF RAW MATERIALS AND ENERGY AT AFFORDABLE PRICES. OUR RESULTS OF OPERATIONS COULD DETERIORATE IF THAT SUPPLY IS SUBSTANTIALLY DISRUPTED FOR AN EXTENDED PERIOD. We purchase raw materials and energy from a variety of sources. In many cases, we purchase them under short term contracts or on the spot market, in each case at fluctuating prices. The availability and price of raw materials and energy may be subject to curtailment or change due to: o limitations which may be imposed under new legislation or governmental regulations; o suppliers' allocations to meet demand of other purchasers during periods of shortage (or, in the case of energy suppliers, extended cold weather); o interruptions in production by suppliers; and o market and other events and conditions. Petroleum products, including petroleum coke, our principal raw material, and energy, particularly natural gas, have been subject to significant price fluctuations. Over the past several years, we have mitigated the effect of price increases on our results of operations through our cost reduction efforts. We cannot assure you that such efforts will successfully mitigate future increases in the price of petroleum coke or other raw materials or energy. A substantial increase in raw material or energy prices which cannot be mitigated or passed on to customers or a continued interruption in supply, particularly in the supply of petroleum coke or energy, would have a material adverse effect on us. OUR RESULTS OF OPERATIONS COULD DETERIORATE IF OUR MANUFACTURING OPERATIONS WERE SUBSTANTIALLY DISRUPTED FOR AN EXTENDED PERIOD. Our manufacturing operations are subject to disruption due to extreme weather conditions, floods and similar events, major industrial accidents, strikes and lockouts, and other events. We cannot assure you that no such events will occur. If such an event occurs, it could have a material adverse effect on us. OUR RESULTS OF OPERATIONS FOR ANY QUARTER ARE NOT NECESSARILY INDICATIVE OF OUR RESULTS OF OPERATIONS FOR A FULL YEAR. Sales of graphite electrodes and other products fluctuate from quarter to quarter due to such factors as changes in global and regional economic conditions, changes in competitive conditions, scheduled plant shutdowns by customers, national vacation practices, changes in customer production schedules in response to seasonal changes in energy costs, weather conditions, strikes and work stoppages at customer plants and changes in customer order patterns in response to the announcement of price increases. We have experienced, and expect to continue to experience, volatility with respect to demand for and prices of graphite electrodes and other products, both globally and regionally. 49 We have also experienced volatility with respect to prices of raw materials and energy, and it has frequently required several quarters of cost reduction efforts to mitigate increases in those prices. We expect to experience volatility in such prices in the future. Accordingly, results of operations for any quarter are not necessarily indicative of the results of operations for a full year. THE GRAPHITE AND CARBON INDUSTRY IS HIGHLY COMPETITIVE. OUR MARKET SHARE, NET SALES OR NET INCOME COULD DECLINE DUE TO VIGOROUS PRICE AND OTHER COMPETITION. Competition in the graphite and carbon products industry (other than with respect to new products) is based primarily on price, product quality and customer service. Graphite electrodes, in particular, are subject to rigorous price competition. Price increases by us or price reductions by our competitors, decisions by us with respect to maintaining profit margins rather than market share, technological developments, changes in the desirability or necessity of entering into long term supply contracts with customers, or other competitive or market factors or strategies could adversely affect our market share, net sales or net income. Competition with respect to new products is, and is expected to be, based primarily on product innovation, performance and cost effectiveness as well as customer service. Competition could prevent implementation of price increases, require price reductions or require increased spending on research and development, marketing and sales that could adversely affect our results of operations, cash flows or financial condition. WE CANNOT ASSURE YOU THAT WE WILL SUCCESSFULLY IMPLEMENT ANY STRATEGIC ALLIANCES FOR ANY OF OUR BUSINESSES. One of our key strategies is the establishment and expansion of strategic alliances to reduce our average cost of sales, expand our share of various geographic markets, expand our product lines or technology, or strengthen our businesses. We cannot assure you that any alliance will be completed or as to the timing, terms or benefits of any alliance that may be completed. WE MAY NOT BE SUCCESSFUL IN THE LITIGATION AGAINST OUR FORMER PARENTS INITIATED BY US. We have initiated litigation against our former parents. Successful prosecution of this litigation is subject to risks, including: o failure to successfully defend against motions to dismiss and other procedural motions prior to trial; o failure to successfully establish our theories of liability and damages or otherwise prove our claims at trial; o successful assertion by the defendants of substantive defenses, including statute of limitations defenses, to liability at trial or on appeal; and 50 o successful assertion by the defendants of counterclaims or cross claims, including claims for indemnification, at trial or on appeal. We cannot predict the ultimate outcome of the litigation, including the possibility, timing or amount of any recovery of damages by us or any liability we may have in connection with any counterclaims or cross claims. In addition, we cannot assure you as to the possibility, timing or amount of any settlement or the legal expenses to be incurred by us or as to the effect of this lawsuit on management's focus and time available for our ongoing operations. Litigation such as this lawsuit is complex. Complex litigation can be lengthy and expensive. This lawsuit is in its earliest stages. The ultimate outcome of this lawsuit is subject to many uncertainties. We may at any time settle this lawsuit. WE MAY NOT BE ABLE TO COMPLETE OUR PLANNED ASSET SALES. We intend to sell real estate, non-strategic businesses and certain other non-strategic assets over the next two years. We cannot assure you if or when we will be able to complete these sales or that we will realize proceeds therefrom that meet our current expectations. WE CANNOT ASSURE YOU THAT THE CORPORATE REALIGNMENT OF OUR SUBSIDIARIES WILL BE COMPLETED IN THE 2002 FIRST HALF. We are currently in the process of realigning the corporate organizational structure of our subsidiaries, which we expect to be completed in the 2002 first half. We cannot assure you that the realignment will be completed on a timely basis or at all. If completion is delayed or the realignment is not completed, we may not achieve some of our target cost savings when anticipated or at all. WE MAY NOT ACHIEVE THE COST SAVINGS TARGETED UNDER THE 2002 PLAN. Our targeted cost savings under the 2002 plan are based on assumptions regarding the costs and savings associated with the activities undertaken and to be undertaken as part of the 2002 plan. We cannot assure you that these assumptions are correct or that we will be able to implement these activities at the anticipated costs, if at all. If the costs associated with these activities are higher than anticipated or if we are unable to implement the activities as and when we have assumed, we may not be able to meet our cost savings targets. RISKS RELATING TO THE SENIOR NOTES AND PLEDGES OF OUR ASSETS THE SENIOR NOTES AND THE RELATED GUARANTEES HAVE LIMITED SECURITY. AS A RESULT, THEY ARE EFFECTIVELY SUBORDINATED TO THE SENIOR FACILITIES, WHICH ARE SECURED BY MOST OF OUR ASSETS, AND TO CERTAIN OTHER SECURED DEBT AND OBLIGATIONS. THIS COULD RESULT IN HOLDERS OF THE SENIOR NOTES RECEIVING LESS ON LIQUIDATION THAN THE LENDERS UNDER THE SENIOR FACILITIES AND CERTAIN OTHER CREDITORS. Unsecured intercompany term notes in an aggregate principal amount (based on currency exchange rates in effect at December 31, 2001) equal to about 98% of the principal amount of the outstanding Senior Notes, and unsecured guarantees of those notes, issued to UCAR Finance 51 by certain of our foreign subsidiaries have been pledged to secure the Senior Notes. Those notes and guarantees include unsecured intercompany term notes and unsecured guarantees of our Spanish subsidiary and one of our Italian subsidiaries, the pledging of which had been contingent on completion of the corporate realignment of one of those subsidiaries and certain other events. In any event, at no time will the combined value of the pledged portion of a foreign subsidiary's unsecured intercompany term note and unsecured guarantee of unsecured intercompany term notes issued by other foreign subsidiaries (collectively called "UNSECURED INTERCOMPANY TERM NOTE OBLIGATIONS" of such foreign subsidiary) exceed 19.99% of the principal amount of the then outstanding Senior Notes. As a result of this limitation and assuming no change in the aggregate principal amount of unsecured intercompany term notes due to changes in currency exchange rates since December 31, 2001, the principal amount of unsecured intercompany term notes pledged to secure the Senior Notes equals about 80% of the principal amount of the outstanding Senior Notes. Substantially all of our assets in the U.S. are pledged to secure guarantees of the Senior Facilities by our domestic subsidiaries. In addition, UCAR Carbon and our Swiss subsidiary are obligors under secured intercompany revolving notes that are pledged to secure the Senior Facilities. Substantially all of their assets are pledged to secure those notes. The secured intercompany revolving note of our Swiss subsidiary is also guaranteed by our other principal foreign subsidiaries. Those guarantees are secured by a pledge of most of the assets of the guarantors. Those guarantees are pledged to secure the Senior Facilities. As a result, most of our assets outside the U.S. are pledged to secure the secured intercompany revolving note of our Swiss subsidiary and guarantees of that note. Moreover, certain of our subsidiaries have financed the construction or acquisition of assets with debt secured by such assets. At December 31, 2001, the aggregate amount of such debt was $4 million. Further, our obligation to pay the $60 million balance of the antitrust fine to the U.S. Department of Justice is secured by a lien on the shares of UCAR Global and UCAR Finance held by UCAR as well as the interest of UCAR in the lawsuit initiated by us against our former parents, and we may secure our obligation to pay the antitrust fine of [euro]50.4 million (about $45 million, at currency exchange rates in effect at December 31, 2001) assessed by the antitrust authority of the European Union with a letter of credit issued under the Senior Facilities or by a pledge of certain assets of one of our French subsidiaries. The Senior Notes are guaranteed by UCAR, UCAR Global and UCAR Carbon and other U.S. subsidiaries holding a substantial majority of our U.S. assets. Those guarantees are unsecured, except the guarantee by UCAR Carbon. Each of the guarantors of the Senior Notes has also guaranteed the Senior Facilities, and those guarantees are secured. Graftech has also guaranteed the Senior Facilities, but has not guaranteed the Senior Notes. The guarantee of the Senior Notes by UCAR Carbon has been secured by a limited pledge of our shares of Graftech. While all of our shares of Graftech are pledged to secure the UCAR Carbon guarantee of the Senior Notes, at no time will the value of the pledged portion of such shares exceed 19.99% of the principal amount of the then outstanding Senior Notes. Moreover, the pledge of such shares is junior to the pledge of the same shares to secure UCAR Carbon's guarantee of the Senior Facilities. None of our foreign subsidiaries has guaranteed the Senior Facilities or the Senior Notes. However, all of the foreign subsidiaries that have issued the unsecured intercompany term notes 52 that are pledged to secure the Senior Notes had also issued secured intercompany term notes which were pledged to secure the Senior Facilities. All those secured intercompany term notes were repaid in connection with the creation of the unsecured intercompany term notes that have been pledged to secure the Senior Notes. The Senior Notes do not contain any limitation on new secured intercompany term loans pursuant to the Senior Facilities, or related guarantees, to foreign subsidiaries that are unsecured intercompany term note obligors. The guarantees of the unsecured intercompany term notes by foreign subsidiaries are limited as required to comply with applicable law. Many of these laws effectively limit the amount of the guarantee to the net worth of the guarantor foreign subsidiary. The lenders and creditors whose debt and obligations are secured will have prior claims on our assets, to the extent of the lesser of the value of the assets securing, or the amount of, the respective debt or obligations. If we become bankrupt or insolvent or are liquidated or if maturity of such debt or obligations is accelerated, the secured lenders and creditors will be entitled to exercise the remedies available to a secured party under applicable law and pursuant to the relevant agreements and instruments. If they exercise such remedies, it is possible that our remaining assets could be insufficient to repay the Senior Notes in full. WE HAVE A HOLDING COMPANY STRUCTURE AND THE ISSUER OF THE SENIOR NOTES IS A SPECIAL PURPOSE FINANCE COMPANY. ACCORDINGLY, THE SENIOR NOTES ARE STRUCTURALLY SUBORDINATED TO CERTAIN OF OUR OBLIGATIONS. UCAR is our parent company. It is a holding company with no material assets or operations other than the common stock of UCAR Global and UCAR Finance and its interest in the lawsuit initiated by us against our former parents. Its principal liabilities consist of its guarantees of the Senior Facilities and the Senior Notes and its obligations with respect to the antitrust fines payable to the U.S. Department of Justice and the antitrust authority of the European Union as well as any other remaining potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. UCAR Global is a holding company with no material assets or operations other than the common stock of UCAR Carbon, which, in turn, holds the common stock of our other subsidiaries other than UCAR Finance. Its principal liabilities consist of its guarantees of the Senior Facilities and the Senior Notes. The Senior Notes were issued by UCAR Finance. UCAR Finance is the borrower under the Senior Facilities. UCAR Finance does not have any material assets other than: o the unsecured intercompany term note obligations that are pledged to secure the Senior Notes; o a secured intercompany revolving note issued by our Swiss subsidiary and secured guarantees of that note by our other principal foreign subsidiaries, as well as a secured intercompany revolving note issued by UCAR Carbon, that are pledged to secure the Senior Facilities; o certain other intercompany notes (called "CASH FLOW NOTES") payable to it created to facilitate the flow of funds among our subsidiaries (some or all of which will be 53 effectively contributed to our Swiss subsidiary in connection with the corporate realignment of our subsidiaries); and o assets associated with our treasury, cash management, cash pooling and hedging activities that are conducted through UCAR Finance. Its principal liabilities consist of its obligations under the Senior Facilities and the Senior Notes, its obligations under cash flow notes payable by it (some or all of which will be likewise assumed by our Swiss subsidiary) and liabilities associated with such treasury and other activities. The gross proceeds from the sale of the Senior Notes were loaned, on an unsecured basis, to our foreign subsidiaries in an amount equal to the principal amount of their then outstanding secured intercompany term notes, which aggregated $391 million at December 31, 2001 (based on currency exchange rates in effect on December 31, 2001) and which had been pledged to secure the Senior Facilities. Those unsecured loans are evidenced by unsecured intercompany term notes (that have been pledged to secure the Senior Notes, subject to the limitation described in the preceding risk factor) having a stated maturity that is the same as the stated maturity of the Senior Notes. Such foreign subsidiaries used the gross proceeds loaned to them to repay the entire principal amount of their then outstanding secured intercompany term notes. Those repayments were used to fund repayment of a portion of the Senior Facilities. A substantial portion of our operations is conducted by, and a substantial portion of our cash flow from operations is derived from, our foreign subsidiaries. The foreign subsidiaries that have issued the unsecured intercompany term notes are our operating subsidiaries in Mexico, Spain, South Africa and Switzerland, our operating subsidiary in Italy engaged in the graphite electrode business and our holding company in France. The obligations of the holding company in France in respect of its unsecured intercompany term note are guaranteed by our operating company in France engaged in the graphite electrode business on an unsecured basis. The unsecured intercompany term notes are guaranteed by our operating subsidiaries in Brazil, Canada, Mexico, Spain, Switzerland and the United Kingdom and the holding company in France. These subsidiaries have also guaranteed the secured intercompany revolving note of our Swiss subsidiary that is pledged to secure the Senior Facilities. Those guarantees are secured by pledges of most of their assets. Our operating subsidiary in Italy engaged in the advanced graphite materials business and our operating subsidiary in Russia as well as Carbone Savoie, Graftech and certain immaterial domestic and foreign operating companies and holding companies are neither guarantors of the Senior Notes nor unsecured intercompany term note obligors. At December 31, 2001, the aggregate book value of their assets was about $102 million. For 2001, their net income was about $6 million and their cash flow from operations was about $18 million (excluding the impact of payments and borrowings under a short-term intercompany note issued by Carbone Savoie). At March 15, 2002, the aggregate principal amount of unsecured intercompany term notes was $391 million (based on currency exchange rates in effect on December 31, 2001), of which unsecured intercompany term notes in the aggregate principal amount of about 80% of the 54 aggregate principal amount of the Senior Notes, or $323 million, are pledged to secure the Senior Notes. The remaining unsecured intercompany term notes held by UCAR Finance (in an aggregate principal amount of about 18% of the aggregate principal amount of the Senior Notes, or $68 million) is not subject to any pledge and will be available to satisfy the claims of creditors (including the lenders under the Senior Facilities and the holders of the Senior Notes) of UCAR Finance as their interests may appear. The Senior Notes contain provisions restricting, subject to certain exceptions, the pledge of those unsecured intercompany term notes to secure any debt or obligation unless they are equally and ratably pledged to secure the Senior Notes for so long as such other pledge continues in effect. UCAR Finance has made and will continue to make secured intercompany revolving loans to our Swiss subsidiary and UCAR Carbon. At March 15, 2002 (and based on currency exchange rates in effect on December 31, 2001), the aggregate principal amount of the secured intercompany revolving note of our Swiss subsidiary was about $44 million. After the corporate realignment of our subsidiaries, UCAR Finance may make secured intercompany revolving loans to one or more other domestic or foreign subsidiaries on the same basis as the existing secured intercompany revolving loans. The Senior Notes do not contain any limitation on existing or new secured intercompany revolving loans pursuant to the Senior Facilities to domestic or foreign subsidiaries that are guarantors of the Senior Notes or unsecured intercompany term note obligors. Failure to fully complete the corporate realignment of our subsidiaries could result in a substantial change in the principal amount of the secured intercompany revolving note of our Swiss subsidiary. UCAR Finance will rely upon interest and principal payments on intercompany loans, as well as loans, advances and other transfers from our operating subsidiaries, to generate the funds necessary to meet its debt service obligations with respect to the Senior Facilities and the Senior Notes. Our subsidiaries are separate entities that are legally distinct from UCAR Finance, and our subsidiaries that are neither guarantors of the Senior Notes nor unsecured intercompany term note obligors have no obligation, contingent or otherwise, to pay debt service on the Senior Notes or to make funds available for such payments. The ability of our subsidiaries to make these interest or principal payments, loans, advances or other transfers is subject to, among other things, their earnings, their availability of funds, the covenants of their own debt, corporate laws, restrictions on dividends or repatriation of earnings, monetary transfer restrictions and foreign currency exchange regulations. The ability of UCAR Finance or the holders of the Senior Notes to realize upon the assets of any subsidiary that is neither a guarantor of the Senior Notes nor an unsecured intercompany term note obligor in any liquidation, bankruptcy, reorganization or similar proceedings involving such subsidiary will be subject to the claims of their respective creditors, including their respective trade creditors and holders of their respective debt. As a result, the Senior Notes are structurally subordinated to all existing and future debt and other obligations, including trade payables, of our subsidiaries that are neither guarantors of the Senior Notes nor unsecured intercompany term note obligors. At December 31, 2001, on an as adjusted basis after giving effect to the sale of the Senior Notes, the application of the net proceeds and the corporate realignment of our subsidiaries (and based on currency exchange rates in effect at December 31, 2001), the debt and liabilities of such subsidiaries would have 55 totaled $27 million (excluding intercompany trade and other miscellaneous liabilities of $14 million). Except as otherwise noted in this risk factor, the financial information included or incorporated by reference in this Report is presented on a consolidated basis, including both our domestic and foreign subsidiaries. As a result, such financial information does not completely indicate the historical or as adjusted assets, liabilities or operations of each source of funds for payment of debt service on the Senior Notes. THE PROVISIONS OF THE UNSECURED INTERCOMPANY TERM NOTE OBLIGATIONS CAN BE CHANGED, AND THE UNSECURED INTERCOMPANY TERM NOTES CAN BE PREPAID IN WHOLE OR IN PART, WITHOUT THE CONSENT OF THE HOLDERS OF THE SENIOR NOTES UNDER CERTAIN CIRCUMSTANCES. PREPAYMENT WOULD INCREASE THE STRUCTURAL SUBORDINATION OF THE SENIOR NOTES. PREPAYMENT OR CHANGES IN SUCH PROVISIONS COULD REDUCE OR ELIMINATE THE ABILITY OF HOLDERS OF THE SENIOR NOTES TO SEEK RECOVERY DIRECTLY FROM OUR FOREIGN SUBSIDIARIES UPON A DEFAULT UNDER THE SENIOR NOTES. In general, the unsecured intercompany term notes and the unsecured intercompany term note guarantees cannot be changed, and the unsecured intercompany term notes cannot be prepaid or otherwise discharged, without the consent of the holders of the Senior Notes. However, without the consent of the holders of the Senior Notes: o the interest rate, interest payment dates, currency of payment of principal and interest and currency in which the unsecured intercompany term note is denominated (subject to certain limitations) can be amended; o provisions of any unsecured intercompany term note obligation can be amended to comply with changes in applicable law, so long as such amendments do not change the enforceability, principal amount, stated maturity, average life, ranking or priority or prepayment provisions of such unsecured intercompany term note or the enforceability or obligations guaranteed under such unsecured intercompany term note guaranty; and o any unsecured intercompany term note can be prepaid in whole or in part if the proceeds received by UCAR Finance from such prepayment are (i) invested in or loaned to a guarantor of the Senior Notes, (ii) loaned to another foreign subsidiary pursuant to an unsecured intercompany note that is pledged to secure the Senior Notes and is, to the extent permitted by applicable law, guaranteed by the unsecured intercompany term note guarantors or (iii) applied to an offer to purchase Senior Notes at a purchase price equal to 100% of the principal amount of the Senior Notes plus accrued but unpaid interest. In addition, in connection with the mothballing of our graphite electrode manufacturing capacity in Caserta, Italy and planned asset sales pursuant to the 2002 major cost savings plan, the unsecured intercompany term note of our Italian subsidiary engaged in the graphite electrode business may be prepaid in whole or in part so long as the proceeds from such prepayment are either applied as described above or applied to prepayment of term loans under the Senior Facilities. At March 15, 2002 (and based on currency exchange rates in effect at December 31, 56 2001), the principal amount of the unsecured intercompany term note of that Italian subsidiary was $15 million. The principal amount (expressed in dollars) of any unsecured intercompany term note that is not denominated in dollars could increase or decrease at any time due to changes in currency exchange rates. A reduction in the principal amount of one or more unsecured intercompany notes could increase the structural subordination of the Senior Notes, as described in the preceding risk factors, and reduce the ability of holders of the Senior Notes to realize upon the assets of our foreign subsidiaries upon a default under the Senior Notes. A change in the provisions of the unsecured intercompany note obligations could also limit such ability. IN THE EVENT OF THE BANKRUPTCY OR INSOLVENCY OF UCAR GLOBAL, UCAR CARBON OR ANY OF THE SUBSIDIARY GUARANTORS OR UNSECURED INTERCOMPANY TERM NOTE OBLIGORS, THE GUARANTEE OF THE SENIOR NOTES BY UCAR GLOBAL, UCAR CARBON OR SUCH SUBSIDIARY OR THE UNSECURED INTERCOMPANY TERM NOTE AND THE UNSECURED INTERCOMPANY TERM NOTE GUARANTEE OF SUCH OBLIGOR COULD BE VOIDED OR SUBORDINATED. In the event of the bankruptcy or insolvency of UCAR Global, UCAR Carbon or any of the subsidiary guarantors or unsecured intercompany term note obligors, its guarantee, unsecured intercompany term note guarantee or unsecured intercompany term note would be subject to review under relevant fraudulent conveyance, fraudulent transfer, equitable subordination and similar statutes and doctrines in a bankruptcy or insolvency proceeding or a lawsuit by or on behalf of creditors of that guarantor or obligor. Under those statutes and doctrines, if a court were to find that the guarantee or note was incurred with the intent of hindering, delaying or defrauding creditors or that the guarantor or obligor received less than a reasonably equivalent value or fair consideration for its guarantee or note and, at the time of its incurrence, the guarantor or obligor: o was insolvent or rendered insolvent by reason of the incurrence of its guarantee or note; or o was engaged in a business or transaction for which its remaining unencumbered assets constituted unreasonably small capital to carry on its business; or o intended to, or believed that it would, incur debts beyond its ability to pay as they matured or became due; then the court could void or subordinate its guarantee or note. The measure of insolvency varies depending upon the law of the jurisdiction being applied. Generally, however, a company will be considered insolvent at a particular time if the sum of its debts at that time is greater than the then fair salable value of its assets or if the fair salable value of its assets at the time is less than the amount that would be required to pay its probable liability on its existing debts as they become absolute and mature. We believe that each of the guarantors and obligors was: 57 o neither insolvent nor rendered insolvent by reason of the incurrence of its guarantee or note; o in possession of sufficient capital to run its business effectively; and o incurring debts within its ability to pay as the same mature or become due. The assumptions and methodologies used by us in reaching these conclusions about our solvency and the solvency of the guarantors or obligors may not be adopted by a court, and a court may not concur with these conclusions. If the guarantee of a guarantor or the unsecured intercompany term note guarantee or unsecured intercompany term note of an unsecured intercompany term note obligor is voided or subordinated, holders of the Senior Notes would effectively be subordinated to all indebtedness and other liabilities of that guarantor or obligor. The unsecured intercompany term note obligors are incorporated in jurisdictions other than the U.S. and are subject to the insolvency laws of such other jurisdictions. We cannot assure you that the insolvency laws of such jurisdictions will be as favorable to your interests as creditors as the laws of the U.S. WE MAY NOT HAVE THE ABILITY TO PURCHASE THE SENIOR NOTES UPON A CHANGE OF CONTROL AS REQUIRED BY THE SENIOR NOTES. Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to purchase the outstanding Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase. If such event were to occur, we cannot assure you that we would have sufficient funds to pay the purchase price of the outstanding Senior Notes, and we expect that we would require third party financing to do so. We cannot assure you that we would be able to obtain this financing on favorable terms or at all. In the event of certain kinds of change of control events, we may have to repay all borrowings under the Senior Facilities or obtain the consent of the lenders under the Senior Facilities to purchase the Senior Notes. If we do not obtain such consent or repay such borrowings, we may be prohibited from purchasing the Senior Notes. In such case, our failure to purchase tendered Senior Notes would constitute a default under the Senior Notes. If the holders of the Senior Notes were to accelerate the maturity of the Senior Notes upon such default, the lenders under the Senior Facilities would have the right to accelerate the maturity of the Senior Facilities. We cannot assure you that we will have the financial ability to purchase outstanding Senior Notes and repay such borrowings upon the occurrence of any such event. FORWARD LOOKING STATEMENTS This Report contains forward looking statements. In addition, from time to time, we or our representatives have made or may make forward looking statements orally or in writing. These include statements about such matters as: future production and sales of steel, aluminum, fuel cells, electronic devices and other products that incorporate our products or that are produced using our products; future prices and sales of and demand for graphite electrodes and our other products; future operational and financial performance of various businesses; strategic plans and programs; impacts of regional and global economic conditions; restructuring, 58 realignment, strategic alliance, supply chain, technology development and collaboration, investment, acquisition, joint venture, operating, integration, tax planning, rationalization, financial and capital projects; legal matters and related costs; consulting fees and related projects; potential offerings, sales and other actions regarding debt or equity securities of us or our subsidiaries; and future costs, working capital, revenue, business opportunities, values, debt levels, cash flow, cost savings and reductions, margins, earnings and growth. The words "will," "may," "plan," "estimate," "project," "believe," "anticipate," "intend," "should," "expect" and similar expressions identify some of these statements. Actual future events and circumstances (including future performance, results and trends) could differ materially from those set forth in these statements due to various factors. These factors include: o the possibility that global or regional economic conditions affecting our products may not improve or may worsen; o the possibility that announced or anticipated additions to capacity for producing steel in electric arc furnaces, or announced or anticipated reductions in graphite electrode manufacturing capacity, may not occur; o the possibility that increased production of steel in electric arc furnaces or reductions in graphite electrode manufacturing capacity may not result in stable or increased demand for or prices or sales volume of graphite electrodes; o the possibility that economic or technological developments may adversely affect growth in the use of graphite cathodes in lieu of carbon cathodes in the aluminum smelting process; o the possibility of delays in or failure to achieve widespread commercialization of proton exchange membrane fuel cells which use natural graphite materials and components and the possibility that manufacturers of proton exchange membrane fuel cells using those materials or components may obtain those materials or components or the natural graphite used in them from other sources; o the possibility of delays in or failure to achieve successful development and commercialization of new or improved electronic thermal management or other products; o the possibility of delays in meeting or failure to meet contractually specified development objectives and the possible inability to fund and successfully complete expansion of manufacturing capacity to meet growth in demand for new or improved products, if any; o the possibility that we may not be able to protect our intellectual property or that intellectual property used by us infringes the rights of others; o the occurrence of unanticipated events or circumstances relating to pending antitrust investigations, lawsuits or claims; o the commencement of new investigations, lawsuits or claims relating to the same subject matter as the pending investigations, lawsuits or claims; 59 o the possibility that the lawsuit against our former parents initiated by us could be dismissed or settled, our theories of liabilities or damages could be rejected, material counterclaims could be asserted against us, legal expenses and distraction of management could be greater than anticipated, or unanticipated events or circumstances may occur; o the possibility that expected cost savings from our 2002 new major cost savings plan, including our Power of One initiative and the shutdown of certain of our facilities or other cost savings efforts, will not be fully realized; o the possibility that anticipated benefits from the realignment of our businesses into two new divisions may be delayed or may not occur; o the possibility that the corporate realignment of our subsidiaries may not be completed when anticipated or at all and that, as a result, the anticipated benefits therefrom may not be achieved when anticipated or at all; o the possibility that we may incur unanticipated health, safety or environmental compliance, remediation or other costs or experience unanticipated raw material or energy supply, manufacturing operation or labor difficulties; o the occurrence of unanticipated events or circumstances relating to strategic plans or programs or relating to corporate realignment, restructuring, strategic alliance, supply chain, technology development, investment, acquisition, joint venture, operating, integration, tax planning, rationalization, financial or capital projects; o changes in interest or currency exchange rates, changes in competitive conditions, changes in inflation affecting our raw material, energy or other costs, development by others of substitutes for some of our products and other technological developments; o the possibility that changes in financial performance may affect our compliance with financial covenants or the amount of funds available for borrowing under the Senior Facilities; and o other risks and uncertainties, including those described elsewhere or incorporated by reference in this Report. Occurrence of any of the events or circumstances described above could also have a material adverse effect on our business, financial condition, results of operations or cash flows. No assurance can be given that any future transaction about which forward looking statements may be made will be completed or as to the timing or terms of any such transaction. All subsequent written and oral forward looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Except as otherwise required to be disclosed in periodic reports required to be filed by public companies with the SEC pursuant to the SEC's rules, we have no duty to update these statements. 60 ITEM 2. PROPERTIES We operate the following facilities, which are owned or leased as indicated.
OWNED OR LOCATION OF FACILITY PRIMARY USE LEASED - -------------------- ----------- -------- U.S. Irvine, California............... Machine Shop Leased Wilmington, Delaware............. Corporate Headquarters and Sales Office Leased Lakewood, Ohio................... Flexible Graphite Manufacturing Facility and Sales Office Owned Parma, Ohio...................... Technology Center and Flexible Graphite Manufacturing Facility Owned Clarksville, Tennessee........... Sales Office, Shared Service Center and Machine Shop Owned Columbia, Tennessee.............. Carbon Electrode Manufacturing Facility and Sales Office Owned Lawrenceburg, Tennessee.......... Advanced Carbon Materials Manufacturing Facility Owned Clarksburg, West Virginia........ Advanced Graphite Materials Manufacturing Facility and Sales Owned Office EUROPEAN Calais, France................... Electrode Manufacturing Facility Owned Notre Dame, France............... Electrode and Advanced Graphite Materials Manufacturing Owned Facility and Sales Office Notre Dame, France............... Cathode Manufacturing Facility and Sales Office Leased Venissieux, France............... Cathode Manufacturing Facility and Technology Center Owned Malonno, Italy................... Machine Shop Owned Saronno, Italy................... Sales Office Leased Moscow, Russia................... Sales Office Leased Vyazma, Russia................... Electrode Manufacturing Facility Owned Pamplona, Spain.................. Electrode Manufacturing Facility and Sales Office Owned Etoy, Switzerland................ Sales Office and European Headquarters Owned Sheffield, United Kingdom........ Machine Shop and Sales Office Owned OTHER INTERNATIONAL Salvador Bahia, Brazil........... Electrode and Cathode Manufacturing Facility Owned Sao Paulo, Brazil................ Sales Office Leased Welland, Canada.................. Sales Office Owned Beijing, China................... Sales Office Leased Hong Kong, China................. Sales Office Leased Monterrey, Mexico................ Electrode Manufacturing Facility and Sales Office Owned Meyerton, South Africa........... Electrode Manufacturing Facility and Sales Office Owned
- --------------- We believe that our facilities, which are of varying ages and types of construction, are in good condition, are suitable for our operations and generally provide sufficient capacity to meet our requirements for the foreseeable future. 61 ITEM 3. LEGAL PROCEEDINGS ANTITRUST INVESTIGATIONS In April 1998, pursuant to a plea agreement between the Antitrust Division of the U.S. Department of Justice (the "DOJ") and UCAR, UCAR pled guilty to a one count charge of violating U.S. federal antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a non-interest-bearing fine in the aggregate amount of $110 million, payable in six annual installments of $20 million, $15 million, $15 million, $18 million, $21 million and $21 million, commencing July 23, 1998. The plea agreement was approved by the U.S. District Court for the Eastern District of Pennsylvania (the "DISTRICT COURT") and, as a result, under the plea agreement, we will not be subject to prosecution by the DOJ with respect to any other violations of U.S. federal antitrust law occurring prior to April 1998. Payments due in 1998, 1999 and 2000 were timely made. At our request in January 2001, the due date of each of the remaining three payments was deferred by one year and, at our request in January 2002, the payment schedule for the remaining $60 million due was revised to require a $2.5 million payment in April 2002, a $5.0 million payment in April 2003 and, beginning in April 2004, quarterly payments ranging from $3.25 million to $5.375 million, through January 2007. Interest will begin to accrue on the unpaid balance, commencing in April 2004, at the statutory rate of interest then in effect. In January 2002, the statutory rate of interest was 2.13% per annum. Accrued interest will be payable together with each quarterly payment. The revised payment schedule has been approved by the District Court. In March 1999, pursuant to a plea agreement between our Canadian subsidiary and the Canadian Competition Bureau, our Canadian subsidiary pled guilty to a one count charge of violating Canadian antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a fine of Cdn. $11 million. The relevant Canadian court approved the plea agreement and, as a result, under the plea agreement we will not be subject to prosecution by the Canadian Competition Bureau with respect to any other violations of Canadian antitrust law occurring prior to the date of the plea agreement. The fine was timely paid. In March 1999, the Japanese antitrust authority issued a warning letter to the four Japanese graphite electrode producers. While the Japanese antitrust authority did not issue a similar warning to us, the warning letter issued to the Japanese producers did reference us as a member of an alleged cartel. In October 1999, we became aware that the Korean antitrust authority had commenced an investigation as to whether there had been any violation of Korean antitrust law by producers and distributors of graphite electrodes. We have no facilities or employees in Korea. We have received requests for information from the Korean antitrust authority. We are cooperating with the Korean antitrust authority in its continuing investigation. In connection therewith, we have produced and are producing documents and/or witnesses. In February 2002, we became aware that the Korean antitrust authority had issued its Examiner's Report alleging that we and other producers of graphite electrodes violated Korean antitrust law in connection with the sale of graphite electrodes. We believe that the maximum fine, if any, for such a violation is 5% of a company's sales of the relevant products in Korea during the period of the violation (or about $5 million in our case) and that any such fine would be subject to reduction for cooperation. In 62 March 2002, we were advised that the Korean antitrust authority, after holding a hearing on this matter, assessed a fine against us in the amount of 676 million KRW (approximately $510,000 at the exchange rate in effect on March 21, 2002). Five other graphite electrode producers were also fined by the Korean antitrust authority in amounts ranging up to 4,396 million KRW (approximately $3.3 million at the exchange rate in effect on March 21, 2002). Our fine, which represented .5% of our sales during the relevant time period and was the lowest fine as a percentage of sales imposed by the Korean antitrust authority, was substantially reduced as a result of our cooperation with the authority during their investigation. In January 2000, the Directorate General-Competition of the Commission of the European Communities, the antitrust enforcement authority of the European Union (the "EU COMPETITION AUTHORITY"), issued a statement of objections initiating proceedings against us and other producers of graphite electrodes. The statement alleges that we and other producers violated antitrust laws of the European Community and the European Economic Area in connection with the sale of graphite electrodes. On July 18, 2001, the EU Competition Authority issued its decision regarding the allegations. Under the decision, the EU Competition Authority assessed a fine of [euro]50.4 million (about $45 million at exchange rates in effect at December 31, 2001) against us. Seven other graphite electrode producers were also fined under the decision, with fines ranging up to [euro]80.2 million. From the initiation of its investigation, we have cooperated with the EU Competition Authority. As a result of our cooperation, our fine reflects a substantial reduction from the amount that otherwise would have been assessed. It is the policy of the EU Competition Authority to negotiate appropriate terms of payment of antitrust fines, including extended payment terms. We are discussing payment terms with the EU Competition Authority. After an in-depth analysis of the decision, however, in October 2001, we filed an appeal to the Court of First Instance of the European Communities in Luxembourg challenging the amount of the fine. Appeals of this type may take two years or longer to be decided and the fine or collateral security therefor would typically be required to be paid or provided at about the time the appeal was filed. We are currently in discussions with the EU Competition Authority regarding the appropriate form of security for payment of the fine during the pendency of the appeal. If the results of these discussions are not acceptable to us, we may file an interim appeal to the Court to waive the requirement for security or to allow us to provide alternative security for payment. We cannot predict how or when the Court would rule on such interim appeal. In the 2001 second quarter, we learned that the Brazilian antitrust authorities requested written information from various steelmakers in Brazil. We have not received a request for information from the Brazilian antitrust authorities. Except as described above, the antitrust investigations against us in the U.S., Canada, the European Union and Japan have been resolved. We are continuing to cooperate with some of the antitrust authorities in their continuing investigations of other producers and distributors of graphite electrodes. In October 1997, we were served with subpoenas by the DOJ to produce documents relating to, among other things, our carbon electrode and bulk graphite businesses. It is possible that antitrust investigations seeking, among other things, to impose fines and penalties could be initiated against us by antitrust authorities in Brazil or other jurisdictions. The guilty pleas and decisions described above make it more difficult for us to defend against other investigations as well as civil lawsuits and claims. We have been vigorously 63 protecting, and intend to continue to vigorously protect, our interests in connection with the investigations described above. We may, however, at any time settle any possible unresolved charges. ANTITRUST LAWSUITS Through December 31, 2001, except as described in the following paragraphs, we have settled or obtained dismissal of all of the civil antitrust lawsuits (including class action lawsuits) previously pending against us, certain civil antitrust lawsuits threatened against us and certain possible antitrust claims against us by certain customers who negotiated directly with us. The settlements cover, among other things, virtually all of the actual and potential claims against us by customers in the U.S. and Canada arising out of alleged antitrust violations occurring prior to the date of the relevant settlements in connection with the sale of graphite electrodes. One of the settlements also covers the actual and respective potential claims against us by certain foreign customers arising out of alleged antitrust violations occurring prior to the date of that settlement in connection with the sale of graphite electrodes sourced from the U.S. Although each settlement is unique, in the aggregate they consist primarily of current and deferred cash payments with some product credits and discounts. All payments due thereunder have been timely made. In 1999 and 2000, we and other producers of graphite electrodes were served with three complaints commencing three separate civil antitrust lawsuits in the District Court (the "FOREIGN CUSTOMER LAWSUITS"). The first complaint, entitled FERROMIN INTERNATIONAL TRADE CORPORATION, ET AL. V. UCAR INTERNATIONAL INC., ET AL. was filed by 27 steelmakers and related parties, all but one of whom are located outside the U.S. The second complaint, entitled BHP NEW ZEALAND LTD. ET AL. V. UCAR INTERNATIONAL INC., ET AL. was filed by 4 steelmakers, all of whom are located outside the U.S. The third complaint, entitled SAUDI IRON AND STEEL COMPANY V. UCAR INTERNATIONAL INC., ET AL., was filed by a steelmaker who is located outside the U.S. In each complaint, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of graphite electrodes sold or sourced from the U.S. and those sold and sourced outside the U.S. The plaintiffs seek, among other things, an award of treble damages resulting from such alleged antitrust violations. We believe that we have strong defenses against claims alleging that purchases of graphite electrodes outside the U.S. are actionable under U.S. federal antitrust law. We filed motions to dismiss the first and second complaints. In June 2001, our motions to dismiss the first and second complaints were granted with respect to substantially all of the plaintiffs' claims. Appeals have been filed by the plaintiffs and the defendants with the Third Circuit Court of Appeals with regard to these dismissals. The third complaint was dismissed without prejudice to refile pending the resolution of such appeals. In 1999 and 2000, we were served with three complaints commencing three civil antitrust lawsuits (the "CARBON ELECTRODE LAWSUITS"). The first complaint, filed in the District Court, is entitled GLOBE METALLURGICAL, INC. V. UCAR INTERNATIONAL INC., ET AL. The second complaint, filed in the U.S. Bankruptcy Court for the Northern District of Ohio, is entitled IN RE SIMETCO, INC. The third complaint, filed in the U.S. District Court for the Southern District of West Virginia, is entitled ELKEM METALS COMPANY INC and ELKEM METALS COMPANY ALLOY LLP V. UCAR CARBON COMPANY INC., ET AL. SGL Carbon AG is also named as a defendant in the first complaint and SGL Carbon Corporation is also named as a defendant in the first and third complaints. In the 64 complaints, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of carbon electrodes and seek, among other things, an award of treble damages resulting from such alleged violations. We filed motions to dismiss the second and third complaints. In May 2001, our motion to dismiss the second complaint was denied. In October 2001, we settled the lawsuit commenced by the third complaint. The guilty pleas and decisions described above do not relate to carbon electrodes. The foreign customer lawsuits and two of the three carbon electrode lawsuits are still in their early stages. We have been vigorously defending, and intend to continue to vigorously defend, against these remaining lawsuits as well as all threatened lawsuits and possible unasserted claims. We may at any time, however, settle these lawsuits as well as any threatened lawsuits and possible claims. It is possible that additional civil antitrust lawsuits seeking, among other things, to recover damages could be commenced against us in the U.S. and in other jurisdictions. 1997 AND 2001 SECOND QUARTER ANTITRUST EARNINGS CHARGES We recorded a pre-tax charge of $340 million against results of operations for 1997 and, as a result of the assessment of a fine by the EU Competition Authority, we recorded a pre-tax charge of an additional $10 million against results of operations for the 2001 second quarter, as a reserve for potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. The aggregate reserve of $350 million is calculated on a basis net of, among other things, imputed interest on installment payments of the DOJ fine. Actual aggregate liabilities and expenses (including settled investigations, lawsuits and claims as well as continuing investigations, pending appeals and unsettled pending, threatened and possible lawsuits and claims mentioned above) could be materially higher than $350 million and the timing of payment thereof could be sooner than anticipated. In the aggregate (including the assessment of the fine by the EU Competition Authority, the assessment of the fine by the Korean antitrust authority and the additional $10 million charge), the fines and net settlements and expenses are within the amounts we used to evaluate the aggregate charge of $350 million. To the extent that aggregate liabilities and expenses, net, are known or reasonably estimable, at December 31, 2001, $350 million represents our estimate of these liabilities and expenses. Our insurance has not and will not materially cover liabilities that have or may become due in connection with antitrust investigations or related lawsuits and claims. Through December 31, 2001, we have paid an aggregate of $249 million of fines and net settlement and expense payments and $11 million of imputed interest. At December 31, 2001, $101 million remained in the reserve. The balance of the reserve is available for the fine assessed by the DOJ, the EU Competition Authority, the Korean antitrust authority and other matters. The aggregate amount of remaining committed payments for imputed interest at December 31, 2001 (without giving effect to the more favorable restructured payment schedule for the fine payable to the DOJ established in January 2002) was about $9 million. OTHER PROCEEDINGS AGAINST US We are involved in various other investigations, lawsuits, claims and other legal proceedings incidental to the conduct of our business. While it is not possible to determine the 65 ultimate disposition of each of them, we do not believe that their ultimate disposition will have a material adverse effect on us. LAWSUIT INITIATED BY US AGAINST OUR FORMER PARENTS In February 2000, at the direction of a special committee of independent directors of UCAR's Board of Directors, we commenced a lawsuit in the U.S. District Court for the Southern District of New York against our former parents, Mitsubishi and Union Carbide. The other defendants named in the lawsuit include two of the respective representatives of Mitsubishi and Union Carbide who served on UCAR's Board of Directors at the time of our 1995 leveraged equity recapitalization, Hiroshi Kawamura and Robert D. Kennedy. Mr. Kennedy, who was a director of UCAR at the time the lawsuit was commenced, resigned as such on March 14, 2000. In the lawsuit, we allege, among other things, that, in January 1995, Mitsubishi and Union Carbide had knowledge of facts indicating that UCAR had engaged in illegal graphite electrode price fixing activities and that any determination of UCAR's statutory capital surplus would be overstated as a result of those activities. We also allege that certain of their representatives knew or should have known about those activities. In January 2000, Mitsubishi was indicted by the DOJ on a one count charge of aiding and abetting violations of U.S. federal antitrust law in connection with the sale of graphite electrodes. Mitsubishi entered a plea of not guilty. In February 2001, a jury found Mitsubishi guilty of the charge. Mitsubishi has entered into a sentencing agreement with the DOJ, which has been approved by the District Court, pursuant to which Mitsubishi has agreed to pay a fine of $134 million and not appeal its conviction. Mitsubishi has also been named as a defendant in several civil antitrust lawsuits commenced by electric arc furnace steel producers with respect to its alleged participation in those activities. In addition, we allege that, in January 1995, UCAR did not have the statutory capital surplus required to lawfully authorize the payments that UCAR made to its former parents. We also allege that Mitsubishi and Union Carbide were unjustly enriched by receipts from their investments in UCAR and that they knowingly induced or actively and substantially assisted former senior management of UCAR to engage in illegal graphite electrode price fixing activities in breach of their fiduciary duties to UCAR. Based on the allegations summarized above, we are seeking to recover from Mitsubishi and Union Carbide more than $1.5 billion in damages, including interest. Some of our claims provide for joint and several liability; however, damages from our various claims would not generally be additive to each other. The defendants have filed motions to dismiss this lawsuit and a motion to disqualify certain of our counsel from representing us in this lawsuit. We are vigorously opposing those motions. Oral hearings were held on those motions in the 2001 first and second quarters. No decision on those motions has been rendered. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 66 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Our common stock is listed on the NYSE under the trading symbol "UCR" or, after the change in the name of UCAR to GrafTech International Ltd. becomes effective, "GTI". The closing sale price of our common stock was $10.70 on December 31, 2001, the last trading day of our last fiscal year. The following table sets forth, for the periods indicated, the high and low closing sales prices for our common stock as reported by the NYSE: HIGH LOW ---- --- 2000: First Quarter.......... $24.50 $13.19 Second Quarter......... 14.69 12.00 Third Quarter.......... 16.44 11.88 Fourth Quarter......... 12.81 8.25 2001: First Quarter.......... 13.85 9.19 Second Quarter......... 15.14 10.36 Third Quarter.......... 13.30 8.35 Fourth Quarter......... 10.89 7.00 As of February 28, 2002, there were 45 record holders of common stock. We estimate that about 3,500 stockholders are represented by nominees. Our common stock is included in Standard & Poor's 400 Mid-Cap Index and the Russell 2000 Index. Effective August 7, 1998, UCAR adopted a Stockholder Rights Plan (the "RIGHTS PLAN"). Under the Rights Plan, one preferred stock purchase right (a "RIGHT") was distributed on September 21, 1998 to stockholders of record on August 20, 1998 as a dividend on each share of common stock outstanding on the record date. Each share of common stock issued after the record date is accompanied by a Right. When a Right becomes exercisable, it entitles the holder to buy one one-thousandth of a share of a new series of preferred stock for $110. The Rights are subject to adjustment upon the occurrence of certain dilutive events. The Rights will become exercisable only when a person or group becomes the beneficial owner of 15% or more of the outstanding shares of common stock or 10 days after a person or group announces a tender offer to acquire beneficial ownership of 15% or more of the outstanding shares of common stock. No certificates representing the Rights will be issued, and the Rights are not transferable separately from the common stock, unless the Rights become exercisable. Under certain circumstances, holders of Rights, except a person or group described above and certain related parties, will be entitled to purchase shares of common stock (or, in certain circumstances, other securities or assets) at 50% of the price at which the common stock traded prior to the acquisition or announcement (or 50% of the value of such other securities or assets). 67 In addition, if UCAR is acquired after the Rights become exercisable, the Rights will entitle those holders to buy the acquiring company's common shares at a similar discount. UCAR is entitled to redeem the Rights for one cent per Right prior to the time when the Rights become exercisable. If not redeemed, the Rights will expire on August 7, 2008. The preferred stock issuable upon exercise of Rights consists of Series A Junior Participating Preferred Stock, par value $.01 per share, of UCAR. In general, each share of that preferred stock will be entitled to a minimum preferential quarterly dividend payment equal to the greater of $10 per share or 1,000 times the quarterly dividend declared on the common stock, will be entitled to a liquidation preference of $110,000 and will have 1,000 votes, voting together with the common stock. DIVIDEND POLICIES AND RESTRICTIONS It is the current policy of UCAR's Board of Directors to retain earnings to finance strategic and other plans and programs, conduct business operations, fund acquisitions, meet obligations and repay debt. Any declaration and payment of cash dividends or repurchases of common stock will be subject to the discretion of UCAR's Board of Directors and will be dependent upon our financial condition, results of operations, cash requirements and future prospects, the limitations contained in the Senior Facilities and the Senior Notes and other factors deemed relevant by UCAR's Board of Directors. We do not anticipate paying any cash dividends. UCAR is a holding company that derives substantially all of its cash flow from UCAR Global and UCAR Finance. UCAR's ability to pay dividends or repurchase common stock from earnings or cash flow from operating or investing activities is dependent upon the earnings and cash flow from operating or investing activities of UCAR Global and its subsidiaries and the distribution of those earnings and cash flows by UCAR Global to UCAR. Under the Senior Facilities, UCAR is permitted to pay dividends on common stock and repurchase common stock only in an annual aggregate amount of $25 million, plus up to an additional $25 million if certain leverage ratio and excess cash flow requirements are satisfied. We are also permitted to repurchase common stock from present or former directors, officers or employees in an aggregate amount of up to the lesser of $5 million per year (with unused amounts permitted to be carried forward) or $25 million on a cumulative basis since February 22, 2000. In addition, UCAR Global is permitted to pay dividends to UCAR for those purposes and also in respect of UCAR's administrative fees and expenses and to fund payments in connection with antitrust, securities and stockholder derivative investigations, lawsuits and claims. The total amount of dividends to fund those payments (in each case, excluding certain imputed interest), plus the total amount paid on intercompany debt owed to UCAR for the same purpose (in each case, excluding certain imputed interest), plus the amount of additional reserves created with respect to these investigations, lawsuits and claims may not exceed $340 million by more than $130 million (which $130 million is reduced by the amount of certain debt, other than the Senior Notes, incurred by us that is not incurred under the Senior Facilities). 68 Under the Senior Notes, UCAR is permitted to pay dividends on common stock and repurchase common stock only in a cumulative (from February 15, 2002) amount of $25 million (subject to reduction if we make other restricted payments), plus, if certain leverage ratio requirements are satisfied, an amount of up to the sum of 50% of certain cumulative (from April 1, 2002) consolidated net income, 100% of net cash proceeds from certain sales of common stock (subsequent to February 15, 2002) and certain investment returns. We are also permitted to repurchase common stock from present or former directors, officers or employees of up to the lesser of $5 million annually or $10 million on a cumulative basis from February 15, 2002. UCAR Global is permitted to pay dividends to UCAR for those and other purposes. RECENT SALES OF UNREGISTERED SECURITIES In 2001, certain of our officers and other employees elected to defer an aggregate of $43,667 in compensation pursuant to our compensation deferral program. The amount that we will be obligated to pay them, at the expiration of the deferral period, with respect to the deferred compensation will equal the value, at such expiration, of an aggregate of 3,362 shares of common stock. That number of shares equals the aggregate number of shares of common stock which could have been purchased at market prices on the respective dates of deferral. Such transactions were exempt from registration under Section 4(2) of the Securities Act of 1933 because the transactions did not involve the public offering of securities. 69 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data at and for the years ended December 31, 1997, 1998, 1999, 2000 and 2001 have been derived from our audited annual Consolidated Financial Statements, except for the data under "Other Operating Data." The data set forth below should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements included elsewhere in this Report.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- (Dollars in millions, except per share data) STATEMENT OF OPERATIONS DATA: Net sales....................................... $ 1,097 $ 947 $ 831 $ 776 $ 654 Gross profit (a).................................. 411 343 258 216 185 Selling, administrative and other expenses........ 115 103 86 86 78 Restructuring charges (credit) (b)................ - 86 (6) 6 12 Impairment loss on long-lived and other assets (c) - 60 35 3 80 Antitrust investigations and related lawsuits and claims (d)...................................... 340 - - - 10 Securities class action and stockholder derivative lawsuits (e).................................... - - 13 (1) - Corporate realignment and related expenses (f).... - - - - 2 Operating profit (loss) (a)(b)(c)(d)(e)........... (58) 77 130 111 (10) Interest expense.................................. 64 73 84 75 60 Provision for income taxes........................ 39 32 1 10 15 Income (loss) before extraordinary items (a)(b)(c)(d)(e)........................... (160) (30) 42 23 (87) Extraordinary items, net of tax (g)............... - 7 - 13 - Net income (loss)(a)(b)(c)(d)(e)(g).............. (160) (37) 42 10 (87) Earnings (loss) per common share: Basic: Income (loss) before extraordinary items................................ $ (3.49) $ (0.66)$ 0.94 $ 0.51 $ (1.75) ========= ========== ========= ========= ========= Net income (loss)...................... $ (3.49) $ (0.83)$ 0.94 $ 0.22 $ (1.75) ========= ========== ========= ========= ========= Weighted average common shares outstanding (IN THOUSANDS)........... 45,963 44,972 45,114 45,224 49,720 Diluted: Income (loss) before extraordinary items................................ $ (3.49) $ (0.66) $ 0.91 $ 0.50 $ (1.75) ========= ========== ========= ========= ========= Net income (loss)...................... $ (3.49) $ (0.83)$ 0.91 $ 0.22 $ (1.75) ========= ========== ========= ========= ========= Weighted average common shares outstanding (IN THOUSANDS)........... 45,963 44,972 46,503 45,813 49,720 OTHER FINANCIAL DATA: Gross profit margin (a)........................... 37.5% 36.2% 31.0% 27.8% 28.3% Operating profit (loss) margin.................... (5.3) 8.1 15.6 14.3 (1.5) Depreciation and amortization..................... $ 49 $ 51 $ 45 $ 43 $ 36 Capital expenditures.............................. 79 52 56 52 40 Cash flow provided by (used in) operations........ 172 (29) 80 94 17 Cash flow used in investing activities............ (221) (31) (39) (50) (39) OTHER OPERATING DATA: Ratio of earnings to fixed charges (h)............ - - 1.54x 1.30x - EBITDA (i)........................................ $ (9) $ 217 $ 212 $ 157 $ 110 Adjusted EBITDA (i)............................... 331 274 225 164 130
70
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- (Dollars in millions, except per share data) Quantity of graphite electrodes sold (thousands of metric tons) (j)(k)........... 242 211 206 217 174 BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents......................... $ 58 $ 58 $ 17 $ 47 $ 38 Total assets...................................... 1,262 1,137 933 908 797 Total debt........................................ 732 804 722 735 638 Net debt.......................................... 674 746 705 688 600 Other long-term obligations....................... 313 266 224 209 231 Balance of reserve for antitrust investigations, lawsuits and claims............................. 337 195 131 107 101 Other long term obligations (excluding the reserve for antitrust investigations, lawsuits and claims) (l)..................................... 150 149 120 126 132 Stockholders' equity (deficit).................... (227) (287) (293) (316) (332) Working capital................................... 94 203 105 101 112
- ---------------------- (a) For 1999, includes an $8 million charge for the write-down to lower of cost or market of certain advanced graphite materials inventory. (b) For 1998, represents costs recorded in connection with closing graphite electrode operations in Canada and Germany and the consolidation of certain corporate administrative offices. These costs consisted primarily of severance, write-offs of fixed assets and environmental and other shutdown costs. For 1999, represents a net reduction in the estimate of shutdown costs recorded in 1998. For 2000, represents a $2 million charge in connection with the restructuring of our advanced graphite materials business and a $4 million charge in connection with a corporate restructuring involving workforce reduction. These costs consisted primarily of severance. For 2001, represents a $7 million charge for restructuring costs in connection with the closure of graphite electrode manufacturing operations in Tennessee and coal calcining operations in New York and relocation of corporate headquarters, which consisted primarily of severance, and a $5 million charge in connection with the mothballing of our graphite electrode operations in Italy. (c) Represents impairment losses on long-lived assets associated with our Russian assets in 1998, our advanced graphite materials assets in 1999 and our cathode assets in 2000. For 2001, represents a $51 million charge related to our graphite electrode assets in Tennessee, $1 million charge related to our calcined coal assets in New York, $1 million charge related to our advanced graphite materials assets, $24 million charge related to our graphite electrode assets in Italy and $3 million charge related to impairment losses on securities. (d) Represents estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. (e) Represents estimated liabilities and expenses in connection with securities class action and stockholder derivative lawsuits, $1 million of which was reversed in 2000. (f) Represents costs in connection with the corporate realignment of our subsidiaries. (g) The 1998 extraordinary item and 2000 extraordinary item resulted from early extinguishment of debt in connection with our debt refinancing and debt recapitalization. (h) The ratio of earnings to fixed charges has been computed by dividing (i) earnings before income taxes, plus fixed charges (excluding capitalized interest) and amortization of capitalized interest by (ii) fixed charges, which consist of interest charges (including capitalized interest) plus the portion of rental expense that includes an interest factor. In 1997, earnings were insufficient to cover fixed charges by $122 million due to, 71 among other things, the $340 million charge recorded in connection with estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. Earnings were insufficient to cover fixed charges by $3 million in 1998 and by $69 million in 2001 due to, among other things, restructuring charges and impairment losses on long-lived and other assets. (i) EBITDA, for this purpose, means operating profit (loss), plus depreciation, amortization, impairment losses on long-lived and other assets, impairment losses on investments, inventory write-downs (in each case as described above) and that portion of restructuring charges (credits) applicable to non-cash asset write-offs. The amount of restructuring charges (credits) applicable to non-cash asset write-offs was a charge of $29 million in 1998, a credit of $6 million in 1999 and a charge of $4 million in 2001. Adjusted EBITDA, for this purpose, means EBITDA plus the cash portion of restructuring charges (credits), charges (credits) for estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims, securities class actions and stockholder derivative lawsuits, the charge related to the withdrawn public offering by Graftech and the charges in connection with the corporate realignment of our subsidiaries. We believe that EBITDA and Adjusted EBITDA are generally accepted as providing useful information regarding a company's ability to incur and service debt. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows from continuing operations or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. Our method for calculating EBITDA or Adjusted EBITDA may not be comparable to methods used by other companies and is not the same as the method for calculating EBITDA under the Senior Facilities or the Senior Notes. The following table sets forth, for the periods indicated, the calculation of EBITDA and Adjusted EBITDA:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- (Dollars in millions) Operating profit (loss) (a)(b)(c)(d)(e).................. $(58) $ 77 $130 $111 $(10) Depreciation and amortization............................ 49 51 45 43 36 Impairment loss on long-lived and other assets (c)....... - 60 35 3 80 Write-down of advanced graphite materials inventory (a).. - - 8 - - Non-cash portion of restructuring charges (credits)...... - 29 (6) - 4 ---- ---- ---- ---- ---- EBITDA................................................... (9) 217 212 157 110 Cash portion of restructuring charges (credits).......... - 57 - 6 8 Corporate realignment and related expenses............... - - - - 2 Expenses related to the withdrawn Graftech offering...... - - - 2 - Antitrust investigations and related lawsuits and claims (d).................................................. 340 - - - 10 Securities class action and stockholder derivative lawsuits (e)......................................... - - 13 (1) - ---- ---- ---- ---- ---- Adjusted EBITDA.......................................... $331 $274 $225 $164 $130 ==== ==== ==== ==== ====
(j) Excludes graphite electrodes sold by our South African subsidiary, before it became wholly owned on April 21, 1997, of 8,000 metric tons in 1997. (k) Management believes the quantity of graphite electrodes sold in the 1997 fourth quarter was impacted by customer buy-ins in advance of price increases effective in January 1998. (l) Represents pension, post-retirement and related benefits, employee severance liabilities and miscellaneous other long term obligations. 72 The following quarterly selected consolidated financial data have been derived from the Consolidated Financial Statements for the periods indicated, which have not been audited. The data set forth below should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements included elsewhere in this Report.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (Dollars in millions, except per share data) 2000: Net sales........................... $ 195 $ 199 $ 192 $ 190 Gross profit........................ 57 56 53 50 Income (loss) before extraordinary item............................. 2 11 7 3 Net income (loss) (a)(b)(c)......... (11) 11 7 3 Basic income (loss) per share before extraordinary item........ $ 0.04 $ 0.24 $ 0.16 $ 0.07 ======= ========= ======== ========= Basic net income (loss) per share... $ (0.25) $ 0.24 $ 0.16 $ 0.07 ======= ========= ======== ========= Diluted income (loss) per share before extraordinary item........ $ 0.04 $ 0.24 $ 0.16 $ 0.07 ======= ========= ======== ========= Diluted net income (loss) per share. $ (0.24) $ 0.24 $ 0.16 $ 0.07 ======= ========= ======== ========= 2001: Net sales........................... $ 171 $ 171 $ 157 $ 155 Gross profit........................ 49 51 43 42 Net income (loss) (d)(e)............ 3 (39) 4 (55) Basic net income (loss) per share... $ 0.07 $ (0.87) $ 0.07 $ (0.98) ======= ========= ======== ========= Diluted net income (loss) per share. $ 0.07 $ (0.87) $ 0.07 $ (0.98) ======= ========= ======== =========
- ---------------------- (a) The 2000 first quarter includes an extraordinary charge of $13 million in connection with the early extinguishment of debt and a restructuring charge of $6 million in connection with a restructuring of our advanced graphite materials business. (b) The 2000 third quarter includes a restructuring credit of $4 million arising from a reversal of a portion of the restructuring charge related to our advanced graphite materials business and a charge of $3 million related to the impairment of long-lived cathode assets. (c) The 2000 fourth quarter includes a restructuring charge of $4 million in connection with a corporate restructuring, mainly for severance and related benefits associated with a workforce reduction. (d) The 2001 second quarter includes a restructuring charge of $5 million related to our U.S. graphite electrode operations, a charge of $53 million related to the impairment of long-lived graphite electrode assets and calcined coal assets in the U.S., and a charge of $10 million related to antitrust investigations and related lawsuits and claims. (e) The 2001 fourth quarter includes a restructuring charge of $7 million related primarily to our Italian graphite electrode operations, a charge of $24 million related to the impairment of long-lived graphite electrode assets located in Italy, a $3 million charge related to impairment of securities, and a $29 million charge related to adjustments related to capitalizations of foreign tax credits to investment in affiliates and settlement of audits and adjustments to reserves. 73 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL We are one of the world's largest manufacturers and providers of high quality natural and synthetic graphite- and carbon-based products and services, offering energy solutions to industry-leading customers worldwide. We manufacture graphite and carbon electrodes and cathodes, used primarily in electric arc furnace steel production and aluminum smelting. We also manufacture other natural and synthetic graphite and carbon products used in, and provide services to, the fuel cell power generation, electronics, semiconductor and transportation markets. We believe that we have the leading market share in all of our major product lines. We have over 100 years of experience in the research and development of graphite and carbon technology, and currently hold numerous patents related to this technology. We are a global business, selling our products and engineering and technical services in more than 70 countries. We have 13 manufacturing facilities strategically located in Brazil, Mexico, South Africa, France, Spain, Russia and the U.S., and a planned joint venture manufacturing facility located in China, which, subject to receipt of required Chinese governmental approvals, is expected to commence operations in 2003. REALIGNMENT In early 2001, we launched a strategic initiative to strengthen our competitive position and to change our corporate vision from an industrial products company to an energy solutions company. In connection with this initiative, we have realigned our company and management around two new operating divisions, our Graphite Power Systems Division and our Advanced Energy Technology Division. We believe that this realignment is enabling us to develop and implement strategies uniquely designed to maximize the value of each of our businesses. We may also adopt compensation plans designed to incentivize management of each division on a basis consistent with its particular strategies. In addition, we believe that this transparent, unified divisional focus has and will continue to better enable us to structure and enter into strategic alliances beneficial to each respective division. We are also realigning the corporate organizational structure of our subsidiaries. Upon completion of this corporate realignment, most of the businesses of each division will be segregated into separate companies along divisional lines. In addition, because most of the operations, net sales and growth opportunities of our Graphite Power Systems Division are located outside the U.S., most of its operations will be held by our Swiss subsidiary or its subsidiaries. Most of our technology will continue to be held by our U.S. subsidiaries. As part of our new major cost savings plan announced in January 2002, we are using opportunities created by this corporate organizational realignment to change our U.S. benefit plans, improve cash management, intellectual property management and corporate services delivery, reduce associated costs, reduce taxes and reallocate intercompany debt. This reallocation of intercompany debt will better match intercompany debt with cash flow from 74 operations. Debt service on our intercompany debt provides an important source of funds to repay our debt to third parties, including the Senior Facilities and the Senior Notes. OUR DIVISIONS Our Graphite Power Systems Division manufactures and delivers high quality graphite and carbon electrodes and cathodes and related services that are key components of the conductive power systems used to produce steel, aluminum and other non-ferrous metals. Graphite electrodes are consumed in the production of steel in electric arc furnaces, the steel making technology used by all "mini-mills." Mini-mills constitute the higher long term growth sector of the steel industry. Graphite electrodes are also consumed in the refining steel in ladle furnaces and in other smelting processes. Our graphite electrodes accounted for about 79% of this division's net sales during 2001. Carbon electrodes are used in the production of silicon metal, a raw material primarily used in the manufacture of aluminum. Graphite and carbon cathodes are used in aluminum smelting. Our Advanced Energy Technology Division develops, manufactures and sells high quality, highly engineered natural and synthetic graphite- and carbon-based energy technologies, products and services for both established and high-growth-potential markets. We currently sell these products primarily to the transportation, chemical, petrochemical, fuel cell power generation and electronic thermal management markets. In addition, we provide cost effective technical services to a broad range of markets and license our proprietary technology in markets where we do not anticipate engaging in manufacturing ourselves. We believe that this division will be successful because of our patented and proprietary technologies related to graphite and carbon materials science and our processing and manufacturing technology. Natural graphite-based products, including flexible graphite, are developed and manufactured by our subsidiary, Graftech. Our synthetic graphite- and carbon-based products are developed and manufactured by our Advanced Graphite Materials and Advanced Carbon Materials business units, respectively. These business units include our former graphite and carbon specialties businesses. Our technology licensing and technical services are marketed and sold by our HT2 business unit. COST REDUCTION PLANS OVERVIEW. UCAR's Board of Directors adopted a global restructuring and rationalization plan in September 1998 and we launched additional initiatives to enhance the plan in October 1999. The 1998 plan strengthened our position as a low cost supplier. It also enabled us to largely maintain cash flow from operations (before antitrust fines and net settlements and expenses, securities class action and shareholder derivative settlements and restructuring payments), gross profit margins and operating profit margins despite the difficult economic conditions that generally affected the steel and metals industries for most of the period since September 1998. The 1998 plan is now completed. By the end of 2001, we delivered recurring annualized run rate cost savings of $132 million. In January 2002, we announced a new major cost savings plan. Like the 1998 plan, we believe that the 2002 plan is by far the most aggressive major cost reduction plan being implemented in the graphite and carbon industry. 75 2002 PLAN. In January 2002, we announced a new major cost savings plan designed to generate cost savings to strengthen our balance sheet. The key elements of the 2002 plan consist of: o the rationalization of graphite electrode manufacturing capacity at our higher cost facilities and the incremental expansion of capacity at our lower cost facilities; o the redesign and implementation of changes in our U.S. benefit plans for active and retired employees; o the implementation of work process changes, including consolidating and streamlining order fulfillment, purchasing, finance and accounting, and human resource processes, along with the identification and implementation of outsourcing opportunities; o the implementation of additional plant and corporate overhead cost reduction projects; and o the corporate realignment of our subsidiaries, consistent with the operational realignment of our businesses into two operating divisions, to generate significant tax savings. As part of the 2002 plan, we intend to mothball our graphite electrode manufacturing operations in Caserta, Italy. We expect the mothballing to be completed during the 2002 first half. These operations have the capacity to manufacture 26,000 metric tons of graphite electrodes annually. After the shutdown of our operations in Tennessee in the 2001 third quarter, these operations are our highest cost graphite electrode manufacturing operations. We expect to further incrementally expand graphite electrode manufacturing capacity at our facilities in Mexico, France and Spain over the next twelve months. After the mothballing and incremental expansion, our total annual graphite electrode manufacturing capacity will remain about 210,000 metric tons. We have identified a number of additional plant and overhead cost reduction projects. One of the major projects is employee benefit plan redesign. We have redesigned and implemented changes in our retiree medical insurance plan and our U.S. retirement and savings plans for active and retired employees. These benefit plan changes will result in annual cost savings of more than $14 million. We expect that about half of the other plant and overhead cost reduction projects will be completed in 2002. The corporate realignment of our subsidiaries is expected to be completed in the 2002 first half and result in substantial tax savings. As a result of the corporate realignment of our subsidiaries, the effective tax rate for 2002, excluding non-recurring charges or benefits associated with the realignment, is expected to be 35%. We intend to sell real estate, non-strategic businesses and certain other non-strategic assets over the next two years. We anticipate that the aggregate estimated pre-tax, cash proceeds 76 from these sales will total $75 million by the end of 2003. The non-strategic businesses contributed net sales of about $25 million in 2001. We estimate that the 2002 plan will generate cumulative cost savings of about $45 million by the end of 2002, $120 million by the end of 2003 and $200 million by the end of 2004, and recurring annual savings of $80 million by the end of 2004. These savings are additive to those which we achieved by the end of 2001 under the 1998 plan that is now completed. The following table summarizes the targeted savings under the 2002 plan:
SUMMARY OF PROJECTED ANNUAL COST SAVINGS FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 2002 2003 2004 CUMULATIVE ---- ---- ---- ---------- (PRE-TAX DOLLARS IN MILLIONS) Cost of sales: Graphite Power Systems Division................... $ 24 $ 43 $ 43 $ 110 Advanced Energy Technology Division............... 4 4 4 12 ----- ----- ----- ------- Total cost of sales................................... 28 47 47 122 Overhead costs........................................ 9 10 11 30 Total cost of sales and overhead costs......... 37 57 58 152 ----- ----- ----- ------- Interest expense savings due to the 2002 plan......... 2 8 12 22 Tax expense........................................... 6 10 10 26 ----- ----- ----- ------- Total savings.................................. $ 45 $ 75 $ 80 $ 200 ===== ===== ===== =======
We believe that the 2002 plan will: o further strengthen our position and our competitive advantage as a low cost supplier to the steel and other metals industries; o better enable us to largely maintain our gross profit margin and operating margin during the current global economic downturn; o rationalize our capacity to manufacture both higher value added "supersize" ultra-high power graphite electrodes as well as cost competitive high power small diameter graphite electrodes for ladle furnaces; o further improve our position to benefit, in terms of operations, earnings and cash flow from operations, from the expected cyclical recovery in electric arc furnace steel production; and o enable us to further reduce total debt, which should result in reductions in interest expense (interest expense reductions do not take into account higher interest expense resulting from the sale of the Senior Notes). As we undertake the mothballing of our Italian graphite electrode operations during the 2002 first half, we expect working capital requirements to temporarily increase similar to what we experienced with the closure of our U.S. graphite electrode operations. Net debt levels will 77 increase during the 2002 first half as a result of these working capital needs and the seasonally lower graphite electrode sales. The 2002 plan requires about $20 million of cash exit costs and resulted in $29 million of non-cash restructuring charges and impairment losses on long-lived assets. These costs are additive to the $3 million of cash exit costs and $57 million of non-cash restructuring charges and impairment losses on long-lived assets related to the shutdown of our U.S. graphite electrode operations. The mothballing of our graphite electrode operations in Italy will enable us to avoid annually an average of $2 million of otherwise necessary capital expenditures. We expect to make the planned incremental expansions of graphite electrode manufacturing capacity for capital expenditures of $15 million and complete such expansion within twelve months. 1998 PLAN. The key elements of our global restructuring and rationalization plan announced in September 1998 and enhanced in October 1999 included: o the shutdown of our graphite electrode manufacturing operations at our facilities in Canada and Germany; and o the consolidation of administrative functions with the relocation of our corporate headquarters to Tennessee (which have subsequently been relocated to Delaware) and our European headquarters to Switzerland. We also downsized our graphite electrode manufacturing operations at our facilities in Russia. As a result of the 1998 plan and other cost savings initiatives, we have reduced our average graphite electrode production cost per metric ton by the end of 2001 by 15% since the 1998 fourth quarter. OTHER COST REDUCTION ACTIVITIES. Since 1998, we have initiated other cost reduction activities. Some of these activities will continue while the 2002 plan is being implemented. We have evaluated every aspect of our supply chain and improved and continue to improve performance through realignment and standardization of critical business processes, standardization of enterprise wide systems, and improvement of information technology infrastructures and interfaces with trading partners. We reduced inventory levels from 1998 by about 33%, or to about $180 million, by the end of 2001 and reduced our cash cycle time, as compared to 1998, by about 25% by the end of 2001. During late 1999 and into the 2000 first quarter, our graphite specialties business, which now is part of our Advanced Graphite Materials business unit, experienced significant adverse change that indicated the need for assessing the recoverability of the long-lived assets of this business. These assets were located primarily at our plant in Clarksburg, West Virginia. We estimated the future undiscounted cash flows expected to result from the use of these assets and concluded they were below the respective carrying amounts. Accordingly, we recorded an impairment loss of $35 million in the 1999 fourth quarter for the unrecoverable portion of these assets, effectively writing down the carrying value of the long-lived assets to their estimated fair value of $6 million. In 2000, we restructured the business. The key elements of the restructuring 78 included elimination of certain product lines and rationalization of operations of the remaining product lines. Accordingly, in the 2000 first quarter, we recorded a restructuring charge of $6 million. In the 2000 third quarter, based on subsequent developments, we decided not to demolish certain buildings. Accordingly, we reversed $4 million of the charge related thereto. The $2 million balance of the charge related primarily to severance costs. In the 2000 third quarter, we recorded an impairment loss of $3 million on long-lived cathode assets in connection with the re-sourcing of our U.S. cathode production to our facilities in Brazil and France and the related reduction of certain graphite electrode manufacturing capacity in those facilities. In the 2000 fourth quarter, we recorded a $4 million charge in connection with a corporate restructuring involving a workforce reduction of about 85 employees. The functional areas affected include finance, accounting, sales, marketing and administration. The charge consists primarily of severance costs. In the 2001 second quarter, we recorded a $58 million charge for restructuring and impairment loss on long-lived assets related to the shutdown of our graphite electrode manufacturing operations at our facilities in Clarksville and Columbia, Tennessee. In 2000, these operations were our highest cost graphite electrode manufacturing operations. We expect that the shutdown will result in total annual cost savings of $18 million and will enable us to avoid about $9 million in otherwise necessary capital expenditures. Certain of these cost savings were realized in 2001 and the balance will be delivered in 2002. The shutdown was completed on schedule near the end of the 2001 third quarter. We incrementally expanded graphite electrode manufacturing capacity at our facilities in Mexico, Spain and South Africa for a capital investment of about $3 million. In the 2001 third quarter, we recorded a $2 million charge for restructuring and impairment loss on long-lived assets related to the realignment of our businesses into our Advanced Energy Technology Division and Graphite Power Systems Division, the relocation of our corporate headquarters and the shutdown of our coal calcining operations located in Niagara Falls, New York. We are shutting down our coal calcining operations primarily because we have entered into a five-year agreement to purchase calcined coal from a third party at a lower net effective cost than we can produce it for ourselves. The shutdown was completed at the end of 2001. As part of the business realignment, we have centralized management functions of our Advanced Energy Technology Division in Cleveland, Ohio, and management functions of our Graphite Power Systems Division in Etoy, Switzerland. On December 21, 2001, we relocated our corporate headquarters, consisting of about 10 employees, from Nashville, Tennessee, to Wilmington, Delaware. The charge relates primarily to a workforce reduction of 24 employees. In the 2001 third quarter, we reversed $2 million of prior restructuring charges based on revised lower estimates of workforce reductions and plant closure costs and we reclassified $4 million of prior restructuring charges related to on-site waste disposal post monitoring costs to the other long term obligations. In the 2001 fourth quarter, we recorded an impairment loss on long-lived and other assets of $27 million, $24 million of which was associated with the mothballing of our Italian graphite 79 electrode operations. We also recorded a $7 million non-cash restructuring charge, $5 million of which was associated with our Italian operations and $2 million of which was associated with the shutdown of our U.S. graphite electrode operations in addition to the charge recorded in the 2001 second quarter. POWER OF ONE BUSINESS TRANSFORMATION INITIATIVE We began to implement in 2000 and we are continuing to implement a global business transformation initiative entitled POWER OF ONE. POWER OF ONE is a coordinated global self-assessment and business process rationalization and transformation initiative driving one consistent theme throughout our organization: "BECOMING THE BEST." We believe that the initiative is accelerating development and implementation of business opportunities and developing leadership skills more broadly within all management levels as well as supporting our efforts to reduce costs and working capital needs, improve efficiencies and product quality, shorten cycle times and achieve "BEST IN CLASS" performance. Through December 31, 2001, our investment in the initiative included about $4 million of consulting fees and $3 million of capital expenditures, primarily for advanced planning and scheduling supply chain software and global treasury management systems. We believe that most of the future investment for this initiative will be funded from realized cost savings. Effective April 2001, we entered into a ten year service contract with CGI Group Inc. pursuant to which CGI became the delivery arm for our global information technology service requirements, including the design and implementation of our global information and advanced manufacturing and demand planning processes, using J.D. Edwards software. Through this contract, we are transforming our information technology service capability into an efficient, high quality enabler for our global supply chain initiatives as well as a contributor to our cost reduction objectives. Under the outsourcing provisions of this contract, CGI manages our data center services, networks, desktops, telecommunications and legacy systems. Through this contract, we believe that we will be able to leverage the resources of CGI to assist us in achieving our information technology goals and our target cost savings. As part of the 2002 plan, we are also implementing global work process changes, including consolidating and streamlining our order fulfillment, purchasing, finance and accounting and human resource processes, along with the identification and implementation of outsourcing opportunities, targeted for completion by the end of 2003. GLOBAL ECONOMIC CONDITIONS AND OUTLOOK We are impacted in varying degrees, both positively and negatively, as global, regional or country conditions affecting the markets for our products fluctuate. Throughout 1998 and the 1999 first quarter, electric arc furnace steel production declined as a result of adverse global and regional economic conditions. A recovery began in the 1999 second quarter that lasted through mid-2000. Beginning in mid-2000, economic conditions began to weaken in North America, becoming more severe in the 2000 fourth quarter. Even with this weakening, worldwide electric arc furnace steel production was 285 million metric tons in 2000 (about 34% of total steel production). 80 The economic weakening in North America continued and became more severe in 2001. More than 24 steel companies in the U.S. filed for protection under the U.S. Bankruptcy Code during the past two years. Moreover, notwithstanding a substantial decrease in steel production in the U.S., steel inventories, particularly those held by steel service centers, remain high relative to shipments. In March 2002, President Bush announced his decision to impose tariffs of up to 30% on most imported steel as part of a broader plan to rescue the nation's financially troubled steel industry. We cannot predict at this time whether and to what extent this development will impact us. The impact of the economic weakness in North America on other regional economies became more severe during 2001. Steel production declined in Brazil in the 2001 second and third quarters by about 10% as compared to the 2000 second and third quarters. This decline was caused both by shortages of electricity brought on by a drought that reduced hydroelectric power generation (although Brazil is now beginning to experience some relief from the drought) as well as by the weakening in global economic conditions. Brazil may also be impacted by the recent currency crisis occurring in Argentina. There has also been a weakening in the demand for steel in Asia (except for China where electric arc furnace steel production has remained relatively stable). This global economic weakness has been exacerbated by the impact on economic conditions of the terrorist acts in the U.S. in September 2001. We believe that worldwide electric arc furnace steel production declined in 2001 by about 4% as compared to 2000 and is about the same as compared to 1999 (a total of about 275 million metric tons, about 33% of total steel production). These fluctuations in electric arc furnace steel production resulted in corresponding fluctuations in demand for graphite electrodes. We estimate that worldwide graphite electrode demand increased by about 4% in 2000 as compared to 1999, but declined by about 10% in 2001 as compared to 2000. Overall pricing worldwide was weak throughout most of this period. However, we implemented increases in local currency selling prices of our graphite electrodes in 2000 and early 2001 in Europe, the Asia Pacific region, the Middle East and South Africa. Recently, we have not been able to maintain all of these price increases. We continue to face pricing pressures worldwide. We are experiencing intense competition in the graphite electrode industry. One of our U.S. competitors, Carbide/Graphite Group, filed for protection under the U.S. Bankruptcy Code in October 2001. In order to seek to minimize our credit risks, we have reduced our sales of, or refused to sell (except for cash on delivery), graphite electrodes to some customers and potential customers in the U.S. Our unpaid trade receivables from steel companies in the U.S. that have filed for protection under the U.S. Bankruptcy Code during the past two years have aggregated only 1.4% of net sales of graphite electrodes in the U.S. during the same period. Our volume of graphite electrodes sold increased by 5% in 2000 as compared to 1999, but declined by about 20% in 2001 as compared to 2000. The decline in our volume of graphite electrodes sold in 2001 as compared to 2000 was due to the decline in electric arc furnace steel production as well as our efforts to implement and maintain local currency selling price increases and our efforts to seek to minimize credit risks. 81 In 1998 and 1999, demand and prices for most of our other products sold to the metals and transportation industries were adversely affected by the same global and regional economic conditions that affected graphite electrodes. In the 1999 second quarter, however, worldwide demand by customers for many of these products began to gradually recover. During 2000, demand for most of these products as a group was relatively stable. Overall pricing did not strengthen. The global and regional economic conditions that have impacted demand and prices for graphite electrodes since mid-2000 have also similarly impacted demand and prices for most of these products (other than graphite cathodes). Demand and prices for graphite cathodes has remained relatively strong since the recovery began in 1999 primarily due to construction of new aluminum smelters using graphite cathodes, even as old smelters using carbon cathodes are removed from service. We believe that business conditions for most of our products (other than cathodes) will remain challenging through 2002 and that a recovery in the steel, metals and transportation industries will not occur until the 2002 second half, at the earliest. Assuming economic conditions are the same in 2002 as they were in the 2001 fourth quarter, we expect a modest increase in our volume of graphite electrodes sold in the 2002 second half primarily due to an increase in our market share as we continue to implement our enterprise selling and other strategies. We expect prices to weaken in 2002 as compared to 2001, primarily in North America. We expect our cost reductions to largely mitigate the impact on gross profit of continued pressure on net sales. Our outlook could be significantly impacted by changes in interest rates by the U.S. Federal Reserve Board and the European Central Bank, changes in tax and fiscal policies by the U.S. and other governments, the occurrence of further terrorist acts and developments (including increases in security, transportation and other costs, transportation delays and continuing or increased economic uncertainty and weakness) resulting from the terrorist acts in the U.S. in September 2001 and the war on terrorism, and changes in global and regional economic conditions. As a result of the terrorist acts of September 11, we could face higher insurance premiums in the future as well as higher costs associated with maintaining security at our facilities and ensuring that we will have the necessary equipment and data to back up our systems. STRATEGIC ALLIANCES We are pursuing strategic alliances that enhance or complement our existing or related businesses and have the potential to generate strong cash flow. Strategic alliances may be in the form of joint venture, licensing, supply or other arrangements that leverage our strengths to achieve cost savings, improve margins and cash flow, and increase net sales and earnings growth. We have developed a strategic alliance in the cathode business with Pechiney, the world's recognized leader in aluminum smelting technology. To broaden our alliance, in March 2001, we contributed our Brazilian cathode manufacturing operations to Carbone Savoie. Pechiney, the 30% minority owner of Carbone Savoie, contributed approximately $9 million in cash to Carbone Savoie as part of this transaction. The cash contribution is being used to upgrade manufacturing operations in Brazil and France, which is expected to be completed by 82 the end of the 2002 first quarter. Ownership in Carbone Savoie remains 70% by us and 30% by Pechiney. Under our now broadened alliance, Carbone Savoie holds our entire cathode manufacturing capacity. With these upgrades, we believe that we will be positioned as the quality leader in the low cost production of graphite cathodes, the preferred technology for deployment in new aluminum smelting furnaces due to their ability to provide substantial improvements in process efficiency. Our graphite cathodes are sold to Pechiney for use in its own plants under a long term supply contract and marketed to its licensees as well as to third parties. In April 2001, we entered into a joint venture agreement with Jilin to produce and sell high-quality graphite electrodes in China, which we believe to be the largest market for graphite electrodes in the world. Jilin is the largest producer of graphite electrodes and other graphite and carbon products in China. We believe that our share of the Asian market for graphite electrodes was only about 3% in 2001 as compared to our worldwide market share (excluding the Asian market) of about 24% in 2001. We believe that this low cost facility will provide us with an excellent platform to expand our market share, both in China and the rest of Asia. Under the joint venture agreement, Jilin has agreed that the joint venture facilities will be its exclusive facilities for manufacturing 22 inch and 24-inch ultra high power electrodes required by the more modern and efficient electric arc furnaces, which steelmakers are installing in China and the rest of Asia as they upgrade their operations. As a result, Jilin will be replacing a portion of its existing production with production by the joint venture. The joint venture is expected to: o have capacity to manufacture about 20,000 metric tons of graphite electrodes annually; o configure its facilities so as to be expandable to about 30,000 metric tons; o utilize renovated capacity at Jilin's main facility in Jilin City; and o complete additions at another site in Changchun that were begun by Jilin. The new joint venture facility is expected to commence operations in 2003. We will contribute $6 million of cash plus technical assistance for a 25% ownership interest in the joint venture. The completion of the parties' capital contributions to the joint venture is subject to the receipt of required Chinese governmental approvals. We have been working with Ballard Power Systems since 1992 on developing natural graphite-based materials for use in Ballard Power Systems fuel cells for power generation. In June 2001, our subsidiary, Graftech, entered into a new exclusive development and collaboration agreement and a new exclusive long term supply agreement with Ballard Power Systems, which significantly expand the scope and term of the prior agreements. In addition, Ballard Power Systems became a strategic investor in Graftech, investing $5 million in shares of Ballard Power Systems common stock for a 2.5% equity ownership interest, to support the development and 83 commercialization of natural graphite-based materials and components for proton exchange membrane fuel cells. The scope of the new exclusive development and collaboration agreement includes natural graphite-based materials and components, including flow field plates and gas diffusion layers, for use in proton exchange membrane fuel cells and fuel cell systems for transportation, stationary and portable applications. The initial term of this agreement extends through 2011. Under the new supply agreement, we will be the exclusive manufacturer and supplier of natural graphite-based materials for Ballard Power Systems fuel cells and fuel cell systems. We will also be the exclusive manufacturer of natural graphite-based components, other than those components that Ballard Power Systems manufactures for itself. The initial term of this agreement, which contains customary terms and conditions, extends through 2016. We have the right to manufacture and sell, after agreed upon release dates, natural graphite-based materials and components for use in proton exchange membrane fuel cells to other parties in the fuel cell industry. FINANCING TRANSACTIONS 2002 PRIVATE SENIOR NOTE OFFERING. In February 2002, we completed a private offering of $400 million aggregate principal amount of Senior Notes at a price of 100% of principal amount. The Senior Notes bear interest at an annual rate of 10.25% and mature in 2012. The net proceeds from that offering were $387 million. We used net proceeds from the first $250 million of Senior Notes sold and 50% of the net proceeds from the balance of the Senior Notes sold to repay term loans under the Senior Facilities. We used the balance of the net proceeds to reduce amounts outstanding under our revolving credit facility under the Senior Facilities. At December 31, 2001, on an as adjusted basis after giving effect to the Senior Notes offering, the application of the net proceeds and the corporate realignment of our subsidiaries, the Senior Facilities would have constituted $245 million of our total debt of $651 million. Repayments of the principal of term loans under the Senior Facilities, consisting of Tranche A Term Loans and Tranche B Term Loans, with net proceeds from the Senior Notes were applied to the repayment of each tranche in proportion to the principal amounts thereof then outstanding (except to the extent that Tranche B lenders elected to decline their proportional prepayment) and to scheduled maturities of each tranche in the order in which they were due. After repayment, the aggregate principal amount payable each year under the Tranche A and Tranche B Term Loans is as follows: no payments in 2002, 2003 or 2004, $26 million in 2005, $26 million in 2006 and $164 million in 2007. 2001 PUBLIC EQUITY OFFERING. In July 2001, we completed a public offering of 10,350,000 shares of common stock at a public offering price of $9.50 per share. The net proceeds from that offering were $91 million. 60% of the net proceeds were used to prepay term loans under the Senior Facilities. The balance of the net proceeds will be used to fund growth and expansion of our Advanced Energy Technology Division, including growth through acquisitions, and, pending such use, has been applied to reduce outstanding balance under our revolving credit facility. 84 SENIOR FACILITIES. In November 1998, our prior senior secured credit facilities were refinanced and the indenture governing our previously outstanding senior subordinated notes was amended. In connection with the refinancing, we obtained additional term debt of $210 million. We undertook the refinancing to enable us to pay antitrust fines, liabilities and expenses and to strengthen our financial condition by extending maturities of some of our debt. In February 2000, we completed a debt recapitalization. We obtained the Senior Facilities, which were amended in October 2000, April 2001, July 2001, December 2001 and February 2002. The Senior Facilities consist of a six year term loan facility in the initial amount of $137 million and [euro]161 million, an eight year term loan facility in the initial amount of $350 million and a six year revolving credit facility in the amount of [euro]250 million. We used the net proceeds from the Senior Facilities to repay and terminate our prior senior secured credit facilities, to redeem our previously outstanding senior subordinated notes at a redemption price of 104.5% of the principal amount redeemed, plus accrued interest, to repay certain other debt and to pay related expenses. We recorded an extraordinary charge of $13 million, net of tax, in connection with our debt recapitalization. The charge includes the redemption premium on the senior subordinated notes, bank, legal, accounting, filing and other fees and expenses, and write-off of deferred debt issuance costs. The debt recapitalization lowered our average annual interest rate, extended the average maturities of our debt and replaced our financial and other covenants. In light of changes in conditions affecting our industry, changes in global and regional economic conditions, our recent financial performance and other factors, we closely monitor our compliance with those covenants. In February 2002, the Senior Facilities were amended to, among other things, permit us to issue the Senior Notes. In connection with this amendment and completion of the offering of the Senior Notes, we expect to record an extraordinary charge of $3 million ($2 million after tax) in the 2002 first quarter relating primarily to write-off of fees incurred in the 2000 first quarter relating to the portion of the Tranche A and Tranche B Term Loans that were repaid with net proceeds from that offering. LITIGATION AGAINST OUR FORMER PARENT COMPANIES INITIATED BY US In February 2000, we commenced a lawsuit against our former parents, Mitsubishi and Union Carbide. In the lawsuit, we allege, among other things, that certain payments made to our former parents in connection with the recapitalization were unlawful under the General Corporation Law of the State of Delaware, that our former parents were unjustly enriched by receipts from their investments in UCAR and that our former parents aided and abetted breaches of fiduciary duties owed to us by our former senior management in connection with illegal graphite electrode price fixing activities. We are seeking to recover more than $1.5 billion in damages, including interest. The defendants have filed motions to dismiss this lawsuit and a motion to disqualify certain of our counsel from representing us in this lawsuit. We are vigorously opposing those motions. Oral hearings were held on those motions in the 2001 first and second quarters. No decision on those motions has been rendered. We expect to incur $10 million to $20 million for legal expenses to pursue this lawsuit from the date of filing the complaint through trial. Through December 31, 2001, we had incurred about $4 million of these legal expenses. 85 ANTITRUST AND OTHER LITIGATION AGAINST US Since 1997, we have been subject to antitrust investigations by antitrust authorities in the U.S., the European Union, Canada, Japan and Korea. We have also learned that the Brazilian antitrust authorities have requested written information from various steel makers in Brazil. In addition, civil antitrust lawsuits have been commenced and threatened against us and other producers and distributors of graphite and carbon products in the U.S., Canada and elsewhere. We recorded a pre-tax charge against results of operations for 1997 in the amount of $340 million as a reserve for estimated potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. In April 1998, UCAR pled guilty to a one count charge of violating U.S. federal antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a fine in the aggregate amount of $110 million, payable in six annual installments of $20 million, $15 million, $15 million, $18 million, $21 million and $21 million, commencing July 23, 1998. The payments due in 1998, 1999 and 2000 were timely made. In January 2001, at our request, the due date of each of the remaining three payments was deferred by one year. We have finalized discussions with the U.S. Department of Justice to restructure the payment schedule for the remaining $60 million due. The revised payment schedule requires a $2.5 million payment in 2002, a $5.0 million payment in 2003 and, beginning with the 2004 second quarter, quarterly payments ranging from $3.25 million to $5.375 million through the 2007 first quarter. Interest will begin to accrue on the unpaid balance, commencing with the 2004 second quarter, at the statutory rate of interest then in effect. In January 2002, the current statutory rate of interest was 2.13% per annum. Of the $110 million aggregate amount and before giving effect to the restructured payment schedule, $90 million is treated as a fine and $20 million is treated as imputed interest for accounting purposes. In March 1999, our Canadian subsidiary pled guilty to a one count change of violating Canadian antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a fine of Cdn. $11 million. The payment was timely made. In October 1999, we became aware that the Korean antitrust authority had commenced an investigation as to whether there had been any violations of Korean antitrust law by producers and distributors of graphite electrodes. We have received requests for information from the Korean antitrust authority. We are cooperating with the Korean antitrust authority in its continuing investigation. In connection therewith, we have produced and are producing documents and/or witnesses. In February 2002, we became aware that the Korean antitrust authority had issued its Examiner's Report alleging that we and other producers of graphite electrodes violated the Korean antitrust law in connection with the sale of graphite electrodes. The maximum fine, if any, for such a violation is 5% of a company's sales of the relevant product during the period of violation, a maximum fine of about $5 million in our case. Any such fine would be subject to reduction for cooperation. In March 2002, we were advised that the Korean antitrust authority, after holding a hearing on this matter, assessed a fine against us in the amount of 676 million KRW (approximately $510,000 at the exchange rate in effect on March 21, 2002). Five other graphite electrode producers were also fined by the Korean antitrust authority in amounts ranging up to 4,396 million KRW (approximately $3.3 million at the exchange rate in effect on March 21, 2002). Our fine, which represented .5% of our sales during the relevant time period and was the lowest fine as a percentage of sales imposed by the Korean 86 antitrust authority, was substantially reduced as a result of our cooperation with the authority during their investigation. In January 2000, the antitrust authority of the European Union issued a statement of objections initiating proceedings against us and other producers of graphite electrodes. The statement alleged that we and other producers violated antitrust laws of the European Community and the European Economic Area in connection with the sale of graphite electrodes. In July 2001, that authority issued its decision. Under the decision, that authority assessed a fine of [euro]50.4 million against UCAR resulting from the role of our former management in a graphite electrode price fixing cartel. That authority also assessed fines against seven other graphite electrode producers under the decision, with fines ranging up to [euro]80.2 million. As a result of the assessment of the fine against us, we recorded a pre-tax charge of $10 million against results of operations in the 2001 second quarter as an additional reserve for potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. We are very pleased that this decision brings to a conclusion our last major pending antitrust liability. From the initiation of its investigation, we have cooperated with the antitrust authority of the European Union. As a result of our cooperation, our fine reflects a substantial reduction from the amount that otherwise would have been assessed. It is the policy of that authority to negotiate appropriate terms of payment of antitrust fines, including extended payment terms. We are discussing payment terms with that authority. After an in-depth analysis of the decision, however, in October 2001, we filed an appeal to the court challenging the amount of the fine. The fine or collateral security therefor would typically be required to be paid or provided at about the time the appeal was filed. We are currently in discussions with that authority regarding the appropriate form of security during the pendency of the appeal. If the results of these discussions are not acceptable to us, we may file an interim appeal to the court to waive the requirement for security or to allow us to provide alternative security for payment. We cannot predict how or when the court would rule on such interim appeal. We are continuing to cooperate with the U.S. and Canadian antitrust authorities in their continuing investigations of other producers and distributors of graphite electrodes. It is possible that antitrust investigations seeking, among other things, to impose fines and penalties could be initiated against us by authorities in Brazil or other jurisdictions. It is also possible that additional antitrust lawsuits and claims could be asserted against us in the U.S. or other jurisdictions. We have settled, among others, virtually all of the graphite electrode antitrust claims by steel makers in the U.S. and Canada as well as antitrust claims by certain other customers. Payment of virtually all of the settlements has been made. None of the settlement or plea agreements contains restrictions on future prices of our graphite electrodes. There remain, however, certain pending lawsuits and claims. Through December 31, 2001, we have paid an aggregate of $249 million of fines and net settlement and expense payments and $11 million of imputed interest. At December 31, 2001, $101 million remained in the reserve. The balance of the reserve is available for the balance of the fine payable by us to the U.S. Department of Justice that was imposed in 1998 (excluding imputed interest thereon), the fine assessed against us by the antitrust authority of the European 87 Union in July 2001, the fine assessed against us by the Korean antitrust authority in March 2002 and other antitrust related matters. The aggregate amount of remaining committed payments for imputed interest at December 31, 2001 (without giving effect to the more favorable restructured payment schedule for the fine payable to the U.S. Department of Justice established in January 2002) was about $9 million. We cannot assure you that remaining liabilities and expenses in connection with antitrust investigations, lawsuits and claims will not materially exceed the remaining uncommitted balance of the reserve or that the timing of payment thereof will not be sooner than anticipated. In the aggregate (including the assessment of the fine by the antitrust authority of the European Union and the additional $10 million charge), the fines and settlements described above and related expenses, net, are within the amounts we used to evaluate the $350 million charge. To the extent that aggregate liabilities and expenses, net, are known or reasonably estimable, $350 million represents our estimate of these liabilities and expenses. The guilty pleas and the decision by the antitrust authority of the European Union make it more difficult to defend against other investigations, lawsuits and claims. Our insurance has not and will not materially cover liabilities that have or may become due in connection with antitrust investigations or related lawsuits or claims. UCAR had been named as a defendant in a stockholder derivative lawsuit and as a defendant in a securities class action lawsuit, each of which was based, in part, on the subject matter of the antitrust investigations, lawsuits and claims. In October 1999, UCAR and the other defendants settled these lawsuits for an aggregate of $40.5 million, of which $11 million was paid by us. These settlements have become final. We recorded a charge of $13 million, which included $2 million of unreimbursed expenses, in the 1999 third quarter in connection with these settlements. In the 2000 second quarter, we reversed $1 million of this charge because expenses were lower than expected. CUSTOMER BASE We are a global company and serve all major geographic markets. Sales of our products to customers outside the U.S. accounted for about 70% of our net sales in 2001. Our customer base includes both steel makers and non-steel makers. In 2001, three of our ten largest customers were purchasers of non-graphite electrode products. In 2001, five of our ten largest customers were based in Europe, two were in the U.S. and one was in each of Africa, Canada and Brazil. No single customer or group of affiliated customers accounted for more than 6% of our net sales in 2001. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items in the Consolidated Statements of Operations and the increase or decrease (expressed as a percentage of such item in the comparable prior period) of such items: 88
FOR THE YEAR ENDED PERCENTAGE INCREASE DECEMBER 31, (DECREASE) ------------ ---------- 1999 2000 2001 1999 TO 2000 2000 TO 2001 ---- ---- ---- ------------ ------------ (Dollars in millions) Net sales...................................... $ 831 $ 776 $ 654 (7)% (16)% Cost of sales.................................. 573 560 469 (2) (16) -------- ------- ------- --------- -------- Gross profit................................... 258 216 185 (16) (14) Research and development....................... 9 11 12 22 9 Selling, administrative and other expenses..... 86 86 78 - (9) Other (income) expense, net.................... (9) - 1 N/M N/M Operating profit............................... 130 111 (10) (15) (109)
- --------------------- N/M: Not Meaningful The following table sets forth, for the periods indicated, the percentage of net sales represented by certain items in the Consolidated Statements of Operations:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 ---- ---- ---- Net sales....................................... 100.0% 100.0% 100.0% Cost of sales................................... 69.0 72.2 71.7 ------ ------- ------ Gross profit.................................... 31.0 27.8 28.3 Research and development........................ 1.1 1.4 1.8 Selling, administrative and other expenses............................ 10.3 11.0 11.9 Other (income) expenses, net.................... (1.1) - .2 Operating profit................................ 15.6 14.3 (1.5)
The following table sets forth, for the periods indicated, certain items in the Consolidated Statements of Operations and certain information as to gross profit margins related to our two business segments, our Graphite Power Systems Division and Advanced Energy Technology Division:
GRAPHITE POWER SYSTEMS DIVISION ADVANCED ENERGY TECHNOLOGY DIVISION FOR THE YEAR ENDED DECEMBER 31, FOR THE YEAR ENDED ------------- DECEMBER 31, ------------ 1999 2000 2001 1999 2000 2001 ---- ---- ---- ---- ---- ---- (Dollars in millions) Net sales............................... $ 700 $ 651 $ 525 $ 131 $ 125 $ 129 Cost of sales........................... 464 467 378 109 93 91 ----- ----- ------ ------ ------ ------ Gross profit............................ $ 236 $ 184 $ 147 $ 22 $ 32 $ 38 ===== ===== ====== ====== ====== ====== Gross profit margin..................... 33.7% 28.3% 28.0% 16.8% 25.6% 29.6%
2001 COMPARED TO 2000. Net sales in 2001 were $654 million, a decrease of $122 million, or 16%, from net sales in 2000 of $776 million. Gross profit in 2001 was $185 million, a decrease of $31 million, or 14%, from gross profit in 2000 of $216 million. Gross profit margin in 2001 was 28.3% of net sales as compared to gross profit margin in 2000 of 27.8% of net sales. The decrease in net sales and gross profit was primarily due to lower sales volume of most of our products, particularly graphite electrodes, which represented about $104 million of 89 the decrease in net sales, primarily due to depressed steel industry conditions. The increase in gross profit margin percentage was primarily due to the fact that the percentage decrease in net sales was less than the percentage decrease in cost of sales, due primarily to lower production levels and benefits from our cost savings activities. GRAPHITE POWER SYSTEMS DIVISION. Net sales decreased 19%, or $126 million, to $525 million in 2001 from $651 million in 2000. The decrease was primarily attributable to a decrease in average sales revenue per metric ton of graphite electrodes and lower sales volumes for graphite electrodes and cathodes. The volume of graphite electrodes sold decreased 43,000 metric tons, or 20%, to 174,000 metric tons in 2001 as compared to 217,000 metric tons in 2000. The decrease in volume of graphite electrodes sold represented a decrease in net sales of about $104 million. The decrease was primarily a result of continued lower North American steel production, weaker demand in Europe and Brazil and actions taken to manage credit risk. The average sales revenue per metric ton (in U.S. dollars and net changes in currency exchange rates) of our graphite electrodes was $2,341 in 2001 as compared to $2,379 in 2000. The reduced average sales revenue per metric ton of graphite electrodes represented a decrease of about $6 million in net sales. Unfavorable changes in currency exchange rates represented a reduction of about $15 million in net sales of graphite electrodes, more than offsetting the benefits of increases in selling prices in local currencies in certain foreign countries. Volume of cathodes sold was 33,000 metric tons in 2001 as compared to 35,000 metric tons in 2000. Cost of sales decreased 19%, or $89 million, to $378 million in 2001 from $467 million in 2000. The decrease in cost of sales was primarily due to lower volume sold and a lower average graphite electrode cost of sales per metric ton. The average graphite electrode cost of sales per metric ton was $1,691 in 2001 as compared to $1,725 in 2000. The reduction in average graphite electrode cost of sales per metric ton was primarily due to cost savings and lower average fixed cost per metric ton due to facility closures and, to lesser extent, changes in currency exchange rates. Gross profit decreased 20%, or $37 million, to $147 million (28.0% of net sales) in 2001 from $184 million (28.3% of net sales) in 2000. The decrease in gross profit margin was primarily due to the fact that the percentage decrease in net sales was greater than the percentage decrease in cost of sales. ADVANCED ENERGY TECHNOLOGY DIVISION. Net sales increased 3%, or $4 million, to $129 million in 2001 from $125 million in 2000. The increase was primarily due to cyclical increases in volume of refractories sold and in sales of products to customers in the aerospace industry, new business sales and an increase in technical service and technology license fees, partially offset by a decrease in volume of flexible graphite sold for gasket applications due to lower demand from the automotive industry as well as a decrease in products sold to the semiconductor and industrial sectors. Cost of sales decreased 2%, or $2 million, to $91 million in 2001 from $93 million in 2000. The decline was primarily due to the product mix and cost savings activities. Gross profit increased 19%, or $6 million, to $38 million (29.6% of net sales) in 2001 from $32 million (25.6% of net sales) in 2000. The increase in gross profit margin was due to the increase in net sales and decrease in cost of sales. OPERATING PROFIT (LOSS) OF US AS A WHOLE. Operating loss was $10 million in 2001 as compared to operating profit of $111 million in 2000. Operating profit in 2001 was impacted by a $80 million impairment loss on long-lived and other assets, a $12 million restructuring charge, primarily related to our U.S. and Italian graphite electrode operations, a $10 million charge 90 related to antitrust investigations and related lawsuits and claims, and a $2 million charge related to the corporate realignment of our subsidiaries. Operating profit in 2000 was impacted by a $2 million write-off of costs incurred in connection with a proposed initial public offering by Graftech that was withdrawn as well as an aggregate of $8 million in special items consisting of a $1 million credit related to securities class action and stockholder derivative lawsuits, a net restructuring charge relating to our advanced graphite materials business, an impairment loss on long-lived cathode assets and a corporate restructuring involving a workforce reduction. Selling, administrative and other expense declined $8 million to $78 million in 2001 from $86 million in 2000, primarily due to reduced corporate spending. Other (income) expense, net was $1 million in 2001 as compared to nil in 2000. We recorded other (income) expense in both periods resulting from various non-operational activities, including gains from currency transactions. Excluding the impact of those special charges, items and costs, operating profit would have been $94 million (14.4% of net sales) in 2001 as compared to $121 million (15.6% of net sales) in 2000. OTHER ITEMS AFFECTING US AS A WHOLE. Interest expense decreased to $60 million in 2001 from $75 million in 2000. The decrease was due to lower average annual interest rates and lower average total debt outstanding. Our average outstanding total debt was $683 million in 2001 as compared to $780 million in 2000 and our average annual interest rate was 8.1% in 2001 as compared to 9.0% in 2000. These average annual interest rates exclude imputed interest on antitrust fines. Provision for income taxes was $15 million for 2001 as compared to $10 million for 2000. During 2001, the provision for income taxes reflected a 35% effective rate, excluding the impact of impairment losses on long-lived and other assets, restructuring charges, the charge related to antitrust investigations and related lawsuits and claims, and the charge related to the corporate realignment of our subsidiaries. For 2000, the provision for income taxes reflected a 30% effective rate. The increase in the effective rate in 2001 was primarily due to a high proportion of income from higher tax jurisdictions. As a result of the changes described above, net loss was $87 million in 2001, a decrease of $97 million from net income of $10 million in 2000. 2000 COMPARED TO 1999. Net sales were $776 million, a decrease of $55 million, or 7%, from net sales in 1999 of $831 million. Gross profit in 2000 was $216 million, a decrease of $42 million, or 16%, from gross profit in 1999 of $258 million. Gross profit margin in 2000 was 27.8% of net sales as compared to gross profit margin in 1999 of 31.0% of net sales. The decrease in net sales and gross profit was primarily due to lower average sales revenue per metric ton of graphite electrodes and the impact of currency exchange rate changes. The impact of those factors was partially offset by lower costs of sales per metric ton of graphite electrodes and higher volumes of graphite electrodes sold. The lower average sales revenue per metric ton was due primarily to changes in regional economic conditions, which resulted in a higher percentage of the volume of our graphite electrodes being sold in non-North American markets that have lower pricing structures than North American markets, as well as competitive pricing pressures. The lower cost of sales per metric ton was primarily due to cost savings and lower average fixed 91 cost per metric ton due to higher average annual production levels. The decrease in gross profit margin was primarily due to the fact that the percentage decrease in net sales was greater than the percentage decrease in costs of sales. GRAPHITE POWER SYSTEMS DIVISION. Net sales decreased 7%, or $49 million, to $651 million in 2000 from $700 million in 1999. The decrease was primarily attributable to a decrease in average sales revenue per metric ton of electrodes offset by higher sales volumes for electrodes and cathodes. The volume of graphite electrodes sold increased 11,000 metric tons, or 5%, to 217,000 metric tons in 2000 as compared to 206,000 metric tons in 1999. The increase in volume of graphite electrodes sold represented an increase in net sales of about $28 million. The average sales revenue per metric ton (in U.S. dollars and net changes in currency exchange rates) of our graphite electrodes was $2,379 in 2000 as compared to $2,676 in 1999. The reduced average sales revenue of graphite electrodes per metric ton represented a decrease of about $64 million in net sales. This reduction was largely attributable to lower graphite electrode selling prices and, to a lesser extent, changes in product mix. Currency exchange rate changes for electrode and cathode sales, particularly the decline in the euro against the dollar, represented a decrease of about $45 million in net sales. Volume of cathodes sold was 35,000 metric tons in 2000 as compared to 31,000 metric tons in 1999. Cost of sales increased 1%, or $3 million, to $467 million in 2000 from $464 million in 1999. The increase in cost of sales was primarily due to higher volume sold, partially offset by lower average cost of sales per metric ton for graphite electrodes. The average graphite electrode cost of sales per metric ton was $1,725 in 2000 as compared to $1,783 in 1999. The reduction in average graphite electrode cost of sales per metric ton was primarily due to cost savings and lower average fixed cost per metric ton due to higher production levels and, to lesser extent, changes in currency exchange rates. Gross profit decreased 22%, or $52 million, to $184 million (28.3% of net sales) in 2000 from $236 million (33.7% of net sales) in 1999. The decrease in gross profit margin was primarily due to the fact that the percentage decrease in net sales was greater than the percentage decrease in cost of sales. ADVANCED ENERGY TECHNOLOGY DIVISION. Net sales decreased 5%, or $6 million, to $125 million in 2000 from $131 million in 1999. The decrease was primarily attributable to a decrease in net sales of advanced graphite materials due to the elimination of certain product lines in connection with the restructuring of our advanced graphite materials business and, to a lesser extent, lower prices for advanced graphite materials. Cost of sales decreased 15%, or $16 million, to $93 million in 2000 from $109 million in 1999. The decline was primarily due to the write-down of advanced graphite materials inventory in 1999 and the elimination of certain advanced graphite materials product lines. As a result of the changes described above, gross profit increased 45%, or $10 million, to $32 million (25.6% of net sales) in 2000 from $22 million (16.8% of net sales) in 1999. Excluding the $8 million write-down of advanced graphite materials inventory in 1999, gross profit margin increased to 25.6% in 2000 from 22.9% in 1999. The increase in gross profit margin was due to the fact that the decline in cost of sales exceeded the decline in net sales. OPERATING PROFIT OF US AS A WHOLE. Operating profit was $111 million, or 14.3% of net sales, in 2000 as compared to $130 million, or 15.6% of net sales, in 1999. Operating profit in 2000 was impacted by a $2 million write-off costs incurred in connection with a proposed initial public offering by Graftech that was withdrawn as well as an aggregate of $9 million in special items consisting of a net restructuring charge relating to our advanced graphite materials 92 business, an impairment loss on long-lived cathode assets and a corporate restructuring involving a workforce reduction. Operating profit in 1999 was impacted by a $35 million impairment loss on long-lived advanced graphite materials assets, a $13 million charge for the settlement of securities class action and stockholder derivative lawsuits, and a $6 million restructuring credit related to plant closure activities. Excluding these special items, operating profit in 2000 was $50 million lower than in 1999 due mainly to lower gross profit and lower other (income) expense, net. Selling, administrative and other expense was relatively stable at $86 million in both 2000 and 1999. Other (income) expense, net was nil in 2000 as compared to income of $9 million in 1999. The change was primarily due to the incurrence in 2000 of $4 million in consulting fees associated with the POWER OF ONE initiative, $3 million of legal expenses associated with our lawsuit against our former parents and $2 million in costs associated with the proposed initial public offering by Graftech that were not incurred in 1999. We recorded income in both periods resulting from various activities, including gains from currency transactions, asset sales and insurance and financial instrument related activities. OTHER ITEMS AFFECTING US AS A WHOLE. Interest expense decreased to $75 million in 2000 from $84 million in 1999. The decrease primarily resulted from our refinancing completed in February 2000, which resulted in a decrease in our average annual interest rate. Our average outstanding total debt was $780 million in 2000 as compared to $782 million in 1999 and our average annual interest rate was 9.0% in 2000 as compared to 10.7% in 1999. These average annual interest rates exclude imputed interest on the antitrust fines. Provision for income taxes was $10 million for 2000 as compared to $1 million in 1999. During 2000, the provision for income taxes reflected a 30% effective rate, excluding the impact of the write-off of costs incurred in connection with the proposed initial public offering by Graftech that was withdrawn and the impact of restructuring charges (credits) and impairment losses. This is lower than the U.S. federal income tax rate of 35% primarily as a result of tax planning strategies, earnings repatriation plans, tax settlements, re-assessment of valuation allowances, and earnings resulting from consolidated entities with lower effective rates. For 1999, the provision for income taxes reflected a 23% effective rate. The increase in the effective rate in 2000 was primarily due to a high proportion of income from higher tax jurisdictions, which was partially offset by a $20 million reduction in the deferred tax asset valuation allowance on foreign tax credits. This reduction was based on a re-assessment in 2000 of our U.S. tax profile and associated tax planning strategies. As a result of the changes described above, net income was $10 million in 2000, a decrease of $32 million from net income of $42 million in 1999. EFFECTS OF INFLATION In general, our results of operations and financial condition are affected by the inflation in each country in which we have a manufacturing facility. During 1999 through the 2000 first half, the effects of inflation on our cost of sales in the U.S. and foreign countries (except for 93 highly inflationary countries) have been generally mitigated by a combination of improved operating efficiency and permanent on-going cost savings. Accordingly, during that period, these effects were not material to us. From mid-2000 through mid-2001, we experienced higher energy and raw material costs primarily due to the substantial increase in the worldwide market price of oil and natural gas. During the latter part of that period, we were able to similarly mitigate the effects of those increases on our cost of sales. We have not experienced significant inflation since mid-2001. We cannot assure that future increases in our costs will not exceed the rate of inflation or the amounts, if any, by which we may be able to increase prices for our products. We account for our non-U.S. subsidiaries under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Accordingly, their assets and liabilities are translated into dollars for consolidation and reporting purposes. Foreign currency translation adjustments are generally recorded as part of stockholders' equity and identified as accumulated other comprehensive income (loss) in the Consolidated Balance Sheets until such time as their operations are sold or substantially or completely liquidated. We maintain operations in Brazil, Russia and Mexico, countries which have had in the past, and may have now or in the future, highly inflationary economies, defined as cumulative inflation of about 100% or more over a three-calendar year period. In general, the financial statements of foreign operations in highly inflationary economies have been remeasured as if the functional currency of their economic environments were the dollar and translation gains and losses relating to these foreign operations are included in other (income) expense, net in the Consolidated Statements of Operations rather than as part of stockholders' equity in the Consolidated Balance Sheets. In light of significant increases in inflation in Mexico, effective January 1, 1997, Mexico was considered to have a highly inflationary economy. Accordingly, translation gains and losses for our Mexican operations were included in the Consolidated Statements of Operations for 1998. In 1999, we began to account for our Mexican subsidiary using the dollar as its functional currency, irrespective of Mexico's inflationary status, because its sales and purchases are predominantly dollar-denominated. We have always considered Russia to have a highly inflationary economy. Accordingly, translation gains and losses for our Russian operations are included in the Consolidated Statements of Operations in 1999, 2000 and 2001. Prior to August 1, 2000, our Swiss subsidiary used the dollar as its functional currency. Beginning August 1, 2000, our Swiss subsidiary began using the euro as its functional currency because its operations became predominantly euro-denominated. Foreign currency translation adjustments decreasing stockholders' equity amounted to $48 million, including $33 million associated with our Brazilian subsidiary, in 1999, $35 million, including $23 million associated with our South African subsidiary, in 2000 and $29 million, including $21 million associated with our South African subsidiary, in 2001. 94 EFFECTS OF CHANGES IN CURRENCY EXCHANGE RATES We incur manufacturing costs and sell our products in multiple currencies. As a result, in general, our results of operations, cash flows and financial condition are affected by changes in currency exchange rates as well as by inflation in countries with highly inflationary economies where we have manufacturing facilities. To manage certain exposures to risks caused by changes in currency exchange rates, we use various off-balance sheet financial instruments. To account for translation of foreign currencies into dollars for consolidation and reporting purposes, we record foreign currency translation adjustments in accumulated other comprehensive income (loss) as part of stockholders' equity in the Consolidated Balance Sheets, except in the case of operations in highly inflationary economies (or which use the dollar as their functional currency) where we record foreign currency translation gains and losses as part of other (income) expense, net in the Consolidated Statement of Operations. We also record foreign currency transaction gains and losses as part of other (income) expense, net. When the local currencies of foreign countries in which we have a manufacturing facility decline (or increase) in value relative to the dollar, this has the effect of reducing (or increasing) the dollar equivalent cost of sales and other expenses with respect to those facilities. This effect is, however, partially offset by the cost of petroleum coke, a principal raw material used by us, which is priced in dollars. We price products manufactured at our facilities for sale in local and certain export markets in local currencies. Accordingly, when the local currencies increase (or decline) in value relative to the dollar, this has the effect of increasing (or reducing) net sales. The result of these effects is to increase (or decrease) operating profit and net income. Over the past three years, many of the foreign countries in which we have a manufacturing facility, particularly Brazil, have been subject to significant economic pressures, which have impacted inflation and currency exchange rates affecting those countries. As a result, many of the currencies in which we manufacture and sell our products weakened against the dollar. During 1999, the Brazilian real substantially devalued. During 2000, the South African rand declined about 19%, the euro declined about 6% and the Brazilian real declined about 8%. During 2001, the euro declined about 5%, the Brazilian real declined about 16% and the South African rand declined about 36%. The net impact of currency changes included in other (income) expense, net was a gain of $2 million in 1999, a gain of $4 million in 2000 and a gain of $2 million in 2001. In the case of net sales of graphite electrodes, the impact was a reduction of $19 million in 1999 (excluding $24 million in 1999 due to the lowering of prices by our Brazilian subsidiary because of competitive cost advantages resulting from the decline in the Brazilian real), a reduction of $36 million in 2000 and a reduction of $15 million in 2001. We sought to mitigate these adverse impacts on net sales by increasing local currency prices for some of our products in various regions as circumstances permitted. We cannot predict changes in currency exchange rates in the future or whether those changes will have positive or negative impacts on our net sales or cost of sales. We cannot assure you that we would be able to mitigate any adverse effects of such changes. To manage certain exposures to specific financial market risks caused by changes in currency exchange rates, we use various financial instruments. The amount of currency exchange contracts used by us to minimize these risks was $69 million at December 31, 2000 and $37 million at December 31, 2001. 95 Total outstanding dollar-denominated debt of our foreign subsidiaries (excluding our Russian and Mexican subsidiaries (and, since December 31, 1999, our Swiss subsidiary), which used the dollar as their functional currency) was nil at December 31, 2000 and 2001. Changes in the currency exchange rates between the dollar and the currencies in the countries in which these excluded subsidiaries are located result in foreign currency gains and losses that are reported in other (income) expense, net in the Consolidated Statements of Operations. Our foreign subsidiaries with dollar-denominated debt have entered into currency exchange contracts to protect against changes in currency exchange rates. The amount of such contracts was $61 million at December 31, 2000 and nil at December 31, 2001. We believe that such contracts reduce our exposure to changes in currency exchange rates related to such borrowings. LIQUIDITY AND CAPITAL RESOURCES Our sources of funds have consisted principally of invested capital, cash flow from operations, debt financing and, since July 2001, net proceeds from our public offering of common stock. Our uses of those funds (other than for operations) have consisted principally of debt reduction, capital expenditures, payment of fines, liabilities and expenses in connection with investigations, lawsuits and claims and payment of restructuring costs. We are highly leveraged and have substantial obligations in connection with antitrust investigations, lawsuits and claims. We had total debt of $638 million and a stockholders' deficit of $332 million at December 31, 2001 as compared to total debt of $735 million and a stockholders' deficit of $316 million at December 31, 2000. At December 31, 2001, a substantial portion of our debt has variable interest rates. In addition, if we are required to pay or issue a letter of credit to secure payment of the fine assessed by the antitrust authority of the European Union pending resolution of our appeal regarding the amount of the fine, the payment would be financed by borrowing under (or secured by a letter of credit that would constitute a borrowing under) our revolving credit facility. Our leverage and obligations, as well as changes in conditions affecting our industry, changes in global and regional economic conditions and other factors, have adversely impacted our recent operating results. Cash and cash equivalents were $38 million at December 31, 2001 as compared to $47 million at December 31, 2000. Net debt (which is total debt, net of cash, cash equivalents and short-term investments) was $600 million at December 31, 2001 as compared to $688 million at December 31, 2000. DEBT REDUCTION. As a result of our high leverage and substantial obligations in connection with antitrust investigations, lawsuits and claims, changes in conditions affecting our industry, changes in global and regional economic conditions and other factors, we have placed high priority on efforts to manage cash and reduce debt. During 2000, we were able to generate $43 million of positive cash flow from working capital. As a result, during 2000, we reduced our net debt by more than $14 million while, at the same time, paying $30 million of antitrust fines and net settlement and expense payments and restructuring payments. During 2001, we were able to maintain a relatively stable net debt level (excluding the net proceeds from our equity 96 offering in July 2001) while, at the same time, paying $34 million in restructuring payments and antitrust fines and net settlement and expense payments. CASH FLOW AND PLANS TO MANAGE LIQUIDITY. For at least the past five years, we have had positive annual cash flow from operations, excluding payments in connection with restructurings and investigations, lawsuits and claims. Typically, the first quarter of each year results in neutral or negative cash flow from operations (after deducting cash used for capital expenditures and excluding payments in connection with restructurings and investigations, lawsuits and claims and payment of interest on our previously outstanding senior subordinated notes (which have since been redeemed)) due to various factors. These factors include customer order patterns, customer buy-ins in advance of annual price increases, working capital requirements and payment of variable compensation with respect to the immediately preceding year. Typically, the other three quarters result in significant positive cash flow from operations (after deducting cash used for capital expenditures). The third quarter tends to produce relatively less positive cash flow primarily as a result of scheduled plant shutdowns by our customers for vacations. Following a recovery in the steel and other metals and transportation industries, we believe that cash flow trends would follow this historical pattern. We use, and are dependent on, funds available under our revolving credit facility, including continued compliance with the financial covenants under the Senior Facilities, as well as monthly or quarterly cash flow from operations as our primary sources of liquidity. We believe that our cost savings will, over the next one to two years, continue to improve our cash flow from operations for a given level of net sales. Improvements in cash flow from operations resulting from these initiatives are being partially offset by associated cash implementation costs, while they are being implemented. Our high leverage and substantial obligations in connection with antitrust investigations, lawsuits and claims could have a material impact on our liquidity. Cash flow from operations services payment of our debt and these obligations, thereby reducing funds available to us for other purposes. Our leverage and these obligations make us more vulnerable to economic downturns or in the event that these obligations are greater or timing of payment is sooner than expected. Our ability to service our debt as it comes due is dependent on our future financial and operating performance. Our ability to maintain compliance with the covenants under the Senior Facilities is also dependent on our future financial and operating performance. This performance, in turn is subject to various factors, including certain factors beyond our control, such as changes in conditions affecting our industry, changes in global and regional economic conditions, changes in interest and currency exchange rates, developments in antitrust investigations, lawsuits and claims involving us and inflation in raw material, energy and other costs. We cannot assure you that our cash flow from operations and capital resources will be sufficient to enable us to meet our debt service and other obligations when due. Even if we are able to meet our debt service and other obligations when due, we may not be able to comply with the financial covenants under the Senior Facilities. The breach of any of the covenants under the Senior Facilities, unless waived by the lenders, would be a default under the Senior Facilities. 97 This would permit the lenders to accelerate the maturity of the Senior Facilities. It would also permit the lenders to terminate their commitments to extend credit under our revolving credit facility. This would have an immediate material adverse effect on our liquidity. An acceleration of maturity of the Senior Facilities or a breach of the covenants contained in the Senior Notes would permit the holders of the Senior Notes to accelerate the maturity of the Senior Notes. Acceleration of maturity of the Senior Notes would permit the lenders to accelerate the maturity of the Senior Facilities and terminate their commitments to extend credit under our revolving credit facility. If we were unable to repay our debt to the lenders or holders, the lenders and holders could proceed against the collateral securing the Senior Facilities and the Senior Notes, respectively, and exercise all other rights available to them. If we were unable to repay our debt to the lenders or the holders, or otherwise obtain a waiver from the lenders or the holders, we could be required to limit or discontinue, temporarily or permanently, certain of our business plans, activities or operations, reduce or delay certain capital expenditures, sell certain of our assets or businesses, restructure or refinance some or all of our debt or incur additional debt, or sell additional common stock or other securities. We cannot assure you that we would be able to obtain any such waiver or take any of such actions on favorable terms or at all. As described above, we are dependent on our revolving credit facility and continuing compliance with the financial covenants under the Senior Facilities for liquidity. The Senior Facilities require us to, among other things, comply with specified minimum interest coverage and maximum leverage ratios that become more restrictive over time. At December 31, 2001, we were in compliance with the financial covenants under the Senior Facilities. If we were to believe that we would not continue to comply with such covenants, we would seek an appropriate waiver or amendment from the lenders thereunder. There can be no assurance that we would be able to obtain such waiver or amendment on acceptable terms or at all. While our revolving credit facility provides for maximum borrowings of up to [euro]250 million ($223 million, based on currency exchange rates in effect at December 31, 2001), our ability to borrow under this facility may effectively be substantially less because of the impact of additional borrowings upon our compliance with the maximum leverage ratio permitted under the Senior Facilities. At March 15, 2002, we had full availability under our revolving credit facility. In addition, payment of the fine or issuance of a letter of credit to secure payment of the fine assessed by the antitrust authority of the European Union would significantly reduce remaining funds available under our revolving credit facility for operating and other purposes. We believe that the long term fundamentals of our business continue to be sound. Accordingly, although we cannot assure you that such will be the case, we believe that, based on our expected cash flow from operations, our expected resolution of our remaining obligations in connection with antitrust investigations, lawsuits and claims, and existing capital resources, and taking into account our efforts to reduce costs and working capital needs, improve efficiencies and product quality, generate growth and earnings and maximize funds available to meet our debt service and other obligations, we will be able to manage our working capital and cash flow to permit us to service our debt and meet our obligations when due. DESCRIPTION OF SENIOR FACILITIES. In February 2000, we completed a debt recapitalization and obtained the Senior Facilities. 98 In the 2000 third quarter, pursuant to our debt recapitalization in February 2000, our Italian subsidiary entered into a [euro]17 million (about $15 million, based on currency exchange rates in effect at September 2000) long term debt arrangement with a third party lender. We also placed on deposit with the third party lender funds in the same amount, which secure the debt. Since we had the legal right to set-off, and the intent to do so, such amounts have been netted and are not reflected separately in the Consolidated Balance Sheets. In February 2002, in connection with the corporate realignment of our subsidiaries, we exercised our right of set-off and retired the debt. In October 2000, the Senior Facilities were amended to, among other things, increase the maximum leverage ratio permitted thereunder through June 30, 2001. In connection therewith, we paid an amendment fee of $2 million and the margin which is added to either euro LIBOR or the alternate base rate in order to determine the interest rate payable thereunder by 25 basis points. In April 2001, the Senior Facilities were amended to, among other things, exclude certain expenses incurred in connection with the lawsuit initiated by us against our former parents (up to a maximum of $20 million, but not more than $3 million in any quarter) and certain charges and payments in connection with antitrust fines, settlements and expenses from the calculation of financial covenants. Charges (over and above $340 million charge recorded in 1997) recorded on or before June 30, 2002 for antitrust fines, settlements and expenses are excluded from the calculation of financial covenants (until paid) up to a maximum of $130 million (reduced by the amount of certain debt, other than the Senior Notes, incurred by us that is not incurred under the Senior Facilities, $6 million of which debt was outstanding at December 31, 2001). The fine assessed by the antitrust authority of the European Union, as well as the additional $10 million charge recorded in July 2001 and any payments related to such fine (including payments within the $340 million charge recorded in 1997), are excluded from the calculation of financial covenants through June 30, 2002. In July 2001, the Senior Facilities were amended to, among other things, change our financial covenants so that they were less restrictive through 2006 than would otherwise have been the case. In connection therewith, we have agreed that our investments in Graftech and any of our other unrestricted subsidiaries after this amendment will be made in the form of secured loans, which will be pledged to secure the Senior Facilities, and the maximum amount of capital expenditures permitted under the Senior Facilities would be reduced in 2001 and 2002. We do not expect that our capital expenditures would exceed such maximums. In connection therewith, we paid an amendment fee of $2 million and the margin which is added to either euro LIBOR or the alternate base rate in order to determine the interest rate payable thereunder increased by 25 basis points. In December 2001, the Senior Facilities were amended to, among other things, permit the corporate realignment of our subsidiaries. In connection therewith, we paid an amendment fee of $1 million. In February 2002, the Senior Facilities were amended to, among other things, permit us to issue senior notes (in an amount not to exceed $400 million), to pledge certain unsecured intercompany term notes and unsecured guarantees of those notes to secure such senior notes, to 99 have certain U.S. subsidiaries holding a majority of our U.S. assets guarantee such senior notes and to have those U.S. subsidiaries pledge shares of Graftech to secure such guarantees. Furthermore, the amendment permitted the net proceeds from the sale of such senior notes to be applied as described elsewhere in this Report. In connection with this amendment, our maximum permitted leverage ratio was substantially increased and our minimum required interest coverage ratio was substantially decreased while maintaining full availability of our revolving credit facility. The amendment also changed the manner in which net debt and EBITDA are calculated to exclude certain fees, costs and expenses (including fees of counsel and experts) in connection with the lawsuit initiated by us against our former parents as well as any letter of credit issued to secure payment of the antitrust fine assessed against us by the antitrust authority of the European Union. In addition, the amendment expanded our ability to make certain investments, including investments in Graftech, and eliminate provisions relating to a spin-off of Graftech. In connection therewith, we paid an amendment fee of $1 million and the margin which is added to either euro LIBOR or the alternate base rate in order to determine the interest rate payable thereunder increased by 37.5 basis points. The Senior Facilities, as amended, consist of: o A Tranche A Facility providing for initial term loans of $137 million and of [euro]161 million (equivalent to $158 million based on currency exchange rates in effect at February 22, 2000) to UCAR Finance. The Tranche A Facility amortizes in quarterly installments over six years, commencing June 30, 2000, with quarterly installments ranging from about $2 million in 2000 to about $17 million in 2005, with the final installment payable on December 31, 2005. In October 2000, we converted $78 million from dollar-denominated to euro-denominated debt. o A Tranche B Facility providing for initial term loans of $350 million to UCAR Finance. The Tranche B Facility amortizes over eight years, commencing June 30, 2000, with nominal quarterly installments during the first six years, and quarterly installments of about $41 million in 2006 and 2007, with the final installment payable on December 31, 2007. o A Revolving Facility providing for revolving and swingline loans to, and the issuance of dollar-denominated letters of credit for the account of, UCAR Finance and certain of our other subsidiaries in an aggregate principal and stated amount at any time not to exceed [euro]250 million. The Revolving Facility terminates on February 22, 2006. As a condition to each borrowing under the Revolving Facility, we are required to represent, among other things, that the aggregate amount of payments made (excluding certain imputed interest) and additional reserves created in connection with antitrust, securities and stockholder derivative investigations, lawsuits and claims do not exceed $340 million by more than $130 million (which $130 million is reduced by the amount of certain debt, other than the Senior Notes, incurred by us that is not incurred under the Senior Facilities). 100 After completion of our public offering of common stock in July 2001, our private offering of Senior Notes in February 2002 and the initial application of the net proceeds therefrom, the aggregate principal payments due on the Tranche A and Tranche B Term Loans are: no payments in 2002, 2003 or 2004, $26 million in 2005, $26 million in 2006 and $164 million in 2007. We are generally required to make mandatory prepayments in the amount of: o Either 75% or 50% (depending on our leverage ratio, which is the ratio of our adjusted net debt to our adjusted total EBITDA) of adjusted excess cash flow. The obligation to make these prepayments, if any, arises after the end of each year with respect to adjusted excess cash flow during the prior year. o 100% of the net proceeds of certain asset sales or incurrence of certain indebtedness. o 50% of the net proceeds of the issuance of any UCAR equity securities (60%, in the case of the net proceeds from our public offering of common stock in July 2001). We may make voluntary prepayments under the Senior Facilities. There is no penalty or premium due in connection with prepayments (whether voluntary or mandatory). UCAR Finance makes secured and guaranteed intercompany loans of the net proceeds of borrowings under the Senior Facilities to UCAR Global's subsidiaries. The obligations of UCAR Finance under the Senior Facilities are secured, with certain exceptions, by first priority security interests in all of these intercompany loans (including the related security interests and guarantees). Following completion of the sale of the Senior Notes, these intercompany loans consist of intercompany revolving loans to UCAR Carbon and our Swiss subsidiary. UCAR has unconditionally and irrevocably guaranteed the obligations of UCAR Finance under the Senior Facilities. This guarantee is secured, with certain exceptions, by first priority security interests in all of the outstanding capital stock of UCAR Global and UCAR Finance, all of the intercompany debt owed to UCAR and UCAR's interest in the lawsuit initiated by us against our former parents. UCAR, UCAR Global and each of UCAR Global's subsidiaries has guaranteed, with certain exceptions, the obligations of UCAR Global's subsidiaries under the intercompany loans, except that our foreign subsidiaries have not guaranteed the intercompany loans of our U.S. subsidiaries. The obligations of UCAR Global's subsidiaries under the intercompany loans as well as these guarantees are secured, with certain exceptions, by first priority security interests in substantially all of our assets, except that no more than 65% of the capital stock or other equity interests in our foreign subsidiaries held directly by our U.S. subsidiaries and no other foreign assets secure obligations or guarantees of our U.S. subsidiaries. The interest rates, as amended, applicable to the Tranche A and Revolving Facilities are, at our option, either euro LIBOR plus a margin ranging from 1.375% to 3.375% (depending on our leverage ratio) or the alternate base rate plus a margin ranging from 0.375% to 2.375% 101 (depending on our leverage ratio). The interest rate applicable to the Tranche B Facility is, at our option, either euro LIBOR plus a margin ranging from 2.875% to 3.625% (depending on our leverage ratio) or the alternate base rate plus a margin ranging from 1.875% to 2.625% (depending on our leverage ratio). The alternate base rate is the higher of the prime rate announced by JP Morgan Chase Bank or the federal funds effective rate, plus 0.50%. UCAR Finance pays a per annum fee ranging from 0.375% to 0.500% (depending on our leverage ratio) on the undrawn portion of the commitments under the Revolving Facility. At December 31, 2001, the interest rates on outstanding debt under the Senior Facilities was: Tranche A euro Facility, 6.4%; Tranche A dollar Facility, 4.9%; Tranche B Facility, 5.6%; and Revolving Facility, 5.2%. The weighted average interest rate on the Senior Facilities was 8.1% during 2001. We enter into agreements with financial institutions, which are intended to limit, or cap, our exposure to incurrence of additional interest expense due to increases in variable interest rates. Use of these agreements is allowed with the Senior Facilities. The Senior Facilities contain a number of significant covenants that, among other things, restrict our ability to sell assets, incur additional indebtedness, repay or refinance other debt or amend other debt instruments, create liens on assets, enter into leases, investments or acquisitions, engage in mergers or consolidations, make capital expenditures, make dividend payments to UCAR, pay intercompany debt owed to UCAR, engage in transactions with affiliates, or pay dividends or make other restricted payments and that otherwise restrict corporate activities. In addition, we are required to comply with specified minimum interest coverage and maximum leverage ratios, which become more restrictive over time, beginning December 31, 2002. In addition to the failure to pay principal, interest and fees when due, events of default under the Senior Facilities include: failure to comply with applicable covenants; failure to pay when due, or other defaults permitting acceleration of, other indebtedness exceeding $7.5 million; judgment defaults in excess of $7.5 million to the extent not covered by insurance; certain events of bankruptcy; and certain changes in control. Under the Senior Facilities, UCAR is permitted to pay dividends on, and repurchase, common stock in an aggregate annual amount of $25 million, plus up to an additional $25 million if certain leverage ratio and excess cash flow requirements are satisfied. We are also permitted to repurchase common stock from present or former directors, officers or employees in an aggregate amount of the lesser of $5 million per year (with unused amounts permitted to be carried forward) or $25 million on a cumulative basis since February 22, 2000. DESCRIPTION OF SENIOR NOTES. On February 15, 2002, UCAR Finance issued $400 million aggregate principal amount of Senior Notes. Interest on the Senior Notes is payable semi-annually on February 15 and August 15 of each year, commencing August 15, 2002, at the rate of 10.25% per annum. The Senior Notes mature on February 15, 2012. Except as described below, UCAR Finance may not redeem the Senior Notes prior to February 15, 2007. On or after that date, UCAR Finance may redeem the Senior Notes, in whole or in part, at specified redemption prices beginning at 105.125% of the principal amount 102 redeemed for the year commencing February 15, 2007 and reducing to 100% of the principal amount redeemed for the years commencing February 15, 2010, and thereafter, in each case plus accrued and unpaid interest to the redemption date. In addition, before February 15, 2005, UCAR Finance is entitled at its option on one or more occasions to redeem Senior Notes (which includes additional Senior Notes, if any) in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the Senior Notes (which includes additional Senior Notes, if any) originally issued at a redemption price of 110.25% of the principal amount redeemed, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more underwritten primary public offering of common stock of UCAR pursuant to an effective registration statement under the Securities Act so long as: o at least 65% of such aggregate principal amount of Senior Notes (which includes additional Senior Notes, if any) remains outstanding immediately after each such redemption (other than Senior Notes held, directly or indirectly, by us); and o each such redemption occurs within 60 days after the date of the related public offering. Upon the occurrence of a change of control, UCAR Finance will be required to make an offer to repurchase the Senior Notes at a price equal to 101% of the principal amount redeemed, plus accrued and unpaid interest to the redemption date. For this purpose, a change in control occurs on: o the date on which any person beneficially owns more than 35% of the total voting power of UCAR or o the date on which individuals, who on the issuance date of the Senior Notes, were directors of UCAR (or individuals nominated or elected by a vote of 66 2/3% of such directors or directors previously so elected or nominated), cease to constitute a majority of UCAR's Board of Directors then in office or o the date on which a plan relating to the liquidation or dissolution of UCAR is adopted or o the date on which UCAR merges or consolidates with or into another person or another person merges into UCAR, or all or substantially all of UCAR's assets are sold (in each case, determined on a consolidated basis), with certain specified exceptions, or o the date on which UCAR ceases to own, directly or indirectly, all of the voting power of UCAR Global, UCAR Carbon and UCAR Finance. The Senior Notes rank senior to present and future subordinated debt and equally with present and future senior debt and obligations of UCAR Finance. The Senior Notes are effectively subordinated to present and future secured debt and obligations of UCAR Finance, to 103 the extent of the value of the assets securing such debt and obligations, and are structurally subordinated to debt and obligations, including trade payables, of subsidiaries that are neither guarantors of the Senior Notes nor unsecured intercompany term note obligors. The Senior Notes have been guaranteed on a senior unsecured basis by UCAR, UCAR Global and UCAR Carbon and other U.S. subsidiaries holding a substantial majority of our U.S. assets, except that the guarantee by UCAR Carbon is secured as described below. Unsecured intercompany term notes in an aggregate principal amount, at March 15, 2002, equal to $391 million (based on currency exchange rates in effect at December 31, 2001) and guarantees of those unsecured intercompany term notes issued to UCAR Finance by certain of our foreign subsidiaries have been pledged by UCAR Finance to secure the Senior Notes, subject to the limitation that at no time will the combined value of the pledged portion of any foreign subsidiary's unsecured intercompany term note and unsecured guarantee of unsecured intercompany term notes issued by other foreign subsidiaries exceed 19.99% of the principal amount of the then outstanding Senior Notes. As a result of this limitation and assuming no change in the aggregate principal amount of unsecured intercompany term notes due to changes in currency exchange rates since December 31, 2001, the principal amount of unsecured intercompany term notes pledged to secure the Senior Notes equals about 80% of the principal amount of the outstanding Senior Notes. The guarantee by UCAR Carbon has been secured by a pledge of all of our shares of Graftech, but at no time will the value of the pledged portion of such shares exceed 19.99% of the principal amount of the then outstanding Senior Notes. The pledge of the shares of Graftech is junior to the pledge of the same shares to secure UCAR Carbon's guarantee of the Senior Facilities. The unsecured intercompany term note obligations rank senior to present and future subordinated guarantees, debt and obligations of the respective obligors, and equally with present and future senior guarantees, debt and obligations of the respective obligors. The unsecured intercompany term note obligations are effectively subordinated to present and future secured guarantees, debt and obligations of the respective obligors, to the extent of the value of the assets securing such guarantees, debt and obligations, and are structurally subordinated to guarantees, debt and obligations, including trade payables, of subsidiaries of the respective obligors that are not also unsecured intercompany term note obligors. The Senior Notes contains a number of covenants that, among other things, restrict our ability to incur additional indebtedness, pay dividends, make investments, create or permit to exist restrictions on distributions from subsidiaries, sell assets, engage in certain transactions with affiliates or enter into certain mergers and consolidations. In addition to the failure to pay principal and interest on, or repurchase when required, the Senior Notes, events of default under the Senior Notes include failure to comply with certain covenants in the Senior Notes, failure to pay at maturity or acceleration of other indebtedness exceeding $10 million, judgment defaults in excess of $10 million to the extent not covered by insurance and certain events of bankruptcy. The Senior Notes contain provisions as to legal defeasance and covenant defeasance. 104 RELATED PARTY TRANSACTIONS. We have not, during the past three years, and are not now engaged in any material transactions with affiliates or related parties other than transactions with our subsidiaries (including Carbone Savoie), compensatory transactions (including employee benefits, stock option and restricted stock grants, compensation deferral and executive employee loans and stock purchases) with directors or officers, and transactions with our 25%-owned joint venture with Jilin. We have not been during the past three years and are not now affiliated with or related to any special purpose entity other than UCAR Finance. OFF-BALANCE-SHEET FINANCINGS AND COMMITMENTS. We do not have any material off-balance-sheet financing arrangements or other commitments (including non-exchange traded contracts) other than: o Interest rate caps and currency exchange rate contracts which are described in "Item 7A. Quantitative and Qualitative Disclosures About Market Risk." o Commitments under non-cancelable operating leases that, at December 31, 2001, total less than $3 million in each year and $10 million in the aggregate. o Commitments under our information technology outsourcing services agreement with CGI Group Inc. that, at December 31, 2001, total less than $8 million in each year and about $60 million in the aggregate. As part of our cash management activities, we seek to manage accounts receivable credit risk, collections, and accounts payable and payments thereof to maximize our free cash at any given time. Careful management of credit risk has allowed us to avoid significant accounts receivable losses in light of the poor financial condition of many of our potential and existing customers. In light of current and prospective global and regional economic conditions, we cannot assure you that we will not be materially adversely affected by accounts receivable losses in the future. We typically discount or factor a substantial portion of our accounts receivable. Certain of our subsidiaries sold accounts receivable aggregating $79 million in 1999 and $152 million in 2000. Certain of our subsidiaries sold accounts receivable totaling $223 million in 2001, of which we estimate that $45 million would have been outstanding at December 31, 2001. Accounts receivable sold and remaining on the Consolidated Balance Sheet aggregated $1 million at December 31, 2001. Our average days payables outstanding increased by about 13 days at the end of 2001 as compared to the end of 2000. Over the same time period, our days sales outstanding increased by about 3 days. CASH FLOW PROVIDED BY OPERATING ACTIVITIES. Cash flow provided by operations was $17 million in 2001 as compared to cash flow provided by operations of $94 million in 2000. This decline of $77 million resulted primarily from an increase of $75 million in the use of cash flow for working capital. EBITDA was $110 million in 2001, a decrease of $47 million from $157 million in 2000. 105 Working capital was a use of $32 million of cash flow in 2001, a change of $75 million from a source of $43 million of cash flow in 2000. The change occurred primarily due to a $38 million increase in inventories, a $20 million increase in accounts payable, a $11 million increase in restructuring payments, and a $3 million increase in prepaid expenses, partially offset by a $7 million reduction in payments for antitrust fines and net settlements and expenses. Inventory levels increased in our Graphite Power Systems Division primarily due to transitioning activities in connection with the shutdown of our U.S. graphite electrode manufacturing operations and lower than expected volume of graphite electrodes sold. Accounts payable increased primarily due to our cash management activities, partially offset by lower spending, including lower purchases of petroleum coke as excess inventories stockpiled following the explosion at one of Conoco's petroleum coke plants were reduced and production levels were reduced as demand for graphite electrodes and certain other products weakened during 2001. Cash flow provided by operations was $94 million in 2000 as compared to cash flow provided by operations of $80 million in 1999. This improvement of $14 million resulted primarily from a lower use of cash flow for working capital of approximately $91 million, partially offset by lower net income (including non-cash items). Working capital was a source of $43 million of cash flow in 2000, an increase of $91 million from a use of $48 million of cash flow in 1999. The increase occurred primarily due to a $22 million increase in accounts payable and accruals, a $41 million reduction in payment of fines and net settlements and expense payments in connection with antitrust investigations and related lawsuits and claims, a $16 million reduction in restructuring payments, and the use of $12 million for settlement of the securities class action and stockholder derivative lawsuits in 1999 that was not used in 2000. CASH FLOW USED IN INVESTING ACTIVITIES. We used $39 million of cash flow in investing activities during 2001 as compared to $50 million during 2000, in each case primarily for capital expenditures. The net reduction of $11 million was primarily due to reduction in capital expenditures as compared to 2000. We are focusing our capital expenditures on strategic capital investments and essential maintenance. We used $50 million of cash flow in investing activities during 2000 as compared to $39 million during 1999, in each case primarily for capital expenditures. The net increase of $11 million was primarily due to decline in cash proceeds from the sale of assets of $8 million in 2000 as compared to 1999. Capital expenditures decreased to $52 million in 2000 from $56 million in 1999. Capital expenditures in 2000 related primarily to our new flexible graphite manufacturing line, our POWER OF ONE initiative and capital equipment replacement. CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES. Cash flow provided by financing activities was $15 million during 2001 as compared to cash flow used in financing activities of $13 million in 2000. During 2001, we received net proceeds of $91 million from our public offering of common stock in July 2001 and $9 million from an additional minority investment in connection with the broadening of our strategic alliance in the cathode business with Pechiney, and made $84 million in net debt repayments. During 2000, we incurred $28 million of costs, fees and expenses in connection with our debt recapitalization in February 2000 and had an increase in net borrowing of $13 million. 106 Cash flow used in financing activities was $13 million in 2000 as compared to $80 million in 1999. The change was primarily due to lower borrowings in 2000 as compared to 1999. We made $14 million in net debt repayments in 2000 as compared to $80 million of net borrowings in 1999. This $94 million change was offset by $28 million in costs related to our debt recapitalization in February 2000. RESTRICTIONS ON DIVIDENDS AND STOCK REPURCHASES Under the Senior Facilities, we are generally permitted to pay dividends on common stock and repurchase common stock in an aggregate annual amount of between $25 million and $50 million, depending on our leverage ratio and excess cash flow. Under the Senior Notes, we are generally permitted to pay dividends on common stock and repurchase common stock in an aggregate cumulative (from February 15, 2002) amount of $25 million, plus certain consolidated net income, equity proceeds and investment gains. CRITICAL ACCOUNTING POLICIES The SEC recently issued disclosure guidance for critical accounting policies. The SEC defines critical accounting policies as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following accounting policies could be deemed to be critical by the SEC. USE OF ESTIMATES. In preparing the Consolidated Financial Statements, we use estimates in determining the economic useful lives of our assets, obligations under our employee benefit plans, provisions for doubtful accounts, provisions for restructuring charges, tax valuation allowances and various other recorded or disclosed amounts. Estimates require us to use our judgment. While we believe that our estimates for these matters are reasonable, if the actual amount is significantly different than the estimated amount, our assets, liabilities or results of operations may be overstated or understated. CONTINGENCIES. We account for contingencies in accordance with SFAS No. 5, "Accounting for Contingencies." SFAS No. 5 requires that we record an estimated loss from a loss contingency when information available prior to issuance of the Consolidated Financial Statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the Consolidated Financial Statements and the amount of the loss can be reasonably estimated. Accounting for contingencies such as environmental, legal and income tax matters requires us to use our judgment. While we believe that our accruals for these matters are adequate, if the actual loss from a loss contingency is significantly different from the estimated loss, our results of operations may be overstated or understated. IMPAIRMENTS OF LONG-LIVED ASSETS. We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted future cash flows estimated to be generated by those assets are less than the 107 carrying amount of those assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed are reported at the lower of the carrying amount or fair value less costs to sell. If the actual value is significantly less than the estimated value, our assets may be overstated. INVENTORIES. We record the value of inventory at the lower of cost or market, and periodically review the book value of products and product lines to determine if they are properly valued. We also periodically review the composition of our inventories and seek to identify slow-moving inventories. In connection with those reviews, we seek to identify products that may not be properly valued and assess the ability to dispose of them at a price greater than cost. If it is determined that cost is less than market value, then cost is used for inventory valuation. If a write down to current market value is necessary, the market value cannot be greater than the net realizable value, sometimes called the ceiling (defined as selling price less costs to complete and dispose), and cannot be lower than the net realizable value less a normal profit margin, sometimes called the floor. Generally, we do not experience issues with obsolete inventory due to the nature of our products. If the actual value is significantly less than the recorded value, our assets may be overstated. RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets, excluding goodwill and other intangible assets not being amortized pursuant to SFAS No. 142, and certain other assets. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. We will adopt the statement effective January 1, 2002. We anticipate that the statement will not have a significant impact on our consolidated financial position or results of operations. In July 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143, which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. SFAS No. 143 will be effective for all financial statements for fiscal years beginning after June 15, 2002. We anticipate that the statement will not, upon adoption, have a significant impact on our consolidated financial position or results of operations. In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets", both of which are effective for all fiscal years beginning after December 15, 2001. These statements establish accounting and reporting standards for business combinations, goodwill and intangible assets. We will adopt these statements effective January 1, 2002. We anticipate that the statements will not have a significant impact on our consolidated financial position or results of operations except that we will no longer amortize goodwill. 108 In September 2000, FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," a replacement of SFAS No. 125, which has the same title. SFAS No. 140 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings, and requires certain additional disclosures. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001, and is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of SFAS No. 140 did not have a significant impact on our consolidated financial position or results of operations. ASSESSMENT OF THE EURO On January 1, 1999, eleven of the member countries of the European Union established fixed conversion rates between their existing currencies (called "LEGACY CURRENCIES") and one common currency called the euro. The euro trades on currency exchanges and may be used in business transactions. Beginning in January 2002, the legacy currencies are being withdrawn from circulation. Our subsidiaries affected by the euro conversion have established plans to address issues raised by the euro currency conversion. We believe that, under current conditions, the conversion of legacy currencies into the euro will not have a materially adverse affect on us. COSTS RELATING TO PROTECTION OF THE ENVIRONMENT We have been and are subject to increasingly stringent environmental protection laws and regulations. In addition, we have an on-going commitment to rigorous internal environmental protection standards. The following table sets forth certain information regarding environmental expenses and capital expenditures. FOR THE YEAR ENDED DECEMBER 31, 1999 2000 2001 ---- ---- ---- (Dollars in millions) Expenses relating to environmental protection................. $13 $14 $12 Capital expenditures related to environmental protection.............. 4 6 3 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks primarily from changes in interest rates and currency exchange rates. To manage our exposure to these changes, we routinely enter into various transactions that have been authorized according to documented policies and procedures. We do not use derivatives for trading purposes or to generate income, and we do not use leveraged derivatives. Our exposure to changes in interest rates results primarily from floating rate long term debt tied to LIBOR or euro LIBOR. We enter into agreements with financial institutions, which are intended to limit, or cap, our exposure to the incurrence of additional interest expense due to increases in variable interest rates. During 2001, we purchased interest rate caps on up to $100 million of debt, limiting the floating interest rate factor on this debt to a weighted-average rate of 5.0% for the period commencing June 2001 and continuing through June 2002. At 109 December 31, 2001, we had outstanding interest rate caps of $100 million and [euro]200 million limiting our floating interest rate factor on related debt to a weighted-average rate of 5.0% (where the interest on the debt is based on LIBOR) and 5.0% (where the interest on the debt is based on euro LIBOR) through various dates ending June 2002. Fees related to these agreements are charged to interest expense over the term of the agreements. Our exposure to changes in currency exchange rates results primarily from: o investments in our foreign subsidiaries and in our share of the earnings of those subsidiaries, which are denominated in local currencies; o raw material purchases made by our foreign subsidiaries in a currency other than the local currency; and o export sales made by our subsidiaries in a currency other than the local currency. When we deem it appropriate, we may attempt to limit our risks associated with changes in currency exchange rates through both operational and financial market activities. Financial instruments are used to attempt to hedge existing exposures, firm commitments and, potentially, anticipated transactions. We use forward, option and swap contracts to reduce risk by essentially creating offsetting currency exposures. We held contracts against these risks with an aggregate notional amount of about $69 million at December 31, 2000 and $37 million at December 31, 2001. All of our contracts mature within one year. All of our contracts are marked to market monthly. Unrealized gains and losses on outstanding foreign currency contracts were nil at December 31, 2000 and 2001. We used a sensitivity analysis to assess the potential effect of changes in currency exchange rates and interest rates on reported earnings at December 31, 2001. Based on this analysis, a hypothetical 10% weakening or strengthening in the dollar across all other currencies would have changed our reported gross margin for 2001 by about $12 million. A hypothetical increase in interest rates of 100 basis points across all maturities would have increased our interest expense for 2001 by about $7 million. 110 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE ---- Independent Auditors' Reports.................................. 112 Consolidated Balance Sheets.................................... 114 Consolidated Statements of Operations.......................... 115 Consolidated Statements of Cash Flows.......................... 116 Consolidated Statements of Stockholders' Equity (Deficit)...... 117 Notes to Consolidated Financial Statements..................... 118 111 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders UCAR International Inc. Wilmington, Delaware We have audited the accompanying Consolidated Balance Sheet of UCAR International Inc. and Subsidiaries (the "Company") as of December 31, 2001, and the related Consolidated Statements of Operations, Cash Flows and Stockholders' Equity (Deficit), for the year then ended. These Consolidated Financial Statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, such Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company at December 31, 2001, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Nashville, Tennessee February 20, 2002 112 INDEPENDENT AUDITORS' REPORT To the Board of Directors UCAR International Inc.: We have audited the accompanying Consolidated Balance Sheet of UCAR International Inc. and Subsidiaries as of December 31, 2000, and the related Consolidated Statements of Operations, Cash Flows and Stockholders' Equity (Deficit) for each of the years in the two-year period ended December 31, 2000. These Consolidated Financial Statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the Consolidated Financial Statements referred to above present fairly, in all material respects, the financial position of UCAR International Inc. and Subsidiaries at December 31, 2000, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Nashville, Tennessee February 15, 2001 113 UCAR INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in millions, except per share data)
AT DECEMBER 31, --------------- 2000 2001 ---- ---- ASSETS Current assets: Cash and cash equivalents........................................ $ 47 $ 38 Notes and accounts receivable.................................... 121 95 Inventories: Raw materials and supplies..................................... 41 33 Work in process................................................ 103 111 Finished goods................................................. 31 33 ------ ------ 175 177 Prepaid expenses and deferred income taxes....................... 18 12 ------ ------ Total current assets........................................... 361 322 ------ ------ Property, plant and equipment........................................ 987 931 Less: accumulated depreciation...................................... 609 650 ------ ------ Net fixed assets............................................... 378 281 ------ ------ Other assets......................................................... 169 194 ------ ------ Total assets................................................... $ 908 $ 797 ====== ====== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable................................................. $ 99 $ 101 Short-term debt.................................................. 3 7 Payments due within one year on long term debt................... 27 - Accrued income and other taxes................................... 41 45 Other accrued liabilities........................................ 90 57 ------ ------ Total current liabilities...................................... 260 210 ------ ------ Long term debt....................................................... 705 631 Other long term obligations.......................................... 209 231 Deferred income taxes................................................ 36 32 Minority stockholders' equity in consolidated entities............... 14 25 Stockholders' deficit Preferred stock, par value $.01, 10,000,000 shares authorized, none issued................................................... - - Common stock, par value $.01, 100,000,000 shares authorized, 47,491,009 shares issued at December 31, 2000, 58,532,209 shares issued at December 31, 2001............................ - 1 Additional paid-in capital....................................... 525 629 Accumulated other comprehensive income (loss).................... (241) (269) Retained deficit................................................. (515) (602) Less: cost of common stock held in treasury, 2,319,482 shares at December 31, 2000, 2,322,412 shares at December 31, 2001... (85) (85) Common stock held in employee benefit trust, 426,400 shares at December 31, 2001............................................. - (6) ------ ------ Total stockholders' deficit...................................... (316) (332) ------ ------ Total liabilities and stockholders' deficit...................... $ 908 $ 797 ====== ======
See accompanying Notes to Consolidated Financial Statements. 114 UCAR INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in millions, except per share data)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 ---- ---- ---- Net sales............................................................... $ 831 $ 776 $ 654 Cost of sales........................................................... 565 560 469 Cost of sales - write-down of advanced graphite materials inventory..... 8 - - ---------- ----------- ---------- Gross profit......................................................... 258 216 185 Research and development................................................ 9 11 12 Selling, administrative and other expenses.............................. 86 86 78 Restructuring (credit) charges.......................................... (6) 6 12 Impairment loss on long-lived and other assets ......................... 35 3 80 Antitrust investigations and related lawsuits and claims................ - - 10 Securities class action and stockholder derivative lawsuits............. 13 (1) - Corporate realignment and related expenses................................. - - 2 Other (income) expense, net............................................. (9) - 1 ---------- ----------- ---------- Operating profit (loss).............................................. 130 111 (10) Interest expense........................................................ 84 75 60 ---------- ----------- ---------- Income (loss) before provision for income taxes, minority interest and extraordinary item............................................... 46 36 (70) Provision for income taxes.............................................. 1 10 15 ---------- ----------- ---------- Income (loss) before minority interest and extraordinary item........ 45 26 (85) Less: minority stockholders' share of income........................... 3 3 2 ---------- ----------- ---------- Income (loss) before extraordinary item.............................. 42 23 (87) Extraordinary item, net of tax.......................................... - 13 - ---------- ----------- ---------- Net income (loss).................................................. $ 42 $ 10 $ (87) ========== =========== ========== Earnings (loss) per common share: BASIC: - ----- Income (loss) before extraordinary item............................ $ 0.94 $ 0.51 $ (1.75) Extraordinary item, net of tax..................................... - (0.29) - ---------- ----------- ---------- Net income (loss) per share ....................................... $ 0.94 $ 0.22 $ (1.75) ========== =========== ========== DILUTED: - ------- Income (loss) before extraordinary item............................ $ 0.91 $ 0.50 $ (1.75) Extraordinary item, net of tax..................................... - (0.28) - ---------- ----------- ---------- Net income (loss) per share........................................ $ 0.91 $ 0.22 $ (1.75) ========== =========== ==========
See accompanying Notes to Consolidated Financial Statements. 115 UCAR INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions, except per share data)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 ---- ---- ---- Cash flow from operating activities: Net income (loss)................................................... $ 42 $ 10 $ (87) Extraordinary item, net of tax...................................... - 13 - Non-cash (credits) charges to net income (loss): Depreciation and amortization..................................... 45 43 36 Deferred income taxes............................................. (26) (25) (9) Securities class action and stockholder derivative lawsuits....... 13 (1) - Antitrust investigations and related lawsuits and claims....... - - 10 Restructuring charges (credit).................................... (6) 6 12 Impairment loss on long-lived and other assets.................... 35 3 80 Write-down of advanced graphite materials inventory............... 8 - - Other non-cash charges........................................... 26 6 13 Working capital*.................................................... (48) 43 (32) Long term assets and liabilities.................................... (9) (4) (6) ----- ----- ------- Net cash provided by operating activities......................... 80 94 17 ----- ----- ------- Cash flow from investing activities: Capital expenditures................................................ (56) (52) (40) Purchase of investment.............................................. - (1) (2) Purchases of short-term investments................................. (20) - - Maturities of short-term investments................................ 28 2 - Sale of assets...................................................... 9 1 3 ----- ----- ------- Net cash used in investing activities............................. (39) (50) (39) ----- ----- ------- Cash flow from financing activities: Short-term debt borrowings, net..................................... (18) 3 3 Revolving credit facility borrowings, net........................... (3) 56 7 Long term debt borrowings........................................... - 661 2 Long term debt reductions........................................... (59) (707) (96) Minority interest investment........................................ - - 9 Financing costs..................................................... - (28) (4) Sale of common stock................................................ 1 2 94 Dividends paid to minority stockholder.............................. (1) - - ----- ----- ------- Net cash provided by (used in) financing activities............... (80) (13) 15 ----- ----- ------- Net increase (decrease) in cash and cash equivalents................... (39) 31 (7) Effect of exchange rate changes on cash and cash equivalents........... (2) (1) (2) Cash and cash equivalents at beginning of period....................... 58 17 47 ----- ----- ------- Cash and cash equivalents at end of period............................. $ 17 $ 47 $ 38 ===== ===== ======= Supplemental disclosures of cash flow information: Net cash paid during the year for: Interest expense.................................................. $ 76 $ 81 $ 56 Income taxes...................................................... $ 33 $ 13 $ 25 * Net change in working capital due to the following components: (Increase) decrease in current assets: Notes and accounts receivable..................................... $ 15 $ 30 $ 20 Inventories....................................................... 33 18 (20) Prepaid expenses.................................................. 3 3 - Payments for antitrust investigations and related lawsuits and claims... (64) (23) (16) Payments for securities class action and stockholder derivative lawsuits (12) - - Restructuring payments.............................................. (23) (7) (18) Increase (decrease) in payables and accruals........................ - 22 2 ----- ----- ------- Working capital.............................................. $ (48) $ 43 $ (32) ===== ===== =======
See accompanying Notes to Consolidated Financial Statements. 116 UCAR INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Dollars in millions)
ACCUMULATED COMMON ADDITIONAL OTHER STOCK HELD TOTAL COMMON PAID-IN COMPREHENSIVE RETAINED TREASURY IN EMPLOYEE STOCKHOLDERS' STOCK CAPITAL INCOME (LOSS) DEFICIT STOCK BENEFIT TRUST DEFICIT ----- ------- ------------- ------- ----- ------------- ------- Balance at December 31, 1998.............. $ - $ 521 $ (157) $ (566) $ (85) $ - $ (287) Comprehensive income (loss): Net income........................... - - - 42 - - 42 Foreign currency translation adjustments........................ - - (48) - - - (48) ------ ------- -------- ------- ------- ------- -------- Total comprehensive income (loss)...... - - (48) 42 - - (6) Sale of common stock - treasury stock.. - - - (1) 1 - - Acquisition of common stock held in treasury............................. - 2 - - (2) - - ------ ------- -------- ------- ------- ------- -------- Balance at December 31, 1999.............. $ - $ 523 $ (205) $ (525) $ (86) $ - $ (293) ------ ------- -------- ------- ------- ------- -------- Comprehensive income (loss): Net income........................... - - - 10 - - 10 Other comprehensive income: Unrealized loss on available- for-sale securities.......... - - (1) - - - (1) Foreign currency translation adjustments.................. - - (35) - - - (35) ------ ------- -------- ------- ------- ------- -------- Total comprehensive income (loss)....... - - (36) 10 - - (26) Sale of common stock - stock options.... - 2 - - - - 2 Sale of common stock - treasury stock... - - - - 1 - 1 ------ ------- -------- ------- ------- ------- -------- Balance at December 31, 2000.............. $ - $ 525 $ (241) $ (515) $ (85) $ - $ (316) ------ ------- -------- ------- ------- ------- -------- Comprehensive income (loss): Net loss............................. - - - (87) - - (87) Other comprehensive income: Recognized loss on available- for-sale securities.......... - - 1 - - - 1 Foreign currency translation adjustments.................. - - (29) - - - (29) ------ ------- -------- ------- ------- ------- -------- Total comprehensive income (loss)..... - - (28) (87) - - (115) Sale of 2.5% equity interest in Graftech............................ - 4 - - - - 4 Common stock issued to Employee Benefit Trust..................... - 6 - - - (6) - Sale of common stock, net............. 1 94 - - - - 95 ------ ------- -------- ------- ------- ------- -------- Balance at December 31, 2001.............. $ 1 $ 629 $ (269) $ (602) $ (85) $ (6) $ (332) ====== ======= ======== ======= ======= ======= ========
See accompanying Notes to Consolidated Financial Statements. 117 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) DISCUSSION OF BUSINESS AND STRUCTURE IMPORTANT TERMS We use the following terms to identify various companies or groups of companies in the Consolidated Financial Statements. "UCAR" refers to UCAR International Inc. only. UCAR is our public parent company and the issuer of the publicly traded common stock covered by the Consolidated Financial Statements. We will request our stockholders to approve, at our Annual Meeting of Stockholders for 2002, a change in the name of UCAR to GrafTech International Ltd. "UCAR Global" refers to UCAR Global Enterprises Inc. only. UCAR Global is a direct, wholly-owned subsidiary of UCAR and the direct or indirect holding company for all of our operating subsidiaries. UCAR Global was the issuer of the previously outstanding 12% senior subordinated notes due 2005 (the "Subordinated Notes") and was the primary borrower under our prior senior secured bank credit facilities (the "Prior Senior Facilities"). "UCAR Carbon" refers to UCAR Carbon Company Inc. only. UCAR Carbon is our wholly owned subsidiary through which we conduct most of our U.S. operations. In connection with the corporate realignment of our subsidiaries as described below, UCAR Carbon will change its name to UCAR Technology Company Inc. and transfer its businesses to one or more newly formed wholly owned U.S. subsidiaries. "UCAR Finance" refers to UCAR Finance Inc. only. UCAR Finance is a direct, wholly owned special purpose finance subsidiary of UCAR and the borrower under our senior secured bank credit facilities (as amended, the "Senior Facilities"). UCAR Finance is the issuer of our outstanding 10.25% senior notes due 2012 (the "Senior Notes"). "Graftech" refers to Graftech Inc. only. Graftech is our 97.5% owned (wholly owned, prior to June 2001) subsidiary engaged in the development, manufacture and sale of natural graphite-based products. In connection with the corporate realignment of our subsidiaries as described below, Graftech will change its name to Graftech Technology Company Inc. and transfer its business to its newly formed 100% owned U.S. subsidiary (to be named Graftech Inc.). These companies will retain their names after UCAR International Inc. changes its name to GrafTech International Ltd. "Carbone Savoie" refers to Carbone Savoie S.A.S. only. Carbone Savoie is our 70% owned subsidiary engaged in the development, manufacture and sale of graphite and carbon cathodes. "Subsidiaries" refers to those companies which, at the relevant time, are or were majority owned or wholly owned directly or indirectly by UCAR or by its predecessors to the extent that those predecessors' activities related to the carbon and graphite business. All of UCAR's 118 subsidiaries have been wholly owned (with de minimis exceptions in the case of certain foreign subsidiaries) from at least January 1, 1998 through December 31, 2001, except for: o our German subsidiary, which was acquired in early 1997 and 70% owned until early 1999, when it became wholly owned to facilitate its liquidation; o Carbone Savoie, which has been and is 70% owned; and o Graftech, which was 100% owned until it became 97.5% owned in June 2001. Our 100% owned Brazilian cathode manufacturing operations were contributed to Carbone Savoie, and as a result became 70% owned, on March 31, 2001. "We," "us" or "our" refer to UCAR and its subsidiaries collectively or, if the context so requires, UCAR, UCAR Global or UCAR Finance, individually. We are realigning the corporate organizational structure of our subsidiaries. Upon completion of this corporate realignment, most of the businesses of each division will be segregated into separate companies along divisional lines. In addition, because most of the operations, net sales and growth opportunities of our Graphite Power Systems Division are located outside the U.S., most of its operations will be held by our Swiss subsidiary or its subsidiaries. Most of our technology will continue to be held by our U.S. subsidiaries. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Consolidated Financial Statements present our consolidated financial position, results of operations and cash flows at the dates and for the periods indicated. All significant intercompany transactions have been eliminated in consolidation. CASH EQUIVALENTS Cash equivalents are considered to be all highly liquid investments that are readily convertible to known amounts of cash and so near to maturity that they present insignificant risk of changes in value because of changes in interest rates. INVESTMENTS Investments in marketable equity securities are generally classified and accounted for as hold-to-maturity or available-for-sale. We determine the appropriate classification of debt and equity securities at the time of purchase and reassess the classification at each reporting date. Investments in debt securities classified as hold-to-maturity are reported at amortized cost plus accrued interest. Securities classified as available-for-sale are reported at fair value with unrealized gains and losses, net of related tax, recorded as a separate component of comprehensive income in the Consolidated Statement of Stockholders' Equity (Deficit) until realized. Interest and amortization of premiums and discounts for debt securities are included in interest expense. Gains and losses on securities sold are determined based on the specific identification method and are included in other (income) expense, net. For all investment 119 securities, unrealized losses that are other than temporary are recognized in net income (loss). We do not hold these securities for speculative or trading purposes. REVENUE RECOGNITION Sales of our products are recognized when persuasive evidence of an arrangement exists, delivery has occurred, title has passed, the revenue amount is determinable and collection is reasonably assured. Sales and licenses of technology are recognized over the term of the agreements. INVENTORIES Inventories are stated at cost or market, whichever is lower. Cost is determined on the "first-in first-out" ("FIFO") or the "average cost" method. FIXED ASSETS AND DEPRECIATION Fixed assets are carried at cost. Expenditures for replacements are capitalized and the replaced items are retired. Gains and losses from the sale of property are included in other (income) expense, net. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. We generally use accelerated depreciation methods for tax purposes, where appropriate. The average estimated useful lives are as follows: YEARS ----- Buildings...................................... 25 Land improvements.............................. 20 Machinery and equipment........................ 20 Furniture and fixtures......................... 10 Transportation equipment....................... 6 The carrying value of fixed assets is assessed when events and circumstances indicating impairment are present. We determine such impairment by measuring undiscounted estimated future cash flows. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed are reported at the lower of the carrying amount or fair value less costs to sell. GOODWILL Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally 20 years. When circumstances warrant, we assess the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can 120 be recovered through undiscounted future operating cash flows of the acquired assets. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows of the acquired assets, at our internal rate of return. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Under the statement, goodwill and certain other intangibles will no longer be amortized; however, they must be tested for impairment at least annually. Amortization will continue to be recorded for other intangible assets with determinable lives. We will adopt the statement effective January 1, 2002. Goodwill amortization expense in 2001 was approximately $2 million. We anticipate that the goodwill impairment provisions of the statement will not have a significant impact on our consolidated financial position or results of operations except that we will no longer amortize goodwill. DERIVATIVE FINANCIAL INSTRUMENTS Effective January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. The adoption did not have a significant impact on our consolidated financial position or results of operations. We do not use derivative financial instruments for trading purposes. They are used to manage well-defined currency exchange rate risks and interest rate risks. We enter into foreign currency instruments to manage exposure to currency exchange rate fluctuations. These foreign currency instruments, which include forward exchange contracts, purchased currency options and currency option collars, attempt to hedge primarily U.S. dollar-denominated debt held by several of our foreign subsidiaries and identifiable foreign currency receivables, payables and commitments held by our foreign and domestic subsidiaries. Forward exchange contracts are agreements to exchange different currencies at a specified future date and at a specified rate. Purchased foreign currency options are instruments which give the holder the right, but not the obligation, to exchange different currencies at a specified rate at a specified date or over a range of specified dates. Currency option collars are financial arrangements for simultaneous purchases and sales of currency options having the same maturity and the same principal amount. The result is the creation of a range in which a best and worst price is defined, while minimizing option cost. Forward exchange contracts, purchased currency options and currency option collars are carried at market value. Gains and losses due to the recording of such contracts at fair value are recognized currently as other (income) expense, net. We enter into agreements with financial institutions that are intended to limit, or cap, our exposure to the incurrence of additional interest expense due to increases in variable interest rates. Since we deal with counterparties that are major banks, we do not anticipate credit-related losses from non-performance by such counterparties. RESEARCH AND DEVELOPMENT Research and development costs are charged to expense as incurred. 121 INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it is determined that it is more likely than not that any portion of a recorded deferred tax asset will not be realized. STOCK-BASED COMPENSATION PLANS We account for stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). As such, compensation expense is recorded on the date of grant only if the market price of the underlying stock exceeded the exercise price or if ultimate vesting is subject to performance conditions. The total amount of recorded compensation expense, if any, is based on the number of awards that eventually vest. No compensation expense is recognized for forfeited awards, failure to satisfy a service requirement or failure to satisfy a performance condition. Our accruals of compensation expense for awards subject to performance conditions are based on our assessment of the probability of satisfying the performance conditions. As of December 31, 2001, all performance options were fully vested. RETIREMENT PLANS The cost of pension benefits under our retirement plans is recorded in accordance with SFAS No. 87, "Employee Accounting for Pensions" as determined by independent actuarial firms using the "projected unit credit" actuarial cost method. Contributions to the U.S. retirement plan are made in accordance with the requirements of the Employee Retirement Income Security Act of 1974. Plan settlements and curtailments are recorded in accordance with SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and Termination Benefits." POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS The estimated cost of future medical and life insurance benefits is determined by independent actuarial firms using the "projected unit credit" actuarial cost method. Such costs are recognized as employees render the service necessary to earn the postretirement benefits. Benefits have been accrued, but not funded. Effective November 1, 2001, the U.S. plan was modified to limit our cost of future annual retiree medical benefits at the 2001 cost and is accounted for prospectively. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS Our operations are governed by laws addressing protection of the environment and worker safety and health. Under various circumstances, these laws provide for civil and criminal 122 penalties and fines, as well as injunctive and remedial relief, for noncompliance and require remediation at sites where company-related substances have been released into the environment. We have been in the past, and may become in the future, the subject of formal or informal enforcement actions or proceedings regarding noncompliance with these laws or the remediation of company-related substances released into the environment. Such matters typically are resolved by negotiation with regulatory authorities resulting in commitments to compliance, abatement or remediation programs and in some cases payment of penalties. Historically, neither the commitments undertaken nor the penalties imposed on us have been material. Environmental considerations are part of all significant capital expenditure decisions. Environmental remediation, compliance and management expenses were approximately $12 million and $14 million in 2001 and 2000, respectively. The accrued liability relating to environmental matters increased to $5 million at December 31, 2001 from $1 million at December 31, 2000. The change was primarily due to a reclassification of $4 million from the accrual for restructuring costs. A charge to income is recorded when it is probable that a liability has been incurred and the cost can be reasonably estimated. Our environmental liabilities do not take into consideration any possible recoveries of future insurance proceeds. Because of the uncertainties associated with environmental remediation activities at sites where we may be potentially liable, future expenses to remediate identified sites could be considerably higher than the accrued liability. However, while neither the timing nor the amount of ultimate costs associated with known environmental remediation matters can be determined at this time, we do not expect that these matters will have a material adverse effect on our financial position, results of operations or cash flows. POST-EMPLOYMENT BENEFITS We accrue post-employment benefits expected to be paid before retirement, principally severance, over employees' active service periods. USE OF ESTIMATES We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the Consolidated Financial Statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATION Certain amounts previously reported have been reclassified to conform to the current year presentation. FOREIGN CURRENCY TRANSLATION Generally, except for operations in Russia where high inflation has existed, unrealized gains and losses resulting from translation of the financial statements of our foreign subsidiaries from their functional currencies into dollars are accumulated in other comprehensive income on 123 the Consolidated Balance Sheets until such time as the operations are sold or substantially or completely liquidated. Translation gains and losses relating to operations, where high inflation has existed, are included in other (income) expense, net in the Consolidated Statements of Operations. Our Mexican subsidiary began using the dollar as its functional currency during 1999, as its sales and purchases are predominantly dollar-denominated. Prior to August 1, 2000, our Swiss subsidiary used the dollar as its functional currency. Beginning August 1, 2000, our Swiss subsidiary began using the euro as its functional currency because its operations became predominantly euro-dominated. We have designated [euro]125 million of our Tranche A Term Loans as a net equity hedge for our net investments in Europe. The currency effects of the debt obligations are reflected in accumulated other comprehensive income (loss) in the Consolidated Statement of Stockholders' Equity (Deficit) where they offset gains and losses recorded on the net investment in Europe. NEW ACCOUNTING STANDARDS In August 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets, excluding goodwill and other intangible assets not being amortized pursuant to SFAS No. 142, and certain other assets. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. We will adopt the statement effective January 1, 2002. We anticipate that the statement will not have a significant impact on our consolidated financial position or results of operations. In July 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. SFAS No. 143 will be effective for all financial statements for fiscal years beginning after June 15, 2002. We anticipate that the statement will not, upon adoption, have a significant impact on our consolidated financial position or results of operations. In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," both of which are effective for all fiscal years beginning after December 15, 2001. These statements establish accounting and reporting standards for business combinations, goodwill and intangible assets. We will adopt these statements effective January 1, 2002. We anticipate that the statements will not have a significant impact on our consolidated financial position or results of operations except that we will no longer amortize goodwill. In September 2000, FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," a replacement of SFAS No. 125, which has the same title. SFAS No. 140 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings, and requires certain additional disclosures. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001, and is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of 124 SFAS No. 140 did not have a significant impact on our consolidated financial position or results of operations. (3) FINANCIAL INSTRUMENTS We do not use derivative financial instruments for trading purposes. They are used to manage well-defined currency exchange rate and interest rate risks. FOREIGN CURRENCY CONTRACTS The amount of foreign exchange contracts used by us to minimize foreign currency exposure was $69 million at December 31, 2000 and $37 million at December 31, 2001. Contracts hedging U.S. dollar-denominated debt totaled $61 million at December 31, 2000 and nil at December 31, 2001. Of the total foreign exchange contracts outstanding approximately $9 million (13%) were offsetting at December 31, 2000 and approximately $4 million (11%) were offsetting at December 31, 2001. SALE OF RECEIVABLES Certain of our U.S. and foreign subsidiaries sold receivables of $79 million in 1999, $152 million in 2000 and $223 million in 2001. Receivables sold and remaining on the Consolidated Balance Sheets were nil at December 31, 1999, nil at December 31, 2000, and $1 million at December 31, 2001. INTEREST RATE RISK MANAGEMENT We periodically enter into agreements with financial institutions which are intended to limit, or cap, our exposure to the incurrence of additional interest expense due to increases in variable interest rates. At December 31, 2001, we had outstanding interest rate caps of $100 million and [euro]200 million limiting our floating interest rate factor on related debt to a weighted-average rate of 5.0% (where the interest on the debt is based on LIBOR) and 5.0% (where the interest on the debt is based on euro LIBOR) through various dates ending June 2002. Fees related to these agreements are charged to interest expense over the term of the agreements. FAIR MARKET VALUE DISCLOSURES SFAS No. 107, "Disclosure about Fair Market Value of Financial Instruments," defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. Such fair values must often be determined by using one or more methods that indicate value based on estimates of quantifiable characteristics as of a particular date. Values were estimated as follows: CASH AND CASH EQUIVALENTS, SHORT-TERM NOTES AND ACCOUNTS RECEIVABLES, ACCOUNTS PAYABLE AND OTHER CURRENT PAYABLES-The carrying amount approximates fair value because of the short maturity of these instruments. DEBT-Fair values of debt and related interest rate risk agreements approximate carrying value at December 31, 2000 and 2001 because of the nature of the instruments. 125 FOREIGN CURRENCY CONTRACTS-Foreign currency contracts are carried at market value. The market value of the contracts was approximately $1 million at December 31, 2000 and nil at December 31, 2001. (4) SEGMENT REPORTING Beginning in the 2001 first quarter, we realigned our businesses into two new reportable segments: our Graphite Power Systems Division ("GPS") and our Advanced Energy Technology Division ("AET"). GPS includes our graphite and carbon electrode and cathode businesses serving primarily the steel, aluminum and ferroalloy industries. AET includes Graftech, our Advanced Graphite Materials and Advanced Carbon Materials business units (which includes our former graphite and carbon specialties businesses), and a new business unit called High Tech High Temp ("HT2") that markets technical solutions. These two segments are managed separately because of the different markets they serve and the different products and services they sell. Prior year segment information has been reclassified to conform to current year segment information. The accounting policies of the reportable segments are the same as those described in Note 2. We evaluate the performance of our operating segments based on gross profit. Intersegment sales and transfers are not material. The following tables summarize financial information concerning our reportable segments.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 ---- ---- ---- (Dollars in millions) Net sales to external customers: Graphite Power Systems Division................. $ 700 $ 651 $ 525 Advanced Energy Technology Division............. 131 125 129 ------ ------ ------ Consolidated net sales....................... $ 831 $ 776 $ 654 ====== ====== ====== Gross profit: Graphite Power Systems Division................. $ 236 $ 184 $ 147 Advanced Energy Technology Division............. 22 32 38 ------ ------ ------ Consolidated gross profit.................... $ 258 $ 216 $ 185 ====== ====== ====== Depreciation and amortization: Graphite Power Systems Division................. $ 39 $ 40 $ 31 Advanced Energy Technology Division............. 6 3 5 ------ -------- ------- Consolidated depreciation and $ 45 $ 43 $ 36 ====== ====== ======= amortization...............................
We do not report assets by business segment. Assets are managed based on geographic location because both business segments share certain facilities. The following tables summarize information as to our operations in different geographic areas: 126
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 ---- ---- ---- (Dollars in millions) Net sales (a): U.S............................................. $ 267 $ 240 $ 196 Canada.......................................... 50 34 21 Mexico.......................................... 49 43 33 Brazil.......................................... 48 46 44 France.......................................... 148 142 137 Italy........................................... 42 39 30 Switzerland .................................... 106 104 79 South Africa.................................... 61 59 53 Spain........................................... 29 31 29 Other countries................................. 31 38 32 ----- ------ ----- Total......................................... $ 831 $ 776 $ 654 ===== ====== =====
_________________________ (a) Net sales are based on location of seller.
AT DECEMBER 31, --------------- 1999 2000 2001 ---- ---- ---- (Dollars in millions) Long-lived assets (b): U.S............................................. $ 126 $ 115 $ 76 Mexico.......................................... 34 38 37 Brazil.......................................... 42 37 34 France.......................................... 95 93 94 Italy........................................... 35 31 6 South Africa.................................... 56 43 27 Switzerland..................................... 5 23 7 Other countries................................. 17 20 17 ------ ------ ------ Total......................................... $ 410 $ 400 $ 298 ====== ====== ======
_________________________ (a) Long-lived assets represent net fixed assets and goodwill, net of accumulated amortization. (5) LONG TERM DEBT The following table presents our long term debt:
AT DECEMBER 31, --------------- 2000 2001 ---- ---- (Dollars in millions) Senior Facilities: Tranche A Euro Facility...................................... $ 239 $ 194 Tranche A USD Facility....................................... 54 23 Tranche B USD Facility....................................... 346 313 Revolving Facility........................................... 88 95 ------ ----- Total Senior Facilities................................... 727 625 Switzerland mortgage and other European debt.................... 5 6 ------ ----- Subtotal................................................... 732 631 Less: payments due within one year............................. 27 - ------ ----- Total.................................................... $ 705 $ 631 ====== =====
127 See Note 18 for a description of the issuance of $400 million of Senior Notes in the 2002 first quarter. The Senior Facilities, as amended, consist of: o A Tranche A Facility providing for initial term loans of $137 million and of [euro]161 million (equivalent to $158 million based on currency exchange rates in effect at February 22, 2000) to UCAR Finance. The Tranche A Facility amortizes in quarterly installments over six years, commencing June 30, 2000, with quarterly installments ranging from about $2 million in 2000 to about $17 million in 2005, with the final installment payable on December 31, 2005. In October 2000, we converted $78 million from dollar-denominated to euro-denominated debt. o A Tranche B Facility providing for initial term loans of $350 million to UCAR Finance. The Tranche B Facility amortizes over eight years, commencing June 30, 2000, with nominal quarterly installments during the first six years, and quarterly installments of about $41 million in 2006 and 2007, with the final installment payable on December 31, 2007. o A Revolving Facility providing for revolving and swingline loans to, and the issuance of dollar-denominated letters of credit for the account of, UCAR Finance and certain of our other subsidiaries in an aggregate principal and stated amount at any time not to exceed [euro]250 million. The Revolving Facility terminates on February 22, 2006. As a condition to each borrowing under the Revolving Facility, we are required to represent, among other things, that the aggregate amount of payments made (excluding certain imputed interest) and additional reserves created in connection with antitrust, securities and stockholder derivative investigations, lawsuits and claims do not exceed $340 million by more than $130 million (which $130 million is reduced by the amount of certain debt (excluding the Senior Notes) incurred by us that is not incurred under the Senior Facilities). After completion of our public offering of common stock in July 2001, our private offering of Senior Notes in February 2002 and the initial application of the net proceeds therefrom, the aggregate principal payments due on the Tranche A and Tranche B Term Loans are: no payments in 2002, 2003 or 2004, $26 million in 2005, $26 million in 2006 and $164 million in 2007. We are required to make mandatory prepayments in the amount of: o Either 75% or 50% (depending on our leverage ratio, which is the ratio of our adjusted net debt to our adjusted total EBITDA) of adjusted excess cash flow. The obligation to make these prepayments, if any, arises after the end of each year with respect to adjusted excess cash flow during the prior year. o 100% of the net proceeds of certain asset sales or incurrence of certain indebtedness. o 50% of the net proceeds of the issuance of any UCAR equity securities (60%, in the case of the net proceeds from our public offering of common stock in July 2001). 128 We may make voluntary prepayments under the Senior Facilities. There is no penalty or premium due in connection with prepayments (whether voluntary or mandatory). UCAR Finance makes secured and guaranteed intercompany loans of the net proceeds of borrowings under the Senior Facilities to UCAR Global's subsidiaries. The obligations of UCAR Finance under the Senior Facilities are secured, with certain exceptions, by first priority security interests in all of these intercompany loans (including the related security interests and guarantees). Following completion of the sale of the Senior Notes, these intercompany loans consist of intercompany revolving loans to UCAR Carbon and our Swiss subsidiary. UCAR has unconditionally and irrevocably guaranteed the obligations of UCAR Finance under the Senior Facilities. This guarantee is secured, with certain exceptions, by first priority security interests in all of the outstanding capital stock of UCAR Global and UCAR Finance, all of the intercompany debt owed to UCAR and UCAR's interest in the lawsuit initiated by us against our former parents. UCAR, UCAR Global and each of UCAR Global's subsidiaries has guaranteed, with certain exceptions, the obligations of UCAR Global's subsidiaries under the intercompany loans, except that our foreign subsidiaries have not guaranteed the intercompany loan obligations of our U.S. subsidiaries. The obligations of UCAR Global's subsidiaries under the intercompany loans as well as these guarantees are secured, with certain exceptions, by first priority security interests in substantially all of our assets, except that no more than 65% of the capital stock or other equity interests in our foreign subsidiaries held directly by our U.S. subsidiaries and no other foreign assets secure obligations or guarantees of our U.S. subsidiaries. The interest rates, as amended, applicable to the Tranche A and Revolving Facilities are, at our option, either euro LIBOR plus a margin ranging from 1.375% to 3.375% (depending on our leverage ratio) or the alternate base rate plus a margin ranging from 0.375% to 2.375% (depending on our leverage ratio). The interest rate applicable to the Tranche B Facility is, at our option, either euro LIBOR plus a margin ranging from 2.875% to 3.625% (depending on our leverage ratio) or the alternate base rate plus a margin ranging from 1.875% to 2.625% (depending on our leverage ratio). The alternate base rate is the higher of the prime rate announced by JP Morgan Chase Bank or the federal funds effective rate, plus 0.50%. UCAR Finance pays a per annum fee ranging from 0.375% to 0.500% (depending on our leverage ratio) on the undrawn portion of the commitments under the Revolving Facility. At December 31, 2001, the interest rates on outstanding debt under the Senior Facilities were: Tranche A euro Facility, 6.4%; Tranche A dollar Facility, 4.9%; Tranche B Facility, 5.6%; and Revolving Facility, 5.2%. The weighted average interest rate on the Senior Facilities was 8.1% during 2001. We enter into agreements with financial institutions, which are intended to limit, or cap, our exposure to incurrence of additional interest expense due to increases in variable interest rates. Use of these agreements is allowed with the Senior Facilities. 129 The Senior Facilities contain a number of significant covenants that, among other things, restrict our ability to sell assets, incur additional indebtedness, repay or refinance other debt or amend other debt instruments, create liens on assets, enter into leases, investments or acquisitions, engage in mergers or consolidations, make capital expenditures, make dividend payments to UCAR, pay intercompany debt owed to UCAR, engage in transactions with affiliates, or pay dividends or make other restricted payments and that otherwise restrict corporate activities. In addition, we are required to comply with specified minimum interest coverage and maximum leverage ratios, which become more restrictive over time, beginning December 31, 2002. In addition to the failure to pay principal, interest and fees when due, events of default under the Senior Facilities include: failure to comply with applicable covenants; failure to pay when due, or other defaults permitting acceleration of, other indebtedness exceeding $7.5 million; judgment defaults in excess of $7.5 million to the extent not covered by insurance; certain events of bankruptcy; and certain changes in control. Under the Senior Facilities, UCAR is permitted to pay dividends on, and repurchase, common stock in an aggregate annual amount of $25 million, plus up to an additional $25 million if certain leverage ratio and excess cash flow requirements are satisfied. We are also permitted to repurchase common stock from present or former directors, officers or employees in an aggregate amount of up to the lesser of $5 million per year (with unused amounts permitted to be carried forward) or $25 million on a cumulative basis since February 22, 2000. We are highly leveraged and, as discussed in Note 14, have substantial obligations in connection with antitrust investigations, lawsuits and claims. We had total debt of $638 million and a stockholders' deficit of $332 million at December 31, 2001. Our leverage and obligations, as well as changes in conditions affecting our industry, changes in global and regional economic conditions and other factors, have adversely impacted our recent operating results. We use, and are dependent on, funds available under our revolving credit facility, including continued compliance with the financial covenants under the Senior Facilities, as well as monthly or quarterly cash flow from operations as our primary sources of liquidity. Our high leverage and substantial obligations in connection with antitrust investigations, lawsuits and claims could have a material impact on our liquidity. Cash flow from operations services payment of our debt and these obligations, thereby reducing funds available to us for other purposes. Our leverage and these obligations make us more vulnerable to economic downturns or in the event that these obligations are greater or timing of payment is sooner than expected. Our ability to service our debt, as it comes due, including maintaining compliance with the covenants under the Senior Facilities, and to meet these and other obligations as they come due is dependent on our future financial and operating performance. This performance, in turn is subject to various factors, including certain factors beyond our control, such as changes in conditions affecting our industry, changes in global and regional economic conditions, changes in interest and currency exchange rates, developments in antitrust investigations, lawsuits and claims involving us and inflation in raw material, energy and other costs. 130 Even if we are able to meet our debt service and other obligations when due, we may not be able to comply with the financial covenants under the Senior Facilities. A failure to so comply, unless waived by the lenders thereunder, would be a default thereunder. This would permit the lenders to accelerate the maturity of substantially all of our debt. It would also permit them to terminate their commitments to extend credit under our revolving credit facility. This would have an immediate material adverse effect on our liquidity. If we were unable to repay our debt to the lenders, the lenders could proceed against the collateral securing the Senior Facilities and exercise all other rights available to them. The Senior Facilities require us to, among other things, comply with specified minimum interest coverage and maximum leverage ratios. In October 2000, the Senior Facilities were amended to, among other things, increase the maximum leverage ratio permitted thereunder through June 30, 2001. In connection therewith, we paid an amendment fee of $2 million and the margin which is added to either euro LIBOR or the alternate base rate in order to determine the interest rate payable thereunder increased by 25 basis points. In April 2001, the Senior Facilities were amended to, among other things, exclude certain expenses incurred in connection with the lawsuit initiated by us against our former parents (up to a maximum of $20 million, but not more than $3 million in any quarter) and certain charges and payments in connection with antitrust fines, settlements and expenses from the calculation of financial covenants. Charges (over and above $340 million charge recorded in 1997) recorded on or before June 30, 2002 for antitrust fines, settlements and expenses are excluded from the calculation of financial covenants (until paid) up to a maximum of $130 million (reduced by the amount of certain debt, other than the Senior Notes, incurred by us that is not incurred under the Senior Facilities, $6 million of which debt was outstanding at December 31, 2001). The fine assessed by the antitrust authority of the European Union, as well as the additional $10 million charge recorded in July 2001 and any payments related to such fine (including payments within the $340 million charge recorded in 1997), are excluded from the calculation of financial covenants through June 30, 2002. In July 2001, the Senior Facilities were amended to, among other things, change our financial covenants so that they were less restrictive through 2006 than would otherwise have been the case. In connection therewith, we have agreed that our investments in Graftech and any of our other unrestricted subsidiaries after this amendment will be made in the form of secured loans, which will be pledged to secure the Senior Facilities, and the maximum amount of capital expenditures permitted under the Senior Facilities would be reduced in 2001 and 2002. We do not expect that our capital expenditures would exceed such maximums. In connection therewith, we paid an amendment fee of $2 million and the margin which is added to either euro LIBOR or the alternate base rate in order to determine the interest rate payable thereunder increased by 25 basis points. In December 2001, the Senior Facilities were amended to, among other things, permit the corporate realignment of our subsidiaries. In connection therewith, we paid an amendment fee of $1 million. In February 2002, the Senior Facilities were amended to, among other things, permit us to issue senior notes (in an amount not to exceed $400 million), to pledge certain unsecured 131 intercompany term notes and unsecured guarantees of those notes to secure such senior notes, to have certain U.S. subsidiaries holding a majority of our U.S. assets guarantee such senior notes and to have those U.S. subsidiaries pledge shares of Graftech to secure such guarantees. Furthermore, the amendment permitted the net proceeds from the sale of such senior notes to be applied as described elsewhere in these Notes. In connection with this amendment, our maximum permitted leverage ratio was substantially increased and our minimum required interest coverage ratio was substantially decreased while maintaining full availability of our revolving credit facility. The amendment also changed the manner in which net debt and EBITDA are calculated to exclude certain fees, costs and expenses (including fees of counsel and experts) in connection with the lawsuit initiated by us against our former parents as well as any letter of credit issued to secure payment of the antitrust fine assessed against us by the antitrust authority of the European Union. In addition, the amendment expanded our ability to make certain investments, including investments in Graftech, and eliminate provisions relating to a spin-off of Graftech. In connection therewith, we paid an amendment fee of $1 million and the margin which is added to either euro LIBOR or the alternate base rate in order to determine the interest rate payable thereunder increased by 37.5 basis points. EQUITY OFFERING On July 31, 2001, we sold an aggregate of 10,350,000 shares of our common stock in a registered public offering at a public offering price of $9.50 per share. The gross proceeds from the offering were $98 million and the net roceeds to us were $91 million. Sixty percent of the net proceeds were used to prepay term loans under the Senior Facilities. Prepayments of $23 million under the Tranche A Facility and $32 million under the Tranche B Facility were applied against scheduled maturities of each Tranche in the order in which they were due. The balance of the net proceeds were applied to reduce the outstanding balance under the Revolving Facility. SUBORDINATED NOTES UCAR Global redeemed $200 million aggregate principal amount of Subordinated Notes in whole as part of our debt recapitalization on February 22, 2000 at a redemption price of 104.5% of the principal amount plus accrued and unpaid interest. Interest on the Subordinated Notes was payable semiannually at the rate of 12% per annum. The Subordinated Notes were to mature on January 15, 2005. EXTRAORDINARY ITEMS In February 2000, we recorded an extraordinary charge of $21 million ($13 million after tax) related to our debt recapitalization. The extraordinary charge includes $5 million of bank and third party fees and expenses, $9 million of redemption premium on the Subordinated Notes, and write off of $7 million of deferred debt issuance costs. OTHER Our weighted-average interest rate on short-term borrowings outstanding was 9.4% at December 31, 2000 and 6.3% at December 31, 2001. 132 In the 2000 third quarter, pursuant to our debt recapitalization in February 2000, our Italian subsidiary entered into a $15 million long term debt arrangement with a third party lender. We also placed on deposit with the third party lender funds in the same amounts, which secure repayment of the debt. Since we have the legal right to set off the deposited funds against the debt, and the intent to do so, such amounts have been netted and are not reflected separately in the Consolidated Balance Sheets. In February 2002, in connection with our corporate realignment of our subsidiaries, we exercised our right to setoff. (6) INCOME TAXES The following table summarizes the U.S. and non-U.S. components of income (loss) before provision for income taxes, minority interest and extraordinary items:
FOR THE YEAR ENDED DECEMBER 31, ------------ 1999 2000 2001 ---- ---- ---- (Dollars in millions) U.S....................................................... $ (84) $ (69) $ (136) Non-U.S................................................... 130 105 66 ------- ------- ------- $ 46 $ 36 $ (70) ======= ======= ======= Total income taxes were allocated as follows: FOR THE YEAR ENDED DECEMBER 31, ------------ 1999 2000 2001 ---- ---- ---- (Dollars in millions) Income from operations.................................... $ 1 $ 10 $ 15 Extraordinary items....................................... - (8) - ------- ------- ------- $ 1 $ 2 $ 15 ======= ======= ======= Income tax expense attributable to income from operations consists of: 1999 2000 2001 ---- ---- ---- (Dollars in millions) U.S. federal income taxes: Current.......................................... $ (8) $ 8 $ 1 Deferred......................................... (23) (23) (10) -------- ------- ------- $ (31) $ (15) $ (9) ======== ======= ======= Non-U.S. income taxes Current.......................................... $ 35 $ 27 $ 23 Deferred......................................... (3) (2) 1 ------- ------- ------- $ 32 $ 25 $ 24 ======= ======= =======
We have an income tax exemption from the Brazilian government on income generated from graphite electrode and cathode production through 2006 and 2005, respectively. The exemption reduced the net expense associated with income taxes by $5 million in 1999, $2 million in 2000 and $1 million in 2001. 133 In 1998, we obtained an income tax exemption from the Swiss government. The exemption reduced the net expense associated with income taxes by $9 million in 1999, $8 million in 2000 and $8 million in 2001. Income tax expense attributable to income from operations differed from the amounts computed by applying the U.S. federal income tax rate of 35% to pretax income from operations as a result of the following:
FOR THE YEAR ENDED DECEMBER 31, ------------ 1999 2000 2001 ---- ---- ---- (Dollars in millions) Tax at statutory U.S. federal rate...................................... $ 16 $ 13 $ (24) Nondeductible expenses associated with antitrust investigations and related lawsuits and claims........................................ 2 1 5 State tax benefit (net of federal tax benefit).......................... - - (5) Restructuring charges with no tax benefit............................... - - 9 Adjustments related to investment in subsidiaries....................... - - 26 U.S. operating loss..................................................... 32 - - Impact of dividend of foreign earnings ................................. - 22 9 Foreign operating losses with no benefit provided....................... (9) - - Non U.S. tax exemptions and holidays.................................... (14) (10) (9) Adjustments to deferred tax asset valuation allowance................... (17) (20) (3) Other................................................................... (9) 4 7 ---- ---- ---- $ 1 $ 10 $ 15 ==== ==== ====
The significant components of deferred income tax expense attributable to income from operations are as follows:
FOR THE YEAR ENDED DECEMBER 31, ------------ 1999 2000 2001 ---- ---- ---- (Dollars in millions) Deferred tax expense (exclusive of the effects of changes in the valuation allowance described below)............................................... $ (9) $ (5) $ (6) Increase (decrease) in beginning of the year balance of the valuation allowance for deferred tax assets.................................. (17) (20) (3) ------- ------- ------- $ (26) $ (25) $ (9) ======= ======= =======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2000 and 2001 are as follows:
AT DECEMBER 31, --------------- 2000 2001 ---- ---- (Dollars in millions) Deferred tax assets: Fixed assets.......................................................... $ 9 $ 46 Estimated liabilities and expenses associated with antitrust investigations and related lawsuits and claims...................... 3 1 Postretirement and other employee benefits............................ 55 55
134
AT DECEMBER 31, --------------- 2000 2001 ---- ---- (Dollars in millions) Foreign tax credit and other carryforwards............................ 53 52 Provision for scheduled plant closings and other restructurings...................................................... 11 4 Other................................................................ 27 35 ------ ------ Total gross deferred tax assets..................................... 158 193 Less: valuation allowance.......................................... (21) (27) ------ ------ Total deferred tax assets......................................... $ 137 $ 166 ====== ======
AT DECEMBER 31, --------------- 2000 2001 ---- ---- (Dollars in millions) Deferred tax liabilities: Fixed assets.......................................................... $ 55 $ 44 Inventory............................................................. 8 6 Other................................................................. 4 4 ------ ------ Total deferred tax liabilities...................................... 67 54 ------ ------ Net deferred tax asset............................................ $ 70 $ 112 ====== ======
Deferred income tax assets and liabilities are classified on a net current and non-current basis within each tax jurisdiction. Net deferred income tax assets are included in prepaid expenses in the amount of $14 million at December 31, 2000 and $9 million at December 31, 2001 and in other assets in the amount of $97 million at December 31, 2000 and $140 million at December 31, 2001. Net deferred tax liabilities are included in accrued income and other taxes in the amount of $5 million at December 31, 2000 and $5 million at December 31, 2001 and separately stated as deferred income taxes in the amount of $36 million at December 31, 2000 and $32 million at December 31, 2001. During the 2000 fourth quarter, we entered into an intercompany sale leaseback transaction between two subsidiaries relating to a U.S. graphite electrode facility, which allowed for utilization of foreign tax credits. This transaction resulted in a tax effect of a book gain of $22 million being classified as a deferred charge, which was included in other assets and was to be amortized into income. In June 2001, as a result of the decision to shutdown this facility, the facility was sold back to the original subsidiary owner and impaired. Accordingly, we then recognized a deferred tax asset for the resulting tax basis in excess of the amount for financial reporting. The net change in the total valuation allowance for 2001 was an increase of $6 million. The change results from an increase in our Canadian net operating loss related to additional costs associated with the 1999 closure of our Canadian graphite electrode operations and the provision of an allowance related to the impairment and restructuring of our Italian graphite electrode operations. We have total excess foreign tax credit carryforwards of $45 million at December 31, 2001. Of these tax credit carryforwards, $5 million expire in 2002, $21 million expire in 2003, $14 million expire in 2004 and $5 million expire in 2006. On a recomputed basis, we used foreign tax credits to reduce U.S. current tax liabilities in the amount of $10 million in 1999, $40 million in 2000 and $16 million in 2001. Based upon the level of historical taxable income and projections for future taxable income over the periods during which these credits are utilizable, we believe it is more likely than not we will realize the benefits of these deferred tax assets net of the existing valuation allowances at December 31, 2001. Specifically, it is our intention to 135 pursue tax planning strategies and one time events in order to utilize our foreign tax credit carryforward prior to expiration. U.S. income taxes have not been provided on undistributed earnings of foreign subsidiaries. Our intention is to reinvest these undistributed earnings indefinitely. To the extent that our circumstances change or future earnings are repatriated, we will provide for income tax on the earnings of the effected foreign subsidiaries. We believe that any U.S. income tax on repatriated earnings would be substantially offset by U.S. foreign tax credits. (7) OTHER (INCOME) EXPENSE, NET The following table presents an analysis of other (income) expense, net:
FOR THE YEAR ENDED DECEMBER 31, ------------ 1999 2000 2001 ---- ---- ---- (Dollars in millions) Interest income............................................... $ (8) $ (6) $ (2) Currency (gains) losses....................................... (2) (4) (2) Bank fees..................................................... 2 2 2 Loss on sale of accounts receivable........................... 1 1 3 Amortization of goodwill...................................... 1 2 2 (Gain) loss on sale of assets................................. (3) 2 (1) Insurance related gains....................................... - (5) - Power of One initiative consulting fees....................... - 4 - Graftech initial public offering expenses..................... - 2 - Global integration project consulting fees.................... (1) - - Former parent company lawsuit legal expenses.................. - 3 1 Other......................................................... 1 (1) (2) ------- ------- ------- Total other (income) expense, net............................. $ (9) $ - $ 1 ======= ======= =======
(8) INTEREST EXPENSE The following table presents an analysis of interest expense:
FOR THE YEAR ENDED DECEMBER 31, ------------ 1999 2000 2001 ---- ---- ---- (Dollars in millions) Interest incurred on debt..................................... $ 77 $ 69 $ 54 Amortization of debt issuance costs........................... 2 2 2 Interest imputed on antitrust fine............................ 5 4 4 ------- ------- ------- Total interest expense................................... $ 84 $ 75 $ 60 ======= ======= =======
136 (9) SUPPLEMENTARY BALANCE SHEET DETAIL
AT DECEMBER 31, --------------- 2000 2001 ---- ---- (Dollars in millions) Notes and accounts receivable: Trade............................................................. $ 105 $ 81 Other............................................................. 20 19 ------ ------ 125 100 Allowance for doubtful accounts................................... (4) (5) ------ ------ $ 121 $ 95 ====== ====== Property, plant and equipment: Land and improvements............................................. $ 41 $ 38 Buildings......................................................... 164 158 Machinery and equipment and other................................. 745 708 Construction in progress.......................................... 37 27 ------ ------- $ 987 $ 931 ====== ====== Other assets: Goodwill.......................................................... $ 34 $ 29 Accumulated amortization.......................................... (12) (12) ------ ------ Goodwill (net).................................................... 22 17 Deferred income taxes............................................. 97 140 Benefits protection trust......................................... 2 2 Long term receivables............................................. 5 6 Long term investments............................................. 1 6 Deferred charge related to sale leaseback......................... 22 - Capitalized bank fees............................................. 13 14 Other............................................................. 7 9 ------ ------ $ 169 $ 194 ====== ====== Accounts payable: Trade............................................................. $ 92 $ 96 Other............................................................. 7 5 ------ ------ $ 99 $ 101 ====== ====== Other accrued liabilities: Accrued accounts payable.......................................... $ 13 $ 19 Accrued imputed interest.......................................... 3 6 Payrolls.......................................................... 4 3 Restructuring..................................................... 26 12 Employee compensation and benefits................................ 14 9 Liabilities and expenses associated with antitrust investigations and related lawsuits and claims............................... 24 - Current portion of DOJ fine....................................... - 2 Other............................................................. 6 6 ------ ------ $ 90 $ 57 ====== ====== Other long term obligations: Postretirement benefits........................................... $ 83 $ 80 Employee severance costs.......................................... 4 4 Pension and related benefits...................................... 20 26
137
AT DECEMBER 31, --------------- 2000 2001 ---- ---- (Dollars in millions) Liabilities and expenses associated with antitrust investigations and related lawsuits and claims............................... 34 52 Long term portion of DOJ fine..................................... 49 47 Other............................................................. 19 22 ------ ------ $ 209 $ 231 ====== ======
The following table presents an analysis of the allowance for doubtful accounts:
AT DECEMBER 31, --------------- 1999 2000 2001 ---- ---- ---- (Dollars in millions) Balance at beginning of year..................................... $ 5 $ 5 $ 4 Additions........................................................ 1 1 2 Deductions....................................................... (1) (2) (1) ------- ------ ----- Balance at end of year........................................... $ 5 $ 4 $ 5 ======= ====== =====
(10) LEASES AND OTHER LONG TERM OBLIGATIONS Lease commitments under noncancelable operating leases extending for one year or more will require the following future payments:
(Dollars in millions) 2002........................................................................ $2 2003........................................................................ 2 2004........................................................................ 2 2005........................................................................ 1 2006........................................................................ 1 After 2006.................................................................. 1
Total lease and rental expenses under noncancelable operating leases extending one month or more were $5 million in 1999, $4 million in 2000 and $3 million in 2001. During 2001, we outsourced our information technology function to CGI Group Inc. ("CGI"), an information technology firm. Under this ten-year agreement, CGI will manage our data services, networks, desktops, telecommunications and legacy systems. The following is a schedule of future payments for base services:
(Dollars in millions) 2002........................................................................ $7 2003........................................................................ 6 2004........................................................................ 5 2005........................................................................ 5 2006........................................................................ 5 After 2006.................................................................. 22
In addition, we have committed to purchase $10 million in services above the base level over the term of the agreement. 138 (11) BENEFIT PLANS RETIREMENT PLANS AND POSTRETIREMENT BENEFIT PLANS Until February 25, 1991, we participated in the U.S. retirement plan of Union Carbide Corporation ("Union Carbide"). Effective February 26, 1991, we formed our own U.S. retirement plan which covers substantially all U.S. employees. Retirement and death benefits related to employee service through February 25, 1991 are covered by the Union Carbide plan. Benefits paid by the Union Carbide plan are based on final average pay through February 25, 1991, plus salary increases (not to exceed 6% per year) until January 26, 1995 when Union Carbide ceased to own at least 50% of the equity of UCAR. All our employees who retired prior to February 25, 1991 are covered under the Union Carbide plan. Pension benefits under our plan are based primarily on years of service and compensation levels prior to retirement. Net pension cost for our plan was $6 million in 1999, $7 million in 2000 and $7 million in 2001. Prior to January 1, 2002, our plan was a defined benefit plan. Effective January 1, 2002, a new defined contribution plan was established for U.S. employees. Some employees will have the option to remain in the defined benefit plan for five more years. At the end of five years, the value of the employees' retirement benefit will be frozen, and the employee will then begin participating in the defined contribution plan. Those employees without the option to remain in the defined benefit plan will begin participating in the defined contribution plan and their benefits under the defined benefit plan was frozen at December 31, 2001. Under the new defined contribution plan, we will make quarterly contributions to the individual employee account equal to 2.5% of the employee's pay up to the social security wage base ($84,000 in 2002) plus 5% of their pay above the social security wage base. Pension coverage for employees of foreign subsidiaries is provided, to the extent deemed appropriate, through separate plans. Obligations under such plans are systematically provided for by depositing funds with trustees, under insurance policies or by book reserves. Net pension costs for plans of foreign subsidiaries amounted to $2 million in 1999, nil in 2000 and $4 million in 2001 (which includes a $4 million settlement loss for the Canadian pension plan). The components of our consolidated net pension costs are as follows:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 ---- ---- ---- (Dollars in millions) Service cost...................................................... $ 7 $ 7 $ 7 Interest cost..................................................... 14 15 14 Expected return on assets......................................... (14) (15) (14) Amortization ..................................................... 1 - - Settlement (gain) loss............................................ (1) - 4 Curtailment loss.................................................. 1 - - ----- ----- ----- Net pension cost............................................. $ 8 $ 7 $ 11 ===== ===== =====
139 We also provide health care and life insurance benefits for eligible retired employees. These benefits are provided through various insurance companies and health care providers. We accrue the estimated net postretirement benefit costs during the employees' credited service periods. The components of our consolidated net postretirement benefit costs are as follows:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 ---- ---- ---- (Dollars in millions) Service cost....................................................... $ 2 $ 2 $ 2 Interest cost...................................................... 6 6 6 Amortization of prior service cost................................. (2) (1) (2) ----- ----- ----- Net postretirement benefit cost............................... $ 6 $ 7 $ 6 ===== ===== =====
The reconciliation of beginning and ending balances of benefit obligations under, and fair value of assets of, all of our pension and postretirement benefit plans, and the funded status of the plans, are as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS ---------------- ----------------------- AT DECEMBER 31, AT DECEMBER 31, --------------- --------------- 2000 2001 2000 2001 ---- ---- ---- ---- (Dollars in millions) Changes in benefit obligation: Net benefit obligation at beginning of year.......... $ 195 $ 205 $ 75 $ 83 Service cost......................................... 7 7 2 2 Interest cost........................................ 15 14 6 6 Plan amendments...................................... - - - (68) Foreign currency exchange rate changes............... (7) (8) (1) (2) Actuarial (gain) loss................................ 7 4 7 48 Curtailment.......................................... (1) - - - Settlement........................................... (1) (36) - - Gross benefits paid.................................. (10) (9) (6) (6) ------ ------ ------ ------ Net benefit obligation at end of year............ $ 205 $ 177 $ 83 $ 63 ====== ====== ====== ====== Changes in plan assets: Fair value of plan assets at beginning of year....... $ 191 $ 179 $ - $ - Actual return on plan assets......................... - (5) - - Foreign currency exchange rate changes............... (8) (10) - - Employer contributions............................... 7 8 5 6 Participants contributions........................... - - 1 - Settlement........................................... (1) (36) - - Gross benefits paid.................................. (10) (9) (6) (6) ------ ------ ------ ------ Fair value of plan assets at end of year......... $ 179 $ 127 $ - $ - ====== ====== ====== ====== Reconciliation of funded status: Funded status at end of year......................... $ (27) $ (50) $ (83) $ (63) Unrecognized net transition obligation (asset).......................................... (4) (2) - - Unrecognized prior service cost...................... 1 1 (3) (67) Unrecognized net actuarial (gain) loss............... 3 21 3 50 ------ ------ ------ ------ Net amount recognized at end of year............ $ (27) $ (30) $ (83) $ (80) ======= ====== ====== ======
140 Assumptions used to determine net pension costs, pension projected benefit obligation, net postretirement benefit costs and postretirement benefits projected benefit obligation are as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS ---------------- ----------------------- AT DECEMBER 31, AT DECEMBER 31, --------------- --------------- 2000 2001 2000 2001 ---- ---- ---- ---- Weighted average assumptions as of measurement date: Discount rate....................................... 7.44% 7.34% 7.69% 7.79% Expected return on plan assets ..................... 8.59% 8.59% - - Rate of compensation increase....................... 3.93% 4.73% 4.01% 3.39% Health care cost trend on covered charges: Initial....................................... N/A N/A 8.04% 6.88% Ultimate...................................... N/A N/A 5.80% 5.34% Years to ultimate............................. N/A N/A 6 6
Assumed health care cost trend rates have a significant effect on the amounts reported for net postretirement benefits. A one percentage point change in the health care cost trend rate would change the accumulated postretirement benefits net benefit obligation by approximately $5 million at December 31, 2000 and December 31, 2001 and change net postretirement benefit costs by approximately $1 million for both 2000 and 2001. OTHER NON-QUALIFIED PLANS Since January 1, 1995, we have established various unfunded, non-qualified supplemental retirement and deferred compensation programs for certain eligible employees. We established benefits protection trusts (the "Trust") to partially provide for the benefits of employees participating in these plans. At December 31, 2000 and 2001, the Trust had assets of approximately $2 million, which are included in other assets on the Consolidated Balance Sheets. In addition, we issued 426,400 shares of common stock to the Trust in March 2001. These shares, if later sold, could be used for partial funding of our future obligations under certain of our compensation and benefit plans. The shares held in trust are not considered outstanding for purposes of calculating earnings per share until they are committed to be sold or otherwise used for funding purposes. SAVINGS PLAN Our employee savings plan provides eligible employees the opportunity for long term savings and investment. Participating employees can contribute 1.0% to 7.5% of employee compensation as basic contributions and an additional 0.5% to 10.0% of employee compensation as supplemental contributions. For 2000 and 2001, we contributed on behalf of each participating employee an amount equal to 50% of the employee's basic contribution. We contributed $2 million in each of 1999 and 2000 and $1 million in 2001. 141 INCENTIVE PLANS In 1998, we implemented a global profit sharing plan for our worldwide employees. This plan is based on our global financial performance. The cost for this plan was nil 1999, $2 million in 2000 and nil in 2001. (12) RESTRUCTURING AND IMPAIRMENT CHARGES In the 2001 fourth quarter, we recorded a $7 million restructuring charge and a $27 million impairment loss on long-lived and other assets. The restructuring charge relates primarily to exit costs related to the mothballing of our graphite electrode operations in Caserta, Italy. Twenty-four million of the impairment loss on long-lived assets relates to assets located at our facility in Caserta. The remaining $3 million relates to impairment of available-for-sale securities. In the 2001 third quarter, we recorded a $2 million restructuring charge and impairment loss on long-lived assets related to our restructuring and realignment of our businesses into AET and GPS, the relocation of our corporate headquarters and the shutdown of our coal calcining operations located in Niagara Falls, New York. As part of the realignment, we have centralized management functions of AET in Cleveland, Ohio, and management functions of GPS in Etoy, Switzerland. We have relocated our corporate headquarters, consisting of approximately 10 employees, from Nashville, Tennessee, to Wilmington, Delaware. The relocation was substantially completed by the end of 2001. The charge includes severance and related benefits associated with a workforce reduction of 24 employees and impairment of leasehold improvement assets. In 2001 third quarter, we reversed $2 million of prior restructuring charges based on revised lower estimates of workforce reductions and plant closure costs, and we reclassified $4 million of prior restructuring charges related to on-site waste disposal post monitoring costs to the other long term obligations. In the 2001 second quarter, we recorded a $58 million charge for restructuring and impairment loss on long-lived assets related to the shutdown of our graphite electrode manufacturing operations in Clarksville and Columbia, Tennessee and our coal calcining operations in Niagara Falls, New York. The $58 million charge includes restructuring charges of $2 million for severance and related benefits associated with a workforce reduction of 171 employees and $3 million in plant shutdown and related costs. The remaining $53 million relates to the impairment loss on long-lived assets. The shutdown was completed on schedule by the end of the 2001 third quarter. In the 2000 fourth quarter, we recorded a charge of $4 million in connection with a corporate restructuring, mainly for severance and related benefits associated with a workforce reduction of 85 employees. The functional areas affected included finance, accounting, sales, marketing and administration. In 2001, we paid about $1 million of these expenses. In the 2001 third quarter, we revised the workforce reduction estimate to 45 employees and reversed a portion of the $4 million charge. The reversal is part of the $2 million reversal described above. 142 In the 2000 third quarter, we recorded an impairment loss on long-lived assets of $3 million in connection with the re-sourcing of our U.S. cathode production to our facilities in Brazil and France and the reduction of graphite electrode production capacity to accommodate such increased cathode production in Brazil and France. This non-cash charge related to the write off of certain long-lived assets located at one of our facilities in the U.S. The charge affected GPS. In the 2000 first quarter, we recorded a restructuring charge of $6 million in connection with a restructuring of our advanced graphite materials business. Key elements of the restructuring included elimination of certain product lines and rationalization of operations to reduce costs and improve profitability of remaining product lines. This rationalization included discontinuing certain manufacturing processes at one of our facilities in the U.S. that will be performed at our other facilities in the future. Based on subsequent developments in the 2000 third quarter, we decided not to demolish certain buildings. Therefore, in the 2000 third quarter, we reversed the $4 million of the charge related to demolition and related environmental costs. The $2 million balance of the charge included estimated severance costs for 65 employees. The restructuring was completed in 2000. During late 1999, our advanced graphite materials business experienced significant adverse changes in performance due to a decline in demand and prices for graphite specialties. In addition, performance adversely changed due to delays in bringing new or improved products to markets. This change indicated the need for assessing the recoverability of the long-lived assets of this business. These assets are located primarily at our plant in Clarksburg, West Virginia. We estimated the future undiscounted cash flows expected to result from the use of these assets and concluded they were below the respective carrying amounts. Accordingly, we recorded an impairment loss of $35 million for the unrecoverable portion of these assets, effectively writing down the carrying value of the fixed assets to their estimated fair value of $6 million. Additionally, an inventory write-down of $8 million was recorded to reduce their carrying amount to the lower of cost or market. In September 1998, we recorded a restructuring charge of $86 million in connection with a global restructuring and rationalization plan. The principal actions of the plan involved the closure of manufacturing operations at our facilities in Canada and Germany and the centralization and consolidation of administrative and financial functions. These actions eliminated 371 administrative and manufacturing positions. The $86 million charge consisted of a write-off of $29 million of assets and a reserve of $57 million for severance and related costs, plant shut down and related costs and post monitoring and environmental costs. During 1999, it was determined that plant closure activities were estimated to result in lower cash costs than originally anticipated. These savings represent lower net anticipated demolition costs resulting primarily from the outsourcing of a majority of the planned demolition at our Canadian plant and, to a lesser extent, lower severance related costs. These developments resulted in a net reduction of the restructuring cost estimate of $6 million in the 1999 third quarter. 143 Our German plant ceased production activities in 1998. Our Canadian plant ceased production activities in April 1999. In addition, the relocation of our corporate headquarters to Nashville, Tennessee was completed during 1999. The fair value of the long-lived assets was calculated on the basis of discounted estimated future cash flows. Estimates of the discounted future cash flows are subject to significant uncertainties and assumptions. Accordingly, actual values could vary significantly from such estimates. The following table summarizes activity relating to the accrued expense in connection with the restructuring charges.
SEVERANCE AND PLANT SHUTDOWN POST MONITORING RELATED COSTS AND RELATED COSTS AND RELATED COSTS TOTAL ----------------- ------------------- ------------------ ----------- (Dollars in millions) Restructuring charges in 1998............ $ 30 $ 18 $ 9 $ 57 Payments in 1999......................... (16) (3) (4) (23) Change in estimate and impact of currency rate charges in 1999................. (1) (5) - (6) ------ ------ ------ ----- Balance at December 31, 1999............. 13 10 5 28 Restructuring charges in 2000............ 6 3 1 10 Payments in 2000......................... (5) (1) (1) (7) Change in estimate and impact of currency rate changes in 2000................. (1) (3) (1) (5) ------ ------ ------ ----- Balance at December 31, 2000............. 13 9 4 26 Restructuring charges in 2001............ 4 8 - 12 Payments in 2001......................... (13) (5) - (18) Non-cash write-offs in 2001.............. - (4) - (4) Reclassification of on-site disposal and monitoring costs..................... - - (4) (4) ------ ------ ------ ----- Balance at December 31, 2001............. $ 4 $ 8 $ - $ 12 ====== ====== ====== =====
The restructuring accrual is included in other accrued liabilities on the Consolidated Balance Sheets. (13) MANAGEMENT COMPENSATION AND INCENTIVE PLANS STOCK OPTIONS We have adopted several stock option plans. The aggregate number of shares reserved under the plans since their initial adoption was 11,000,000 at December 31, 2000 and 14,500,000 at December 31, 2001. The plans permit options to be granted to employees and, in the case of one plan since March 1998, also to non-employee directors. In 1995, we granted 12-year options to management to purchase 4,761,000 shares at an exercise price of $7.60 per share, of which options for 3,967,400 shares vested at the time of our 144 initial public offering, and the balance were performance options, one half of which were to vest in each of 1998 and 1999 on achievement of designated EBITDA targets. In December 1997, UCAR's Board of Directors accelerated the vesting of the 1998 performance options. We did not achieve the 1999 performance targets and, accordingly, the 1999 performance options were cancelled. In 1996, we granted 10-year options to mid-management to purchase 960,000 shares at an exercise price of $35.00 per share, and granted additional 10-year options to mid-management to purchase 4,000 shares at an exercise price of $40.44 per share. In 1997, we granted 10-year options to mid-management to purchase 61,500 shares at an exercise price of $39.31 per share. The options vest eight years from the grant date. Accelerated vesting occurs if the market price of the common stock equals or exceeds specified amounts. At December 31, 2001, 456,350 of such options were vested. In 1997, we granted vested 10-year options to management to purchase 155,000 shares at an exercise price of $37.59 per share. At December 31, 2001, all such options were vested. In 1998, we granted 10-year options to purchase shares as follows: o Options for 641,000 shares were granted to certain officers and directors at exercise prices ranging from $29.22 to $34.36 per share. Options for 320,000 shares vest one year from the grant date, options for 221,000 shares vest two years from the grant date and options for 100,000 shares vest three years from the grant date. At December 31, 2001, all of such options were vested. o Options for 1,935,000 shares were granted to certain officers and management at exercise prices ranging from $15.50 to $17.06 per share. Options for 17,000 shares vested on the grant date, options for 628,000 shares vest after one year from the grant date, and all remaining options vest seven years from the grant date, subject to accelerated vesting if the market price for the common stock equals or exceeds specified amounts. At December 31, 2001, 1,847,996 of such options were vested. In 1999, we granted options to purchase shares as follows: o Options for 409,000 shares were issued to certain officers, management and directors at exercise prices ranging from $14.13 to $25.81 per share. Options for 45,359 shares vested on the grant date, options for 274,101 shares vest one year from the grant date, and all remaining options vest seven years from the grant date, subject to accelerated vesting if the market price for the common stock equals or exceeds specified amounts. At December 31, 2001, 322,592 of such options were vested. In 2000, we granted options to purchase shares as follows: o Options for 2,615,511 shares were issued to certain officers, management and directors at exercise prices ranging from $8.56 to $19.06 per share. Options for 2,070,100 shares vest two years from the grant date, options for 200,000 shares vest five years from the grant date, 175,901 shares vest one year from the grant date, options for 12,200 vested at the grant date, options for 35,040 shares vested ratably 145 over the course of the year and all remaining options vest seven years from the grant date, subject to accelerated vesting if the market price for the common stock equals or exceeds specified amounts. At December 31, 2001, 182,855 of such options were vested. In 2001, we granted options to purchase shares as follows: o Options for 1,755,170 shares were issued to certain officers, management and directors at exercise prices ranging from $8.56 to $11.95 per share. Options for 1,644,300 shares vest two years from the grant date and options for 110,870 shares vested at the grant date. At December 31, 2001, 110,870 of these options were vested. We apply APB 25 in accounting for our stock-based compensation expense plans. Accordingly, no compensation expense has been recognized for our time vesting options issued at not less than market value. If compensation expense for our stock-based compensation plans was determined by the fair value method prescribed by SFAS No. 123, "Accounting for Stock Based Compensation," our net income (loss) and net income (loss) per share would have been reduced or increased to the pro forma amounts indicated below:
FOR THE YEAR ENDED DECEMBER 31, ------------ 1999 2000 2001 ---- ---- ---- (Dollars in millions, except per share data) Net income (loss): As reported $ 42 $ 10 $ (87) Pro forma 40 9 (94) Diluted net income (loss) per share: As reported $ 0.91 $ 0.22 $ (1.75) Pro forma 0.87 0.20 (1.88)
A summary of the status of our stock-based compensation plans at the dates and for the period indicated is presented below:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 ------------------------- -------------------------- ------------------------ WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ ----- ------ ----- ------ ----- (Shares in thousands) Time vesting options: Outstanding at beginning of year............................... 5,826 $ 18.48 5,277 $ 20.15 7,842 $ 16.55 Granted at market price.............. 410 19.91 2,615 9.53 1,755 8.99 Granted at price exceeding market............................. - - - - - - Granted at price below market........ - - - - - - Exercised............................ (16) 13.85 (16) 13.81 (188) 7.60
146
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 ------------------------- -------------------------- ------------------------ WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ ----- ------ ----- ------ ----- (Shares in thousands) Forfeited/canceled................... (943) 10.19 (34) 32.37 (215) 17.12 -------- -------- -------- Outstanding at end of year......... 5,277 $ 20.15 7,842 $ 16.55 9,194 $ 15.28 ======== ======== ======== Options exercisable at year end................................ 4,176 $ 15.32 4,710 $ 18.65 5,309 $ 18.11 Weighted-average fair value of options granted during year: At market.......................... 11.64 5.97 5.58 Exceeding market................... - - - Below market....................... - - - Performance vesting options: Outstanding at beginning of year............................... 938 $ 7.60 546 $ 7.60 401 $ 7.60 Granted.............................. - - - - - - Exercised............................ (3) 7.60 (22) 7.60 (23) 7.60 Forfeited/canceled................... (389) 7.60 (123) 7.60 - - -------- -------- -------- Outstanding at end of year......... 546 7.60 401 7.60 378 7.60 ======== ======== ======== Options exercisable at year end................................ 428 $ 7.60 401 $ 7.60 378 $ 7.60
The fair value of each stock option is estimated on the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions for grants in 1999, 2000 and 2001, respectively: dividend yield of 0.0% for all years; expected volatility of 45% in 1999, 50% in 2000 and 52% in 2001; risk-free interest rates of 5.4% in 1999, 5.5% in 2000 and 4.8% in 2001; and expected lives of 8 years for all years. The following table summarizes information about stock options outstanding at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------- ------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICES EXERCISABLE PRICES --------------- ----------- ---- ------ ----------- ------ (Shares in thousands) Time vesting options: $7.60-8.90 4,892 5 years $ 8.43 1,748 $ 7.72 $11.60 to $19.06 2,636 7 years 16.28 2,216 16.96 $22.81 to $29.22 145 7 years 25.67 104 25.91 $30.59 to $40.44 1,521 5 years 34.38 1,241 34.15 ----- ------ 9,194 $15.28 5,309 $ 18.11 ===== =====
147
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------- ------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICES EXERCISABLE PRICES --------------- ----------- ---- ------ ----------- ------ (Shares in thousands) Performance vesting options: $7.60 378 5 years $ 7.60 378 $ 7.60
OTHER In 1998, we entered into a five-year employment agreement with our current president, chief executive officer and chairman of the board. Under our executive employee loan program, certain members of management borrowed less than $1 million in each of 1999 and 2000 and none in 2001. At December 31, 2001, $4 million was outstanding under this program. Also, under our executive employee stock purchase programs, certain members of management may purchase common stock at the fair market value on the date of purchase. Management purchased 26,804 shares in 1999, 18,556 shares in 2000 and none in 2001. (14) CONTINGENCIES ANTITRUST INVESTIGATIONS In April 1998, pursuant to a plea agreement between the Antitrust Division of the U.S. Department of Justice (the "DOJ") and UCAR, UCAR pled guilty to a one count charge of violating U.S. federal antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a non-interest-bearing fine in the aggregate amount of $110 million, payable in six annual installments of $20 million, $15 million, $15 million, $18 million, $21 million and $21 million, commencing July 23, 1998 (the "DOJ fine"). The plea agreement was approved by the U.S. District Court for the Eastern District of Pennsylvania (the "District Court") and, as a result, under the plea agreement, the Company will not be subject to prosecution by the DOJ with respect to any other violations of U.S. federal antitrust law occurring prior to April 1998. Payments due in 1998, 1999 and 2000 were timely made. At our request in January 2001, the due date of each of the remaining three payments was deferred by one year and that, at our request in January 2002, the payment schedule for the remaining $60 million due was changed as described in Note 18. In March 1999, pursuant to a plea agreement between our Canadian subsidiary and the Canadian Competition Bureau, our Canadian subsidiary pled guilty to a one count charge of violating Canadian antitrust law in connection with the sale of graphite electrodes and was sentenced to pay a fine of Cdn. $11 million. The relevant Canadian court approved the plea agreement and, as a result, under the plea agreement we will not be subject to prosecution by the Canadian Competition Bureau with respect to any other violations of Canadian antitrust law occurring prior to the date of the plea agreement. The fine was timely paid. 148 In October 1999, we became aware that the Korean antitrust authority had commenced an investigation as to whether there had been any violation of Korean antitrust law by producers and distributors of graphite electrodes. We have no facilities or employees in Korea. We have received requests for information from the Korean antitrust authority. We are cooperating with the Korean antitrust authority in its ongoing investigation. In connection therewith, we have produced and are producing documents and/or witnesses. In February 2002, we became aware that the Korean antitrust authority had issued its Examiner's Report alleging that we and other producers of graphite electrodes violated Korean antitrust law in connection with the sale of graphite electrodes. We believe that the maximum fine, if any, for such a violation is 5% of a company's sales of the relevant products in Korea during the period of the violation (or about $5 million in our case) and that any such fine would be subject to reduction for cooperation. In January 2000, the Directorate General-Competition of the Commission of the European Communities, the antitrust enforcement authority of the European Union (the "EU Competition Authority"), issued a statement of objections initiating proceedings against us and other producers of graphite electrodes. The statement alleges that we and other producers violated antitrust laws of the European Community and the European Economic Area in connection with the sale of graphite electrodes. On July 18, 2001, the EU Competition Authority issued its decision regarding the allegations. Under the decision, the EU Competition Authority assessed a fine of [euro]50.4 million (about $45 million based on currency exchange rates in effect at December 31, 2001) against us. Seven other graphite electrode producers were also fined under the decision, with fines ranging up to [euro]80.2 million. From the initiation of its investigation, we have cooperated with the EU Competition Authority. As a result of our cooperation, our fine reflects a substantial reduction from the amount that otherwise would have been assessed. It is the policy of the EU Competition Authority to negotiate appropriate terms of payment of antitrust fines including estimated payment terms. We are discussing payment terms with the EU Competition Authority. After an in-depth analysis of the decision, however, in October 2001, we filed an appeal to the Court of First Instance of the European Communities in Luxembourg challenging the amount of the fine. Appeals of this type may take two years or longer to be decided and the fine or collateral security therefor would typically be required to be paid or provided at about the time the appeal was filed. We are currently in discussions with the EU Competition Authority regarding the appropriate form of security for payment of the fine during the pendency of the appeal. If the results of these discussions are not acceptable to us, we may file an interim appeal with the Court to waive the requirement for security or to allow us to provide alternative security for payment. We cannot predict how or when the Court would rule on such interim appeal. In the 2001 second quarter, we learned that the Brazilian antitrust authority requested written information from various steelmakers in Brazil. We have not received a request for information from the Brazilian antitrust authority. Except as described above, the antitrust investigations against the Company in the U.S., Canada, the European Union and Japan have been resolved and all fines due have been timely paid. We are continuing to cooperate with some of the antitrust authorities in their continuing investigations of other producers and distributors of graphite electrodes. In October 1997, we were served with subpoenas by the DOJ to produce documents relating to, among other things, its carbon electrode and bulk graphite businesses. It is possible that antitrust investigations 149 seeking, among other things, to impose fines and penalties could be initiated by antitrust authorities in Brazil or other jurisdictions. The guilty pleas and decisions described above make it more difficult for us to defend against other investigations as well as civil lawsuits and claims. We have been vigorously protecting, and intend to continue to vigorously protect, our interests in connection with the investigations described above. We may, however, at any time settle any possible unresolved charges. ANTITRUST LAWSUITS Through December 31, 2001, except as described in the following paragraphs, we have settled or obtained dismissal of all of the civil antitrust lawsuits (including class action lawsuits) previously pending against us, certain threatened civil antitrust lawsuits threatened against us and certain possible antitrust claims against us by certain customers who negotiated directly with us. The settlements cover, among other things, virtually all of the actual and potential claims against us by customers in the U.S. and Canada arising out of alleged antitrust violations occurring prior to the date of the relevant settlement in connection with the sale of graphite electrodes. One of the settlements also covers the actual and potential claims against us by certain foreign customers arising out of alleged antitrust violations occurring prior to the date of that settlement in connection with the sale of graphite electrodes sourced from the U.S. Although each settlement is unique, in the aggregate they consist primarily of current and deferred cash payments with some product credits and discounts. All fines and settlement payments due thereunder have been timely made. In 1999 and 2000, we and other producers of graphite electrodes were served with three complaints commencing three separate civil antitrust lawsuits in the District Court (the "foreign customer lawsuits"). The first complaint, entitled FERROMIN INTERNATIONAL TRADE CORPORATION, ET AL. V. UCAR INTERNATIONAL INC., ET AL. was filed by 27 steelmakers and related parties, all but one of whom are located outside the U.S. The second complaint, entitled BHP NEW ZEALAND LTD. ET AL. V. UCAR INTERNATIONAL INC., ET AL. was filed by 4 steelmakers, all of whom are located outside the U.S. The third complaint, entitled SAUDI IRON AND STEEL COMPANY V. UCAR INTERNATIONAL INC., ET AL., was filed by a steelmaker who is located outside the U.S. In each complaint, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of graphite electrodes sold or sourced from the U.S. and those sold and sourced outside the U.S. The plaintiffs seek, among other things, an award of treble damages resulting from such alleged antitrust violations. We believe that we have strong defenses against claims alleging that purchases of graphite electrodes outside the U.S. are actionable under U.S. federal antitrust law. We filed motions to dismiss the first and second complaints. In June 2001, our motions to dismiss the first and second complaints were granted with respect to substantially all of the plaintiffs' claims. Appeals have been filed by the plaintiffs and the defendants with the Third Circuit Court of Appeals with regard to these dismissals. The third complaint was dismissed without prejudice to refile pending the resolution of such appeals. In 1999 and 2000, we were served with three complaints commencing three civil antitrust lawsuits (the "carbon electrode lawsuits"). The first complaint, filed in the District Court, is entitled GLOBE METALLURGICAL, INC. V. UCAR INTERNATIONAL INC., ET AL. The second complaint, filed 150 in the U.S. Bankruptcy Court for the Northern District of Ohio, is entitled IN RE SIMETCO, INC. The third complaint, filed in the U.S. District Court for the Southern District of West Virginia, is entitled ELKEM METALS COMPANY INC and ELKEM METALS COMPANY ALLOY LLP V. UCAR CARBON COMPANY INC., ET AL. SGL Carbon AG is also named as a defendant in the first complaint and SGL Carbon Corporation is also named as a defendant in the first and third complaints. In the complaints, the plaintiffs allege that the defendants violated U.S. federal antitrust law in connection with the sale of carbon electrodes and seek, among other things, an award of treble damages resulting from such alleged violations. We filed motions to dismiss the second and third complaints. In May 2001, our motion to dismiss the second complaint was denied. In October 2001, we settled the lawsuit commenced by the third complaint. The guilty pleas and decisions described above do not relate to carbon electrodes. The foreign customer lawsuits and two of the three carbon electrode lawsuits are still in their early stages. We have been vigorously defending, and intend to continue to vigorously defend, against these remaining lawsuits as well as all threatened lawsuits and possible unasserted claims. We may at any time, however, settle these lawsuits as well as any threatened lawsuits and possible claims. It is possible that additional civil antitrust lawsuits seeking, among other things, to recover damages could be commenced against us in the U.S. and in other jurisdictions. 1997 AND 2001 SECOND QUARTER ANTITRUST EARNINGS CHARGES We recorded a pre-tax charge of $340 million against results of operations for 1997 and, as a result of the assessment of a fine by the EU Competition Authority, we recorded a pre-tax charge of an additional $10 million against results of operations for the 2001 second quarter, as a reserve for potential liabilities and expenses in connection with antitrust investigations and related lawsuits and claims. The aggregate reserve of $350 million is calculated on a basis net of, among other things, imputed interest on installment payments of the DOJ fine. Actual aggregate liabilities and expenses (including settled investigations, lawsuits and claims as well as continuing investigations, pending appeals and unsettled pending, threatened and possible lawsuits and claims mentioned above) could be materially higher than $350 million and the timing of payment thereof could be sooner than anticipated. In the aggregate (including the assessment of the fine by the EU Competition Authority, the assessment of the fine by the Korean antitrust authority and the additional $10 million charge), the fines and net settlements and expenses are within the amounts we used to evaluate the aggregate charge of $350 million. To the extent that aggregate liabilities and expenses, net, are known or reasonably estimable, at December 31, 2001, $350 million represents our estimate of these liabilities and expenses. Our insurance has not and will not materially cover liabilities that have or may become due in connection with antitrust investigations or related lawsuits and claims. Through December 31, 2001, we have paid an aggregate of $249 million of fines and net settlement and expense payments and $11 million of imputed interest. At December 31, 2001, $101 million remained in the reserve. The balance of the reserve is available for the DOJ fine, the fines assessed by the EU Competition Authority and the Korean antitrust authority and other matters. The aggregate amount of remaining committed payments payable to the U.S. Department of Justice for imputed interest at December 31, 2001 (without giving effect to the 151 more favorable restructured payment schedule for the fine payable to the DOJ established in January 2002) was about $9 million. OTHER PROCEEDINGS AGAINST US We are involved in various other investigations, lawsuits, claims and other legal proceedings incidental to the conduct of our business. While it is not possible to determine the ultimate disposition of each of them, we do not believe that their ultimate disposition will have a material adverse effect on us. LAWSUIT INITIATED BY US AGAINST OUR FORMER PARENTS In February 2000, at the direction of a special committee of independent directors of UCAR's Board of Directors, we commenced a lawsuit in the U.S. District Court for the Southern District of New York against our former parents, Mitsubishi Corporation and Union Carbide Corporation. The other defendants named in the lawsuit include two of the respective representatives of Mitsubishi and Union Carbide who served on UCAR's Board of Directors at the time of our 1995 leveraged equity recapitalization, Hiroshi Kawamura and Robert D. Kennedy. Mr. Kennedy, who was a director of UCAR at the time the lawsuit was commenced, resigned as such on March 14, 2000. In the lawsuit, we allege, among other things, that, in January 1995, Mitsubishi and Union Carbide had knowledge of facts indicating that UCAR had engaged in illegal graphite electrode price fixing activities and that any determination of UCAR's statutory capital surplus would be overstated as a result of those activities. We also allege that certain of their representatives knew or should have known about those activities. In January 2000, Mitsubishi was indicted by the DOJ on a one count charge of aiding and abetting violations of U.S. federal antitrust law in connection with the sale of graphite electrodes. Mitsubishi entered a plea of not guilty. In February 2001, a jury found Mitsubishi guilty of the charge. Mitsubishi has entered into a sentencing agreement with the DOJ, which has been approved by the District Court, pursuant to which Mitsubishi has agreed to pay a fine of $134 million and not appeal its conviction. Mitsubishi has also been named as a defendant in several civil antitrust lawsuits commenced by electric arc furnace steel producers with respect to its alleged participation in those activities. In addition, we allege that, in January 1995, UCAR did not have the statutory capital surplus required to lawfully authorize the payments that UCAR made to its former parents. We also allege that Mitsubishi and Union Carbide were unjustly enriched by receipts from their investments in UCAR and that they knowingly induced or actively and substantially assisted former senior management of UCAR to engage in illegal graphite electrode price fixing activities in breach of their fiduciary duties to UCAR. Based on the allegations summarized above, we are seeking to recover from Mitsubishi and Union Carbide more than $1.5 billion in damages, including interest. Some of our claims provide for joint and several liability; however, damages from our various claims would not generally be additive to each other. The defendants have filed motions to dismiss this lawsuit and a motion to disqualify certain of our counsel from representing us in this lawsuit. We are vigorously opposing those 152 motions. Oral hearings were held on those motions in the 2001 first and second quarters. No decision on those motions has been rendered. Successful prosecution of this litigation is subject to risks, including: the failure to successfully defend against motions to dismiss and other procedural motions prior to trial; the failure to successfully establish our theories of liability and damages or otherwise prove our claims at trial; the successful assertion by the defendants of substantive defenses, including statute of limitation defenses, to liability at trial or on appeal; and the successful assertion by the defendants of counterclaims or cross claims, including claims for indemnification, at trial or on appeal. We cannot predict the ultimate outcome of this litigation, including the possibility, timing or amount of any recovery of damages by us or any liability we may have in connection with any counterclaims or cross claims. In addition, we cannot assure you as to the possibility, timing or amount of any settlement or the legal expenses to be incurred by us or as to the effect of this lawsuit on management's focus and time available for our ongoing operations. Litigation such as this lawsuit is complex. Complex litigation can be lengthy and expensive. These expenses will be accounted as operating expenses and will be expensed as incurred. Through December 31, 2001, we had incurred $4 million of these expenses. This lawsuit is in its earliest stages. We may at any time settle this lawsuit. (15) EARNINGS PER SHARE Basic and diluted earnings per share are calculated based upon the provisions of SFAS No. 128, adopted in 1997, using the following share data:
1999 2000 2001 ---- ---- ---- Weighted-average common shares outstanding for basic calculation.......................................... 45,114,278 45,224,204 49,719,938 Add: Effect of stock options............................. 1,388,874 589,208 - ------------- ----------- ----------- Weighted-average common shares outstanding, adjusted for diluted calculation.............................. 46,503,152 45,813,412 49,719,938 ============= ========== ==========
As a result of the net loss from operations reported in 2001, all 690,992 potential common shares underlying dilutive securities have been excluded from the calculation of diluted earnings (loss) per share because their effect would reduce the loss per share. The calculation of weighted average common shares outstanding for the diluted calculation excludes options for 1,898,657 shares in 1999 and 3,669,498 shares in 2000 and 5,243,593 shares in 2001 because they were not dilutive due to the fact that the exercise prices were greater than the weighted average market price of the common stock. (16) STOCKHOLDER RIGHTS PLAN Effective August 7, 1998, we adopted a Stockholder Rights Plan (the "Rights Plan"). Under the Rights Plan, one preferred stock purchase right (a "Right") was distributed as a dividend on each outstanding share of common stock. Each share of common stock issued after the distribution is accompanied by a Right. 153 When a Right becomes exercisable, it entitles the holder to buy one one-thousandth of a share of a new series of preferred stock for $110. The Rights are subject to adjustment upon the occurrence of certain dilutive events. The Rights will become exercisable only when a person or group becomes the beneficial owner of 15% or more of the outstanding shares of common stock or 10 days after a person or group announces a tender offer to acquire beneficial ownership of 15% or more of the outstanding shares of common stock. No certificates representing the Rights will be issued unless the Rights become exercisable. Under certain circumstances, holders of Rights, except a person or group described above and certain related parties, will be entitled to purchase shares of common stock at 50% of the price at which the common stock traded prior to the acquisition or announcement. In addition, if UCAR is acquired after the Rights become exercisable, the Rights will entitle those holders to buy the acquiring company's shares at a similar discount. We are entitled to redeem the Rights for one cent per Right under certain circumstances. If not redeemed, the Rights will expire on August 7, 2008. The preferred stock issuable upon exercise of Rights consists of Series A Junior Participating Preferred Stock, par value $.01 per share, of UCAR. In general, each share of that preferred stock will be entitled to a minimum preferential quarterly dividend declared on the common stock, will be entitled to a liquidation preference of $110,000 and will have 1,000 votes, voting together with the common stock. (17) OTHER TRANSACTIONS In June 2001, our subsidiary, Graftech, entered into a new exclusive development and collaboration agreement and a new exclusive long term supply agreement with Ballard Power Systems Inc. The scope of the new agreements significantly expands upon Graftech's and Ballard's initial collaboration announced in 1999. The development agreement, which has been extended from 2002 in the initial collaboration to 2011, includes natural graphite-based materials and components for use in proton exchange membrane fuel cells and fuel cell systems for transportation, stationary and portable applications. The joint development program will concentrate on the development of cost-effective graphitic materials and components, including flow field plates and gas diffusion layers. As a part of this arrangement, Graftech will also develop and manufacture prototype materials and components and provide early stage testing of these prototypes in an on-site fuel cell testing center. In addition, Ballard invested $5.0 million in shares of Ballard common stock for a 2.5% equity ownership interest in Graftech. As an investor in Graftech, Ballard has rights of first refusal with respect to certain equity ownership transactions, tag along and drag along rights and preemptive and other rights to acquire additional equity ownership under certain limited circumstances. During the 2001 first quarter, we contributed our Brazilian cathode manufacturing operations with a net book value of $3 million to Carbone Savoie. Pechiney, the 30% minority owner of Carbone Savoie, contributed approximately $9 million to Carbone Savoie as part of this transaction. The cash contribution is being used to upgrade manufacturing operations in Brazil and France, which is expected to be completed in early 2002. Ownership in Carbone Savoie remains 70% by us and 30% by Pechiney. Under our now broadened alliance, Carbone Savoie 154 holds our entire cathode manufacturing capacity, which is about 40,000 metric tons of cathodes annually. During the 2001 first quarter, we signed a ten year service contract with CGI pursuant to which CGI became the delivery arm for our global information technology services requirements, including the design and implementation of our global information and advanced manufacturing and demand planning processes, using J.D. Edwards software. Pursuant to the outsourcing provisions of the contract, CGI manages our data center services, networks, desktops, telecommunications and legacy systems operations. Twenty-four of our U.S. based employees were integrated into CGI's U.S. operations as part of the initial phase of services under this contract. The contract became effective April 16, 2001. In December 2000, we entered into a license and technical services agreement with Conoco Inc. to license our proprietary technology for use at the carbon fiber manufacturing facility that Conoco is building in Ponca City, Oklahoma. Under a separate manufacturing tolling agreement entered into in February 2001, we are providing manufacturing services to Conoco at our facility in Clarksburg, West Virginia for carbon fibers. Under the three-year manufacturing tolling agreement, we are using raw materials provided by Conoco to manufacture carbon fibers. In addition in 2001, we entered into a seven-year supply agreement with Conoco relating to petroleum coke. This agreement contains customary terms and conditions. In March 2001, we issued 426,400 shares of common stock to the UCAR Carbon Benefits Protection Trust. These shares, if later sold, could be used for partial funding of our future obligations under certain of our compensation and benefits plans. The shares held in trust are not considered outstanding for purposes of calculating earnings per share until they are committed to be sold or otherwise used for funding purposes. (18) SUBSEQUENT EVENTS On February 15, 2002, UCAR Finance issued $400 million of 10.25% Senior Notes due in 2012. The Senior Notes are unsecured senior obligations of UCAR Finance, and are senior in right of payment to any future subordinated obligation of UCAR Finance. Interest is payable semi-annually. After February 15, 2007, UCAR Finance is entitled at its option to redeem all or a portion of the notes. Redemption prices range from 105.125% commencing on February 15, 2007 to 100% commencing on February 15, 2010. The notes are guaranteed by UCAR, UCAR Global and UCAR Carbon and other U.S. subsidiaries holding a substantial majority of our U.S. assets. In addition, the Senior Notes are secured by a pledge of certain unsecured intercompany term notes issued by some of our foreign subsidiaries and guarantees of those intercompany term notes issued by some of our foreign subsidiaries. The guarantee by UCAR Carbon is secured by a junior pledge of shares of our subsidiary, Graftech. We paid approximately $13 million for debt issuance costs related to the Senior Notes. The debt issuance cost is being amortized over the term of the Senior Notes. The $387 million net proceeds from the Senior Notes were used to repay a portion of the term loans outstanding under the Senior Facilities. As the amount of term loans due in 2002 has been refinanced 155 through the issuance of the Senior Notes, the $35 million current portion of long term debt has been reclassified to long term debt in the Consolidated Balance Sheet as of December 31, 2001. In January 2002, we announced a new major cost savings plan designed to generate cost savings to strengthen our balance sheet. The key elements of the 2002 plan include: o the rationalization of graphite electrode manufacturing capacity at our higher cost facilities and the incremental expansion of capacity at our lower cost facilities; o the redesign and implementation of changes in our U.S. benefit plans for active and retired employees; o the implementation of work process changes, including consolidating and streamlining order fulfillment, purchasing, finance and accounting, and human resource processes, along with the identification and implementation of outsourcing opportunities; o the implementation of additional plant and corporate overhead cost reductions; and o the corporate realignment of our subsidiaries, consistent with the operational realignment of our divisions, to generate significant tax savings. We intend to sell real estate, non-strategic businesses and certain other non-strategic assets over the next two years. The non-strategic businesses being considered contributed net sales of about $25 million in 2001. We have finalized discussions with the U.S. Department of Justice to restructure the payment schedule for the remaining $60 million due on our 1998 antitrust fine. Currently, we are scheduled to make payments of $18 million in the 2002 second quarter and $21 million in both the 2003 and 2004 second quarters. The revised payment schedule requires a $2.5 million payment in 2002, a $5.0 million payment in 2003 and, beginning with the 2004 second quarter, quarterly payments ranging from $3.25 million to $5.375 million through the 2007 first quarter. Interest will begin to accrue on the unpaid balance, commencing with the 2004 second quarter, at the statutory rate of interest then in effect. The current statutory rate of interest is 2.13% per annum. Accrued interest will be payable together with each quarterly payment. The revised payment schedule has been approved by the District Court. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 156 PART III ITEMS 10 TO 13 (INCLUSIVE) The information required by Items 10, 11, 12 and 13 will appear in the UCAR International Inc. Proxy Statement for the Annual Meeting of Stockholders to be held on May 7, 2002, which will be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 and is incorporated by reference in this Report pursuant to General Instruction G(3) of Form 10-K (other than the portions thereof not deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934). In addition, the information set forth below is provided as required by Item 10. EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information with respect to our current executive officers and directors, including their ages, as of March 1, 2002.
NAME AGE POSITION ---- --- -------- EXECUTIVE OFFICERS Gilbert E. Playford.................... 54 Chairman of the Board, Chief Executive Officer and President Corrado F. De Gasperis................. 36 Vice President, Chief Financial Officer and Chief Information Officer Scott Mason............................ 42 Executive Vice President, Advanced Energy Technology Division Karen G. Narwold....................... 42 Vice President, General Counsel, Human Resources and Secretary Craig S. Shular........................ 49 Executive Vice President, Graphite Power Systems Division DIRECTORS R. Eugene Cartledge.................... 72 Director Mary B. Cranston....................... 54 Director John R. Hall........................... 69 Director Thomas Marshall........................ 73 Director Ferrell P. McClean..................... 55 Director Michael C. Nahl........................ 59 Director
- -------------------- EXECUTIVE OFFICERS GILBERT E. PLAYFORD joined UCAR as President and Chief Executive Officer in June 1998. In September 1999, Mr. Playford also became the Chairman of the Board. From January 1996 to June 1998, he was the President and Chief Executive Officer of LionOre Mining International Ltd., a Toronto Stock Exchange company, which he founded and which is engaged in mining 157 nickel in Botswana and nickel/gold in Australia. Prior to founding LionOre Mining International Ltd., of which he continues to serve as a director and non-executive Deputy Chairman, Mr. Playford spent his career with Union Carbide Corporation. We are the successor to the Carbon Products Division of Union Carbide. Mr. Playford began his career in 1972 with Union Carbide in Canada. In 1989, after several years in Europe and Canada, he was appointed Corporate Vice President, Strategic Planning of Union Carbide. In 1990, he became Vice President, Corporate Holdings of Union Carbide. He assumed the additional responsibility of President and Chief Executive Officer of Union Carbide's Canadian subsidiary in 1991. Mr. Playford was named Vice President, Treasurer and Principal Financial Officer of Union Carbide in 1992. In his capacity as Principal Financial Officer of Union Carbide, he also served as a nominee of Union Carbide on UCAR's Board of Directors from 1992 until our leveraged equity recapitalization in January 1995. He took on additional duties as Vice President for Union Carbide's latex and paint business in 1993. Mr. Playford left Union Carbide in January 1996. CORRADO F. DE GASPERIS became Chief Financial Officer in May 2001 in addition to his duties as Vice President and Chief Information Officer, which he assumed in February 2000. He served as Controller from June 1998 to February 2000. From 1987 through June 1998, he was with KPMG LLP, and most recently as Senior Assurance Manager in the Manufacturing, Retail and Distribution Practice. KPMG had announced his admittance into their partnership effective July 1, 1998. SCOTT C. MASON became Executive Vice President, Advanced Energy Technology Division in February 2001. He served as Chief Financial Officer and Vice President of Graftech and our Director of Mergers and Acquisitions from April 2000 to March 2001. Prior to joining us, Mr. Mason was Vice President-Supply Chain Logistics for Union Carbide. From 1996 to 1999, Mr. Mason served as Director of Operations and then as Business Director for the Unipol Polymers Business of Union Carbide. Mr. Mason served from 1981 to 1996 in various financial, sales and marketing, operations and mergers and acquisition management positions at Union Carbide. He began his career in 1981 in the Chemicals and Plastics Division of Union Carbide. KAREN G. NARWOLD became Vice President, General Counsel and Secretary in September 1999 and also assumed responsibility for the human resources department effective January 2002. She joined our Law Department in July 1990 and served as Assistant General Counsel from June 1995 to January 1999 and Deputy General Counsel from January 1999 to September 1999. She was an associate with Cummings & Lockwood from 1986 to 1990. CRAIG S. SHULAR became Executive Vice President, Graphite Power Systems Division in June 2001. He served as Vice President and Chief Financial Officer from January 1999, with the additional duties of Executive Vice President, Electrode Sales and Marketing from May 2000. From 1976 through 1998, he held various finance and auditing positions in various divisions of Union Carbide, including the Carbon Products Division from 1976 to 1979. 158 DIRECTORS R. EUGENE CARTLEDGE became a director in February 1996. From 1986 until his retirement in 1994, Mr. Cartledge was the Chairman of the Board and Chief Executive Officer of Union Camp Corporation. Mr. Cartledge retired as Chairman of the Board of Savannah Foods & Industries Inc. in December 1997. He is a director of Chase Industries, Inc., Sun Company, Inc., Delta Air Lines, Inc. and Formica Corporation. Mr. Cartledge is Chairman of the Nominating Committee and a member of the Organization, Compensation and Pension Committee of UCAR's Board of Directors. MARY B. CRANSTON became a director in January 2000. Ms. Cranston is a partner and has served since 1999 as Chairperson of Pillsbury Winthrop LLP, an international law firm. Ms. Cranston is based in San Francisco, California. Ms. Cranston has been practicing complex litigation, including antitrust, telecommunications and securities litigation, with Pillsbury Winthrop LLP since 1975. She is a director of the San Francisco Chamber of Commerce and the Bay Area Council, and a trustee of the San Francisco Ballet and Stanford University. Ms. Cranston is a member of the Audit and Finance Committee and the Nominating Committee of UCAR's Board of Directors. JOHN R. HALL became a director in November 1995. From 1981 until his retirement in 1997, Mr. Hall was Chairman of the Board and Chief Executive Officer of Ashland Inc. Mr. Hall had served in various engineering and managerial capacities at Ashland Inc. since 1957. He retired as Chairman of Arch Coal Inc. in 1998. He served as a director of Reynolds Metals Company from 1985 to 2000. Mr. Hall currently serves as a member of the Boards of Bank One Corporation, Canada Life Assurance Company, CSX Corporation, Humana Inc. and USEC Inc. Mr. Hall graduated from Vanderbilt University in 1955 with a degree in Chemical Engineering and later served as Vanderbilt's Board Chairman from 1995 to 1999. Mr. Hall is Chairman of the Organization, Compensation and Pension Committee of UCAR's Board of Directors. THOMAS MARSHALL became a director in June 1998. Mr. Marshall retired in 1995 as Chairman of the Board and Chief Executive Officer of Aristech Chemical Corporation, a spin off of USX Corporation, which positions he had held since 1986. Mr. Marshall had previously served as President of the U.S. Diversified Group, a unit covering 18 divisions and subsidiaries, including Manufacturing, Fabricating and Chemicals, of USX Corporation. Mr. Marshall serves on the Board of the National Flag Foundation. He is a trustee of the University of Pittsburgh and Chairman of the Thomas Marshall Foundation. Mr. Marshall is a member of the Audit and Finance Committee and the Organization, Compensation and Pension Committee of UCAR's Board of Directors. FERRELL P. MCCLEAN became a director in February 2002. Ms. McClean was the Managing Director and Senior Advisor to the head of the Global Oil & Gas Group in Investment Banking at J.P. Morgan Chase & Co. from 2000 through the end of 2001. Ms. McClean joined J.P. Morgan & Co. Incorporated in 1969 and founded the Leveraged Buyout and Restructuring Group within the Mergers & Acquisitions Group in 1986. From 1991 until 2000, Ms. McClean was the Managing Director and co-headed the Global Energy Group within the Investment Banking Group at J.P. Morgan & Co. 159 MICHAEL C. NAHL became a director in January 1999. Mr. Nahl is Senior Vice President and Chief Financial Officer of Albany International Corporation, a manufacturer of paper machine clothing, which are the belts of fabric that carry paper stock through the paper production process. Mr. Nahl joined Albany International Corporation in 1981 as Group Vice President, Corporate and was appointed to his present position in 1983. Mr. Nahl is a member of the Chase Manhattan Corporation Northeast Regional Advisory Board. Mr. Nahl is Chairman of the Audit and Finance Committee and a member of the Nominating Committee of UCAR's Board of Directors. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements See Index to Consolidated Financial Statements at page 111 of this Report. (2) Financial Statement Schedules None. (b) Reports on Form 8-K No Reports on Form 8-K were filed during the 2001 fourth quarter. (c) Exhibits The exhibits listed in the following table have been filed as part of this Report.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 2.1(1) - Recapitalization and Stock Purchase and Sale Agreement dated as of November 14, 1994 among Union Carbide Corporation, Mitsubishi Corporation, UCAR International Inc. and UCAR International Acquisition Inc. and Guaranty made by Blackstone Capital Partners II Merchant Banking Fund L.P. and Blackstone Offshore Capital Partners II L.P. 2.2(2) - Amended and Restated Stockholders' Agreement dated as of February 29, 1996 among Blackstone Capital Partners II Merchant Banking Fund L.P., Blackstone Offshore Capital Partners II L.P., Blackstone Family Investment Partnership II L.P., Chase Equity Associates and UCAR International Inc. 2.3 - [omitted] 2.4 - [omitted] 2.5 - [omitted] 2.6 - [omitted] 2.7 - [omitted] 2.8 - [omitted] 2.9 - [omitted]
160
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 2.10 - [omitted] 2.11 - [omitted] 2.12 - [omitted] 2.13 - [omitted] 2.14 - [omitted] 2.15(1) - Exchange Agreement dated as of December 15, 1993 by and among Union Carbide Corporation, Union Carbide Chemicals and Plastics Company Inc., Mitsubishi Corporation and UCAR International Inc. 2.16(1) - Stock Purchase and Sale Agreement dated as of November 9, 1990 among Mitsubishi Corporation, Union Carbide Corporation and UCAR Carbon Company Inc. 2.17(1) - Letter Agreement dated January 26, 1995 with respect to termination of the Stockholders' Agreement dated as of November 9, 1990 among Mitsubishi Corporation, Union Carbide Corporation and UCAR Carbon Company Inc. 2.18(1) - Settlement Agreement dated as of November 30, 1993 among Mitsubishi Corporation, Union Carbide Corporation and UCAR Carbon Company Inc. 2.19(1) - Transfer Agreement dated January 1, 1989 between Union Carbide Corporation and UCAR Carbon Company Inc. 2.20(1) - Amendment No. 1 to such Transfer Agreement dated December 31, 1989. 2.21(1) - Amendment No. 2 to such Transfer Agreement dated July 2, 1990. 2.22(1) - Amendment No. 3 to such Transfer Agreement dated as of February 25, 1991. 2.23(1) - Amended and Restated Realignment Indemnification Agreement dated as of June 4, 1992 among Union Carbide Corporation, Union Carbide Chemicals and Plastics Company Inc., Union Carbide Industrial Gases Inc., UCAR Carbon Company Inc. and Union Carbide Coatings Service Corporation. 2.24(1) - Environmental Management Services and Liabilities Allocation Agreement dated as of January 1, 1990 among Union Carbide Corporation, Union Carbide Chemicals and Plastics Company Inc., UCAR Carbon Company Inc., Union Carbide Industrial Gases Inc. and Union Carbide Coatings Service Corporation. 2.25(1) - Amendment No. 1 to such Environmental Management Services and Liabilities Allocation Agreement dated as of June 4, 1992. 2.26 - [omitted] 2.27 - [omitted] 2.28(4) - Trade Name and Trademark License Agreement dated March 1, 1996 between Union Carbide Corporation and UCAR Carbon Technology Corporation. 2.29(1) - Employee Benefit Services and Liabilities Agreement dated January 1, 1990 between Union Carbide Corporation and UCAR Carbon Company Inc. 2.30(1) - Amendment to such Employee Benefit Services and Liabilities Agreement dated January 15, 1991. 2.31(1) - Supplemental Agreement to such Employee Benefit Services and Liabilities Agreement dated February 25, 1991.
161
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 2.32(1) - Letter Agreement dated December 31, 1990 among Union Carbide Chemicals and Plastics Company Inc., UCAR Carbon Company Inc., Union Carbide Grafito, Inc. and Union Carbide Corporation. 2.33 - [omitted] 2.34(6) - Share Sale Agreement between Samancor Limited and UCAR Carbon Company Inc. dated April 21, 1997. 3.1(3) - Amended and Restated Certificate of Incorporation of UCAR International Inc. 3.1(a)(9) - Certificate of Designations of Series A Junior Participating Preferred Stock. 3.2(3) - Amended and Restated By-Laws of UCAR International Inc. 3.2(a)(9) - Amendment to By-Laws of UCAR International Inc. 4.1* - Indenture dated as of February 15, 2002 among UCAR Finance Inc., UCAR International Inc., UCAR Global Enterprises Inc., UCAR Carbon Company Inc., and the Subsidiary Guarantors from time to time party thereto and State Street Bank and Trust Company, as Trustee. 4.2* - Registration Rights Agreement dated as of February 15, 2002 among UCAR International Inc., each of the Subsidiaries listed therein, Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., ABN AMRO Incorporated, Fleet Securities Inc. and Scotial Capital (USA) Inc. 4.3(9) - Rights Agreement dated as of August 7, 1998 between UCAR International Inc. and The Bank of New York, as Rights Agent. 4.4* - Amendment No. 1 to such Rights Agreement dated as of November 1, 2000. 10.1(11) - Credit Agreement dated as of February 22, 2000 among UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc., the LC Subsidiaries from time to time party hereto, the Lenders from time to time party thereto, and Morgan Guaranty Trust Company of New York, as Administrative Agent. 10.2(11) - Guarantee Agreement dated as of February 22, 2000 made by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc. and each Domestic Subsidiary party thereto in favor of Morgan Guaranty Trust Company of New York, as Collateral Agent for the Secured Parties. 10.3(11) - Security Agreement dated as of February 22, 2000 made by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc. and the subsidiaries of UCAR from time to time party thereto, in favor of Morgan Guaranty Trust Company of New York, as Collateral Agent for the Secured Parties. 10.4(11) - Indemnity, Subrogation And Contribution Agreement dated as of February 22, 2000 among UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc., each of the Domestic Subsidiaries party thereto and Morgan Guaranty Trust Company of New York, as Collateral Agent for the Secured Parties.
162
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.5(11) - Pledge Agreement dated as of February 22, 2000 by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc. and the direct and indirect subsidiaries of UCAR that are signatories thereto in favor of Morgan Guaranty Trust Company of New York, as - Collateral Agent for the Secured Parties. 10.6(11) Intellectual Property Security Agreement dated as of February 22, 2000 made by UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance Inc. and the subsidiaries of UCAR from time to time party thereto in favor of Morgan Guaranty Trust Company of New York, as Collateral Agent for the Secured Parties. 10.7(12) - First Amendment to such Credit Agreement dated as of October 11, 2000. 10.8(13) - Second Amendment to such Credit Agreement dated as of April 25, 2001. 10.9(13) - Third Amendment to such Credit Agreement dated as of July 10, 2001. 10.10* - Forth Amendment to such Credit Agreement dated as of December 6, 2001. 10.11* - Fifth Amendment to such Credit Agreement dated as of January 18, 2002. 10.12* - Reaffirmation Agreement dated as of February 15, 2002 among UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance, Inc., each Subsidiary Loan Party named therein, each LC Subsidiary named therein and JPMorgan Chase Bank as Administrative Agent and Collateral Agent under the Credit Agreement. 10.13* - Pledge Agreement dated as of February 15, 2002, by UCAR SA in favor of UCAR Finance Inc. 10.14 - [omitted] 10.15 - [omitted] 10.16 - [omitted] 10.17 - [omitted] 10.18 - [omitted] 10.19 - [omitted] 10.20 - [omitted] 10.21(1) - Form of Non-Qualified Stock Option Agreement (Original Version). 10.22(9) - UCAR International Inc. Management Stock Option Plan as amended and restated through September 29, 1998. 10.22(a)(9) - UCAR International Inc. Management Stock Option Plan effective as of September 29, 1998 (Senior Management Version). 10.23(8) - Employment Agreement dated as of June 22, 1998 between UCAR International Inc. and Gilbert E. Playford. 10.24(9) - Forms of Non-Qualified Stock Option Agreement (Standard Option Version and Directors Version). 10.25(11) - UCAR International Inc. Compensation Deferral Program effective January 1, 2000. 10.26(14) - Restricted Stock Agreement dated as of January 1, 2000 between UCAR International Inc. and Gilbert E. Playford. 10.27(14) - Amendment to the UCAR International Inc. Management Stock Option Plan (Senior Management Version) effective as of June 29, 2000.
163
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.28(14) - Amendment to the UCAR International Inc. Management Stock Option Plan (Original Version) effective as of June 29, 2000. 10.29(15) - Amendment to Employment and Restricted Stock Agreements between UCAR International Inc. and Gilbert E. Playford dated as of August 25, 2001. 10.30 - [omitted] 10.31(11) - UCAR International Inc. Management Incentive Plan amended and restated as of January 1, 1999. 10.32 - [omitted] 10.33(9) - UCAR International Inc. Executive Employee Stock Purchase Program (Senior Management Version). 10.34(9) - UCAR International Inc. Executive Employee Loan Program. 10.35 - [omitted] 10.36(11) - UCAR Carbon Company Inc. Equalization Benefit Plan amended and restated as of October 1, 1998. 10.37(11) - First Amendment to Equalization Benefit Plan effective, as to paragraph 1, January 1, 2000 and, as to paragraph 2, October 1, 1998. 10.38(11) - UCAR Carbon Company Inc. Supplemental Retirement Income Plan amended and restated as of July 1, 1998. 10.38(a)(11) - First Amendment to Supplemental Retirement Income Plan effective, as to paragraph 1, January 1, 2000 and, as to paragraph 2, July 1, 1998. 10.39(11) - UCAR Carbon Company Inc. Enhanced Retirement Income Plan amended and restated as of July 1, 1998. 10.39(a)(11) - First Amendment to Enhanced Retirement Income Plan effective, as to paragraph 1, January 1, 2000 and, as to paragraph 2, July 1, 1998. 10.40(14) - Forms of Severance Compensation Agreement (U.S. Version and International Version). 10.41(14) - UCAR Carbon Company Inc. Benefits Protection Trust amended and restated as of November 20, 2000. 10.42* - First Amendment to such Benefits Protection Trust effective as of November 20, 2000. 10.43(3) - UCAR International Inc. 1995 Equity Incentive Plan effective as of August 15, 1995. 10.43(a)(5) - First Amendment to such Equity Incentive Plan dated July 29, 1996. 10.44(14) - Amendment to the UCAR International Inc. 1995 Equity Incentive Plan effective as of June 29, 2000. 10.45(14) - UCAR Carbon Company Inc. Compensation Deferral Program Trust effective as of November 1, 2000. 10.46* - First Amendment to such Deferral Program Trust effective as of November 20, 2000. 10.47* - Second Amendment to such Enhanced Retirement Income Plan effective as of January 1, 2001. 10.48* - Third Amendment to such Enhanced Retirement Income Plan effective as of May 23, 2001.
164
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.49(7) - Plea Agreement between the U.S. of America and UCAR International Inc. executed April 7, 1998. 10.50(10) - Stipulation and Agreement of Settlement dated October 13, 1999 among David Jaroslawicz and Robert P. Krass, Robert J. Hart, Peter B. Mancino, William P. Wiemels, Fred C. Wolf, Eugene Cartledge, John R. Hall, Glenn H. Hutchins, Robert D. Kennedy, Howard A. Lipson, Peter G. Peterson, Stephen A. Schwarzman and UCAR International Inc. 10.51(10) - Stipulation and Agreement of Settlement dated October 13, 1999 among the Florida State Board of Administration and UCAR International Inc., Peter G. Peterson, Stephen A. Schwarzman, Howard A. Lipson, Glenn H. Hutchins, Robert P. Krass, Robert J. Hart, William P. Wiemels, Fred C. Wolf and Peter B. Mancino. 10.52* - Second Amendment to such Supplemental Retirement Income Plan effective as of January 1, 2001. 10.53* - Third Amendment to such Supplemental Retirement Income Plan effective as of May 23, 2001. 10.54* - Second Amendment to such Equalization Benefit Plan effective as of January 1, 2001. 10.55(13) - Outsourcing Services Agreement, dated as of March 30, 2001, effective April 2001, between CGI Information Systems and Management Consultants, Inc. and UCAR International Inc. (Confidential treatment requested as to certain portions.) 10.56(13) - Joint Development and Collaboration Agreement, effective June 5, 2001, among UCAR Carbon Company Inc., Graftech Inc., and Ballard Power Systems Inc. (Confidential treatment requested as to certain portions) 10.57(13) - Master Supply Agreement, effective June 5, 2001 between UCAR Carbon Company Inc. and Ballard Power Systems Inc. (Confidential treatment requested as to certain portions) 10.58(13) - Agreement, effective as of January 1, 2001, between Conoco Limited and UCAR S.A. (Confidential treatment requested as to certain portions.) 10.59(13) - Agreement, effective as of January 1, 2001, between Cononco Inc. and UCAR Carbon Company Inc. and UCAR S.A. (Confidential treatment requested as to certain portions) 10.60* - Third Amendment to such Equalization Benefit Plan effective as of May 23, 2001. 21.1* - List of subsidiaries of UCAR International Inc. 23.1* - Consent of KPMG LLP. 23.2* - Consent of Deloitte & Touche LLP. 24.1* - Powers of Attorney (included on signature pages).
- --------------- * Filed herewith. 165 (1) Incorporated by reference to the Registration Statement of UCAR International Inc. and UCAR Global Enterprises Inc. on Form S-1 (Registration No. 33-84850). (2) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the year ended December 31, 1995 (File No. 1-13888). (3) Incorporated by reference to the Registration Statement of the registrant on Form S-1 (Registration No. 33-94698). (4) Incorporated by reference to the Quarterly Report of the registrant on Form l0-Q for the quarter ended March 31, 1996 (File No. 1-13888). (5) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended June 30, 1996 (File No. 1-13888). (6) Incorporated by reference to the Quarterly Report of the registrant on Form l0-Q for the quarter ended September 30, 1997 (File No. 1-13888). (7) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended March 31, 1998 (File No. 1-13888). (8) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the year ended December 31, 1997 (File No. 1-13888). (9) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the year ended December 31, 1998 (File No. 1-13888). (10) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended September 30, 1999 (File No. 1-13888). (11) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the year ended December 31, 1999 (File No. 1-13888). (12) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended September 30, 2000 (File No. 1-13888). (13) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended June 30, 2001 (File No. 1-13888). (14) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the year ended December 31, 2000 (File No. 1-13888). (15) Incorporated by reference to the Quarterly Report of the registrant on Form 10-Q for the quarter ended September 30, 2001 (File No. 1-13888). 166 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. UCAR INTERNATIONAL INC. March 25, 2002 By: /s/ CORRADO F. DE GASPERIS -------------------------- Corrado F. De Gasperis Title: VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND CHIEF INFORMATION OFFICER Know All Men By These Presents, that each individual whose signature appears below hereby constitutes and appoints Gilbert E. Playford, Corrado F. DeGasperis and Karen G. Narwold, and each of them individually, his or her true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments to this Report together with all schedules and exhibits thereto, (ii) act on, sign and file with the Securities and Exchange Commission any and all exhibits to this Report, (iii) act on, sign and file any and all such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith and (iv) take any and all such actions which may be necessary or appropriate in connection therewith, granting unto such agents, proxies and attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, hereby approving, ratifying and confirming all that such agents, proxies and attorneys-in-fact, any of them or any of his, her or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ GILBERT E. PLAYFORD Chairman of the Board, Chief March 22, 2002 - ---------------------------------- Executive Officer and President Gilbert E. Playford (Principal Executive Officer) /s/ CORRADO F. DE GASPERIS Vice President, Chief Financial and March 25, 2002 - ---------------------------------- Chief Information Officer Corrado F. De Gasperis
167
SIGNATURES TITLE DATE ---------- ----- ---- /s/ R. EUGENE CARTLEDGE Director March 22, 2002 - ---------------------------------- R. Eugene Cartledge /s/ MARY B. CRANSTON Director March 22, 2002 - ---------------------------------- Mary B. Cranston /s/ JOHN R. HALL Director March 22, 2002 - -------------------------------- John R. Hall /s/ THOMAS MARSHALL Director March 22, 2002 - -------------------------------- Thomas Marshall Director March , 2002 - ------------------------------------ Ferrell P. McClean /s/ MICHAEL C. NAHL Director March 22, 2002 - -------------------------------- Michael C. Nahl
168
EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 4.1 - Indenture dated as of February 15, 2002 among UCAR Finance Inc., UCAR International Inc., UCAR Global Enterprises Inc., UCAR Carbon Company Inc., and the Subsidiary Guarantors from time to time party thereto and State Street Bank and Trust Company, as Trustee. 4.2 - Registration Rights Agreement dated as of February 15, 2002 among UCAR International Inc., each of the Subsidiaries listed therein, Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., ABN AMRO Incorporated, Fleet Securities Inc. and Scotia Capital (USA) Inc. 4.4 - Amendment No. 1 to such Rights Agreement dated as of November 1, 2000. 10.10 - Fourth Amendment to such Credit Agreement dated as of December 6, 2001. 10.11 - Fifth Amendment to such Credit Agreement dated as of January 18, 2002. 10.12 - Reaffirmation Agreement dated as of February 15, 2002 among UCAR International Inc., UCAR Global Enterprises Inc., UCAR Finance, Inc., each Subsidiary Loan Party named therein, each LC Subsidiary named therein and JPMorgan Chase Bank as Administrative Agent and Collateral Agent under the Credit Agreement. 10.13 - Pledge Agreement dated as of February 15, 2002, by UCAR SA in favor of UCAR Finance Inc. 10.42 - First Amendment to such Benefits Protection Trust effective as of November 20, 2000. 10.46 - First Amendment to such Deferral Program Trust effective as of November 20, 2000. 10.47 - Second Amendment to such Enhanced Retirement Income Plan effective as of January 1, 2001. 10.48 - Third Amendment to such Enhanced Retirement Income Plan effective as of May 23, 2001. 10.52 - Second Amendment to such Supplemental Retirement Income Plan effective as of January 1, 2001. 10.53 - Third Amendment to such Supplemental Retirement Income Plan effective as of May 23, 2001. 10.54 - Second Amendment to such Equalization Benefit Plan effective as of January 1, 2001. 10.60 - Third Amendment to such Equalization Benefit Plan effective as of May 23, 2001. 21.1 - List of subsidiaries of UCAR International Inc. 23.1 - Consent of KPMG LLP. 23.2 - Consent of Deloitte & Touche LLP. 24.1 - Powers of Attorney (included on signature pages).
169 TABLE OF CONTENTS
PAGE PRELIMINARY NOTES................................................................................................1 Important Terms..........................................................................................1 Presentation of Financial, Market and Legal Data.........................................................2 Organizational Chart.....................................................................................5 PART I...........................................................................................................6 Item 1. Business................................................................................................6 Introduction.............................................................................................6 Graphite Power Systems Division..........................................................................7 Worldwide Steel Production..............................................................................13 Advanced Energy Technology Division.....................................................................22 Environmental Matters...................................................................................36 Insurance...............................................................................................38 Employees...............................................................................................38 Corporate History.......................................................................................38 Risk Factors and Forward Looking Statements.............................................................40 Item 2. Properties.............................................................................................61 Item 3. Legal Proceedings......................................................................................62 Antitrust Investigations................................................................................62 Antitrust Lawsuits......................................................................................64 1997 and 2001 Second Quarter Antitrust Earnings Charges.................................................65 Other Proceedings Against Us............................................................................65 Lawsuit Initiated by Us Against Our Former Parents......................................................66 Item 4. Submission of Matters to a Vote of Security Holders....................................................66 PART II.........................................................................................................67 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................................67 Market Information......................................................................................67 Dividend Policies and Restrictions......................................................................68 Recent Sales of Unregistered Securities.................................................................69 Item 6. Selected Financial Data................................................................................70 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................................................................74
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TABLE OF CONTENTS (CONTINUED) PAGE General.................................................................................................74 Realignment.............................................................................................74 Our Divisions...........................................................................................75 Cost Reduction Plans....................................................................................75 Summary of Projected Annual Cost Savings................................................................77 Power of One Business Transformation Initiative.........................................................80 Global Economic Conditions and Outlook..................................................................80 Strategic Alliances.....................................................................................82 Financing Transactions..................................................................................84 Litigation Against Our Former Parent Companies Initiated by Us..........................................85 Antitrust and Other Litigation Against Us...............................................................86 Customer Base...........................................................................................88 Results of Operations...................................................................................88 Effects of Inflation....................................................................................93 Effects of Changes in Currency Exchange Rates...........................................................95 Liquidity and Capital Resources.........................................................................96 Restrictions on Dividends and Stock Repurchases........................................................107 Critical Accounting Policies...........................................................................107 Recent Accounting Pronouncements.......................................................................108 Assessment of the Euro.................................................................................109 Costs Relating to Protection of the Environment........................................................109 Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................................109 Item 8. Financial Statements and Supplementary Data...........................................................111 INDEPENDENT AUDITORS' REPORT...................................................................................112 INDEPENDENT AUDITORS' REPORT...................................................................................113 CONSOLIDATED BALANCE SHEETS....................................................................................114 CONSOLIDATED STATEMENTS OF OPERATIONS..........................................................................115 CONSOLIDATED STATEMENTS OF CASH FLOWS..........................................................................116 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)......................................................117 UCAR INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.....................................................................................118
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TABLE OF CONTENTS (CONTINUED) PAGE (1) Discussion of Business and Structure..................................................................118 (2) Summary of Significant Accounting Policies............................................................119 (3) Financial Instruments.................................................................................125 (4) Segment Reporting.....................................................................................126 (5) Long Term Debt........................................................................................127 (6) Income Taxes..........................................................................................133 (7) Other (Income) Expense, Net...........................................................................136 (8) Interest Expense......................................................................................136 (9) Supplementary Balance Sheet Detail....................................................................137 (10) Leases and Other Long Term Obligations................................................................138 (11) Benefit Plans.........................................................................................139 (12) Restructuring and Impairment Charges..................................................................142 (13) Management Compensation and Incentive Plans...........................................................144 (14) Contingencies.........................................................................................148 (15) Earnings Per Share....................................................................................153 (16) Stockholder Rights Plan...............................................................................153 (17) Other Transactions....................................................................................154 (18) Subsequent Events.....................................................................................155 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................................................................156 PART III ......................................................................................................157 Items 10 to 13 (inclusive).....................................................................................157 Executive Officers and Directors...............................................................................157 PART IV........................................................................................................160 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................160 SIGNATURES.....................................................................................................167 EXHIBIT INDEX..................................................................................................169
-iii- EX-4 3 ucar10kmar02ex41.txt EXHIBIT 4.1 EXHIBIT 4.1 EXECUTION COPY ================================================================================ UCAR FINANCE INC. Issuer 10 1/4% Senior Notes due 2012 -------------------- INDENTURE Dated as of February 15, 2002 UCAR INTERNATIONAL INC. UCAR GLOBAL ENTERPRISES INC. UCAR CARBON COMPANY INC. UCAR COMPOSITES INC. UCAR CARBON TECHNOLOGY LLC UCAR HOLDINGS III INC. UCAR INTERNATIONAL TRADING INC. UCAR INTERNATIONAL HOLDINGS INC. Guarantors STATE STREET BANK AND TRUST COMPANY Trustee ================================================================================ CROSS-REFERENCE TABLE TIA Indenture Section Section - ------- ------- 310 (a) (1) .......................................... 7.10 (a) (2) .......................................... 7.10 (a) (3) .......................................... N.A. (a) (4) .......................................... N.A. (b) .......................................... 7.08; 7.10 (c) .......................................... N.A. 311 (a) .......................................... 7.11 (b) .......................................... 7.11 (c) .......................................... N.A. 312 (a) .......................................... 2.05 (b) .......................................... 14.03 (c) .......................................... 14.03 313 (a) .......................................... 7.06 (b) (1) .......................................... N.A. (b) (2) .......................................... 7.06 (c) .......................................... 11.02 (d) .......................................... 7.06 314 (a) .......................................... 4.02; 4.10; 14.02 (b) .......................................... 12.12; 13.12 (c) (1) .......................................... 14.04 (c) (2) .......................................... 14.04 (c) (3) .......................................... N.A. (d) .......................................... 12.12; 13.12 (e) .......................................... 14.05 (f) .......................................... 4.10 315 (a) .......................................... 7.01 (b) .......................................... 7.05; 14.02 (c) .......................................... 7.01 (d) .......................................... 7.01 (e) .......................................... 6.11 316 (a) (last sentence).................................... 14.06 (a) (1)(A) .......................................... 6.05 (a) (1)(B) .......................................... 6.04 (a) (2) .......................................... N.A. (b) .......................................... 6.07 317 (a) (1) .......................................... 6.08 (a) (2) .......................................... 6.09 (b) .......................................... 2.04 318 (a) .......................................... 14.01 N.A. means Not Applicable. - ---------------------- Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. TABLE OF CONTENTS ARTICLE 1 Definitions and Incorporation by Reference ------------------------------------------ Page ---- SECTION 1.01. Definitions....................................................1 SECTION 1.02. Other Definitions.............................................41 SECTION 1.03. Incorporation by Reference of Trust Indenture Act................................41 SECTION 1.04. Rules of Construction.........................................42 ARTICLE 2 The Securities -------------- SECTION 2.01. Form and Dating...............................................43 SECTION 2.02. Execution and Authentication..................................43 SECTION 2.03. Registrar and Paying Agent....................................44 SECTION 2.04. Paying Agent To Hold Money in Trust...........................45 SECTION 2.05. Securityholder Lists..........................................45 SECTION 2.06. Transfer and Exchange.........................................46 SECTION 2.07. Replacement Securities........................................46 SECTION 2.08. Outstanding Securities........................................46 SECTION 2.09. Temporary Securities..........................................47 SECTION 2.10. Cancelation...................................................47 SECTION 2.11. Defaulted Interest............................................47 SECTION 2.12. CUSIP Numbers and ISIN........................................47 SECTION 2.13. Issuance of Additional Securities.............................48 ARTICLE 3 Redemption ---------- SECTION 3.01. Notices to Trustee.............................................49 SECTION 3.02. Selection of Securities To Be Redeemed.........................49 SECTION 3.03. Notice of Redemption...........................................49 SECTION 3.04. Effect of Notice of Redemption.................................50 SECTION 3.05. Deposit of Redemption Price....................................51 SECTION 3.06. Securities Redeemed in Part....................................51 ARTICLE 4 Covenants --------- SECTION 4.01. Payment of Securities..........................................51 2 SECTION 4.02. SEC Reports....................................................51 SECTION 4.03. Limitation on Indebtedness.....................................52 SECTION 4.04. Limitation on Restricted Payments..............................57 SECTION 4.05. Limitation on Restrictions on Distributions from Restricted Subsidiaries..........................................62 SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock..................................64 SECTION 4.07. Limitation on Affiliate Transactions...........................68 SECTION 4.08. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries..........................................70 SECTION 4.09. Change of Control..............................................70 SECTION 4.10. Limitation on Liens............................................72 SECTION 4.11. Limitation on Sale/Leaseback. Transactions..........................................72 SECTION 4.12. Limitation on Conduct of Business of the Company........................................73 SECTION 4.13. Limitation on Sale of the Capital Stock of the Company..................................73 SECTION 4.14. Future Guarantors and Intercompany Note Obligors.........................................73 SECTION 4.15. Compliance Certificate.........................................75 SECTION 4.16. Further Instruments and Acts...................................75 ARTICLE 5 Successor Company ----------------- SECTION 5.01. When the Company, the Guarantors and the Intercompany Note Obligors May Merge or Transfer Assets..........................76 ARTICLE 6 Defaults and Remedies --------------------- SECTION 6.01. Events of Default..............................................79 SECTION 6.02. Acceleration...................................................82 SECTION 6.03. Other Remedies.................................................82 SECTION 6.04. Waiver of Past Defaults........................................83 SECTION 6.05. Control by Majority............................................83 SECTION 6.06. Limitation on Suits............................................83 SECTION 6.07. Rights of Holders To Receive Payment...........................84 SECTION 6.08. Collection Suit by Trustee.....................................84 SECTION 6.09. Trustee May File Proofs of Claim...............................84 SECTION 6.10. Priorities.....................................................85 SECTION 6.11. Undertaking for Costs..........................................85 SECTION 6.12. Waiver of Stay or Extension Laws...............................85 . 3 ARTICLE 7 Trustee ------- SECTION 7.01. Duties of Trustee..............................................86 SECTION 7.02. Rights of Trustee..............................................87 SECTION 7.03. Individual Rights of Trustee...................................88 SECTION 7.04. Trustee's Disclaimer...........................................88 SECTION 7.05. Notice of Defaults.............................................88 SECTION 7.06. Reports by Trustee to Holders..................................88 SECTION 7.07. Compensation and Indemnity.....................................89 SECTION 7.08. Replacement of Trustee.........................................90 SECTION 7.09. Successor Trustee by Merger....................................91 SECTION 7.10. Eligibility; Disqualification..................................91 SECTION 7.11. Preferential Collection of Claims Against Company.......................................91 SECTION 7.12. Trustee's Dealings with the Collateral Agent......................................92 ARTICLE 8 Discharge of Indenture; Defeasance ---------------------------------- SECTION 8.01. Discharge of Liability on Securities; Defeasance............................................92 SECTION 8.02. Conditions to Defeasance.......................................94 SECTION 8.03. Application of Trust Money.....................................95 SECTION 8.04. Repayment to Company...........................................95 SECTION 8.05. Indemnity for Government Obligations...........................95 SECTION 8.06. Reinstatement..................................................95 ARTICLE 9 Amendments ---------- SECTION 9.01. Without Consent of Holders.....................................96 SECTION 9.02. With Consent of Holders........................................97 SECTION 9.03. Compliance with Trust Indenture Act............................98 SECTION 9.04. Revocation and Effect of Consents and Waivers...........................................98 SECTION 9.05. Notation on or Exchange of Securities..........................99 SECTION 9.06. Trustee To Sign Amendments.....................................99 SECTION 9.07. Payment for Consent............................................99 4 ARTICLE 10 Guaranties ---------- SECTION 10.01. Guaranties...................................................100 SECTION 10.02. Limitation of Liability......................................102 SECTION 10.03. Successors and Assigns.......................................102 SECTION 10.04. No Waiver....................................................102 SECTION 10.05. Modification.................................................102 SECTION 10.06. Release of Subsidiary Guarantor..............................103 SECTION 10.07. Contribution.................................................103 ARTICLE 11 Intercompany Notes and Intercompany Note Guaranties --------------------------------------------------- SECTION 11.01. Prepayment of Intercompany Notes.............................103 SECTION 11.02. Limitation of Liability......................................104 SECTION 11.03. Excess Intercompany Note Prepayment Proceeds Purchase Offer..............................104 ARTICLE 12 Pledged Intercompany Notes -------------------------- SECTION 12.01. Grant of Security Interest...................................107 SECTION 12.02. Delivery of Collateral.......................................108 SECTION 12.03. Recording....................................................108 SECTION 12.04. Representations and Warranties...............................109 SECTION 12.05. Further Assurances...........................................109 SECTION 12.06. Interest; Voting Rights; Release of Collateral...................................................................110 SECTION 12.07. Trustee Appointed Attorney-in-Fact...........................111 SECTION 12.08. Trustee May Perform..........................................112 SECTION 12.09. Trustee's Duties.............................................112 SECTION 12.10. Remedies upon Event of Default...............................112 SECTION 12.11. Application of Proceeds......................................113 SECTION 12.12. Continuing Lien..............................................113 SECTION 12.13. Certificates and Opinions....................................113 SECTION 12.14. Additional Agreements........................................114 ARTICLE 13 Pledged Intercompany Note Guaranties ------------------------------------ SECTION 13.01. Grant of Security Interest...................................115 SECTION 13.02. Recording....................................................115 SECTION 13.03. Representations and Warranties...............................116 5 SECTION 13.04. Further Assurances...........................................116 SECTION 13.05. Payments; Voting Rights; Release of Collateral...........................................117 SECTION 13.06. Trustee Appointed Attorney-in-Fact...........................118 SECTION 13.07. Trustee May Perform..........................................119 SECTION 13.08. Trustee's Duties.............................................119 SECTION 13.09. Remedies upon Event of Default...............................119 SECTION 13.10. Application of Proceeds......................................120 SECTION 13.11. Continuing Lien..............................................120 SECTION 13.12. Certificates and Opinions....................................120 SECTION 13.13. Additional Agreements........................................121 ARTICLE 14 Miscellaneous ------------- SECTION 14.01. Trust Indenture Act Controls.................................122 SECTION 14.02. Notices......................................................122 SECTION 14.03. Communication by Holders with Other Holders........................................123 SECTION 14.04. Certificate and Opinion as to Conditions Precedent..............................123 SECTION 14.05. Statements Required in Certificate or Opinion...........................................123 SECTION 14.06. When Securities Disregarded..................................124 SECTION 14.07. Rules by Trustee, Paying Agent and Registrar........................................124 SECTION 14.08. Legal Holidays...............................................124 SECTION 14.09. Severability.................................................124 SECTION 14.10. Governing Law................................................125 SECTION 14.11. No Recourse Against Others...................................125 SECTION 14.12. Successors...................................................125 SECTION 14.13. Multiple Originals...........................................125 SECTION 14.14. Table of Contents; Headings..................................125 Exhibit 1: Form of Supplemental Indenture for Future Guarantors Exhibit 2: Form of Intercompany Note Exhibit 3: Form of Intercompany Note Guaranty Exhibit 4: Form of Graftech Pledge Agreement Exhibit 5: Form of Lien Subordination Agreement Schedule I - Pledged Intercompany Notes 6 Schedule II - Pledged Intercompany Note Guarantees Rule 144A/Regulation S Appendix Exhibit 1 - Form of Initial Security Exhibit A - Form of Exchange Security or Private Exchange Security INDENTURE dated as of February 15, 2002, among UCAR FINANCE INC., a Delaware corporation (the "Company"), UCAR NTERNATIONAL INC., UCAR GLOBAL ENTERPRISES INC., UCAR CARBON COMPANY INC. and the Subsidiary Guarantors from time to time party hereto and STATE STREET BANK AND TRUST COMPANY, a trust company organized under the laws of the Commonwealth of Massachusetts, as trustee hereunder (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's Initial Securities and Exchange Securities and Private Exchange Securities (collectively, the "Securities"): ARTICLE 1 Definitions and Incorporation by Reference ------------------------------------------ SECTION 1.01. Definitions. ----------- "Additional Assets" means: (1) any property, plant or equipment used in a Related Business; (2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by UCAR International or another Restricted Subsidiary; or (3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clauses (2) or (3) is primarily engaged in a Related Business. "Additional Securities" means, subject to the Company's compliance with Section 4.03, 10 1/4% Senior Notes due 2012 issued from time to time after the Issue Date under the terms of this Indenture (other than pursuant to Section 2.06, 2.07, 2.09 or 3.06 of this Indenture and other than Exchange Securities or Private Exchange Securities issued pursuant to an exchange offer for other Securities outstanding under this Indenture). "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person 2 means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have correlative meanings. For purposes of Sections 4.04, 4.06 and 4.07 only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of UCAR International or the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person known to the chief executive officer or chief financial officer of UCAR International who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Antitrust Fines" means monies payable by UCAR International in respect of antitrust matters to (1) the U.S. Department of Justice, relating to fines assessed in 1998, and (2) the antitrust authority of the European Union, relating to fines assessed in July 2001. "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by UCAR International or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of: (1) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than UCAR International or a Restricted Subsidiary); (2) all or substantially all the assets of any division or line of business of UCAR International or any Restricted Subsidiary; or (3) any other assets of UCAR International or any Restricted Subsidiary outside of the ordinary course of business of UCAR International or such Restricted Subsidiary, other than, in the case of clauses (1), (2) and (3) above, (A) a disposition by a Restricted Subsidiary to UCAR International or by UCAR International or a Restricted Subsidiary to a Wholly Owned Subsidiary; (B) for purposes of Section 4.06 only, (x) a disposition that constitutes a Restricted Payment permitted by Section 4.04 or a Permitted 3 Investment and (y) a disposition of all or substantially all the assets of UCAR International in accordance with Article 5; (C) a disposition of assets with a fair market value of less than $100,000; (D) a disposition of obsolete inventory; (E) a disposition of accounts receivable and related assets in connection with a Qualified Receivables Transaction; (F) dispositions of property, plant or equipment for gross proceeds less than $1.0 million in the aggregate in any calendar year; (G) transactions permitted under Article 5; and (H) an exchange of assets by UCAR International or any Restricted Subsidiary for property, plant or equipment held by any Person; PROVIDED that any property, plant or equipment received by UCAR International or such Restricted Subsidiary, as the case may be, in any such exchange, in the good faith reasonable judgment of the Board of Directors (or the chief financial officer if the value of the assets exchanged is less than $25.0 million) (i) will immediately constitute, be part of, or be used in, a Related Business and (ii) will have a fair market value substantially equal to or greater than the assets exchanged therefor. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, subject to the last sentence under Section 4.11 and as at the time of determination, the present value (discounted at the interest rate borne by the Securities, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended); PROVIDED, HOWEVER, that if such Sale/Leaseback Transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of "Capital Lease Obligation." "Average Life" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of or redemption or similar payment with respect to such Indebtedness multiplied by the amount of such payment by (2) the sum of all such payments. "Board of Directors" with respect to a Person means the Board of Directors of such Person or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means each day which is not a Legal Holiday. 4 "Capital Lease Obligation" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP; the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. For purposes of Section 4.10, a Capital Lease Obligation will be deemed to be secured by a Lien on the property being leased. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into or exchangeable or exercisable for such equity. "Carbone Savoie" means Carbone Savoie S.A.S., a company organized under the laws of France, and its successors. "Carbone Savoie Equity Sale" means a private sale or issuance of the Capital Stock of Carbone Savoie, PROVIDED, HOWEVER, that after any such sale or issuance, UCAR International directly or indirectly holds at least 51% of the Voting Stock of Carbone Savoie. "Cash Flow Notes" means the intercompany notes made by or in favor of various subsidiaries of UCAR International payable to or by the Company, which facilitate the transfer of cash from or to such subsidiaries. "Change of Control" means the occurrence of any of the following events: (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (1) such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of UCAR International (for the purposes of this clause (1), such other person shall be deemed to 5 beneficially own any Voting Stock of a Person (the "specified person") held by any other Person (the "parent entity"), if such other person is the beneficial owner (as defined above in this clause (1)), directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent entity); (2) individuals who on the Issue Date constituted the Board of Directors of UCAR International (together with any new directors whose election by the Board of Directors of UCAR International or whose nomination for election by the stockholders of UCAR International was approved by a vote of 66-2/3% of the directors of UCAR International then still in office who were either directors on the Issue Date or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of UCAR International then in office; (3) the adoption of a plan relating to the liquidation or dissolution of UCAR International; (4) the merger or consolidation of UCAR International with or into another Person or the merger of another Person with UCAR International, or the sale of all or substantially all the assets of UCAR International (in each case, determined on a consolidated basis) to another Person, other than a transaction following which (A) in the case of a merger or consolidation transaction, holders of securities that represented 100% of the Voting Stock of UCAR International immediately prior to such transaction (or other securities into which such securities are converted as part of such merger or consolidation transaction) hold directly or indirectly at least a majority of the voting power of the Voting Stock of the surviving Person in such merger or consolidation transaction immediately after such transaction and in substantially the same proportion as before such merger or consolidation transaction and (B) in the case of a sale of assets transaction, (i) the transferee Person or Persons become(s) a guarantor in respect of the Securities and (ii) either (x) the transferee Person(s) constitute(s) a Subsidiary of the transferor of such assets or (y) holders of securities that represented 100% of the Voting Stock of UCAR International immediately prior to such sale of assets transaction hold, directly or indirectly, at least a majority of the voting power of the Voting Stock of the transferee Person(s) in such sale of assets transaction 6 immediately after such sale of assets transaction and in substantially the same proportion as before such sale of assets transaction; or (5) UCAR International ceases to own, directly or indirectly, all the voting power of the Voting Stock of UCAR Global, UCAR Carbon and the Company. "China Joint Ventures" means (i) the manufacturing and marketing joint venture (which may be in the form of a limited liability company, partnership, corporation or other entity) contemplated by the Joint Venture Agreement dated April 4, 2001 between UCAR Carbon and Jilin Carbon Joint Stock Company, Ltd., as the same may be amended, in the Related Business in China and (ii) the marketing joint venture in the form of a limited liability company contemplated by a Letter of Intent dated September 4, 2001 between UCAR Carbon and Jilin Carbon Group Company, Ltd., which will conduct operations through GENCO. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral Agent" means the collateral agent under the Graftech Pledge Agreement. "Company" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and as required by the TIA, each other obligor on the indenture securities (but not including the Guarantors). "Consolidated Coverage Ratio" as of any date of determination means the ratio of (x) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters for which financial statements are publicly available to (y) Consolidated Interest Expense for such four fiscal quarters; PROVIDED, HOWEVER, that: (1) if UCAR International or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a PRO FORMA basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period; 7 (2) if UCAR International or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a PRO FORMA basis as if such discharge had occurred on the first day of such period and as if UCAR International or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments actually used to repay, repurchase, defease or otherwise discharge such Indebtedness; (3) if since the beginning of such period UCAR International or any Restricted Subsidiary shall have made any Asset Disposition, EBITDA for such period shall be reduced by an amount equal to EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of UCAR International or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to UCAR International and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent UCAR International and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); (4) if since the beginning of such period UCAR International or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation 8 to be made hereunder, which constitutes all or substantially all of a division or line of business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving PRO FORMA effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into UCAR International or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or any acquisition of assets that would have required an adjustment pursuant to clause (3) or (4) if made by UCAR International or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving PRO FORMA effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. For purposes of this definition, whenever PRO FORMA effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the PRO FORMA calculations shall be determined in good faith by a responsible financial or accounting officer of UCAR International, whose determination shall be conclusive. If any Indebtedness bears a floating rate of interest and is being given PRO FORMA effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months) PROVIDED, HOWEVER, that if such Indebtedness was Incurred pursuant to the Revolving Credit Facility, the component of Consolidated Interest Expense related to the Revolving Credit Facility shall be calculated based on the average amount of Indebtedness outstanding under the Revolving Credit Facility during such period and the average interest rate payable pursuant to the Revolving Credit Facility during such period. "Consolidated Interest Expense" means, for any period, the total interest expense of UCAR International and its consolidated Restricted Subsidiaries, plus, to the extent not included in such total interest expense, and to 9 the extent incurred by UCAR International or the Restricted Subsidiaries, without duplication: (1) interest expense attributable to capital leases and the interest expense attributable to leases constituting part of a Sale/Leaseback Transaction; (2) amortization of debt discount and debt issuance cost; (3) capitalized interest; (4) non-cash interest expense; (5) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, other than any letter of credit relating to the Antitrust Fines, except and until drawn; (6) net payments pursuant to Hedging Obligations; (7) Preferred Stock dividends in respect of all Preferred Stock held by Persons other than UCAR International or a Wholly Owned Subsidiary (other than dividends payable solely in Capital Stock (other than Disqualified Stock) of the issuer of such Preferred Stock); (8) interest incurred in connection with Investments in discontinued operations; (9) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by (or secured by the assets of) UCAR International or any Restricted Subsidiary; and (10) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than UCAR International or a Wholly Owned Subsidiary) in connection with Indebtedness Incurred by such plan or trust; and less, to the extent included in such interest expense, the imputed interest expense related to the Antitrust Fines. Notwithstanding the foregoing, the Consolidated Interest Expense with respect to any Restricted Subsidiary, not all the net income of which was included in calculating Consolidated Net Income by reason of the fact that such 10 Restricted Subsidiary was not a Wholly Owned Subsidiary, shall be included only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income. "Consolidated Net Income" means, for any period, the net income of UCAR International and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall not be included in determining such Consolidated Net Income: (1) any net income of any Person (other than UCAR International) if such Person is not a Restricted Subsidiary, except that: (A) subject to the exclusion contained in clause (4) below, UCAR International's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to UCAR International or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (3) below); and (B) UCAR International's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income up to the aggregate amount of cash actually contributed or advanced to such Person by UCAR International or its consolidated Subsidiaries during such period; (2) any net income (or loss) of any Person acquired by UCAR International or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (3) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions (other than corporate approvals within the control of UCAR International and ministerial filings and notices), directly or indirectly, on the payment of dividends or the making of distributions by such 11 Restricted Subsidiary, directly or indirectly, to UCAR International or another Restricted Subsidiary, except that: (A) subject to the exclusion contained in clause (4), UCAR International's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to UCAR International or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause); and (B) UCAR International's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain (but not loss) realized upon the sale or other disposition of any assets of UCAR International, its consolidated Subsidiaries or any other Person (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person; (5) extraordinary gains or losses; (6) Litigation Awards, except to the extent such Litigation Awards are received in cash during such period; and (7) the cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purpose of Section 4.04 only, there shall be excluded from Consolidated Net Income any repurchases, repayments or redemptions of Investments, proceeds realized on the sale of Investments or return of capital to UCAR International or a Restricted Subsidiary to the extent such repurchases, repayments, redemptions, proceeds or returns increase the amount of Restricted Payments permitted under such Section pursuant to Section 4.04(a)(3)(D). 12 "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of UCAR International and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of UCAR International for which financial statements are publicly available, as the sum of (1) the par or stated value of all outstanding Capital Stock of UCAR International, plus (2) paid-in capital or capital surplus (however described) relating to such Capital Stock, plus (3) any accumulated other comprehensive income, retained earnings and earned surplus, less (A) any accumulated deficit and accumulated other comprehensive loss, (B) any amounts attributable to Disqualified Stock and (C) any cost of treasury stock. "Credit Agreement" means the Credit Agreement dated as of February 22, 2000 among UCAR International, UCAR Global, the Company, certain of the other Subsidiaries of UCAR International, the lenders referred to therein, JPMorgan Chase Bank, as Administrative Agent, J.P. Morgan Securities Inc. and Credit Suisse First Boston, as Joint-Lead Arrangers, and Chase Securities Inc. and Credit Suisse First Boston, as Syndication Agents, together with the related documents thereto (including the term loans and revolving loans thereunder, any guarantees and any security documents), as amended, extended, renewed, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement or agreements (and related documents) governing Indebtedness incurred to Refinance, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or a successor Credit Agreement, whether by the same or any other lender or group of lenders. "Currency Agreement" means, in respect of any Person, any foreign exchange contract, currency swap agreement or other similar agreement designed to protect such Person against fluctuations in currency values. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for 13 which it is exchangeable at the option of the holder) or upon the happening of any event: (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; (2) is convertible or exchangeable at the option of the holder for Indebtedness or Disqualified Stock; or (3) is mandatorily redeemable or must be purchased upon the occurrence of certain events or otherwise, in whole or in part; in each case on or prior to the first anniversary of the Stated Maturity of the Securities; PROVIDED, HOWEVER, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Securities shall not constitute Disqualified Stock if: (1) the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock in a material respect than the terms applicable to the Securities in Sections 4.06 and 4.09 of this Indenture; and (2) any such requirement only becomes operative after compliance with such terms applicable to the Securities, including the purchase of any Securities tendered pursuant thereto. The amount of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase price will be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or repurchased on any date on which the amount of such Disqualified Stock is to be determined pursuant to this Indenture; PROVIDED, HOWEVER, that if such Disqualified Stock could not be required to be redeemed, repaid or repurchased at the time of such determination, the redemption, repayment or repurchase price will be the book value of such Disqualified Stock as reflected in the most recent financial statements of such Person. 14 "EBITDA" for any period means the sum of Consolidated Net Income and Consolidated Interest Expense, plus, without duplication, the following to the extent deducted in calculating such Consolidated Net Income: (1) all income tax expense of UCAR International and its consolidated Restricted Subsidiaries; (2) depreciation and amortization expense of UCAR International and its consolidated Restricted Subsidiaries (excluding amortization expense attributable to a prepaid operating activity item that was paid in cash in a prior period); (3) all other non-cash charges of UCAR International and its consolidated Restricted Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period ending before the Stated Maturity of the Securities); (4) non-cash exchange, translation or performance gains (or losses) relating to any Hedging Obligations or currency or interest rate fluctuations; and (5) all cash and non-cash restructuring, non-recurring charges attributable to Project Phoenix, to the extent the cumulative amount of such charges realized from October 1, 2001 through the end of such period do not exceed $50.0 million in the aggregate; in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income, and only to the extent that payment of a corresponding amount of dividends at the date of determination to UCAR International or another Restricted Subsidiary by such Restricted Subsidiary is not subject to restrictions (other than corporate approvals within the control of UCAR International and ministerial filings and notices). "EMSA" means Elektrode Maatskappy (Proprietary) Limited, a corporation organized under the laws of South Africa, and its successors. 15 "Excess Intercompany Note Prepayment Proceeds" means the gross proceeds of a prepayment of any Intercompany Note that is not actually used in accordance with Section 11.01(a)(1) or (2) within 10 days following the receipt of such gross proceeds. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Securities" means the debt securities of the Company issued pursuant to this Indenture in exchange for, and in an aggregate principal amount equal to, the Initial Securities, in compliance with the terms of the Registration Rights Agreement. "Facilities" means the Term Loan Facilities and the Revolving Credit Facilities. "Foreign Restricted Subsidiary" means a Restricted Subsidiary that is incorporated in a jurisdiction other than the United States or a State thereof or the District of Columbia and with respect to which more than 80% of any of its sales, earnings or assets (determined on a consolidated basis in accordance with GAAP) are located in, generated from or derived from operations located in territories and jurisdictions outside the United States. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in: (1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants; (2) statements and pronouncements of the Financial Accounting Standards Board; (3) such other statements by such other entity as approved by a significant segment of the accounting profession; and (4) the rules and regulations of the SEC governing the inclusion of financial statements (including PRO FORMA financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. 16 "GENCO" means Graphite Electrode Network LLC, a limited liability company under the laws of the State of Delaware, and its successors. "Graftech" means Graftech Inc., a corporation organized under the laws of the State of Delaware, and its successors. "Graftech Equity Offering" means any public or private offering or sale of the Capital Stock of Graftech. "Graftech Pledge Agreement" means the Pledge Agreement dated as of the Issue Date among UCAR Carbon, JPMorgan Chase Bank, as Collateral Agent for the Trustee, and State Street Bank and Trust Company, as Trustee for the Securityholders. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person: (1) to purchase or pay (or advance or supply funds for the purchase or payment of) Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay, to maintain financial statement conditions or otherwise), or (2) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a correlative meaning. "Guaranties" means, collectively, the UCAR International Guaranty, the UCAR Global Guaranty, the UCAR Carbon Guaranty and the Subsidiary Guaranties. "Guarantors" means, collectively, UCAR International, UCAR Global, UCAR Carbon and the Subsidiary Guarantors. "Guaranty Agreement" means a supplemental indenture, substantially in the form attached hereto as Exhibit 1, pursuant to which a Subsidiary Guarantor 17 guarantees the Company's obligations with respect to the Securities on the terms provided for in this Indenture. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Person at the time it becomes a Restricted Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. Solely for purposes of determining compliance with Section 4.03 (1) amortization of debt discount or the accretion of principal with respect to a non-interest bearing or other discount security, (2) the payment of regularly scheduled interest in the form of additional Indebtedness of the same instrument or the payment of regularly scheduled dividends on Capital Stock in the form of additional Capital Stock of the same class and with the same terms and (3) any premium in respect of the Indebtedness that becomes due and payable as a result of the giving of a notice of redemption or the making of a mandatory offer to purchase will not be deemed to be the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (1) the principal in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable, including, in each case, any premium on such indebtedness to the extent such premium has become due and payable; (2) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person; (3) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention 18 agreement regarding such property (but excluding trade accounts payable arising in the ordinary course of business); (4) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing (x) payment of the Antitrust Fines or (y) obligations (other than obligations described in clauses (1) through (3) above) entered into in the ordinary course of business of such Person, in each case, to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following payment on the letter of credit); (5) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock of such Person or, with respect to any Preferred Stock of any Subsidiary of such Person, the principal amount of such Preferred Stock to be determined in accordance with Section 1.04(7) of this Indenture (but excluding, in each case, any accrued dividends); (6) all obligations of the type referred to in clauses (1) through (5) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (7) all obligations of the type referred to in clauses (1) through (6) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or asset and the amount of the obligation so secured; and (8) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date as determined in accordance with GAAP; PROVIDED, HOWEVER, that in the case of Indebtedness sold at a 19 discount, the amount of such Indebtedness at any time will be the accreted value thereof at such time as determined in accordance with GAAP. For the avoidance of doubt, Indebtedness that is redeemed, defeased, retired or otherwise repaid shall no longer be considered Indebtedness. "Indenture" means this Indenture as amended or supplemented from time to time. "Independent Qualified Party" means an investment banking firm, accounting firm or appraisal firm of national standing; PROVIDED, HOWEVER, that such firm is not an Affiliate of UCAR International. "Intercompany Loan" means an unsecured senior term loan of a portion of the gross proceeds from the sale of Securities (or, in the case of UCAR Electrodos and UCAR S.p.A, specified borrowings under the Revolving Credit Facility) from the Company to a Foreign Restricted Subsidiary. "Intercompany Note" means (1) on the Issue Date, an unsecured senior promissory term note evidencing Intercompany Loans to each of UCAR S.A., UCAR Holdings S.A., UCAR Carbon Mexicana and EMSA, (2) on completion of the Realignment insofar as the Realignment relates to UCAR Electrodos, an unsecured senior promissory term note evidencing an Intercompany Loan to UCAR Electrodos and, upon repayment of the third party secured term note issued by UCAR S.p.A., an unsecured senior promissory term note evidencing an Intercompany Loan to UCAR Finance, in each case, in aggregate principal amount equal to the Secured Intercompany Note repaid by such Intercompany Loan, and (3) any other unsecured senior promissory term note issued by a Foreign Restricted Subsidiary evidencing an Intercompany Loan substantially in the form attached hereto as Exhibit 2. The Intercompany Notes shall be governed by New York law. "Intercompany Note Guarantor" means UCAR Limited, UCAR SNC, UCAR Holdings S.A., UCAR Inc., UCAR Carbon S.A., UCAR Produtos de Carbono, UCAR Carbon Mexicana, UCAR S.A. and UCAR S.p.A. and each other Foreign Restricted Subsidiary of UCAR International that thereafter Guarantees the Intercompany Notes. "Intercompany Note Guaranty" means a Guaranty by an Intercompany Note Guarantor of all the obligations under the Intercompany Notes; PROVIDED, HOWEVER that, on the Issue 20 Date, the Intercompany Note Guaranty of UCAR SNC shall only Guarantee the obligations of UCAR Holdings S.A. with respect to UCAR Holdings S.A.'s Intercompany Note. "Intercompany Note Maker" means UCAR S.A., UCAR Holdings S.A., UCAR Carbon Mexicana and EMSA and each other Foreign Restricted Subsidiary of UCAR International that hereafter issues an Intercompany Note. "Intercompany Note Obligations" means, collectively, the obligations of an Intercompany Note Guarantor under its Intercompany Note Guaranty and the obligations of an Intercompany Note Maker under its Intercompany Note. "Intercompany Note Obligors" means, collectively, the Intercompany Note Makers and the Intercompany Note Guarantors. "Interest Rate Agreement" means in respect of a Person any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in interest rates. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. Except as otherwise provided for herein, the amount of an Investment shall be its fair value at the time the Investment is made and without giving effect to subsequent changes in value. For purposes of the definition of "Unrestricted Subsidiary," the definition of "Restricted Payment" and Section 4.04: (1) "Investment" shall include the portion (proportionate to UCAR International's direct or indirect equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of UCAR International at the time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary 21 as a Restricted Subsidiary, UCAR International shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (A) UCAR International's "Investment" in such Subsidiary at the time of such redesignation less (B) the portion (proportionate to UCAR International's direct or indirect equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors of UCAR International, whose good faith determination shall be conclusive. For purposes of valuing an Investment in a joint venture or Unrestricted Subsidiary, the book value of non-cash contributions shall be used unless the Investment constitutes a line of business, in which case the fair market value of the contribution shall be used. Contributions of the Capital Stock of UCAR International shall be treated as having zero book value. "Issue Date" means February 15, 2002. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Lien Subordination Agreement" means the Lien Subordination Agreement dated as of the Issue Date among UCAR Carbon, JPMorgan Chase Bank, as Senior Lien Collateral Agent for the lenders under the Credit Agreement, JPMorgan Chase Bank, as Junior Lien Collateral Agent for the Trustee, and State Street Bank and Trust Company, as Trustee for the Holders. "Litigation Awards" means the gross proceeds from the UCC/MC Lawsuit or any settlement thereof, judgment therein or disposition thereof. "Litigation Liabilities" shall mean liabilities and expenses of UCAR International and its Subsidiaries associated with (1) antitrust investigations and related lawsuits, settlements and claims of the type described in UCAR International's Annual Report on Form 10-K for the year ended December 31, 2000, and UCAR International's Quarterly 22 Reports on Form 10-Q for the quarters ended March 31, 2001, June 30, 2001 and September 30, 2001 (together, the "SEC Reports"), (2) stockholder derivative lawsuits and claims of the type described in the SEC Reports and (3) securities lawsuits and claims of the type described in the SEC Reports and any investigations that may arise relating to the subject matter of such securities lawsuits and claims. "Net Available Cash" from an Asset Disposition means 100% of the cash payments received therefrom or, in the case of an Asset Disposition constituting part of Project Phoenix, 75% of the cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form), in each case net of: (1) all legal, investment banking, accounting, professional, filing, title, recording and transfer tax expenses, commissions and other fees and expenses (including payments to third parties to obtain any necessary consents) incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition; (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition; (3) all distributions and other payments required to be made to minority interest holders in Restricted Subsidiaries as a result of such Asset Disposition; and (4) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by UCAR International or any Restricted Subsidiary after such Asset Disposition. 23 "Net Cash Proceeds," with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Obligations" means with respect to any Indebtedness all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, and other amounts payable pursuant to the documentation governing such Indebtedness. "Offering Circular" means the Offering Circular dated February 8, 2002 relating to the issuance by the Company of $400,000,000 10 1/4% Senior Notes due 2012. "Officer" means, with respect to any Person, the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of such Person. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or an Assistant Secretary of UCAR International or its Subsidiaries, as applicable. "Opinion of Counsel" means a written opinion of legal counsel, in form and substance reasonably acceptable to the Trustee. Such legal counsel may be an employee of or counsel to UCAR International or its Restricted Subsidiaries. "Permitted Investment" means an Investment by UCAR International or any Restricted Subsidiary in: (1) UCAR International, a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted Subsidiary is a Related Business; (2) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, UCAR International or a Restricted Subsidiary; PROVIDED, HOWEVER, that such Person's primary business is a Related Business; 24 (3) cash and Temporary Cash Investments; (4) Hedging Obligations; (5) receivables owing to UCAR International or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that such trade terms may include such concessionary trade terms as UCAR International or any such Restricted Subsidiary deems reasonable under the circumstances; (6) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (7) loans or advances to employees made in the ordinary course of business consistent with past practices of UCAR International or such Restricted Subsidiary; (8) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to UCAR International or any Restricted Subsidiary or in satisfaction of judgments, settlements or awards; (9) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to Section 4.06; (10) advances or prepayments to vendors in the ordinary course of business consistent with past practices of UCAR International or such Restricted Subsidiary; and (11) any Person where such Investment was acquired by UCAR International or any Restricted Subsidiary (a) in exchange for any other Investment or accounts receivable held by UCAR International or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable or (b) as a result of a foreclosure by UCAR International or any Restricted Subsidiary with respect to any secured Investment or 25 other transfer of title with respect to any secured Investment in default. "Permitted Liens" means, with respect to any Person: (1) pledges or deposits by such Person under worker's compensation laws, unemployment insurance laws, other social security laws or regulations or similar legislation, or deposits securing liability to insurance carriers under insurance or self-insurance arrangements in respect of such obligations, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases or subleases to which such Person is a party, or deposits to secure public, statutory, regulatory or similar obligations of such Person or deposits of cash or United States government bonds to secure surety or appeal bonds, performance bonds and other obligations of a like nature (including those incurred to secure health, safety and environmental obligations) to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (2) Liens imposed by law, such as carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens, in each case for sums not yet due and payable or being contested in good faith by appropriate proceedings or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review and Liens arising solely by virtue of any statutory or common law provision relating to banker's Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; PROVIDED, HOWEVER, that (A) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by UCAR International in excess of those set forth by regulations promulgated by the Federal Reserve Board and (B) such deposit account is not intended by UCAR International or any Restricted Subsidiary to provide collateral to the depository institution; (3) Liens for taxes, assessments or other governmental charges or levies, including property taxes, not yet subject to penalties for non-payment or 26 which are being contested in good faith by appropriate proceedings; (4) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; PROVIDED, HOWEVER, that such letters of credit do not constitute Indebtedness; (5) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of such properties or materially impair their use in the operation of the business of such Person; (6) Liens securing Indebtedness Incurred to finance the construction, purchase or lease of, or repairs, improvements or additions to, property, plant or equipment of such Person; PROVIDED, HOWEVER, that the Liens may not extend to any other property owned by such Person or any of the Restricted Subsidiaries at the time the Lien is Incurred (other than assets and property affixed or appurtenant thereto), and the Indebtedness (other than any interest thereon) secured by the Lien may not be Incurred more than 270 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property, plant or equipment subject to the Lien; (7) Liens to secure Indebtedness permitted under Section 4.03(b)(1) and (b)(2); (8) Liens existing on the Issue Date; (9) Liens on shares of Capital Stock of another Person at the time such other Person becomes a Subsidiary of such Person; PROVIDED, HOWEVER, that the Liens may not extend to any other property owned by such Person or any of its Restricted Subsidiaries (other than assets and property affixed or appurtenant thereto); 27 (10) Liens on property or assets at the time such Person or any of its Subsidiaries acquires such property or assets, including any acquisition by means of a merger or consolidation with or into such Person or a Subsidiary of such Person; PROVIDED, HOWEVER, that the Liens may not extend to any other property or assets owned by such Person or any of its Restricted Subsidiaries (other than assets and property affixed or appurtenant thereto); (11) Liens securing Indebtedness or other obligations of a Subsidiary of such Person owing to such Person or a Restricted Subsidiary of such Person; (12) Liens securing Hedging Obligations so long as such Hedging Obligations relate to Indebtedness that is, and is permitted to be under this Indenture, secured by a Lien on the same property securing such Hedging Obligations; (13) Liens (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness or (ii) pertaining to pooled deposit or sweep accounts of UCAR International or any Restricted Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of UCAR International or any Restricted Subsidiary; (14) Liens arising by operation of law pursuant to Section 107(1) of CERCLA or pursuant to analogous state or foreign law, for costs or damages that are not yet due (by virtue of a written demand for payment by a governmental authority) or which are being contested in good faith by appropriate proceedings and UCAR International, the Company or the affected Subsidiary has set aside on its books adequate reserves with respect thereto, or on property that UCAR International, the Company or a Subsidiary has determined to abandon if the sole recourse for such costs or damages is to such property; (15) Liens, not securing Indebtedness, arising as a result of sales or other dispositions of accounts receivable or inventory of Restricted Subsidiaries in connection with asset securitizations or factoring or similar transactions involving accounts receivable; (16) Liens related to the Antitrust Fines and any letters of credit issued in support of the Antitrust Fines; 28 (17) minority stockholder rights, and rights of first refusal relating to shares of Carbone Savoie, GENCO and other joint ventures permitted under this Indenture; (18) Liens on the assets of Unrestricted Subsidiaries; (19) Liens relating to funding obligations, not constituting Indebtedness, for employee benefit plans; (20) Liens with respect to the Capital Stock of a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock of such Restricted Subsidiary, pending the closing of such sale or disposition; and (21) Liens of a type described in clauses (1) through (20) to extend, continue, renew or replace any similar Lien referred to in clauses (1) through (20) (except with respect to a Lien to secure the Antitrust Fines), and Liens to secure any Refinancing (or successive Refinancings) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (6), (8), (9) or (10); PROVIDED, HOWEVER, that: (A) such new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and (B) the Indebtedness, if any, secured by such Lien at such time is not increased to any amount greater than the sum of (x) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under any such clause at the time the original Lien became a Permitted Lien and (y) an amount necessary to pay any fees and expenses, including premiums and accrued interest, related to such refinancing, refunding, extension, renewal or replacement. Notwithstanding the foregoing, "Permitted Liens" will not include any Lien described in clauses (6), (9) or (10) above to the extent such Lien applies to any Additional Assets acquired directly or indirectly from Net Available Cash 29 pursuant to Section 4.06. For purposes of this definition, the term "Indebtedness" shall be deemed to include interest on such Indebtedness. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "principal" of a Security means the principal of the Security plus the premium, if any, payable on the Security which is due or overdue or is to become due at the relevant time. "Project Phoenix" means the cost savings plan announced publicly in January 2002 by UCAR International, including the mothballing of its graphite electrode manufacturing operations in Caserta, Italy, headcount reductions, other announced asset sales and the Realignment. "Public Equity Offering" means an underwritten primary public offering of common stock of UCAR International pursuant to an effective registration statement under the Securities Act. "Qualified Receivables Transaction" means any transaction or series of transactions that may be entered into by UCAR International or any Restricted Subsidiary pursuant to which UCAR International or any Restricted Subsidiary may sell, convey, discount, factor or otherwise transfer to any other Person other than UCAR International or a Subsidiary thereof, or may grant a security interest in, any accounts receivable (whether now existing or arising in the future) of UCAR International or any Restricted Subsidiary and any asset related thereto, including all collateral securing the accounts receivable, all contracts and all guarantees or other obligations in respect of the accounts receivable, all proceeds of the accounts receivable and all other assets which are customarily transferred, or in respect of which security interests are customarily granted, in connection with asset securitization, factoring or similar transactions involving accounts receivable. 30 "Realignment" means a series of transactions by which (1) various non-U.S. operating subsidiaries of UCAR International are contributed or sold to UCAR S.A., (2) Secured Intercompany Notes are issued by UCAR S.A. and other Foreign Restricted Subsidiaries to the Company, in consideration for loans that the Company has extended to such Foreign Restricted Subsidiaries in order to facilitate the contribution or sale described in clause (1), (3) certain new U.S. subsidiaries of UCAR Carbon are formed and (4) certain operating businesses of UCAR Carbon are transferred to the newly formed U.S. Subsidiaries of UCAR Carbon. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of UCAR International or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with this Indenture, including Indebtedness that Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that: (1) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced; (2) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced; and (3) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include (A) Indebtedness of a Subsidiary that Refinances Indebtedness of UCAR International or (B) Indebtedness of UCAR International or a Restricted 31 Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "Registration Rights Agreement" means the Registration Rights Agreement dated February 15, 2002, among the Company, the Guarantors, Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., ABN AMRO Incorporated, Fleet Securities, Inc. and Scotia Capital (USA) Inc. "Related Business" means any business in which UCAR International or the Restricted Subsidiaries were engaged on the Issue Date and any business related, ancillary or complementary to any business of UCAR International or the Restricted Subsidiaries in which UCAR International or the Restricted Subsidiaries were engaged on the Issue Date. "Restricted Payment" with respect to any Person means: (1) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (in each case, other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and dividends or distributions payable solely to UCAR International or a Restricted Subsidiary, and other than PRO RATA dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)); (2) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of UCAR International held by any Person or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of UCAR International (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of UCAR International that is not Disqualified Stock); (3) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, other than from UCAR International or any of the Restricted Subsidiaries, prior to scheduled maturity, 32 scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations of such Person (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase or other acquisition); or (4) the making of any Investment (other than a Permitted Investment) in any Person. "Restricted Subsidiary" means any Subsidiary of UCAR International that is not an Unrestricted Subsidiary. "Revolving Credit Facility" means (a) the revolving credit facility contained in the Credit Agreement and (b) any revolving credit facility for local operating lines of credit, under which either a Guarantor or an Intercompany Note Obligor is the borrower and, in either case, any other facility or financing arrangement that Refinances, in whole or in part, any such revolving credit facility. "Sale/Leaseback Transaction" means an arrangement relating to property owned by UCAR International or a Restricted Subsidiary on the Issue Date or thereafter acquired by UCAR International or a Restricted Subsidiary whereby UCAR International or a Restricted Subsidiary transfers such property to a Person and UCAR International or a Restricted Subsidiary leases it from such Person; PROVIDED, HOWEVER, that the provisions of Section 4.11 shall not apply to any Sale/Leaseback Transaction relating to property owned by UCAR International or a Restricted Subsidiary having a fair market value less than $500,000 (as determined in good faith by the chief financial officer of UCAR International, whose good faith determination shall be conclusive). "SEC" means the U.S. Securities and Exchange Commission. "Secured Intercompany Notes" means the secured intercompany term notes made by various non-U.S. operating subsidiaries of UCAR International in favor of the Company that are pledged by the Company to the lenders under the Credit Agreement to secure Obligations under the Credit Agreement and that are described in and restricted by the Credit Agreement and shall include, for purposes of this definition, the third party secured term note issued by UCAR S.p.A. that is backed by a deposit of the Company. 33 "Securities" means the Securities issued under this Indenture. "Senior Indebtedness" means, with respect to any Person on any date of determination: (1) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter Incurred; and (2) accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to such Person whether or not post-filing interest is allowed in such proceeding) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; unless, in the case of clauses (1) and (2), in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are junior to or subordinate in right of payment to the Securities or the Guaranty of such Person, as the case may be; PROVIDED, HOWEVER, that Senior Indebtedness shall not include: (1) any obligation of such Person to any Subsidiary of such Person; (2) any liability for Federal, state, local or other taxes owed or owing by such Person; (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities); (4) any Indebtedness of such Person (and any accrued and unpaid interest in respect thereof) which is subordinate or junior in any respect to any other Indebtedness or other obligation of such Person; or (5) that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of this Indenture. "Significant Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of UCAR 34 International within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Obligation" means, with respect to any Person, any Indebtedness of such Person (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Securities or a Guaranty of such Person, as the case may be, pursuant to a written agreement to that effect. "Subsidiary" means, with respect to any Person, any corporation, association, partnership, limited liability company or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by: (1) such Person; (2) such Person and one or more Subsidiaries of such Person; or (3) one or more Subsidiaries of such Person. "Subsidiary Guarantor" means UCAR Composites, UCAR Carbon Technology LLC, UCAR International Trading, UCAR International Holdings and UCAR Holdings III and each other Subsidiary of UCAR International that executes this Indenture as a guarantor (except UCAR Global and UCAR Carbon) and each other Subsidiary of UCAR International that thereafter guarantees the Securities pursuant to the terms of this Indenture. "Subsidiary Guaranty" means a Guaranty by a Subsidiary Guarantor of the Company's obligations with respect to the Securities. "Temporary Cash Investments" means any of the following: (1) any investment in direct obligations of the United States of America or any agency thereof or 35 obligations guaranteed by the United States of America or any agency thereof; (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50.0 million (or the foreign currency equivalent thereof) and has outstanding long-term debt or whose parent holding company has outstanding long-term debt, which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor; (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) entered into with a bank meeting the qualifications described in clause (2); (4) investments in commercial paper, maturing not more than 180 days after the date of acquisition, issued by a corporation (other than an Affiliate of UCAR International) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group; (5) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A-2" by Moody's Investors Service, Inc.; and (6) in the case of any Foreign Restricted Subsidiary, investments: (a) in direct obligations of the sovereign nation (or any agency thereof) in which such Foreign Restricted Subsidiary is organized and is conducting business or in obligations fully and 36 unconditionally guaranteed by such sovereign nation (or any agency thereof); PROVIDED that such obligations have a rating of "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act), or the equivalent thereof from comparable foreign rating agencies, (b) of the type and maturity described in clauses (1) through (5) of foreign obligors, which investments or obligors (or the parents of such obligors) have ratings described in such clauses or equivalent ratings from comparable foreign rating agencies or (c) of the type and maturity described in clauses (1) through (5) of foreign obligors (or the parents of such obligors), which investments or obligors (or the parents of such obligors) are not rated as PROVIDED in such clauses or in clause (2) but which are, in the reasonable judgment of UCAR International, comparable in investment quality to such investments and obligors (or the parents of such obligors); PROVIDED that the aggregate face amount outstanding at any time of such investments of all Foreign Restricted Subsidiaries made pursuant to this subclause (c) does not exceed $50.0 million; (7) investments in mutual funds whose investment guidelines restrict such funds' investments to those satisfying the provisions of clauses (1) through (5); and (8) investments in time deposit accounts, certificates of deposit and money market deposits in an aggregate face amount not in excess of one-half of 1% of the total consolidated assets of UCAR International as of the end of UCAR International's most recently completed fiscal year. "Term Loan Facility" means the term loan facilities contained in the Credit Agreement and any other facilities or financing arrangements that Refinance in whole or in part any such term loan facilities. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C.ss.77aaa-77bbbb) as in effect on the date of this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. 37 "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "UCAR Carbon" means UCAR Carbon Company Inc., a corporation organized under the laws of the State of Delaware, and its successors. "UCAR Carbon Guaranty" means the Guarantee by UCAR Carbon of the Company's obligations with respect to the Securities. "UCAR Carbon Mexicana" means UCAR Carbon Mexicana, S.A. de C.V., a corporation organized under the laws of Mexico, and its successors. "UCAR Carbon S.A." means UCAR Carbon S.A., a corporation organized under the laws of Brazil, and its successors. "UCAR Carbon Technology LLC" means UCAR Carbon Technology LLC, a limited liability company under the laws of the State of Delaware, and its successors. "UCAR Composites" means UCAR Composites Inc., a corporation organized under the laws of the State of California, and its successors. "UCAR Electrodos" means the Spanish subsidiary of UCAR International, which on the Issue Date means UCAR Electrodos, S.L., a limited liability company organized under the laws of Spain, and its successors, and, upon completion of the Realignment, will mean UCAR Electrodos Iberica, S.L., a limited liability company organized under the laws of Spain, and its successors. "UCAR Global" means UCAR Global Enterprises Inc., a corporation organized under the laws of the State of Delaware, and its successors. "UCAR Global Guaranty" means the Guarantee by UCAR Global of the Company's obligations with respect to the Securities. "UCAR Holdings S.A." means UCAR Holdings S.A., a limited liability company organized under the laws of France and its successors. "UCAR Holdings III" means UCAR Holdings III Inc., a corporation organized under the laws of the State of Delaware, and its successors. 38 "UCAR Inc." means UCAR Inc., a corporation organized under the laws of Canada, and its successors. "UCAR International" means UCAR International Inc., a corporation organized under the laws of the State of Delaware, and its successors. "UCAR International Guaranty" means the Guarantee by UCAR International of the Company's obligations with respect to the Securities. "UCAR International Holdings" means UCAR International Holdings Inc., a corporation organized under the laws of the State of Delaware, and its successors. "UCAR International Trading" means UCAR International Trading Inc., a corporation organized under the laws of the State of Delaware, and its successors. "UCAR Limited" means UCAR Limited, a private limited company organized under the laws of the United Kingdom, and its successors. "UCAR Produtos de Carbono" means UCAR Produtos de Carbono S.A., a corporation organized under the laws of Brazil, and its successors. "UCAR S.A." means UCAR S.A., a limited company organized under the laws of Switzerland, and its successors. "UCAR SNC" means UCAR SNC, a partnership organized under the laws of France, and its successors. "UCAR S.p.A." means UCAR S.p.A., a joint stock corporation organized under the laws of Italy, and its successors. "UCC/MC Lawsuit" means the lawsuit pending in the United States District Court for the Southern District of New York, entitled UCAR INTERNATIONAL INC., UCAR GLOBAL ENTERPRISES INC. AND UCAR CARBON COMPANY INC. V. UNION CARBIDE CORPORATION, MITSUBISHI CORPORATION, MITSUBISHI INTERNATIONAL CORPORATION, HIROSHI KAWAMURA AND ROBERT D. KENNEDY, CASE NO. 00 CIV. 1338 (GBD), and all claims asserted by or against any of the parties or their affiliates, related parties or successors in such lawsuit or in subsequent suits, actions or proceedings arising from or related to such lawsuit or the facts giving rise to such lawsuit. 39 "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means: (1) any Subsidiary of UCAR International that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of UCAR International (or its chief financial officer if the Subsidiary is not a Significant Subsidiary) in the manner provided below; and (2) any Subsidiary of an Unrestricted Subsidiary; PROVIDED, HOWEVER, that UCAR International shall not be entitled to designate the Company as an Unrestricted Subsidiary. The Board of Directors of UCAR International (or its chief financial officer if the Subsidiary is not a Significant Subsidiary) may designate any Subsidiary of UCAR International (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, UCAR International or any other Subsidiary of UCAR International that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, then in each such case such designation would be permitted under Section 4.04. The Board of Directors of UCAR International may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such designation (A) UCAR International could Incur $1.00 of additional Indebtedness under Section 4.03(a) and (B) no Default shall have occurred and be continuing. Any designation of an Unrestricted Subsidiary by the Board of Directors of UCAR International or its chief financial officer, as the case may be, shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors of UCAR International giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Dollar Equivalent" means, with respect to any monetary amount in a currency other than U.S. dollars, at any time for determination thereof, the amount of U.S. dollars obtained by converting such foreign currency 40 involved in such computation into U.S. dollars at the spot rate for the purchase of U.S. dollars with the applicable foreign currency as published in The Wall Street Journal in the "Exchange Rates" column under the heading "Currency Trading" on the date two Business Days prior to such determination. Except as described under Section 4.03, whenever it is necessary to determine whether UCAR International or any of its Subsidiaries has complied with any covenant in this Indenture or a Default has occurred and an amount is expressed in a currency other than U.S. dollars, such amount will be treated as the U.S. Dollar Equivalent determined as of the date such amount was initially determined in such currency. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary, which at least 97% of the Capital Stock of which (other than directors' qualifying or other legally required shares) is owned by UCAR International or one or more Wholly Owned Subsidiaries.
41 SECTION 1.02. Other Definitions. ----------------- Defined in TERM Section ---- ------- "Affiliate Transaction"................................................ 4.08 "Appendix"............................................................. 2.01 "Bankruptcy Law"....................................................... 6.01 "Change of Control Offer".............................................. 4.09(b) "combined value"....................................................... 4.14 "covenant defeasance option"........................................... 8.01(b) "Custodian"............................................................ 6.01 "Event of Default"..................................................... 6.01 "Excess Intercompany Note Prepayment Proceeds Offer"................................................... 11.03(a)(1) "Excess Intercompany Note Prepayment Proceeds Offer Amount"............................................ 11.03(c)(2) "Excess Intercompany Note Prepayment Proceeds Offer Period"............................................ 11.03(c)(2) "Excess Intercompany Note Prepayment Proceeds Purchase Date"........................................... 11.03(c)(1) "Initial Securities"................................................... Appendix "Legal Defeasance Option".............................................. 8.01(b) "Legal Holiday"........................................................ 14.08 "Offer"................................................................ 4.06(b) "Offer Amount"......................................................... 4.06(c)(2) "Offer Period"......................................................... 4.06(c)(2) "Paying Agent"......................................................... 2.03 "Pledged Intercompany Note Guaranties"................................. 13.01 "Pledged Intercompany Notes"........................................... 12.01 "Private Exchange Securities".......................................... Appendix "Purchase Date"........................................................ 4.06(c)(1) "Registrar"............................................................ 2.03 "Secured Obligations".................................................. 12.01 "Securities Act"....................................................... Appendix "Successor Company".................................................... 5.01 "value"................................................................ 4.14
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC; "indenture securities" means the Securities; "indenture security holder" means a Securityholder; 42 "indenture to be qualified" means this Indenture; "indenture trustee" means the Trustee; and "obligor" on the indenture securities means the Company and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular, as applicable; (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; (7) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater; and (8) all references to the date the Securities were originally issued shall refer to the Issue Date. 43 ARTICLE 2 The Securities -------------- SECTION 2.01. FORM AND DATING. Provisions relating to the Initial Securities, the Private Exchange Securities and the Exchange Securities are set forth in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix") which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 1 to the Appendix, which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities, the Private Exchange Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which UCAR International or the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to UCAR International or the Company). Each Security shall be dated the date of its authentication. The terms of the Securities set forth in the Appendix and Exhibit A are part of the terms of this Indenture. SECTION 2.02. EXECUTION AND AUTHENTICATION. One Officer shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. On the Issue Date, the Trustee shall authenticate and deliver $400,000,000 million of 10 1/4% Senior Notes due 2012 and, at any time and from time to time thereafter, the Trustee shall authenticate and deliver Securities for original issue in an aggregate principal amount specified in such order, in each case upon a written order of the Company 44 signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and, in the case of an issuance of Additional Securities pursuant to Section 2.13 after the Issue Date, shall certify that such issuance is in compliance with Section 4.03. The Trustee may appoint an authenticating agent reasonably acceptable to UCAR International to authenticate the Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands. SECTION 2.03. REGISTRAR AND PAYING AGENT. (a) The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. UCAR International or any Wholly Owned Subsidiary incorporated or organized within the United States of America may act as Paying Agent, Registrar, co-registrar or transfer agent. The Company initially appoints the Trustee as Registrar and Paying Agent in connection with the Securities. (B) MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of 45 the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. Such office shall initially be State Street Bank and Trust Company, N.A., located at 61 Broadway, New York, New York 10005. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each due date of the principal and interest on any Security, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal and interest when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities and shall notify the Trustee of any default by the Company in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee, in 46 writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.06. TRANSFER AND EXCHANGE. The Securities shall be issued in registered form and shall be transferable only upon the surrender of a Security for registration of transfer. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of this Indenture are met. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which any of them may suffer if such Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security. In case any lost, destroyed or wrongfully taken Security has become due and payable, the Company in its discretion may pay such Security in lieu of issuing a new Security in replacement therefor. Every replacement Security is an additional obligation of the Company. SECTION 2.08. OUTSTANDING SECURITIES. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. 47 If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. TEMPORARY SECURITIES. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities and deliver them in exchange for temporary Securities. SECTION 2.10. CANCELLATION. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel and destroy all Securities surrendered for registration of transfer, exchange, payment or cancellation and deliver a certificate of such destruction to the Company unless the Company directs the Trustee to deliver canceled Securities to the Company. The Company may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation. SECTION 2.11. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Securities, the Company shall pay defaulted interest (plus interest on such defaulted interest to the extent lawful) in any lawful manner. The Company may pay the defaulted interest to the persons who are Securityholders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and at least 15 days before the special record date the Company shall promptly mail to each Securityholder and the Trustee a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.12. CUSIP NUMBERS AND ISIN. The Company in issuing the Securities may use "CUSIP" numbers and corresponding "ISINs" (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers and corresponding 48 "ISINs" in notices of redemption as a convenience to Holders; PROVIDED, HOWEVER, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will notify the Trustee of any changes in the CUSIP numbers. SECTION 2.13. ISSUANCE OF ADDITIONAL SECURITIES. The Company shall be entitled, subject to its compliance with Section 4.03, to issue Additional Securities under this Indenture which shall have identical terms as the Initial Securities issued on the Issue Date, other than with respect to the date of issuance and, if appropriate, the issue price; PROVIDED, HOWEVER, that the Company makes one or more Intercompany Loans equal to the gross proceeds of such Additional Securities to one or more Foreign Restricted Subsidiaries. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor shall be treated as a single class for all purposes under this Indenture. With respect to any Additional Securities, the Company shall set forth in a resolution of the Board of Directors and an Officers' Certificate, a copy of each which shall be delivered to the Trustee, the following information: (1) the aggregate principal amount of such Additional Securities to be authenticated and delivered pursuant to this Indenture; (2) the issue price, the issue date and the CUSIP number and corresponding ISIN of such Additional Securities; PROVIDED, HOWEVER, that no Additional Securities may be issued unless such Additional Securities are fungible in all respects for U.S. Federal Income Tax purposes with the Securities then outstanding; (3) whether such Additional Securities shall be Transfer Restricted Securities and issued in the form of Initial Securities as set forth in the Appendix to this Indenture or shall be issued in the form of Exchange Securities as set forth in Exhibit A; and 49 (4) in the case of the Officers' Certificate only, that the Company has complied with Section 4.03 and this Section 2.13. ARTICLE 3 Redemption ---------- SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Securities pursuant to paragraph 5 of the Securities, it shall notify the Trustee in writing of the redemption date and the principal amount of Securities to be redeemed. The Company shall give each notice to the Trustee provided for in this Section at least 60 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from the Company to the effect that such redemption will comply with the conditions herein. SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If fewer than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed PRO RATA or by lot. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in principal amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a date for redemption of Securities, the Company shall mail a notice of redemption by first-class mail to the Trustee and each Holder of record of Securities to be redeemed at such Holder's registered address. 50 The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; and (7) that no representation is made as to the correctness or accuracy of the CUSIP or corresponding ISIN number, if any, listed in such notice or printed on the Securities. At the Company's request (which request may be revoked by the Company at any time prior to the time at which the Trustee shall have given such notice to the Holders), upon at least five (5) days prior notice to the Trustee, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price (expressed as a percentage of the principal amount) stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued and unpaid interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date). Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. 51 SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to the redemption date, the Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which have been delivered by the Company to the Trustee for cancellation. SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a new Security equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE 4 Covenants --------- SECTION 4.01. PAYMENT OF SECURITIES. The Company shall promptly pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. SECTION 4.02. SEC REPORTS. Notwithstanding that UCAR International may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, UCAR International shall file with the SEC and provide the Trustee and Securityholders with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections. UCAR International shall not be required to file any reports, documents or other information if the SEC will not accept such filing. In addition, the Company shall furnish to the Holder of the Securities and to prospective 52 investors, upon the requests of such Holders, any information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so long any Securities are not freely transferable under the Securities Act. The Company and UCAR International also shall comply with the other provisions of TIA ss. 314(a). SECTION 4.03. LIMITATION ON INDEBTEDNESS. (a) UCAR International shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; PROVIDED, HOWEVER, that the Company, the Guarantors and the Intercompany Note Obligors shall be entitled to Incur Indebtedness if, on the date of such Incurrence and after giving effect thereto on a PRO FORMA basis, no Default has occurred and is continuing and the Consolidated Coverage Ratio would be greater than 2.0 to 1 if such Indebtedness is Incurred prior to December 31, 2004 or 2.25 to 1 if such Indebtedness is Incurred thereafter. (b) Notwithstanding the foregoing paragraph (a), UCAR International and the Restricted Subsidiaries shall be entitled to Incur any or all of the following Indebtedness: (1) Indebtedness Incurred by the Company, any Guarantor or any Intercompany Note Obligor pursuant to any Revolving Credit Facility; PROVIDED, HOWEVER, that, immediately after giving effect to any such Incurrence on a PRO FORMA basis, the aggregate principal amount of all Indebtedness Incurred under this clause (1) and then outstanding, when added together with the aggregate principal amount of Indebtedness theretofore Incurred pursuant to clause (2) that could have been Incurred pursuant to this clause (1), does not exceed the greater of (A) $250.0 million and (B) the sum of (x) 50% of the book value of the inventory of UCAR International and the Restricted Subsidiaries at the end of the most recent fiscal quarter for which financial statements are publicly available and (y) 80% of the book value of the accounts receivable of UCAR and the Restricted Subsidiaries at the end of the most recent fiscal quarter for which financial statements are publicly available (excluding any accounts receivable pledged or otherwise supporting a Qualified Receivables Transaction); (2) Indebtedness Incurred by the Company, any Guarantor or any Intercompany Note Obligor pursuant to any Term Loan Facility; PROVIDED, HOWEVER, that, after giving effect to any such Incurrence on a PRO FORMA basis, the aggregate principal amount of all Indebtedness Incurred under this clause (2) and then 53 outstanding does not exceed (A) $226 million plus the maximum principal amount of Indebtedness that could be Incurred at such time under clause (1) above less (B) the aggregate sum of all principal payments actually made from time to time after the Issue Date with respect to such Indebtedness (other than principal payments made from any permitted Refinancings thereof Incurred pursuant to this clause (2)); (3) Indebtedness (x) owed to and held by UCAR International or a Restricted Subsidiary and (y) in the event the obligor on such Indebtedness is Carbone Savoie, owed to and held by its minority stockholders in an amount not to exceed $10.0 million outstanding in the aggregate at any time and that is PRO RATA in amount, based on equity interests, with the amount of Indebtedness of Carbone Savoie owed to and held by UCAR International and its Restricted Subsidiaries pursuant to this clause (3); PROVIDED, HOWEVER, that (A) any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to UCAR International or a Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the obligor thereon and (B) if the Company, any Guarantor or any Intercompany Note Obligor is the obligor on such Indebtedness and the holder of such Indebtedness is a Person other than the Company, a Guarantor or an Intercompany Note Obligor, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations with respect to the Securities or the applicable Guaranty; (4) Indebtedness consisting of the Securities and the Exchange Securities (other than any Additional Securities); (5) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (1), (2), (3) or (4) of this Section 4.03(b)); (6) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or prior to the date on which such Restricted Subsidiary was acquired by UCAR International or, in the case of a Restricted Subsidiary formed to acquire a business, the date on which such business was acquired by such Restricted Subsidiary (other than Indebtedness Incurred in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the 54 transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Subsidiary or was acquired by UCAR International or such business was acquired by such Restricted Subsidiary, as the case may be); PROVIDED, HOWEVER, that on the date of such acquisition and after giving PRO FORMA effect thereto, UCAR International would have been able to Incur at least $1.00 of additional Indebtedness pursuant to Section 4.03(a); (7) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (4), (5) or (6) of this Section 4.03(b) or this clause (7); PROVIDED, however, that to the extent such Refinancing Indebtedness directly or indirectly Refinances Indebtedness of the Company, a Guarantor or an Intercompany Note Obligor, such Refinancing Indebtedness shall be Incurred only by the Company, a Guarantor or an Intercompany Note Obligor; (8) Hedging Obligations entered into in the ordinary course of business and not for the purpose of speculation; (9) obligations, in each case Incurred, made or given in the ordinary course of business, (A) in respect of performance bonds, bid bonds, bankers' acceptances, surety or appeal bonds and other similar obligations of UCAR International or any of the Restricted Subsidiaries, (B) for or in connection with pledges, deposits or payments in connection with or to secure statutory, regulatory or similar obligations, including obligations under health, safety or environmental obligations, (C) arising from Guarantees to suppliers, lessors, licensees, contractors, franchisees or customers of obligations (other than Indebtedness) Incurred in the ordinary course of business, (D) in respect of worker's compensation obligations, employee benefit obligations, property, casualty or liability insurance and self-insurance and (E) trade-related letters of credit; (10) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; PROVIDED, HOWEVER, that such Indebtedness is extinguished within five Business Days of its Incurrence; 55 (11) Indebtedness represented by Capital Lease Obligations, Sale/Leaseback Transactions, mortgage financings or purchase money obligations, in each case Incurred by UCAR International or any Restricted Subsidiary for the purpose of financing all or any part of the construction, purchase or lease of, or repairs, improvements or additions to, property, plant or equipment used in a Related Business or Indebtedness Incurred to Refinance any such Indebtedness, purchase price or cost of construction or improvement, in each case Incurred no later than 365 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property or in respect of any Capital Lease Obligation or any Sale/Leaseback Transaction permitted under this Indenture; PROVIDED, HOWEVER, that such Indebtedness does not, when added together with all other Indebtedness Incurred pursuant to this clause (11) and then outstanding, exceed $10.0 million; (12) Indebtedness consisting of agreements to provide for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of UCAR International or any of the Restricted Subsidiaries pursuant to such agreements, in any case incurred in connection with the disposition or acquisition of any business assets or Restricted Subsidiary (other than Guarantees of Indebtedness or other obligations Incurred by any Person acquiring all or any portion of such business assets or Restricted Subsidiary for the purpose of financing such acquisition) in an amount not to exceed, in the case of a disposition, the gross proceeds actually received by UCAR International or any Restricted Subsidiary in connection with such disposition; (13) Indebtedness consisting of (A) the Guaranties of the Guarantors, (B)(i) Guarantees by UCAR International, the Company, a Guarantor or an Intercompany Note Obligor of Indebtedness Incurred by a Restricted Subsidiary without violation of this Indenture, (ii) Guarantees by a Guarantor of Senior Indebtedness Incurred by UCAR International or the Company (so long as such Guarantor could have Incurred such Indebtedness directly without violation of this Indenture) without violation of this Indenture and (C) any Guarantee by the Company or any Guarantor of Indebtedness Incurred pursuant to clause (7) to the extent the Refinancing Indebtedness Incurred thereunder 56 directly or indirectly Refinances Indebtedness Incurred pursuant to clause (4) of this Section 4.03(b); (14) Indebtedness Incurred for working capital purposes by a Restricted Subsidiary that is neither a Guarantor nor an Intercompany Note Obligor; PROVIDED, HOWEVER, that the amount of such Indebtedness, when added together with the aggregate amount of all Indebtedness Incurred pursuant to this clause (14) and then outstanding, does not exceed $10.0 million; (15) Indebtedness Incurred by Graftech or Carbone Savoie in a principal amount which, when added together with all other Indebtedness Incurred pursuant to this clause (15) and then outstanding, does not exceed $10.0 million; PROVIDED, HOWEVER, that if, at the time of such Incurrence and after giving effect thereto on a PRO FORMA basis, the Consolidated Coverage Ratio would be greater than 3.0 to 1, then the amount of such Indebtedness shall not exceed, when added together with all other Indebtedness Incurred pursuant to this clause (15) and then outstanding, $25.0 million; and (16) Indebtedness of UCAR International or any Restricted Subsidiary in an aggregate principal amount which, when taken together with all other Indebtedness of UCAR International and the Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (15) of this Section 4.03(b) or Section 4.03(a)), does not exceed $10.0 million. (c) Notwithstanding the foregoing, none of the Company, any Guarantor or any Intercompany Note Obligor shall incur any Indebtedness pursuant to Section 4.03(b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations of the Company, any Guarantor or any Intercompany Note Obligor, as the case may be, unless such Indebtedness shall be subordinated to the Securities, the respective Guaranty or the respective Intercompany Note Obligation, as the case may be, to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with this Section 4.03, (1) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, UCAR International, in its sole discretion, shall classify such item of Indebtedness at the time of Incurrence and only be required to include the amount and type of such Indebtedness in one of the above clauses and (2) UCAR International, in its sole 57 discretion, shall be entitled to divide and classify an item of Indebtedness in more than one of the types of Indebtedness described above. (e) For the purpose of determining amounts of Indebtedness outstanding under this Section 4.03 and for the purpose of avoiding duplication only, Indebtedness of a Person resulting from the grant by such Person of security interests with respect to, or from the issuance by such Person of Guarantees (and security interests with respect thereof) of, or from the assumption of obligations with respect to letters of credit supporting, Indebtedness Incurred by such Person pursuant to this Indenture (or Indebtedness which such Person is otherwise permitted to Incur under this Indenture) shall not be deemed to be a separate Incurrence of Indebtedness by such Person. (f) For purposes of determining compliance with any U.S. dollar restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is denominated in a different currency, the amount of such Indebtedness will be the U.S. Dollar Equivalent, determined on the date of the Incurrence of such Indebtedness, PROVIDED, HOWEVER, that if any such Indebtedness denominated in a different currency is subject to a Currency Agreement with respect to U.S. dollars, covering all principal, premium, if any, and interest payable on such Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be as provided in such Currency Agreement. The principal amount of any Refinancing Indebtedness Incurred in the same currency as the Indebtedness being Refinanced will be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the extent that (i) such U.S. Dollar Equivalent was determined based on a Currency Agreement, in which case the Refinancing Indebtedness will be determined in accordance with the preceding sentence, and (ii) the principal amount of the Refinancing Indebtedness exceeds the principal amount of the Indebtedness being Refinanced, in which case the U.S. Dollar Equivalent of such excess shall be determined on the date such Refinancing Indebtedness is Incurred. SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. (a) UCAR International shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time UCAR International or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); 58 (2) UCAR International is not entitled to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a); or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of (without duplication): (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter immediately following the fiscal quarter during which the Issue Date occurs to the end of the most recent fiscal quarter for which financial statements are publicly available (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); plus (B) 100% of the aggregate Net Cash Proceeds received by UCAR International from the issuance or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of UCAR International and other than an issuance or sale to an employee stock ownership plan or to a trust established by UCAR International or any of its Subsidiaries for the benefit of its employees, until such employee stock ownership plan or such trust sells such Capital Stock to a Person other than UCAR International and its Affiliates) and 100% of any cash capital contribution received by UCAR International from its stockholders subsequent to the Issue Date; plus (C) the amount by which Indebtedness of UCAR International or any Restricted Subsidiary is reduced on UCAR International's consolidated balance sheet upon the conversion or exchange (other than a conversion or exchange with a Subsidiary of UCAR International, or with an employee stock ownership plan or trust established by UCAR International or any of its Subsidiaries for the benefit of its employees until such employee stock ownership plan or trust sells such Capital Stock to a Person other than UCAR International and its Affiliates (other than employees)) subsequent to the Issue Date of any Indebtedness of UCAR International or any Restricted Subsidiary convertible or exchangeable for Capital Stock (other than Disqualified Stock) 59 of UCAR International (less the amount of any cash, or the fair value of any other property, paid to such Person by UCAR International or any Restricted Subsidiary upon such conversion or exchange); plus (D) an amount equal to the sum of (x) the net reduction in the Investments (other than Permitted Investments) made by UCAR International or any Restricted Subsidiary in any Person resulting from repurchases, repayments or redemptions of such Investments by such Person, proceeds realized on the sale of such Investment and proceeds representing the return of capital (excluding ordinary dividends and distributions), in each case received by UCAR International or any Restricted Subsidiary, and (y) the portion (proportionate to UCAR International's direct or indirect equity interest in such Person) of the fair market value of the net assets of any Person that was an Unrestricted Subsidiary at the time such Person is designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the case of any such Person, amount of Investments (excluding Permitted Investments) previously made (and treated as a Restricted Payment) by UCAR International or any Restricted Subsidiary in such Person. (b) The provisions of Section 4.04(a) shall not prohibit: (1) any Restricted Payment made out of the Net Cash Proceeds of the substantially concurrent sale of, or made by exchange for, Capital Stock of UCAR International (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of UCAR International or an employee stock ownership plan or to a trust established by UCAR International or any of its Subsidiaries for the benefit of their employees until such employee stock ownership plan or trust sells such Capital Stock to a Person other than UCAR International and its Affiliates) or a substantially concurrent cash capital contribution received by UCAR International from its stockholders; PROVIDED, HOWEVER, that (A) such Restricted Payment shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale, exchange or cash capital contribution (to the extent so used for such Restricted Payment) shall be excluded from the calculation of amounts under Section 4.04(a)(3)(B); 60 (2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations of the Company, any Guarantor or any Intercompany Loan Obligor made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness which is permitted to be Incurred pursuant to Section 4.03; PROVIDED, HOWEVER, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (3) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted under Section 4.06; PROVIDED, HOWEVER, that such purchase or redemption shall be excluded from the calculation of the amount of Restricted Payments; (4) any dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this Section 4.04; PROVIDED, HOWEVER, that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or result therefrom); and PROVIDED FURTHER, HOWEVER, that such dividend shall be included in the calculation of the amount of Restricted Payments; (5) any purchase of any fractional share of Capital Stock of UCAR International resulting from (A) any dividend or other distribution on outstanding shares of Capital Stock of UCAR International or any of its Subsidiaries that is payable in shares of Capital Stock of UCAR International (including any stock split or subdivision of the outstanding Capital Stock of UCAR International or any of its Subsidiaries), (B) any combination of the outstanding shares of Capital Stock of UCAR International or any of its Subsidiaries, (C) any reorganization or consolidation of UCAR International or any of its Subsidiaries or any merger of UCAR International or any of its Subsidiaries with or into any other Person, or (D) the conversion or exchange of any securities of UCAR International or any of its Subsidiaries into shares of Capital Stock of UCAR International; PROVIDED, HOWEVER, that such purchase shall be included in the calculation of the amount of Restricted Payments; (6) the redemption of any preferred stock purchase rights issued under the stockholder rights plan of UCAR International in effect on the Issue Date 61 (or under any amendment thereto or any customary similar successor plan, except to the extent that the method of calculating redemption payments would result in greater payments than would be the case under the plan as in effect on the Issue Date) at a redemption price of $0.01 per right; PROVIDED, HOWEVER, that such purchase shall be included in the calculation of the amount of Restricted Payments; (7) so long as no Default has occurred and is continuing, the repurchase or other acquisition of shares of Capital Stock of UCAR International from employees, former employees, directors or former directors of UCAR International or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors of UCAR International under which such individuals purchase or sell, or are granted the option to purchase or sell, shares of such Capital Stock; PROVIDED, HOWEVER, that the aggregate amount of such repurchases and other acquisitions (other than any acquisition of shares of Capital Stock of UCAR International that are acquired as payment for the exercise price of outstanding options) shall not exceed $5.0 million in any calendar year and $10.0 million in the aggregate; and PROVIDED FURTHER, HOWEVER, that such repurchases and other acquisitions shall be excluded in the calculation of the amount of Restricted Payments; (8) any Investments made to or in the China Joint Ventures; PROVIDED, HOWEVER, that the aggregate amount of all such Investments made pursuant to this clause (8) and outstanding at any one time does not exceed $10.0 million in the aggregate (exclusive of contributions of intellectual property rights with a book value of less than $5.0 million and Capital Stock of UCAR International (other than Disqualified Stock)) less any available amount for Investments under this clause (8) that has theretofore been utilized pursuant to Section 4.04(b)(9); PROVIDED FURTHER, HOWEVER, that such Investments shall be included in the calculation of the amount of Restricted Payments; (9) any Investments made to or in joint ventures or similar Persons in the Related Businesses; PROVIDED, HOWEVER, that the aggregate amount of all Investments made pursuant to this clause (9) and outstanding at any one time does not exceed (A) $15.0 million (exclusive 62 of Capital Stock of UCAR International (other than Disqualified Stock)) plus (B) any amount available at such time for making Investments permitted under Section 4.04(b)(8); PROVIDED FURTHER, HOWEVER, that such Investments shall be included in the calculation of the amount of Restricted Payments; or (10) other Restricted Payments in an aggregate amount which, when taken together with all other Restricted Payments made pursuant to this clause (10) and then outstanding, does not exceed $25.0 million; PROVIDED, HOWEVER, that the amount of such Restricted Payments shall be included in the calculation of the amount of Restricted Payments. SECTION 4.05. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES. UCAR International shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to UCAR International or a Restricted Subsidiary or pay any Indebtedness owed to UCAR International or the Company (including the Intercompany Note Obligations), (b) make any loans or advances to UCAR International or the Company or (c) transfer any of its property or assets to UCAR International or the Company, except: (1) with respect to clauses (a), (b) and (c), (i) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date (including the Credit Agreement as in effect on the Issue Date); (ii) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement in effect or entered into on or prior to the date on which such Restricted Subsidiary was acquired by UCAR International or a Restricted Subsidiary or, in the case of a Restricted Subsidiary formed to acquire a business, the date on which such business was acquired by such Restricted Subsidiary (other than an agreement entered into, in connection with, as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary 63 became a Restricted Subsidiary or was acquired by UCAR International or a Restricted Subsidiary or such business was acquired by such Restricted Subsidiary) and outstanding on such date; (iii) any encumbrance or restriction contained in an agreement effecting a refinancing, substitution, novation, extension, renewal, refund, repayment, prepayment, redemption, defeasement or retirement, or issuance of exchange or replacement Indebtedness, pursuant to an agreement referred to in Section 4.05(1)(i) or (ii) or in this clause (iii) or contained in any amendment to an agreement referred to in Section 4.05(1)(i) or (ii) or in this clause (iii); PROVIDED, HOWEVER, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such agreement or amendment are no less favorable to the Securityholders than encumbrances and restrictions with respect to such Restricted Subsidiary contained in the predecessor agreement; and (iv) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary, pending the closing of such sale or disposition; and (2) with respect to clause (c) only, (i) any such encumbrance or restriction (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance, contract or similar property or asset or (B) that is included in a lease, license, installment purchase or sale contract or similar agreement to the extent such encumbrances or restrictions limit the transfer of the property or asset subject to such lease, license, contract or similar agreement; and (ii) restrictions contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages. 64 SECTION 4.06. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) UCAR International shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless (1) UCAR International or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors (or, if the fair market value is less than $25.0 million, the chief financial officer) of UCAR International, whose good faith determination shall be conclusive of the shares and assets subject to such Asset Disposition; (2) at least 75% of the consideration thereof received by UCAR International or such Restricted Subsidiary is in the form of cash or cash equivalents; and (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by UCAR International (or such Restricted Subsidiary, as the case may be) (A) FIRST, to the extent UCAR International elects (or is required by the terms of any Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness of the Company, any Guarantor or any Intercompany Note Obligor or Indebtedness (other than any Disqualified Stock) of any other Subsidiary that is a Wholly Owned Subsidiary (in each case other than Indebtedness owed to UCAR International or an Affiliate of UCAR International) within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) SECOND, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to the extent UCAR International elects, to acquire or commit to acquire Additional Assets within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; PROVIDED, HOWEVER, that if UCAR International elects to commit to acquire Additional Assets, such acquisition shall be consummated no later than six months after the end of such one year period; and (C) THIRD, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the Holders of the Securities (and to holders of other Senior Indebtedness of the Company, any Guarantor or any Intercompany Note Obligor designated by UCAR International) to purchase Securities (and such other Senior Indebtedness) pursuant to and subject to the conditions contained in Section 4.06(c); PROVIDED, HOWEVER, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (C), UCAR International or such Restricted Subsidiary shall permanently retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid, redeemed or purchased. Notwithstanding the 65 foregoing provisions of this Section 4.06, UCAR International and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this Section 4.06(a) except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this Section 4.06(a) exceeds $10.0 million. Pending application of Net Available Cash pursuant to this Section 4.06(a), such Net Available Cash shall be invested in Temporary Cash Investments or applied to temporarily reduce revolving credit indebtedness. For the purposes of this Section 4.06(a), the following are deemed to be cash or cash equivalents: (1) the assumption of Indebtedness of UCAR International or any Restricted Subsidiary and the release of UCAR International or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition; and (2) any securities received by UCAR International or any Restricted Subsidiary from the transferee that are promptly converted by UCAR International or such Restricted Subsidiary into cash. (b) In the event of an Asset Disposition that requires the purchase of Securities (and other Senior Indebtedness) pursuant to Section 4.06(a)(3)(C), UCAR International will cause the Company to purchase Securities tendered pursuant to an offer by the Company for the Securities (and such other Senior Indebtedness) (the "Offer") at a purchase price of 100% of their principal amount (or, in the event such other Senior Indebtedness was issued with significant original issue discount, 100% of the accreted value thereof) without premium, plus accrued but unpaid interest (or, in respect of such other Senior Indebtedness, such lesser price, if any, as may be provided for by the terms of such other Senior Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) set forth in Section 4.06(c). If the aggregate purchase price of the Securities tendered pursuant to the Offer exceeds the Net Available Cash allotted to their purchase, UCAR International shall cause the Company to select the Securities to be purchased on a PRO RATA basis but in round denominations, which in the case of the Securities will be denominations of $1,000 principal amount or integral multiples thereof. UCAR International shall not be required to cause the Company to make such an Offer to purchase Securities (and other Senior Indebtedness) pursuant to this Section 4.06 if the Net Available Cash available therefor is less than $10.0 million (which lesser amount shall be carried forward for purposes of determining whether such an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). 66 (c) (1) Promptly, and in any event within 10 days after the Company becomes obligated to make an Offer, UCAR International shall cause the Company to deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect to have his Securities purchased by the Company either in whole or in part (subject to prorating as described in Section 4.06(b) in the event the Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Purchase Date") and shall contain such information concerning the business of UCAR International which UCAR International in good faith believes will enable such Holders to make an informed decision (which at a minimum will include (A) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of UCAR International, the most recent subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report, other than Current Reports describing Asset Dispositions otherwise described in the offering materials (or corresponding successor reports), (B) a description of material developments in UCAR International's business subsequent to the date of the latest of such Reports, and (C) if material, appropriate PRO FORMA financial information) and all instructions and materials necessary to tender Securities pursuant to the Offer, together with the information contained in clause (3). (2) Not later than the date upon which written notice of an Offer is delivered to the Trustee as provided below, UCAR International shall cause the Company to deliver to the Trustee an Officers' Certificate as to (A) the amount of the Offer (the "Offer Amount"), including information as to any other Senior Indebtedness included in the Offer, (B) the allocation of the Net Available Cash from the Asset Dispositions pursuant to which such Offer is being made and (C) the compliance of such allocation with the provisions of Section 4.06(a) and (b). On such date, UCAR International shall cause the Company to irrevocably deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust) in Temporary Cash Investments, maturing on the last day prior to the Purchase Date or on the Purchase Date if funds are immediately available by open of business, an amount equal to the Offer Amount to be held for payment in accordance with the provisions of this Section 4.06. If the Offer includes other Senior Indebtedness, the deposit described in the preceding sentence may be made with any other paying 67 agent pursuant to arrangements reasonably satisfactory to the Trustee. Upon the expiration of the period for which the Offer remains open (the "Offer Period"), the Company shall deliver to the Trustee for cancellation the Securities or portions thereof that have been properly tendered to and are to be accepted by the Company. The Trustee shall, on the Purchase Date, mail or deliver payment (or cause the delivery of payment) to each tendering Holder in the amount of the purchase price. In the event that the aggregate purchase price of the Securities delivered by the Company to the Trustee is less than the Offer Amount applicable to the Securities, the Trustee shall deliver the excess to the Company immediately after the expiration of the Offer Period for use or application in any manner permitted by this Indenture. (3) Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the Purchase Date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives not later than one Business Day prior to the Purchase Date, a telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (4) At the time the Company delivers Securities to the Trustee which are to be accepted for purchase, which in no event shall be later than 10:00 a.m. Eastern Time on the Purchase Date, UCAR International shall cause the Company to deliver an Officers' Certificate stating that such Securities are to be accepted by the Company pursuant to and in accordance with the terms of this Section 4.06. A Security shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. (d) UCAR International shall cause the Company to comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section 4.06. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 4.06, UCAR International and the Company shall comply with the 68 applicable securities laws and regulations and shall not be deemed to have breached their obligations under this Section by virtue of their compliance with such securities laws or regulations. (e) Notwithstanding the foregoing, to the extent that any or all of the Net Available Cash of any Asset Disposition of assets or shares based outside the United States is prohibited or delayed by applicable local law from being repatriated to the United States and such Net Available Cash is not actually applied in accordance with Sections 4.06(a) and (b), UCAR International shall not be required to apply the portion of such Net Available Cash so affected but may permit the applicable Restricted Subsidiaries to retain such portion of the Net Available Cash so long, but only so long, as the applicable local law will not permit repatriation to the United States. Once such repatriation of any such affected Net Available Cash is permitted under the applicable local law, such repatriation will be immediately effected and such repatriated Net Available Cash will be applied in the manner set forth in this Section as if the Asset Disposition had occurred on such date; PROVIDED that to the extent that UCAR International has determined in good faith that repatriation of any or all of the Net Available Cash of such Asset Disposition would have a material adverse tax cost consequence, the Net Available Cash so affected may be retained by the applicable Restricted Subsidiary for so long as such material adverse tax cost event would continue. SECTION 4.07. LIMITATION ON AFFILIATE TRANSACTIONS. (a) UCAR International shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with, or for the benefit of, any Affiliate of UCAR International (an "Affiliate Transaction") unless (1) the terms of the Affiliate Transaction are no less favorable to UCAR International or such Restricted Subsidiary than those that could be obtained at the time of the Affiliate Transaction in arm's-length dealings with a Person who is not an Affiliate; (2) if such Affiliate Transaction involves an amount in excess of $10.0 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the non-employee directors of UCAR International disinterested with respect to such Affiliate Transactions have determined in good faith that the criteria set forth in clause (1) are satisfied and have approved the relevant Affiliate Transaction as evidenced by a Board resolution; and (3) if such Affiliate Transaction involves an amount in 69 excess of $25.0 million, the Board of Directors of UCAR International shall also have received a written opinion from an Independent Qualified Party to the effect that such Affiliate Transaction is fair, from a financial standpoint, to UCAR International and the Restricted Subsidiaries or not less favorable to UCAR International and the Restricted Subsidiaries than could reasonably be expected to be obtained at the time in an arm's-length transaction with a Person who was not an Affiliate. (b) The provisions of the preceding paragraph (a) will not prohibit (1) any Investment (other than a Permitted Investment) or other Restricted Payment, in each case permitted to be made pursuant to Section 4.04; (2) any issuance of securities, payments, awards or grants in cash or securities, or other perquisites, or any funding of, employee benefit trusts and similar arrangements, in each case, to (i) executive officers of UCAR International as approved by the Board of Directors of UCAR International, (ii) all other employees of UCAR International and employees and directors of any of the Restricted Subsidiaries as approved by an executive officer of UCAR International and (iii) directors of UCAR International who are not employees of UCAR International; (3) (i) loans and advances, including loans and advances outstanding on the Issue Date, to employees of UCAR International and the Restricted Subsidiaries not to exceed $6.0 million in the aggregate at any time outstanding and (ii) advances of payroll payments and expenses to employees in the ordinary course of business; (4) the payment of reasonable fees to and indemnities of directors, officers and employees of UCAR International and the Restricted Subsidiaries in the ordinary course of business or as required by governing corporate organizational documents, customary indemnification contracts or law; (5) any transaction with a Restricted Subsidiary or joint venture or similar entity which would constitute an Affiliate Transaction solely because UCAR International or a Restricted Subsidiary owns an equity interest in or otherwise controls such Restricted Subsidiary, joint venture or similar entity; (6) the issuance or sale of Capital Stock (other than Disqualified Stock) of UCAR International or a capital contribution to UCAR International; or (7) any agreement in effect on the Issue Date and described in or incorporated by reference into the Offering Circular (including any lease, operating agreement, license, supply agreement or service agreement) or any amendment, renewal or extension of any such agreement (so long as such amendment, renewal or extension is not less favorable to UCAR International or the Restricted Subsidiaries) and the transactions evidenced thereby. 70 SECTION 4.08. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. UCAR International: (1) shall not, and shall not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise dispose of any Capital Stock of any Restricted Subsidiary to any Person (other than to UCAR International or a Wholly Owned Subsidiary or in connection with a Graftech Equity Offering or in connection with a Carbone Savoie Equity Sale); and (2) shall not permit any Restricted Subsidiary to issue any of its Capital Stock (other than, if necessary, shares of its Capital Stock constituting directors' or other legally required qualifying shares) to any Person (other than to UCAR International or a Wholly Owned Subsidiary or in connection with a Graftech Equity Offering or in connection with a Carbone Savoie Equity Sale); unless (A) immediately after giving effect to such issuance, sale or other disposition, neither UCAR International nor any of its Subsidiaries owns any Capital Stock of such Restricted Subsidiary; or (B) immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect thereto is treated as a new Investment by UCAR International and such Investment would be permitted to be made under Section 4.04 if made on the date of such issuance, sale or other disposition. Notwithstanding the foregoing, the limitations contained in this Section 4.08 will not be deemed to prohibit the making by UCAR International or its Subsidiaries of pledges under the Credit Agreement or this Indenture. SECTION 4.09. CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require that the Company purchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date), in accordance with the terms contemplated in Section 4.09(b). (b) Within 30 days following any Change of Control, the Company shall mail a notice to each Holder with a copy to the Trustee (the "Change of Control Offer") stating: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase, plus accrued and unpaid 71 interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts regarding such Change of Control (including information with respect to PRO FORMA historical income, cash flow and capitalization, in each case, after giving effect to such Change of Control); (3) the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by the Company, consistent with this Section, that a Holder must follow in order to have its Securities purchased. (c) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the purchase date. Holders will be entitled to withdraw their election if the Trustee or the Company receives not later than one Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. (d) On the purchase date, but in no event later than 10:00 a.m. Eastern Time, all Securities purchased by the Company under this Section shall be delivered by the Company to the Trustee for cancellation, and the Company shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto. (e) Notwithstanding the foregoing provisions of this Section, the Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section applicable to a Change of Control Offer made by the Company and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer. (f) UCAR International shall cause the Company to comply, to the extent applicable, with the requirements of 72 Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, UCAR International and the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue of its compliance with such securities laws or regulations. SECTION 4.10. LIMITATION ON LIENS. UCAR International shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any Lien (the "Initial Lien") of any nature whatsoever on (1) any Intercompany Note or Intercompany Note Guaranty or (2) any of its other properties (including Capital Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired, other than, in the case of this clause (2), Permitted Liens, without effectively providing that the Securities shall be secured equally and ratably with (or prior to) the obligations so secured for so long as such obligations are so secured. Any Lien created for the benefit of the Holders of the Securities pursuant to the preceding sentence shall provide by its terms that such Lien shall be automatically and unconditionally released and discharged upon the release and discharge of the Initial Lien. SECTION 4.11. LIMITATION ON SALE/LEASEBACK TRANSACTIONS. UCAR International shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless (1) UCAR International or such Restricted Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to Section 4.03 and (B) create a Lien on such property securing such Attributable Debt without equally and ratably securing the Securities pursuant to Section 4.10; (2) the gross proceeds received by UCAR International or any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at least equal to the fair value (as determined by the Board of Directors of UCAR International or its chief financial officer if the Sale/Leaseback Transaction is less than $25.0 million in value, and whose determination shall be conclusive) of such property; and (3) UCAR International applies the proceeds of such transaction in compliance with Section 4.06. This limitation on Sale/Leaseback Transactions shall not limit or prohibit transactions between or among Restricted Subsidiaries that fall within the definition of "Sale/Leaseback Transactions." 73 SECTION 4.12. LIMITATION ON CONDUCT OF BUSINESS OF THE COMPANY. The Company shall not own any material assets or other property (other than the Intercompany Notes, other notes payable to it and Temporary Cash Investments) or engage in any trade or conduct any business activities other than treasury, cash management, hedging and cash pooling activities and those incidental thereto. The Company will not Incur any material liabilities or obligations other than its obligations pursuant to the Securities, the Credit Agreement, the Cash Flow Notes and other Indebtedness as permitted under this Indenture and pursuant to business activities permitted by this Section and entered into in the ordinary course. SECTION 4.13. LIMITATION ON SALE OF THE CAPITAL STOCK OF THE COMPANY. For so long as any of the Securities are outstanding, the Company shall continue to be, directly or indirectly, a Wholly Owned Subsidiary of UCAR International. SECTION 4.14. FUTURE GUARANTORS AND INTERCOMPANY NOTE OBLIGORS. (a) UCAR International shall cause each domestic Restricted Subsidiary (other than (i) Graftech, for so long as Graftech is a Restricted Subsidiary and the Capital Stock of Graftech is not 100% owned, either directly or indirectly, by UCAR International, (ii) Union Carbide Grafito, Inc. and (iii) GENCO) that Incurs any Indebtedness after the Issue Date to, at the same time, execute and deliver to the Trustee a Guaranty Agreement pursuant to which such Restricted Subsidiary will Guarantee payment of the Securities on the same terms and conditions as those set forth in Article 10 of this Indenture. (b) UCAR International shall cause UCAR Electrodos, after the completion of the Realignment insofar as the Realignment relates to it, and UCAR S.p.A., after the repayment of the Secured Intercompany Note issued by it, and each Foreign Restricted Subsidiary that receives an Intercompany Loan from the sale of Additional Securities from the Company to, at the time of such completion, repayment, or receipt, respectively, execute and deliver to the Company an Intercompany Note in the principal amount equal to the principal amount of its Secured Intercompany Note at such time or the portion of the gross proceeds received by such Foreign Restricted Subsidiary, respectively. With respect to gross proceeds of this offering received by the Company on the Issue Date that are not loaned to a Foreign Restricted Subsidiary on the Issue Date, such proceeds shall be invested only in Temporary Cash Investments or used to reduce the Company's borrowings under the Revolving Credit Facility, until such time as such 74 proceeds are loaned in the form of an Intercompany Loan; PROVIDED that at least $31.0 million of capacity shall be retained and not drawn under the Revolving Credit Facility during such period. The Company shall, at the same time that such an Intercompany Note is issued to it, pledge and deliver to the Trustee such Intercompany Note, subject to the limitation that at no time will the combined value of the pledged portion of any Foreign Restricted Subsidiary's Intercompany Note and Intercompany Note Guarantee exceed 19.99% of the principal amount of the then outstanding Securities. The Company shall use its commercially reasonable best efforts (1) to complete the Realignment as it relates to UCAR Electrodos and (2) to cause UCAR S.p.A. to repay the Secured Intercompany Note issued by UCAR S.p.A., in each case, within 90 days after the Issue Date. (c) UCAR International shall, to the extent permitted by applicable law, cause each Foreign Restricted Subsidiary that Guarantees a secured note under the Credit Agreement of another Foreign Restricted Subsidiary after the Issue Date, to, at the same time, execute and deliver to the Company a written instrument, substantially in the form attached hereto as Exhibit 3 hereto, pursuant to which such Foreign Restricted Subsidiary will Guarantee payment of the Intercompany Note of such other Foreign Restricted Subsidiary. The Company shall, at the same time, grant to the Trustee a perfected security interest in such Intercompany Note Guaranty pursuant to Article 13, subject to the limitation that at no time will the combined value of the pledged portion of any Foreign Restricted Subsidiary's Intercompany Note and Intercompany Note Guarantee exceed 19.99% of the principal amount of the then outstanding Securities. (d) If at any time an Intercompany Note Maker executes and delivers to the Company a new Intercompany Note or increases the principal amount of an existing Intercompany Note, to the extent that an existing Intercompany Note Guaranty does not extend to such new or increased Intercompany Note, then UCAR International shall cause each Intercompany Note Guarantor that has issued, immediately prior to such execution and delivery, an Intercompany Note Guaranty in respect of the obligation of such Intercompany Note Maker under an Intercompany Note, to, at the same time, execute and deliver to the Company a written instrument, substantially in the form attached hereto as Exhibit 3 hereto, pursuant to which such Intercompany Note Guarantor will Guarantee the new Intercompany Note or the new obligations under the existing Intercompany Note. The Company shall, at the same time, grant to the Trustee a perfected security interest in such 75 Intercompany Note Guaranty pursuant to Article 13, subject to the limitation that at no time will the combined value of the pledged portion of any Foreign Restricted Subsidiary's Intercompany Note and Intercompany Note Guarantee exceed 19.99% of the principal amount of the then outstanding Securities. For purposes of this Indenture and the Graftech Pledge Agreement, the terms "combined value" and "value" when used with respect to a pledge of shares (or other securities), notes or guarantees of any issuer thereof, shall be deemed to mean principal amount, par value or book value thereof as carried by UCAR International, or the market value thereof, whichever is greatest, so that, after giving effect to the 19.99% limitation referred to in this Section 4.14, and in Article 12, Article 13 and the Graftech Pledge Agreement, the shares (or other securities), notes and guarantees of each issuer of any thereof do not constitute a substantial portion of the collateral for the then outstanding Securities within the meaning of Rule 3-16 under Regulation S-X adopted by the SEC, as interpreted by the SEC or its staff, or any successor rule, regulation, order, interpretation or statute. SECTION 4.15. COMPLIANCE CERTIFICATE. UCAR International shall deliver to the Trustee within 120 days after the end of each fiscal year an Officers' Certificate stating that in the course of the performance by the signers of their duties as Officers, which for the purposes of this Section 4.15 must be signed by at least one of the Chief Executive Officer, the Chief Financial Officer or Chief Accounting Officer, of UCAR International they would normally have knowledge of any Default and whether or not the signers know of any Default that occurred during such period. If they do, the certificate shall describe the Default, its status and what action UCAR International and the Company are taking or propose to take with respect thereto. UCAR International and the Company also shall comply with TIA ss. 314(a)(4). SECTION 4.16. FURTHER INSTRUMENTS AND ACTS. Upon reasonable request of the Trustee, UCAR International and the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. 76 ARTICLE 5 SUCCESSOR COMPANY ----------------- SECTION 5.01. WHEN THE COMPANY, THE GUARANTORS AND THE INTERCOMPANY NOTE OBLIGORS MAY MERGE OR TRANSFER ASSETS. (a) UCAR International shall not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of related transactions, directly or indirectly, all or substantially all its assets to, any Person, unless: (1) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not UCAR International) expressly assumes, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of UCAR International under the Securities and this Indenture; (2) immediately after giving PRO FORMA effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving PRO FORMA effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a); (4) immediately after giving PRO FORMA effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount that is not less than the Consolidated Net Worth of UCAR International immediately prior to such transaction; (5) UCAR International shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture; and (6) UCAR International shall have delivered to the Trustee an Opinion of Counsel to the effect that 77 the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such transaction and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such transaction had not occurred, PROVIDED, HOWEVER, that clauses (3) and (4) will not be applicable to (A) a Restricted Subsidiary consolidating with, merging into or transferring all or part of its properties and assets to UCAR International or (B) UCAR International merging with an Affiliate of UCAR International solely for the purpose and with the sole effect of reincorporating UCAR International in another jurisdiction. The foregoing limitation shall not prohibit any pledge of assets of UCAR International under the Credit Agreement. The Successor Company will be the successor to UCAR International and shall succeed to, and be substituted for, and may exercise every right and power of, UCAR International under this Indenture, and UCAR International, except in the case of a lease, shall be released from its guaranty of the Company's obligations under the Securities and this Indenture. (b) UCAR International shall not permit UCAR Global, UCAR Carbon or the Company to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its respective assets to any Person unless: (1) the Successor Company (if not UCAR Global, UCAR Carbon or the Company, as the case may be) shall be a Person organized and existing under the laws of the United States of America, or any State thereof or the District of Columbia, and such Person expressly assumes, by an indenture supplemental hereto, executed and delivered to the Trustee, in a form reasonably satisfactory to the Trustee, all the obligations of UCAR Global, UCAR Carbon or the Company, as the case may be, if any, under the Securities and this Indenture; (2) immediately after giving effect to such transaction or transactions on a PRO FORMA basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a 78 result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; (3) UCAR Global, UCAR Carbon or the Company, as the case may be, deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture, if any, comply with this Indenture; and (4) UCAR Global, UCAR Carbon or the Company, as the case may be, shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such transaction and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such transaction had not occurred. The foregoing limitation shall not prohibit any pledge of assets of UCAR Global, UCAR Carbon or the Company, as the case may be, under the Credit Agreement or this Indenture. The resulting, surviving or transferee Person will be the successor to UCAR Global, UCAR Carbon or the Company, as the case may be, and shall succeed to, and be substituted for, and may exercise every right and power of, UCAR Global, UCAR Carbon or the Company, as the case may be, under the Securities and this Indenture, and UCAR Global, UCAR Carbon or the Company, as the case may be, except in the case of a lease, shall be released from, in the case of the Company, the obligation to pay the principal of and interest on the Securities and, in the case of UCAR Global and UCAR Carbon, their respective Guaranty of the Company's obligations under the Securities and this Indenture. (c) UCAR International shall not permit any Subsidiary Guarantor or Intercompany Note Obligor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to any Person unless: (1) except in the case of a Subsidiary Guarantor or Intercompany Note Obligor that has been disposed of in its entirety to another Person (other than to UCAR International or an Affiliate of UCAR International), whether through a merger, consolidation or sale of Capital Stock or assets, if in connection therewith UCAR International provides an Officers' Certificate to 79 the Trustee to the effect that UCAR International will comply with its obligations under Section 4.06 in respect of such disposition, the resulting, surviving or transferee Person (if not such Subsidiary Guarantor or Intercompany Note Obligor) expressly assumes, by a written instrument, in a form reasonably satisfactory to the Trustee, all the obligations of such Subsidiary Guarantor or Intercompany Note Obligor, if any, under its Subsidiary Guaranty, Intercompany Note Guaranty or Intercompany Note, as the case may be; (2) immediately after giving effect to such transaction or transactions on a PRO FORMA basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; and (3) UCAR International delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such written instrument, if any, complies with this Indenture. ARTICLE 6 DEFAULTS AND REMEDIES --------------------- SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: (1) the Company defaults in any payment of interest on any Security when the same becomes due and payable, and such default continues for a period of 30 days; (2) the Company (i) defaults in the payment of the principal of any Security when the same becomes due and payable at its Stated Maturity, upon optional redemption, upon declaration of acceleration or otherwise, or (ii) fails to purchase Securities when required pursuant to this Indenture or the Securities; (3) the Company, any Guarantor or any Intercompany Note Obligor fails to comply with Section 5.01; 80 (4) UCAR International or the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14 or Article 11 (other than a failure to purchase Securities when required under Section 4.06, 4.09 or 11.03) and such failure continues for 30 days after the notice specified below; (5) the Company or any Guarantor fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in clause (1), (2), (3) or (4) above) and such failure continues for 60 days after the notice specified below; (6) Indebtedness of the Company, any Guarantor or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10.0 million, or its foreign currency equivalent at the time; (7) the Company, any Guarantor or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company, any Guarantor or any Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company, any Guarantor or any Significant Subsidiary or for any substantial part of its property; or 81 (C) orders the winding up or liquidation of the Company, any Guarantor or any Significant Subsidiary; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days; or (9) any judgment or decree for the payment of money in excess of $10.0 million (or its foreign currency equivalent at the time) above the coverage under applicable insurance policies and indemnities as to which the relevant insurer or indemnities has not disclaimed responsibility is entered against the Company, any Guarantor or any Significant Subsidiary, remains outstanding for a period of 60 days following the entry of such judgment or decree and is not discharged or waived or does not have the execution thereof effectively stayed (including by agreement) within 10 days after the notice specified below; (10) any Guaranty, Intercompany Note Guaranty or Intercompany Note ceases to be in full force and effect (other than in accordance with the terms of such Guaranty, such Intercompany Note Guaranty or such Intercompany Note) or any Guarantor or Intercompany Note Obligor denies or disaffirms its obligations under its Guaranty, its Intercompany Note Guaranty or its Intercompany Note, as the case may be; or (11) the Trustee, at any time, ceases to have a perfected security interest in the Intercompany Notes or the Intercompany Note Guaranties; or the Collateral Agent, at any time, ceases to have a perfected security interest in the Pledged Graftech Stock; or any Intercompany Note has been prepaid except in accordance with such Intercompany Note or Article 11. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, UNITED STATES CODE, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. 82 A Default under clauses (4), (5) or (9) is not an Event of Default until the Trustee or the holders of at least 25% in principal amount of the outstanding Securities notify the Company and UCAR International of the Default and the Company or UCAR International does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". UCAR International shall cause the Company to deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any Event of Default under clause (6), (10) or (11) and any event which with the giving of notice or the lapse of time would become an Event of Default under clause (4), (5) or (9), its status and what action UCAR International and the Company are taking or propose to take with respect thereto. SECTION 6.02. ACCELERATION. If an Event of Default (other than an Event of Default specified in Section 6.01(7) or (8) with respect to UCAR International or the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities by notice to the Company and the Trustee, may declare the principal of and accrued but unpaid interest on all of the Securities to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(7) or (8) with respect to UCAR International or the Company occurs, the principal of and interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration and if all payments (including fees and expenses) due to the Trustee have been paid. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. 83 The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of a majority in aggregate principal amount of the Securities outstanding by notice to the Trustee may waive an existing Default and its consequences except (i) a Default in the payment of the principal of or interest on a Security (ii) a Default arising from the failure to redeem or purchase any Security when required pursuant to this Indenture or (iii) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.05. CONTROL BY MAJORITY. The Holders of a majority in principal amount of the Securities outstanding may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; PROVIDED, HOWEVER, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification reasonably satisfactory to it against all losses and expenses caused by taking or not taking such action. SECTION 6.06. LIMITATION ON SUITS. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Securityholder may pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in principal amount of the Securities outstanding make a written request to the Trustee to pursue the remedy; 84 (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (5) the Holders of a majority in principal amount of the Securities outstanding do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.07. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property to collect and receive any monies or other property payable or deliverable on any such claims, and to distribute the same after the deduction of any amounts due the Trustee under Section 7.07, and to take any other action with respect to such claims, including participating as a member of any official committee of creditors, as it reasonably deems necessary or advisable, and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee 85 and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07. SECTION 6.10. PRIORITIES. If the Trustee collects any money or property pursuant to this Article 6, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.07 or any other provision of this Indenture; SECOND: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and THIRD: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Securities. SECTION 6.12. WAIVER OF STAY OR EXTENSION LAWS. UCAR International and the Company (to the extent they may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and each of UCAR International and the Company (to the extent that they 86 may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 7 TRUSTEE ------- SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith 87 in accordance with a direction received by it pursuant to Section 6.05. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed by it with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; PROVIDED, HOWEVER, that the Trustee's conduct does not constitute wilful misconduct or negligence. 88 (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) Any permissive right or authority granted to the Trustee shall not be construed as a mandatory duty. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. However, if the Trustee acquires any conflicting interest in respect of the Holders, it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as Trustee or resign. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on any Security, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is not opposed to the interests of Securityholders. Subject to this Section 7.05, the Trustee shall promptly send any such notice to the Collateral Agent. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as practicable after each May 15 beginning with the May 15 following the date of this Indenture, and in any event prior to July 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of May 15 89 that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.07. COMPENSATION AND INDEMNITY. UCAR International shall cause the Company to pay the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. UCAR International shall cause the Company to reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. UCAR International and the Company shall jointly and severally indemnify the Trustee against any and all loss, liability or expense (including reasonable attorneys' fees) incurred by it in connection with the administration of this trust and the performance of its duties hereunder. The Trustee shall notify UCAR International promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify UCAR International shall not relieve UCAR International or the Company of their obligations hereunder. UCAR International and the Company shall defend the claim and the Trustee may have separate counsel and UCAR International shall pay the reasonable fees and expenses of such counsel. Neither UCAR International nor the Company need pay for any settlement made without the consent of UCAR International, which consent shall not be unreasonably withheld. Neither UCAR International nor the Company need reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own wilful misconduct, negligence or bad faith. To secure UCAR International's and the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities. UCAR International's and the Company's payment obligations pursuant to this Section shall survive the 90 discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(7) or (8) with respect to UCAR International or the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any time by giving notice to UCAR International or the Company. The Holders of a majority in principal amount of the Securities may remove the Trustee by giving notice to the Trustee and may appoint a successor Trustee. UCAR International shall cause the Company to remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), UCAR International shall cause the Company to promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. 91 If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, UCAR International's and the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA ss. 310(b); PROVIDED, HOWEVER, that there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated. 92 SECTION 7.12. TRUSTEE'S DEALINGS WITH THE COLLATERAL AGENT. (a) The Company hereby authorizes and directs the Trustee to enter into the Graftech Pledge Agreement substantially in the form attached hereto as Exhibit 4, and to appoint JP Morgan Chase Bank as Collateral Agent. In connection with the Trustee executing, delivering, performing and observing any terms of the Graftech Pledge Agreement, the Trustee shall be protected by all of the immunities, exculpations, rights, powers, protections and indemnities set forth in the Indenture. The Trustee shall have no liability for any actions or omissions of the Collateral Agent. The Trustee shall have no duty or obligation to review or evaluate the terms of the Graftech Pledge Agreement and shall have no responsibility for its sufficiency for any purpose. (b) The Company hereby authorizes and directs the Trustee to enter into the Lien Subordination Agreement substantially in the form attached hereto as Exhibit 5. In connection with the Trustee executing, delivering, performing and observing any terms of the Lien Subordination Agreement, the Trustee shall be protected by all of the immunities, exculpations, rights, powers, protections and indemnities set forth in the Indenture. The Trustee shall have no duty or obligation to review or evaluate the terms of the Lien Subordination Agreement and shall have no responsibility for its sufficiency for any purpose. ARTICLE 8 DISCHARGE OF INDENTURE; DEFEASANCE ---------------------------------- SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE. (a) When (1) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07) for cancellation or (2) all outstanding Securities have become due and payable, whether at maturity or on a redemption date as a result of the mailing of a notice of redemption pursuant to Article 3 hereof and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such redemption date (other than Securities replaced pursuant to Section 2.07), and if in either case the Company pays all other sums payable hereunder by the Company or UCAR International, then this Indenture shall, subject to Section 8.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company 93 accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company. (b) Subject to Sections 8.01(c) and 8.02, the Company, the Guarantors and the Intercompany Note Obligors at any time may terminate (1) all their obligations under the Securities, this Indenture, the Graftech Pledge Agreement, the Lien Subordination Agreement and the Intercompany Note Obligations ("legal defeasance option") or (2) their obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14 and Article 11 and the operation of Sections 6.01(4), 46.01(6), 6.01(7), 6.01(8), 6.01(9), 6.01(10) and 6.01(11) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) and the limitations contained in Sections 5.01(a)(3) and (4) ("covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8), 6.01(9), 6.01(10) and 6.01(11) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) or because of the failure of the Company to comply with Section 5.01(a)(3) or (4). If the Company exercises its legal defeasance option or its covenant defeasance option, each Guarantor shall be released from all its obligations with respect to its Guaranty or the Lien Subordination Agreement and the pledge of the Intercompany Note Guaranties, the Intercompany Notes and the Pledged Graftech Stock will be released. Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in this Article 8 shall survive until the Securities have been paid in full. Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive. 94 SECTION 8.02. CONDITIONS TO DEFEASANCE. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Securities to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity or redemption, as the case may be; (3) 123 days pass after the deposit is made and during the 123-day period no Default specified in Sections 6.01(7) or (8) with respect to UCAR International or the Company occurs which is continuing at the end of the period; (4) the deposit does not constitute a default under any other agreement binding on UCAR International or the Company; (5) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (6) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (B) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; 95 (7) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (8) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article 8 have been complied with. Before or after a deposit, the Company may make arrangements reasonably satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 3. SECTION 8.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. SECTION 8.04. REPAYMENT TO COMPANY. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any excess money or securities held by them at any time. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. UCAR International or the Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of 96 any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; PROVIDED, HOWEVER, that, if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENTS ---------- SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company, the Guarantors and the Trustee may amend this Indenture, the Securities, the Graftech Pledge Agreement, the Lien Subordination Agreement, any Intercompany Note or any Intercompany Note Guaranty without notice to or consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Article 5; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; PROVIDED, HOWEVER, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (4) to add Guarantees or Intercompany Notes with respect to the Securities, including any Subsidiary Guaranties and Intercompany Note Guaranties, or to secure the Securities; (6) to add to the covenants of the Company, any Guarantor or any Intercompany Note Obligor for the benefit of the Holders or to surrender any right or power herein conferred upon the Company, any Guarantor or any Intercompany Note Obligor; 97 (7) to comply with any requirements of the SEC in connection with qualifying, or maintaining the qualification of, this Indenture under the TIA; (8) to make changes to the Intercompany Notes or the Intercompany Note Guaranties permitted under the terms of the Intercompany Notes and the Intercompany Note Guaranties, as applicable; or (9) to make any change that does not adversely affect the rights of any Securityholder. After an amendment under this Section becomes effective, UCAR International shall cause the Company to mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.02. WITH CONSENT OF HOLDERS. The Company, the Guarantors, the Intercompany Note Obligors and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange for the Securities). However, without the consent of each Securityholder affected thereby, an amendment may not: (1) reduce the amount of Securities whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Security; (3) reduce the principal amount of or extend the Stated Maturity of any Security; (4) reduce the amount payable upon the redemption of any Security or change the time at which any Security may be redeemed in accordance with Article 3; (5) make any Security payable in money other than that stated in the Security; (6) make any changes in the ranking or priority of any Security that would adversely affect the Securityholders; 98 (7) make any change in Section 6.04 or 6.07 or the second sentence of this Section; (8) impair the right of any Holder of the Securities to receive payment of principal of and interest on such Holder's Securities on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Securities; or (9) make any change that would adversely affect the Securityholders to the Graftech Pledge Agreement, the Lien Subordination Agreement, any Guaranty, any Intercompany Note Guaranty or any Intercompany Note, in each case except as expressly permitted by its terms. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section becomes effective, UCAR International shall cause the Company to mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. An amendment or waiver becomes effective upon the execution of such amendment or waiver by the Trustee. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be 99 taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any amendment authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment, the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. SECTION 9.07. PAYMENT FOR CONSENT. Neither UCAR International nor any Affiliate of UCAR International shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. 100 ARTICLE 10 GUARANTIES ---------- SECTION 10.01. GUARANTIES. Each Guarantor hereby unconditionally and irrevocably guarantees, jointly and severally, to each Holder and to the Trustee and its successors and assigns (a) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under this Indenture and the Securities and (b) the full and punctual performance within applicable grace periods of all other obligations of the Company under this Indenture and the Securities (all the foregoing being hereinafter collectively called the "Obligations"). Each Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from such Guarantor and that such Guarantor will remain bound under this Article 10 notwithstanding any extension or renewal of any Obligation. Each Guarantor waives presentation to, demand of, payment from and protest to the Company of any of the Obligations and also waives notice of protest for nonpayment. Each Guarantor waives notice of any default under the Securities or the Obligations. The obligations of each Guarantor hereunder shall not be affected by: (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Obligations or any of them; (e) the failure of any Holder or the Trustee to exercise any right or remedy against any other guarantor of the Obligations; or (f) except as set forth in Section 10.06, any change in the ownership of such Guarantor. Each Guarantor further agrees that its Guaranty herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Obligations. Except as expressly set forth in Sections 8.01(b), 10.02 and 10.06, the obligations of each Guarantor hereunder 101 shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of such Guarantor or would otherwise operate as a discharge of such Guarantor as a matter of law or equity. Each Guarantor further agrees that its Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of UCAR International or the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against any Guarantor by virtue hereof, upon the failure of the Company to pay the principal of or interest on any Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Obligation, each Guarantor hereby promises to and shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (1) the unpaid amount of such Obligations, (2) accrued and unpaid interest on such Obligations (but only to the extent not prohibited by law) and (3) all other monetary Obligations of the Company to the Holders and the Trustee. Each Guarantor agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations Guaranteed hereby may be accelerated as provided in Article 6 for the purposes of such Guarantor's Guaranty herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed 102 hereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article 6, such Obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor for the purposes of this Section. Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Section. SECTION 10.02. LIMITATION OF LIABILITY. Any term or provision of this Indenture to the contrary notwithstanding, the maximum aggregate amount of the Obligations guaranteed hereunder by UCAR Global, UCAR Carbon or any Subsidiary Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering this Indenture, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance, fraudulent transfer or similar laws affecting the rights of creditors generally. SECTION 10.03. SUCCESSORS AND ASSIGNS. This Article 10 shall be binding upon each Guarantor and its successors and assigns and shall enure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. SECTION 10.04. NO WAIVER. Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article 10 shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article 10 at law, in equity, by statute or otherwise. SECTION 10.05. MODIFICATION. No modification, amendment or waiver of any provision of this Article 10, nor the consent to any departure by any Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and 103 for the purpose for which given. No notice to or demand on any Guarantor in any case shall entitle such Guarantor to any other or further notice or demand in the same, similar or other circumstances. SECTION 10.06. RELEASE OF SUBSIDIARY GUARANTOR. Upon the sale or other disposition (including by way of consolidation or merger) of a Subsidiary Guarantor or the sale or disposition of all or substantially all the assets of such Subsidiary Guarantor (in each case other than a sale or disposition to UCAR International or an Affiliate of UCAR International), such Subsidiary Guarantor shall be deemed released from all obligations under this Article 10 without any further action required on the part of the Trustee or any Holder. At the request and expense of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing such release. Upon (1) the merger or consolidation of a Subsidiary Guarantor with or into, or the dissolution and liquidation of a Subsidiary Guarantor into, a Restricted Subsidiary that is or becomes a Subsidiary Guarantor or another Person that Guarantees the Securities or (2) the designation of such Subsidiary Guarantor as an Unrestricted Subsidiary as permitted by this Indenture, PROVIDED that in the case of subclause (2) such Subsidiary Guarantor does not Guarantee any Indebtedness under the Credit Agreement from and after such designation, such Subsidiary Guarantor shall be released from all obligations under this Article 10 without any further action required on the part of the Trustee or any Holder. At the request and expense of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing such release. SECTION 10.07. CONTRIBUTION. Each Guarantor (other than UCAR International) that makes a payment under its Guaranty shall be entitled upon payment in full of all Guaranteed Obligations to a contribution from each other Guarantor (other than UCAR International) in an amount equal to such other Subsidiary Guarantor's PRO RATA portion of such payment based on the respective net assets of all the Guarantors (other than UCAR International) at the time of such payment determined in accordance with GAAP. ARTICLE 11 INTERCOMPANY NOTES AND INTERCOMPANY NOTE GUARANTIES --------------------------------------------------- SECTION 11.01. PREPAYMENT OF INTERCOMPANY NOTES. (a) UCAR International shall not permit any Intercompany Note Maker to prepay any Intercompany Note, and the Company 104 shall not accept proceeds from such prepayment, unless such proceeds are (1) Invested in or loaned to a Guarantor, (2) loaned to a Foreign Restricted Subsidiary that simultaneously issues an Intercompany Note, which the Company thereafter pledges to the Trustee in accordance with the provisions in Article 12 or (3) applied to a mandatory offer to purchase Securities in compliance with Section 11.03. (b) Notwithstanding Section 11.01(a), UCAR S.p.A. shall be entitled to prepay its Intercompany Note if the Company uses the proceeds of such prepayment (1) in accordance with Section 11.01(a) or (2) to prepay the term loans under the Credit Agreement. SECTION 11.02. LIMITATION OF LIABILITY. Any term or provision of this Indenture, Intercompany Note or Intercompany Note Guaranty notwithstanding, the maximum aggregate amount of the obligations of the Intercompany Note Obligors shall not exceed the maximum amount that can be issued or guaranteed, as the case may be, without rendering this Indenture (as it relates to such Intercompany Note Obligor), any Intercompany Note or any Intercompany Note Guaranty voidable under applicable law relating to fraudulent conveyance, fraudulent transfer or similar laws affecting the rights of creditors generally. SECTION 11.03. EXCESS INTERCOMPANY NOTE PREPAYMENT PROCEEDS PURCHASE OFFER. (a) If, at any time, the Company has Excess Intercompany Note Prepayment Proceeds, then no later than the 10th day following the receipt of the Intercompany Note prepayment proceeds, the Company will apply such Excess Intercompany Note Prepayment Proceeds: (1) FIRST, to the extent of such Excess Intercompany Note Prepayment Proceeds, to make an offer to the Holders of the Securities to purchase Securities pursuant to and subject to the conditions contained in this Section 11.03 (an "Excess Intercompany Note Prepayment Proceeds Offer"); and (2) SECOND, to the extent of the balance of such Excess Intercompany Note Prepayment Proceeds after application in accordance with clause (1), to any other application or use not prohibited by this Indenture. (b) In the event of an Excess Intercompany Note Prepayment Proceeds Offer, the Company will be required to purchase Securities tendered pursuant to an offer by the Company for the Securities at a purchase price of 100% of 105 the principal amount, plus accrued but unpaid interest in accordance with the procedures (including prorating in the event of oversubscription) set forth in Section 11.03(c). If the aggregate purchase price of Securities tendered pursuant to such offer is less than the Excess Intercompany Note Prepayment Proceeds, the Company will be entitled to apply the remaining Excess Intercompany Note Prepayment Proceeds in accordance with Section 11.03(a)(2) above. The Company will not be required to make an Excess Intercompany Note Prepayment Proceeds Offer to purchase Securities pursuant to this Section 11.03 if the Excess Intercompany Note Prepayment Proceeds available therefor is less than $10.0 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to the Excess Intercompany Note Prepayment Proceeds from any subsequent receipt of Intercompany Note prepayment proceeds). (c) (1) Promptly, and in any event within 10 days after the Company becomes obligated to make an Excess Intercompany Note Prepayment Proceeds Offer, the Company shall deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect to have its Securities purchased by the Company either in whole or in part (subject to prorating as described in Section 11.03(b) in the event the Excess Intercompany Note Prepayment Proceeds Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Excess Intercompany Note Prepayment Proceeds Purchase Date") and shall contain such information concerning the business of UCAR International which UCAR International in good faith believes will enable such Holders to make an informed decision (which at a minimum will include (A) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of UCAR International, the most recent subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of UCAR International filed subsequent to such Quarterly Report which may be incorporated by reference (or corresponding successor reports) and (B) a description of material developments in UCAR International's business subsequent to the date of the latest of such Reports) and all instructions and materials necessary to tender Securities pursuant to the Excess Intercompany Note Prepayment Proceeds Offer, together with the information contained in clause (3). (2) Not later than the date upon which written notice of an Excess Intercompany Note Prepayment Proceeds 106 Offer is delivered to the Trustee as provided below, the Company shall deliver to the Trustee an Officers' Certificate as to the amount of the Excess Intercompany Note Prepayment Proceeds Offer (the "Excess Intercompany Note Prepayment Proceeds Offer Amount"). On such date, the Company shall also irrevocably deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust) in Temporary Cash Investments, maturing on the last day prior to the Excess Intercompany Note Prepayment Proceeds Purchase Date or on the Excess Intercompany Note Prepayment Proceeds Purchase Date if funds are immediately available by open of business, an amount equal to the Excess Intercompany Note Prepayment Proceeds Offer Amount to be held for payment in accordance with the provisions of this Section 11.03. Upon the expiration of the period for which the Excess Intercompany Note Prepayment Proceeds Offer remains open (the "Excess Intercompany Note Prepayment Proceeds Offer Period"), the Company shall deliver to the Trustee for cancellation the Securities or portions thereof which have been properly tendered to and are to be accepted by the Company. The Trustee shall, on the Intercompany Note Prepayment Proceeds Purchase Date, mail or deliver payment (or cause the delivery of payment) to each tendering Holder in the amount of the purchase price. In the event that the aggregate purchase price of the Securities delivered by the Company to the Trustee is less than the Excess Intercompany Note Prepayment Proceeds Offer Amount applicable to the Securities, the Trustee shall deliver the excess to the Company immediately after the expiration of the Excess Intercompany Note Prepayment Proceeds Offer Period for use or application in any manner permitted by this Indenture. (3) Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the Excess Intercompany Note Prepayment Proceeds Purchase Date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives not later than one Business Day prior to the Excess Intercompany Note Prepayment Proceeds Purchase Date, a telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing its election to have such Security purchased. Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. 107 (4) At the time the Company delivers Securities to the Trustee which are to be accepted for purchase, the Company shall also deliver an Officers' Certificate stating that such Securities are to be accepted by the Company pursuant to and in accordance with the terms of this Section 11.03. A Security shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. (d) UCAR International and the Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section 11.03. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 11.03, UCAR International and the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations under this Section 11.03 by virtue of their compliance with such securities laws or regulations. ARTICLE 12 PLEDGED INTERCOMPANY NOTES -------------------------- SECTION 12.01. GRANT OF SECURITY INTEREST. (a) To secure the full and punctual payment when due and the full and punctual performance of the Company's Obligations under this Indenture and the Securities (the "Secured Obligations"), the Company hereby grants to the Trustee, for the benefit of the Trustee and the Holders, a security interest in all its right, title and interest in and to the following, other than such of the following which are released from the Lien of this Indenture pursuant to Section 12.05: (i) all Intercompany Notes now owed to or hereafter executed and delivered to the Company by an Intercompany Note Maker, which on the date hereof are identified on Schedule I hereto; (ii) all certificates representing any of the Intercompany Notes; and (iii) all cash, instruments and other property and proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any of the foregoing; 108 PROVIDED, HOWEVER, that such security interest in any Intercompany Note issued by an Intercompany Note Obligor, shall be limited at any time to that portion of such Intercompany Note which value does not exceed, combined with the value of any security interest in any Intercompany Note Guaranty issued by such Intercompany Note Obligor, 19.99% of the principal amount of the then outstanding Securities issued by the Company (such pledged portion of the Intercompany Notes, the "Pledged Intercompany Notes"). SECTION 12.02. DELIVERY OF COLLATERAL. Any and all cash, certificates or instruments representing or evidencing the Pledged Intercompany Notes including the unpledged portion of any Intercompany Notes and any amendments to the Intercompany Notes, shall be delivered by the Company to and held by or on behalf of the Trustee and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to the Trustee. The Trustee shall have the right, at any time after the occurrence and during the continuance of an Event of Default, in its discretion and without notice to the Company, to transfer to or to register in the name of the Trustee or any of its nominees any or all the Pledged Intercompany Notes. In addition, the Trustee shall have the right, at any time after the occurrence and during the continuance of an Event of Default, to exchange certificates or instruments representing or evidencing Pledged Intercompany Notes for certificates or instruments of different denominations. The Trustee shall have no duty or obligation to monitor or compel compliance by the Company of the Company's obligation to deliver the Intercompany Notes to the Trustee. SECTION 12.03. RECORDING. (a) UCAR International and the Company will take or cause to be taken all action, insofar as it relates to recording, required to maintain, preserve and protect the Lien on the Pledged Intercompany Notes granted by this Indenture, including causing the appropriate documentation specified by Article 9 of the Uniform Commercial Code (the "UCC-1 Financing Statement") to be promptly filed as required by Article 9 of the Uniform Commercial Code and at all times to be filed, and will execute and file or cause to be executed and filed statements, amendments, continuation statements and other instruments of further assurance, all in such manner and in such places and at such times as are prescribed in this Indenture or as may be required by law fully to preserve and protect the rights of the Holders and the Trustee under this Indenture to the Pledged Intercompany Notes. 109 UCAR International and the Company will from time to time promptly pay and discharge all filing fees, charges and taxes relating to the filing of the UCC-1 Financing Statement, any amendments thereto and any other instruments of further assurance described in the preceding paragraph. SECTION 12.04. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants on the Issue Date as follows: (a) the Company is the Payee (as defined in the Intercompany Note) of the Intercompany Notes described in Schedule I, free and clear of any Lien, except for the Lien created by this Indenture; (b) the Company has full corporate power, authority and legal right to pledge all the Pledged Intercompany Notes pledged by it pursuant to this Indenture; (c) each of the Intercompany Notes described on Schedule I has been duly authorized, executed and delivered by the respective Intercompany Note Makers; (d) the Company has duly delivered the Intercompany Notes to the Trustee for the benefit of the Holders of the Securities; and (e) the pledge and delivery of the Intercompany Notes in accordance with the terms of this Article 12 creates a valid and perfected first priority Lien on the Pledged Intercompany Notes securing the payment and performance of the Secured Obligations. SECTION 12.05. FURTHER ASSURANCES. The Company agrees that at any time and from time to time, at the expense of the Company, the Company will promptly execute and deliver all further instruments and documents and take all further action that may be necessary or that the Trustee may reasonably request in order to perfect and protect any Lien granted or purported to be granted hereby or to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Intercompany Notes. Without limiting the foregoing, the Company shall, (i) at the time an Intercompany Note is issued after the Issue Date by an Intercompany Note Maker pursuant to Section 4.14(b), deliver such Intercompany Note to the Trustee, and pledge such Intercompany Note to the Trustee, for the benefit of the Holders, subject to the limitation that the value of the pledged portion of such Intercompany Note at any time does 110 not exceed, when combined with the value of the pledged portion at such time of any Intercompany Note Guaranty issued by such Intercompany Note Maker, 19.99% of the principal amount of the Securities then outstanding and provide to the Trustee a revised Schedule I, and (ii) at the time of any release of Pledged Intercompany Notes pursuant to Section 12.05, provide to the Trustee a revised Schedule I. Any such revised Schedule shall reflect any changes made necessary by the applicable acquisition or release, at which time the Company shall be deemed to make the representations and warranties set forth in paragraphs (a) through (e) of Section 12.03 with respect to such Schedule, as so revised. SECTION 12.06. INTEREST; VOTING RIGHTS; RELEASE OF COLLATERAL. (a) As long as no Default shall have occurred and be continuing and until written notice thereof from the Trustee to the Company, the Company shall be entitled to receive and retain all interest payments and other distributions paid in respect of the Intercompany Notes; PROVIDED, HOWEVER, that the provisions of this Indenture, including Section 4.05, shall in all respects govern the Company's use or other disposition of such cash or other property. Any interest payments or distributions delivered to or otherwise held by the Trustee pursuant to this Section 12.05 shall be invested, at the written direction of the Company, by the Trustee in Temporary Cash Investments. (b) Upon the occurrence and during the continuance of a Default and upon written notice thereof from the Trustee to the Company, the Trustee shall be entitled to receive and retain all interest paid and distributions made in respect of the Pledged Intercompany Notes, whether so paid or made before or after any Default. Any such interest shall, if received by the Company, be received in trust for the benefit of the Trustee, be segregated from the other property or funds of the Company, and be forthwith delivered to the Trustee in the same form as so received (with any necessary endorsement). Payments received on an Intercompany Note following a Default shall be deemed to be paid on and attributable to FIRST, the pledged portion of such Intercompany Note and SECOND, the unpledged portion of such Intercompany Note. (c) As long as no Default shall have occurred and be continuing and until written notice thereof from the Trustee to the Company, the Company shall be entitled to exercise any and all consensual rights relating to the Intercompany Notes or any part thereof for any purpose; PROVIDED, HOWEVER, that no consent, waiver or ratification 111 given or action will be taken, which would be inconsistent with or violate any provision of this Indenture, the Securities or the Intercompany Notes. (d) Upon the occurrence and during the continuance of a Default, all rights of the Company to exercise the consensual rights relating to the Intercompany Notes that it would otherwise be entitled to exercise pursuant to Section 12.05(c) shall cease upon notice from the Trustee to the Company and upon the giving of such notice all such rights shall thereupon be vested in the Trustee who shall thereupon have the sole right to exercise such consensual rights. (e) In order to permit the Trustee to exercise the consensual rights which it may be entitled to exercise pursuant to Section 12.05(d), and to receive all interest payments and distributions which it may be entitled to receive under Section 12.05(b), the Company shall, if necessary, upon written notice of the Trustee, from time to time execute and deliver to the Trustee such instruments as the Trustee may reasonably request. (f) Notwithstanding anything to the contrary in this Article 12, upon satisfaction by the Company of the conditions set forth in Article 8 to its legal defeasance option, its covenant defeasance option or to the discharge of this Indenture, the Lien of this Indenture on all the Pledged Intercompany Notes shall be released without any further action on the part of the Trustee or any other Person. At the request of the Company, the Trustee shall execute and deliver appropriate instruments evidencing any release pursuant to this Section 12.05(f). SECTION 12.07. TRUSTEE APPOINTED ATTORNEY-IN-FACT. The Company hereby appoints the Trustee as its attorney-in-fact, with full authority in the place and stead of the Company, and in the name of the Company or otherwise, from time to time in the Trustee's discretion but only after the occurrence and during the continuance of an Event of Default, to take any action and to execute any instrument which the Trustee may deem necessary or advisable in order to accomplish the purposes of this Article 12, including to receive, endorse and collect all instruments made payable to the Company representing any dividend, interest payment or other distribution in respect of the Pledged Intercompany Notes or any part thereof and to give full discharge for the same. This power, being coupled with an interest, is irrevocable. 112 SECTION 12.08. TRUSTEE MAY PERFORM. If the Company fails to perform any agreement contained in this Article 12, the Trustee may itself (but shall not be obligated to) perform, or cause performance of, such agreement, and the reasonable expenses of the Trustee incurred in connection therewith shall be payable by the Company under Section 7.07. SECTION 12.09. TRUSTEE'S DUTIES. The powers conferred on the Trustee under this Article 12 are solely to protect its interest in the Pledged Intercompany Notes and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Pledged Intercompany Notes in its possession and the accounting for moneys actually received by it under this Article 12, the Trustee shall have no duty as to any Pledged Intercompany Notes or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Pledged Intercompany Notes. SECTION 12.10. REMEDIES UPON EVENT OF DEFAULT. If any Event of Default shall have occurred and be continuing, the Trustee may exercise in respect of the Pledged Intercompany Notes, in addition to other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies provided a secured party upon the default of a debtor under the Uniform Commercial Code at that time, and the Trustee may also, without notice except as specified below, sell the Pledged Intercompany Notes or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Trustee's offices or elsewhere, for cash, on credit or for future delivery, upon such terms as the Trustee may determine to be commercially reasonable, and the Trustee or any Securityholder may be the purchaser of any or all the Pledged Intercompany Notes so sold and thereafter hold the same, absolutely, free from any right or claim of whatsoever kind. The Company agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to the Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Trustee shall not be obligated to make any sale of Pledged Intercompany Notes regardless of notice of sale having been given. The Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Trustee shall incur no liability as a result of the sale of the Pledged Intercompany Notes, or any part thereof, at any private sale conducted in a commercially reasonable manner. The Company 113 hereby waives any claims against the Trustee arising by reason of the fact that the price at which any Pledged Intercompany Notes may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Trustee accepts the first offer received and does not offer such Pledged Intercompany Notes to more than one offeree. The Company recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, the Trustee may be compelled, with respect to any sale of all or any part of the Pledged Intercompany Notes, to limit purchasers to those who will agree, among other things, to acquire such securities for their own account, for investment, and not with a view to the distribution or resale thereof. The Company acknowledges and agrees that any such sale may result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions and, notwithstanding such circumstances, agrees that any such sale shall be deemed to have been made in a commercially reasonable manner. The Trustee shall be under no obligation to delay the sale of any of the Pledged Intercompany Notes for the period of time necessary to permit the Company to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the Company would agree to do so. SECTION 12.11. APPLICATION OF PROCEEDS. Upon the occurrence and during the continuance of an Event of Default and after the acceleration of the Securities pursuant to Section 6.02 (so long as such acceleration has not been rescinded), any cash held by the Trustee as Pledged Intercompany Notes and all cash proceeds received by the Trustee in respect of any sale of, collection from, or other realization upon, all or any part of the Pledged Intercompany Notes, shall be applied by the Trustee in the manner specified in Section 6.10. SECTION 12.12. CONTINUING LIEN. Except as provided in Section 12.05, this Indenture shall create a continuing Lien on the Pledged Intercompany Notes that shall (1) remain in full force and effect until payment in full of the Securities, (2) be binding upon the Company and its successors and assigns and (3) enure to the benefit of the Trustee and its successors, transferees and assigns. SECTION 12.13. CERTIFICATES AND OPINIONS. The Company shall comply with (a) TIA ss. 314(b), relating to Opinions of Counsel regarding the Lien created by this Article 12 and (b) TIA ss. 314(d), relating to the release of 114 Pledged Intercompany Notes from the Lien created by this Article 12 and Officers' Certificates or other documents regarding fair value of the Pledged Intercompany Notes, to the extent such provisions are applicable. Any certificate or opinion required by TIA ss. 314(d) may be executed and delivered by an Officer of the Company to the extent permitted by TIA ss. 314(d). SECTION 12.14. ADDITIONAL AGREEMENTS. The Company agrees that, upon the occurrence and during the continuance of a Default hereunder, it will, at any time and from time to time, upon the written request of the Trustee, use its commercially reasonable best efforts to take or to cause the Intercompany Note Makers and the issuers of any other securities distributed in respect of the Intercompany Notes (collectively with the Intercompany Notes, the "Pledged Securities") to take such action and prepare, distribute or file such documents, as are required or advisable in the reasonable opinion of counsel for the Trustee to permit the public sale of such Pledged Securities. The Company further agrees to indemnify, defend and hold harmless the Trustee, each Holder, any underwriter and their respective officers, directors, affiliates and controlling persons from and against all loss, liability, expenses, costs of counsel (including reasonable fees and expenses of legal counsel to the Trustee), and claims (including the costs of investigation) that they may incur insofar as such loss, liability, expense or claim arises out of or is based upon any alleged untrue statement of a material fact contained in any prospectus (or any amendment or supplement thereto) or in any notification or offering circular, or arises out of or is based upon any alleged omission to state a material fact required to be stated therein or necessary to make the statements in any thereof not misleading, except insofar as the same may have been caused by any untrue statement or omission based upon information furnished in writing to the Company or the issuer of such Pledged Securities by the Trustee or any Holder expressly for use therein. The Company further agrees, upon such written request referred to above, to use its best efforts to qualify, file or register, or cause the issuer of such Pledged Securities to qualify, file or register, any of the Pledged Securities under the Blue Sky or other securities laws of such states as may be required by law and keep effective, or cause to be kept effective, all such qualifications, filings or registrations. The Company will bear all costs and expenses of carrying out its obligations under this Section 12.13. The Company acknowledges that there is no adequate remedy at law for failure by it to comply with the provisions of this Section 12.13 and that such failure would not be adequately 115 compensable in damages, and therefore agrees that its agreements contained in this Section 12.13 may be specially enforced. ARTICLE 13 PLEDGED INTERCOMPANY NOTE GUARANTIES ------------------------------------ SECTION 13.01. GRANT OF SECURITY INTEREST. (a) To secure the full and punctual payment when due and the full and punctual performance of the Secured Obligations, the Company hereby grants to the Trustee, for the benefit of the Trustee and the Holders, a security interest in all of its right, title and interest in and to the following, other than such of the following which are released from the Lien of this Indenture pursuant to Section 13.05: (i) all Intercompany Note Guaranties now or hereafter executed and delivered to the Company by an Intercompany Note Guarantor, which on the date of hereof are identified in Schedule II hereto; and (ii) all cash, instruments and other property and proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for the foregoing; PROVIDED, HOWEVER, that such security interest in each Intercompany Note Guaranty shall be limited at any time to that portion of each Intercompany Note Guaranty which value does not exceed, combined with the value of any security interest in any Intercompany Note issued by such Intercompany Note Guarantor, 19.99% of the principal amount of the then outstanding Securities issued by the Company (such pledged portion of the Intercompany Note Guaranties, the "Pledged Intercompany Note Guaranties"). SECTION 13.02. RECORDING. (a) UCAR International and the Company will take or cause to be taken all action, insofar as it relates to recording, required to maintain, preserve and protect the Lien on the Pledged Intercompany Note Guaranties granted by this Indenture, including causing the appropriate documentation specified by Article 9 of the Uniform Commercial Code (the "UCC-1 Financing Statement") to be promptly filed as required by Article 9 of the Uniform Commercial Code and at all times to be filed, and will execute and file or cause to be executed and filed statements, amendments, continuation statements and other instruments of further assurance, all in such manner and in such places and at such times as are 116 prescribed in this Indenture or as may be required by law fully to preserve and protect the rights of the Holders and the Trustee under this Indenture to the Pledged Intercompany Note Guaranties. UCAR International and the Company will from time to time promptly pay and discharge all filing fees, charges and taxes relating to the filing of the UCC-1 Financing Statement, any amendments thereto and any other instruments of further assurance described in the preceding paragraph. SECTION 13.03. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants on the Issue Date as follows: (a) the Company is the beneficiary of the Pledged Intercompany Note Guaranties described on Schedule II, free and clear of any Lien, except for the Lien created by this Indenture; (b) the Company has full corporate power, authority and legal right to pledge all the Pledged Intercompany Note Guaranties pledged by it pursuant to this Indenture; (c) the Pledged Intercompany Note Guaranties described on Schedule II have been duly authorized, executed and delivered by an Intercompany Note Guarantor; and (d) the pledge and filing of the UCC-1 Financing Statement in accordance with the terms of this Article 13 in the locations described on Schedule II creates a valid and perfected first priority Lien on the Pledged Intercompany Note Guaranties securing the payment and performance of the Secured Obligations. SECTION 13.04. FURTHER ASSURANCES. The Company agrees that at any time and from time to time, at the expense of the Company, the Company will promptly execute and deliver all further instruments and documents and take all further action that may be necessary or that the Trustee may reasonably request in order to perfect and protect any Lien granted or purported to be granted hereby or to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Intercompany Note Guaranty. Without limiting the foregoing, the Company shall, (i) at the time an Intercompany Note Guaranty is issued by an Intercompany Note Guarantor after the Issue Date pursuant to Sections 4.14(c) and (d), grant to the Trustee, for the benefit of the Holders, a security interest 117 in that portion of the Company's right and interest under such guaranty agreement that does not exceed at any time, when combined with the value of the pledged portion at such time of any Intercompany Note issued by such Intercompany Note Guarantor, 19.99% of the principal amount of the Securities then outstanding, at which time such Intercompany Note Guaranty shall constitute a Pledged Intercompany Note Guaranty, and provide to the Trustee a revised Schedule II, and (ii) at the time of any release of Pledged Intercompany Note Guaranties pursuant to Section 13.05, provide to the Trustee a revised Schedule II. Any such revised Schedule shall reflect any changes made necessary by the applicable acquisition or release, at which time the Company shall be deemed to make their representations and warranties set forth in paragraphs (a) through (d) of Section 13.03 with respect to such Schedule, as so revised. SECTION 13.05. PAYMENTS; VOTING RIGHTS; RELEASE OF COLLATERAL. (a) As long as no Default shall have occurred and be continuing and until written notice thereof from the Trustee to the Company, the Company shall be entitled to receive and retain all payments and other distributions paid in respect of the Pledged Intercompany Note Guaranties; PROVIDED, HOWEVER, that the provisions of this Indenture, including Section 4.05, shall in all respects govern the Company's use or other disposition of such cash or other property. Any cash payments or distributions delivered to or otherwise held by the Trustee pursuant to this Section 13.05, shall be invested, at the written direction of the Company, by the Trustee in Temporary Cash Investments. (b) Upon the occurrence and during the continuance of a Default and upon written notice thereof from the Trustee to the Company, the Trustee shall be entitled to receive and retain all payments and distributions made in respect of the Pledged Intercompany Note Guaranties, whether so paid or made before or after any Default. Any such payments or distributions shall, if received by the Company, be received in trust for the benefit of the Trustee, be segregated from the other property or funds of the Company, and be forthwith delivered to the Trustee in the same form as so received (with any necessary endorsement). Payments received on an Intercompany Note Guarantee shall be deemed to be paid on and attributable to FIRST, the pledged portion of such Intercompany Note Guarantee and SECOND, the unpledged portion of such Intercompany Note Guarantee. (c) As long as no Default shall have occurred and be continuing and until written notice thereof from the 118 Trustee to the Company, the Company shall be entitled to exercise any and all voting and other consensual rights relating to Pledged Intercompany Note Guaranties or any part thereof for any purpose; PROVIDED, HOWEVER, that no vote shall be cast, and no consent, waiver or ratification given or action taken, which would be inconsistent with or violate any provision of this Indenture, the Intercompany Note Guaranties or the Securities. (d) Upon the occurrence and during the continuance of a Default, all rights of the Company to exercise the consensual rights that it would otherwise be entitled to exercise pursuant to Section 13.05(c) shall cease upon notice from the Trustee to the Company and upon the giving of such notice all such rights shall thereupon be vested in the Trustee who shall thereupon have the sole right to exercise such voting and other consensual rights. (e) In order to permit the Trustee to exercise the voting and other consensual rights which it may be entitled to exercise pursuant to Section 13.05(d), and to receive all payments and distributions which it may be entitled to receive under Section 13.05(b), the Company shall, if necessary, upon written notice of the Trustee, from time to time execute and deliver to the Trustee such instruments as the Trustee may reasonably request. (f) Notwithstanding anything to the contrary in this Article 13, upon satisfaction by the Company of the conditions set forth in Article 8 to its legal defeasance option, its covenant defeasance option or to the discharge of this Indenture, the Lien of this Indenture on all the Pledged Intercompany Note Guaranties shall be released without any further action on the part of the Trustee or any other Person. At the request of the Company, the Trustee shall execute and deliver appropriate instruments evidencing any release pursuant to this Section 13.05(f). SECTION 13.06. TRUSTEE APPOINTED ATTORNEY-IN-FACT. The Company hereby appoints the Trustee as its attorney-in-fact, with full authority in the place and stead of the Company, and in the name of the Company or otherwise, from time to time in the Trustee's discretion but only after the occurrence and during the continuance of an Event of Default, to take any action and to execute any instrument which the Trustee may deem necessary or advisable in order to accomplish the purposes of this Article 13, including to receive, endorse and collect all instruments made payable to the Company representing any payment or other distribution in respect of the Pledged Intercompany Note Guaranties or 119 any part thereof and to give full discharge for the same. This power, being coupled with an interest, is irrevocable. SECTION 13.07. TRUSTEE MAY PERFORM. If the Company fails to perform any agreement contained in this Article 13, the Trustee may itself (but shall not be obligated to) perform, or cause performance of, such agreement, and the expenses of the Trustee incurred in connection therewith shall be payable by the Company under Section 7.07. SECTION 13.08. TRUSTEE'S DUTIES. The powers conferred on the Trustee under this Article 13 are solely to protect its interest in the Pledged Intercompany Note Guaranties and shall not impose any duty upon it to exercise any such powers. Except for the accounting for moneys actually received by it under this Article 13, the Trustee shall have no duty as to any Pledged Intercompany Note Guaranty or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Pledged Intercompany Note Guaranty. SECTION 13.09. REMEDIES UPON EVENT OF DEFAULT. If any Event of Default shall have occurred and be continuing, the Trustee may exercise in respect of the Pledged Intercompany Note Guaranties, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies provided a secured party upon the default of a debtor under the Uniform Commercial Code at that time, and the Trustee may also, without notice except as specified below, sell the Pledged Intercompany Note Guaranties or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Trustee's offices or elsewhere, for cash, on credit or for future delivery, upon such terms as the Trustee may determine to be commercially reasonable, and the Trustee or any Securityholder may be the purchaser of any or all the Pledged Intercompany Note Guaranties so sold and thereafter hold the same, absolutely, free from any right or claim of whatsoever kind. The Company agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to the Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Trustee shall not be obligated to make any sale of Pledged Intercompany Note Guaranties regardless of notice of sale having been given. The Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Trustee shall incur 120 no liability as a result of the sale of the Pledged Intercompany Note Guaranties, or any part thereof, at any private sale conducted in a commercially reasonable manner. The Company hereby waives any claims against the Trustee arising by reason of the fact that the price at which any Pledged Intercompany Note Guaranties may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Trustee accepts the first offer received and does not offer such Pledged Intercompany Note Guaranties to more than one offeree. The Company recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, the Trustee may be compelled, with respect to any sale of all or any part of the Pledged Intercompany Note Guaranties, to limit purchasers to those who will agree, among other things, to acquire such securities for their own account, for investment, and not with a view to the distribution or resale thereof. The Company acknowledges and agrees that any such sale may result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions and, notwithstanding such circumstances, agree that any such sale shall be deemed to have been made in a commercially reasonable manner. The Trustee shall be under no obligation to delay the sale of any of the Pledged Intercompany Note Guaranties for the period of time necessary to permit the Company to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the Company would agree to do so. SECTION 13.10. APPLICATION OF PROCEEDS. Upon the occurrence and during the continuance of an Event of Default and after the acceleration of the Securities pursuant to Section 6.02 (so long as such acceleration has not been rescinded), any cash held by the Trustee in respect of the Pledged Intercompany Note Guaranties and all cash proceeds received by the Trustee in respect of any sale of, collection from, or other realization upon, all or any part of the Pledged Intercompany Note Guaranties, shall be applied by the Trustee in the manner specified in Section 6.10. SECTION 13.11. CONTINUING LIEN. Except as provided in Section 13.05, this Indenture shall create a continuing Lien on the Pledged Intercompany Note Guaranties that shall (1) remain in full force and effect until payment in full of the Securities, (2) be binding upon the Company and its successors and assigns and (3) enure to the benefit of the Trustee and its successors, transferees and assigns. 121 SECTION 13.12. CERTIFICATES AND OPINIONS. The Company shall comply with (a) TIA ss. 314(b), relating to Opinions of Counsel regarding the Lien created by this Article 13 and (b) TIA ss. 314(d), relating to the release of Pledged Intercompany Note Guaranties from the Lien created by this Article 13 and Officers' Certificates or other documents regarding fair value of the Pledged Intercompany Note Guaranties, to the extent such provisions are applicable. Any certificate or opinion required by TIA ss. 314(d) may be executed and delivered by an Officer of the Company to the extent permitted by TIA ss. 314(d). SECTION 13.13. ADDITIONAL AGREEMENTS. The Company agrees that, upon the occurrence and during the continuance of a Default hereunder, it will, at any time and from time to time, upon the written request of the Trustee, use its commercially reasonable best efforts to take or to cause the Intercompany Note Guarantors to take such action and prepare, distribute or file such documents, as are required or advisable in the reasonable opinion of counsel for the Trustee to permit the public sale of such Pledged Intercompany Note Guaranties. The Company further agrees to indemnify, defend and hold harmless the Trustee, each Holder, any underwriter and their respective officers, directors, affiliates and controlling persons from and against all loss, liability, expenses, costs of counsel (including reasonable fees and expenses of legal counsel to the Trustee), and claims (including the costs of investigation) that they may incur insofar as such loss, liability, expense or claim arises out of or is based upon any alleged untrue statement of a material fact contained in any prospectus (or any amendment or supplement thereto) or in any notification or offering circular, or arises out of or is based upon any alleged omission to state a material fact required to be stated therein or necessary to make the statements in any thereof not misleading, except insofar as the same may have been caused by any untrue statement or omission based upon information furnished in writing to the Company or the issuer of such Pledged Intercompany Note Guaranties by the Trustee or any Holder expressly for use therein. The Company further agrees, upon such written request referred to above, to use its best efforts to qualify, file or register, or cause the issuer of such Pledged Intercompany Note Guaranties to qualify, file or register, any of the Pledged Intercompany Note Guaranties under the Blue Sky or other securities laws of such states as may be required by law or keep effective, or cause to be kept effective, all such qualifications, filings or registrations. The Company will bear all costs and expenses of carrying out its obligations under this Section 13.13. The Company acknowledges that there is no adequate remedy at 122 law for failure by it to comply with the provisions of this Section 13.13 and that such failure would not be adequately compensable in damages, and therefore agrees that its agreements contained in this Section 13.13 may be specially enforced. ARTICLE 14 MISCELLANEOUS ------------- SECTION 14.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 14.02. NOTICES. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail or overnight courier (or, for notices among the Company, any Guarantor, any Intercompany Note Obligor and the Trustee, by facsimile followed by delivery by first-class mail) addressed as follows: if to the Company, any Guarantor or any Intercompany Note Obligor: UCAR International Inc. Brandywine West 1521 Concord Pike, Suite 301 Wilmington, Delaware 19803 Attention of General Counsel and Chief Financial Officer if to the Trustee: State Street Bank and Trust Company 2 Avenue de Lafayette Boston, MA 02111 Attention of UCAR Finance 10 1/4% Senior Notes due 2012 The Company, any Guarantor, any Intercompany Note Obligor or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. 123 Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 14.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Securityholders may communicate pursuant to TIA ss. 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, any Guarantor, any Intercompany Note Obligor, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 14.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by UCAR International or the Company to the Trustee to take or refrain from taking any action under this Indenture, UCAR International or the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 14.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; 124 (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 14.06. WHEN SECURITIES DISREGARDED. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by UCAR International or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with UCAR International shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 14.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 14.08. LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are authorized or obligated by law or executive order to close or be closed in the Commonwealth of Massachusetts or the City of New York. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 14.09. SEVERABILITY. Any provision of this Indenture held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. 125 SECTION 14.10. GOVERNING LAW. This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. SECTION 14.11. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Company, any Guarantor or any Intercompany Note Obligor shall not have any liability for any obligations of the Company under the Securities or this Indenture or of such Guarantor under its Guaranty or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issuance of the Securities. SECTION 14.12. SUCCESSORS. All agreements of UCAR International and the Company in this Indenture and the Securities shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 14.13. MULTIPLE ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 14.14. TABLE OF CONTENTS; HEADINGS. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 126 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. UCAR FINANCE INC., by /s/ Walter D. Carter, Jr. ------------------------------------ Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR INTERNATIONAL INC., by /s/ Walter D. Carter, Jr. ------------------------------------ Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR GLOBAL ENTERPRISES INC., by /s/ Walter D. Carter, Jr. ------------------------------------ Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR CARBON COMPANY INC., by /s/ Walter D. Carter, Jr. ------------------------------------ Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR COMPOSITES INC., by /s/ Walter D. Carter, Jr. ------------------------------------ Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR CARBON TECHNOLOGY LLC., by /s/ Walter D. Carter, Jr. ------------------------------------ Name: Walter D. Carter, Jr. Title: Assistant Treasurer 127 UCAR HOLDNGS III INC., by /s/ Walter D. Carter, Jr. ------------------------------------ Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR INTERNATIONAL TRADNG INC., by /s/ Walter D. Carter, Jr. ------------------------------------ Name: Walter D. Carter, Jr. Title: Attorney-in-fact UCAR INTERNATIONAL HOLDINGS INC., by /s/ Walter D. Carter, Jr. ------------------------------------ Name: Walter D. Carter, Jr. Title: Attorney-in-fact STATE STREET BANK AND TRUST COMPANY, as Trustee by /s/ Alison D.B. Nadeau ------------------------------------ Name: Alison D.B. Nadeau Title: Assitant Vice President EXHIBIT 1 [FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY ADDITIONAL SUBSIDIARY GUARANTORS] SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of [ ] among [ ] (the "Additional Subsidiary Guarantor"), a [ ] corporation and a subsidiary of UCAR International Inc., a Delaware corporation (or its permitted successor), UCAR Finance Inc. (the "Company"), the other Guarantors (as defined in the Indenture referred to herein) and State Street Bank and Trust Company, as Trustee under the Indenture (the "Trustee"). W I T N E S S E T H WHEREAS, the Company and the other Guarantors have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of February 15, 2002, providing for the issuance of an aggregate principal amount of $400,000,000 of 10 1/4% Senior Notes due 2012 (the "Notes"); WHEREAS, in its discretion, UCAR International may have the Additional Subsidiary Guarantor, and Section 4.14 of the Indenture provides that under certain circumstances UCAR International Inc. shall cause the Additional Subsidiary Guarantor to, execute and deliver to the Trustee a Guaranty Agreement pursuant to which the Additional Subsidiary Guarantor will Guarantee payment of the Securities on the same terms and conditions as those set forth in Article 10 of the Indenture; and WHEREAS, pursuant to Section 9.01(4) of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the Additional Subsidiary Guarantor, the other Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: SECTION 1. CAPITALIZED TERMS. Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture. SECTION 2. GUARANTIES. The Additional Subsidiary Guarantor hereby unconditionally and irrevocably guarantees, jointly and severally with the other Guarantors, to each Holder and to the Trustee and its successors and assigns (a) 2 the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the Indenture and the Securities and (b) the full and punctual performance within applicable grace periods of all other obligations of the Company under the Indenture and the Securities. The Additional Subsidiary Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from the Additional Subsidiary Guarantor and that the Additional Subsidiary Guarantor will remain bound under this Supplemental Indenture notwithstanding any extension or renewal of any Obligation. The Additional Subsidiary Guarantor waives presentation to, demand of, payment from and protest to the Company of any of the Obligations and also waives notice of protest for nonpayment. The Additional Subsidiary Guarantor waives notice of any default under the Securities or the Obligations. The obligations of the Additional Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under the Indenture, this Supplement Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of the Indenture, this Supplemental Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Obligations or any of them; (e) the failure of any Holder or the Trustee to exercise any right or remedy against any other guarantor of the Obligations; or (f) except as set forth in Section 7 of this Supplemental Indenture, any change in the ownership of the Additional Subsidiary Guarantor. The Additional Subsidiary Guarantor further agrees that its Guaranty herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Obligations. Except as expressly set forth in Section 8.01(b) of the Indenture and Sections 3 and 7 of this Supplemental Indenture, the obligations of the Supplemental Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any 3 claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of the Additional Subsidiary Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under the Indenture, this Supplemental Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Additional Subsidiary Guarantor or would otherwise operate as a discharge of the Additional Subsidiary Guarantor as a matter of law or equity. The Additional Subsidiary Guarantor further agrees that its Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of UCAR International or the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against the Additional Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay the principal of or interest on any Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Obligation, the Additional Subsidiary Guarantor hereby promises to and shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (1) the unpaid amount of such Obligations, (2) accrued and unpaid interest on such Obligations (but only to the extent not prohibited by law) and (3) all other monetary Obligations of the Company to the Holders and the Trustee. The Additional Subsidiary Guarantor agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations Guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of the Additional Subsidiary Guarantor's Guaranty herein, 4 notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article 6 of the Indenture, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Additional Subsidiary Guarantor for the purposes of this Supplemental Indenture. The Additional Subsidiary Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Section 2. SECTION 3. LIMITATION ON LIABILITY. Any term or provision of this Supplemental Indenture to the contrary notwithstanding, the maximum aggregate amount of the Obligations guaranteed hereunder by the Additional Subsidiary Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering this Supplemental Indenture, as it relates to the Additional Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance, fraudulent transfer or similar laws affecting the rights of creditors generally. SECTION 4. SUCCESSORS AND ASSIGNS. This Supplemental Indenture shall be binding upon the Additional Subsidiary Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Supplemental Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Supplemental Indenture. SECTION 5. NO WAIVER. Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Supplemental Indenture shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Supplemental Indenture at law, in equity, by statute or otherwise. SECTION 6. MODIFICATION. No modification, amendment or waiver of any provision of this Supplemental 5 Indenture, nor the consent to any departure by the Additional Subsidiary Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Additional Subsidiary Guarantor in any case shall entitle the Additional Subsidiary Guarantor to any other or further notice or demand in the same, similar or other circumstances. SECTION 7. RELEASE. Upon the sale or other disposition (including by way of consolidation or merger) of the Additional Subsidiary Guarantor or the sale or disposition of all or substantially all the assets of the Additional Subsidiary Guarantor (in each case other than a sale or disposition to UCAR International or an Affiliate of UCAR International), the Additional Subsidiary Guarantor shall be deemed released from all obligations under this Supplemental Indenture without any further action required on the part of the Trustee or any Holder. At the request and expense of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing such release. Upon (1) the merger or consolidation of the Additional Subsidiary Guarantor with or into, or the dissolution and liquidation of the Additional Subsidiary Guarantor into, a Restricted Subsidiary that is or becomes an Additional Subsidiary Guarantor or another Person that Guarantees the Securities or (2) the designation of the Additional Subsidiary Guarantor as an Unrestricted Subsidiary as permitted by the Indenture, PROVIDED that the Additional Subsidiary Guarantor does not Guarantee any Indebtedness under the Credit Agreement from and after such designation, the Additional Subsidiary Guarantor shall be released from all obligations under this Supplemental Indenture without any further action required on the part of the Trustee or any Holder. At the request and expense of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing such release. SECTION 8. GOVERNING LAW. This Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. SECTION 9. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Additional Subsidiary Guarantor shall not have any liability 6 for any obligations of the Company under the Securities or the Indenture or of the Additional Subsidiary Guarantor under its Guaranty, the Indenture or this Supplemental Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 10. MULTIPLE ORIGINALS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Supplemental Indenture. SECTION 11. HEADINGS. The headings of the Sections of this Supplemental Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 12. CONTRIBUTION. The Additional Subsidiary Guarantor shall be entitled upon payment in full of all Guaranteed Obligations to a contribution from each other Subsidiary Guarantor in an amount equal to such other Subsidiary Guarantor's PRO RATA portion of such payment based on the respective net assets of all the Subsidiary Guarantors at the time of such payment determined in accordance with GAAP. 7 IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be duly executed as of the date first written above. [ADDITIONAL SUBSIDIARY GUARANTOR], by ---------------------------------- Name: Title: UCAR FINANCE INC., by ---------------------------------- Name: Title: UCAR INTERNATIONAL INC., by ---------------------------------- Name: Title: UCAR GLOBAL ENTERPRISES INC., by ---------------------------------- Name: Title: UCAR CARBON COMPANY INC., by ---------------------------------- Name: Title: 8 UCAR COMPOSITES INC., by ---------------------------------- Name: Title: UCAR CARBON TECHNOLOGY LLC., by ---------------------------------- Name: Title: UCAR INTERNATIONAL TRADNG INC., by ---------------------------------- Name: Title: UCAR HOLDINGS III INC., by ---------------------------------- Name: Title: UCAR INTERNATIONAL TRADNG INC., by ---------------------------------- Name: Title: UCAR INTERNATIONAL HOLDINGS INC., by ---------------------------------- Name: Title: [Other Subsidiary Guarantor] 9 by ---------------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, as Trustee, by ---------------------------------- Name: Title: EXHIBIT 2 [Form of] INTERCOMPANY NOTE New York, New York [US$/EUR][initial term loan amount] [Insert Date] [ ], a [ ] (the "Payor"), for value received, hereby unconditionally promises to pay to the order of UCAR FINANCE INC., a Delaware corporation (the "Payee") and its assigns, on the earlier of (i) the date on which a demand for payment is made by the Payee at the direction of the Trustee (as defined in the Indenture) or by or on behalf of the Trustee, in either case after a Default (as defined in the Indenture), (ii) February 15, 2012, and (iii) the date of commencement of any bankruptcy, insolvency or similar proceedings in respect of the Payor, in lawful money of [the United States of America/the participating member states of the European Union], the greater of the principal sum of [INITIAL TERM LOAN AMOUNT] [DOLLARS/EUROS] ([$/EUR][ ]) and the aggregate principal amount of all Intercompany Loans (as defined in the Indenture) made to the Payor by the Payee, together with interest thereon as hereinafter provided. SECTION 1. INTEREST. Interest shall accrue and be payable quarterly, or more frequently as demanded by the Payee, on the outstanding principal amount of this Intercompany Note at LIBOR (the British Bankers Association (or any successor thereto) rate fixed in London as published by Reuters Information Service, or Bloomberg News Service or any other news service mutually agreeable to the Payor and Payee), as in effect from time to time, plus four percent (4.00%); PROVIDED, HOWEVER, that after and during the occurrence of a default hereunder, interest shall accrue and be payable at LIBOR as in effect from time to time, plus six percent (6.00%). SECTION 2. PRIORITY AND RANKING. This Intercompany Note is a senior, unsecured obligation of the Payor and shall not be subordinated or junior in right of payment or distribution to any other indebtedness, liabilities or obligation of any kind or nature whatsoever and shall be senior or pari passu in right of payment and distribution to any and all such other indebtedness, liabilities and obligations of the Payor. SECTION 3. PREPAYMENTS. This Intercompany Note shall not be prepayable by the Payor, except in accordance 2 with the Indenture dated as of February 15, 2002 (as the same may be amended or supplemented, the "Indenture") among the Payee, the Guarantors named therein and State Street Bank and Trust Company, as Trustee, relating to the issuance by the Payee of $400,000,000 10 1/4% Senior Notes due 2012 (the "Senior Notes"). SECTION 4. AMENDMENTS. This Intercompany Note shall not be amended except in accordance with the Indenture and except that this Intercompany Note may be amended without the consent of the holders of the Senior Notes: (1) to change the rate of interest; (2) to change the date on which interest is payable; and (3) to change the currency in which this Intercompany Note is denominated, provided, such change in currency is in either (i) the lawful money of the United States of America, (ii) the lawful money of the participating member states of the European Union (the "Euro") or (iii) any other currency that is either required by law or reasonably matched to the operational currency flows of the Payor. This Intercompany Note may also be amended without such consent to the extent necessary to comply with changes in applicable law, PROVIDED, HOWEVER, that such amendments shall not, without the consent of each affected holder of a Senior Note: (1) reduce the principal amount of, extend the stated maturity of or change the average life of this Intercompany Note; (2) make any change in Sections 2 or 3 of this Intercompany Note; and (3) make any changes that affect the enforceability of this Intercompany Note. SECTION 5. CANCELLATION. The Payee cannot cancel or compromise this Intercompany Note or contribute this Intercompany Note to the capital of the Payor. Each of the Payor and the Payee agrees that any prepayment, amendment, cancelation, compromise or contribution in violation of this Section 5 or Section 3 or Section 4 shall be of no force or effect. 3 SECTION 6. CONVERSION OF CURRENCIES. (a) If, for the purpose of obtaining judgment in any court, it is necessary to convert a sum due under this Intercompany Note in one currency into another currency, the Payor agrees, to the fullest extent that it may legally and effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Payee could purchase such first currency with such other currency in New York, New York, on the day (a "Business Day") that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed immediately preceding the day on which final judgment is given. (b) The obligations of the Payor in respect of any sum due under this Intercompany Note in one currency shall, to the extent permitted by applicable law, notwithstanding any judgment in a second currency, be discharged only to the extent that on the Business Day following receipt of any sum adjudged to be so due in the judgment currency, the Payee may in accordance with normal banking procedures purchase such first currency in the amount originally due with the judgment currency. If the amount of such first currency so purchased is less than the sum in such first currency originally due to the Payee, the Payor agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Payee against the resulting loss. SECTION 7. MISCELLANEOUS. (a) The Payor hereby waives presentment, demand, protest and notice of any kind whatsoever in connection with this Intercompany Note. The nonexercise by the holder of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. (b) THIS INTERCOMPANY NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. (c) All borrowings evidenced by this Intercompany Note and all payments and prepayments of the principal hereof and interest hereon shall be endorsed by the holder hereof (including any pledgee hereof) on the schedule attached hereto and made a part hereof or on a continuation thereof that shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records, PROVIDED, HOWEVER, that the failure of the holder hereof to make such a notation or any error in such a notation shall not affect the obligation of the Payor under this Intercompany Note. 4 (d) All payments and prepayments of the principal hereof and interest hereon shall be payable in lawful money of the United States of America, or in lawful money of the participating member states of the European Union, at the discretion of the Payee. (e) The Payor acknowledges that this Intercompany Note is, simultaneous with its execution and delivery to the Payee, being pledged by the Payee to secure in part the Payee's obligations in respect of Senior Notes. The Trustee and the holders from time to time of the Senior Notes are third party beneficiaries of this Intercompany Note and may enforce this Intercompany Note against the Payor to the extent set forth in the Indenture. SECTION 8. SUBMISSION TO JURISDICTION; WAIVERS. The Payor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Intercompany Note, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Payor [INSERT ADDRESS OF PAYOR]; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 5 SECTION 9. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS INTERCOMPANY NOTE. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS INTERCOMPANY NOTE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9. IN WITNESS WHEREOF, the undersigned has caused this Intercompany Note to be duly executed as of the day and year first above written. [NAME OF PAYOR] by ---------------------------- Name: Title: 6 LOANS AND PAYMENTS Unpaid Name of Payments Principal Person Amount ----------------------- Balance Making Date of Loan Principal Interest of Note Notation ---- ------- --------- -------- ------- -------- 7 EXHIBIT 3 INTERCOMPANY NOTE GUARANTEE AGREEMENT INTERCOMPANY NOTE GUARANTEE AGREEMENT, dated as of [insert date], made by [insert name of Intercompany Note Guarantor], a [ ] duly organized under the laws of [insert jurisdiction of incorporation] (an "Intercompany Note Guarantor"), in favor of UCAR FINANCE INC. ("UCAR Finance"), a corporation duly organized under the laws of Delaware. W I T N E S S E T H: WHEREAS, under an Indenture dated as of February 15, 2002 (as the same may be amended or supplemented, the "Indenture") among UCAR Finance, as the Issuer, the Guarantors named therein and State Street Bank and Trust Company, as Trustee, UCAR Finance will issue 10 1/4% Senior Notes due 2012 (the "Notes"); WHEREAS, pursuant to the Indenture, UCAR Finance has agreed to lend a portion of the gross proceeds of the initial offering of Notes as well as certain other amounts to Foreign Restricted Subsidiaries and the gross proceeds from any offering of additional Notes to Foreign Restricted Subsidiaries of UCAR International; WHEREAS, each Foreign Restricted Subsidiary that receives such a loan will issue and deliver to UCAR Finance an Intercompany Note in a principal amount equal to the amount that such Foreign Restricted Subsidiary receives from UCAR Finance; WHEREAS, certain Foreign Restricted Subsidiaries of UCAR International have agreed to guarantee the obligations under the Intercompany Notes; NOW, THEREFORE, in consideration of the premises and to induce UCAR Finance to make such loans to the Intercompany Note Makers, the Intercompany Note Guarantor hereby agrees with UCAR Finance, as follows: 1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in the Indenture and used herein shall have the meanings given in the Indenture. (b) "INTERCOMPANY NOTE GUARANTEE" means this Intercompany Note Guarantee Agreement, as the same may be 2 amended, supplemented or otherwise modified from time to time. (c) "OBLIGATIONS" means (a) all obligations, whether existing on the date hereof or arising thereafter, of the Intercompany Note Makers specified in Schedule 1 hereto, in respect of the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Intercompany Loans (as defined in the Indenture), when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Intercompany Note Makers to UCAR Finance under the Intercompany Notes and (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Intercompany Note Makers under or pursuant to the Intercompany Notes. (d) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Intercompany Note Guarantee shall refer to this Intercompany Note Guarantee as a whole and not to any particular provision of this Intercompany Note Guarantee, and section references are to this Intercompany Note Guarantee unless otherwise specified. The words "include", "includes" and "including" shall be deemed to be followed by the phrase, "without limitation". (e) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. GUARANTEE. (a)Subject to the provisions of Section 2(b), the Intercompany Note Guarantor hereby unconditionally and irrevocably, as a primary obligor and not merely as a surety, guarantees, on a joint and several basis with all other subsidiaries of UCAR International that have guaranteed the Obligations, to UCAR Finance and its respective successors, endorsees, transferees and assigns (each, a "Successor" and, together with UCAR Finance, the "Beneficiaries"), the due, punctual and complete payment and performance by the Intercompany Note Makers, when and as due, whether at the stated maturity, by acceleration, upon 3 one or more dates set for prepayment, or otherwise of the Obligations. (b) Anything herein to the contrary notwithstanding, the maximum liability of the Intercompany Note Guarantor hereunder shall in no event exceed the amount which can be guaranteed by the Intercompany Note Guarantor under applicable laws relating to the insolvency of debtors. The Intercompany Note Guarantor shall not be deemed to guarantee those Obligations of the Intercompany Note Makers specified on Schedule 1 arising after the date hereof until such time as such Obligations arise. (c) The Intercompany Note Guarantor further agrees to pay any and all reasonable expenses (including all reasonable fees and disbursements of counsel) which may be paid or incurred by a Beneficiary in enforcing, or obtaining advice of counsel in respect of, any rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or collecting against, such Intercompany Note Guarantor under this Intercompany Note Guarantee. This Intercompany Note Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Intercompany Note Guarantor and its successors and assigns, and shall enure to the benefit of UCAR Finance, and its successors, endorsees, transferees and assigns, until the Obligations and the obligations of the Intercompany Note Guarantor under this Intercompany Note Guarantee are paid in full. (d) The Intercompany Note Guarantor agrees that the Obligations may, at any time, and from time to time, exceed the maximum amount of the liability of the Intercompany Note Guarantor hereunder without impairing this Intercompany Note Guarantee or affecting the rights and remedies of any Beneficiary. (e) The Intercompany Note Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to a Beneficiary on account of its liability hereunder, it will notify such Beneficiary and the Trustee in writing that such payment is made under this Intercompany Note Guarantee for such purpose, provided that the failure of the Intercompany Note Guarantor to provide such notice shall not preclude the application of such payment to the complete or partial satisfaction of the Intercompany Note Guarantor's obligations hereunder following the Intercompany Note Guarantor's notice to UCAR Finance and the Trustee of such payment. 4 3. NO SUBROGATION. Notwithstanding any payment or payments made by the Intercompany Note Guarantor hereunder or any setoff or application of funds of any of the Intercompany Note Guarantors by a Beneficiary, the Intercompany Note Guarantor shall not be entitled to be subrogated to any of the rights of such Beneficiary against any other Intercompany Note Guarantor, any Intercompany Note Maker or any guarantee or right of offset held by such Beneficiary for the payment of the Obligations, nor shall the Intercompany Note Guarantor seek or be entitled to seek any contribution or reimbursement from any other Intercompany Note Guarantor, any Intercompany Note Maker or any other guarantor in respect of payments made by the Intercompany Note Guarantor hereunder, until all amounts owing to UCAR Finance and its Successors on account of the Obligations are paid in full. If any amount shall be paid to the Intercompany Note Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by the Intercompany Note Guarantor in trust for the Beneficiaries, segregated from other funds of the Intercompany Note Guarantor, and shall forthwith upon receipt by the Intercompany Note Guarantor be turned over to UCAR Finance or its Successors in the exact form received by the Intercompany Note Guarantor (duly endorsed by the Intercompany Note Guarantor to UCAR Finance or its Successors, if required), to be applied against the Obligations. 4. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF RIGHTS. The Intercompany Note Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against the Intercompany Note Guarantor and without notice to or further assent by the Intercompany Note Guarantor, any demand for payment of any of the Obligations made by UCAR Finance or its Successors may be rescinded by UCAR Finance or such Successor and any of the Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by UCAR Finance and its Successors. Neither UCAR Finance nor any Successor shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Intercompany Note Guarantee or any property subject thereto. When making any demand hereunder against the Intercompany Note Guarantor, a Beneficiary may, but shall be under no obligation to, make a similar demand on any Intercompany Note Makers or any other 5 Intercompany Note Guarantors or guarantor, and any failure by such Beneficiary to make any such demand or to collect any payments from any Intercompany Note Maker or any such other Intercompany Note Guarantor or guarantor or any release of any Intercompany Note Maker or such other Intercompany Note Guarantor or guarantor shall not relieve the Intercompany Note Guarantor of any of its obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of UCAR Finance and its Successors against the Intercompany Note Guarantor. 5. SECURITY. The Intercompany Note Guarantor acknowledges and consents to the grant by UCAR Finance of a security interest in (a) the rights of UCAR Finance under this Intercompany Note Guarantee and (b) the Intercompany Notes of the Intercompany Note Makers. The Trustee and the holders from time to time of the Notes are "Beneficiaries" hereunder and may enforce this Intercompany Note Guarantee against the Intercompany Note Guarantor to the extent set forth in the Indenture. 6. INTERCOMPANY NOTE GUARANTEE ABSOLUTE AND UNCONDITIONAL. The Intercompany Note Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Intercompany Note Guarantee; and all dealings between any Intercompany Note Maker and any of the Intercompany Note Guarantors, on the one hand, and UCAR Finance and its Successors, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon this Intercompany Note Guarantee. The Intercompany Note Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon any Intercompany Note Maker or any of the Intercompany Note Guarantors with respect to the Obligations. The Intercompany Note Guarantor understands and agrees that this Intercompany Note Guarantee shall be construed as a continuing, absolute and unconditional guarantee of payment, and not of collection, and without regard to (a) the validity, regularity or enforceability of the Intercompany Notes, the Indenture or any of the Obligations or any other guarantee or right of offset with respect thereto at any time, or from time to time, held by UCAR Finance and its Successors, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any Intercompany Note Maker or any Intercompany Note Guarantor against UCAR Finance or its 6 Successors, or (c) any other circumstance whatsoever (with or without notice to or knowledge of any Beneficiary, any Intercompany Note Maker or the Intercompany Note Guarantor) which may or might in any manner or to any extent vary the risk of the Intercompany Note Guarantor or otherwise constitutes, or might be construed to constitute, an equitable or legal discharge of any Intercompany Note Maker or any Intercompany Note Guarantor with respect to the Obligations, or of the Intercompany Note Guarantor under this Intercompany Note Guarantee, in bankruptcy or in any other instance. When pursuing its rights and remedies hereunder against any Intercompany Note Guarantor, a Beneficiary may, but shall be under no obligation to, pursue such rights and remedies as it may have against any Intercompany Note Maker, any Intercompany Note Guarantor or any other person (including any other guarantor) or against any guarantee for the Obligations or any right of offset with respect thereto, and any failure by any such Beneficiary to pursue such other rights or remedies or to collect any payments from any Intercompany Note Maker, any Intercompany Note Guarantor or any such other person (including any other guarantor) or to realize upon any guarantee or to exercise any such right of offset, or any release of any Intercompany Note Maker, any Intercompany Note Guarantor or any such other person (including any other guarantor) or any such guarantee or right of offset, shall not relieve the Intercompany Note Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of such Beneficiary against the Intercompany Note Guarantor. This Intercompany Note Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Intercompany Note Guarantor and the successors and assigns thereof, and shall inure to the benefit UCAR Finance, and its Successors, until all the Obligations and the obligations of the Intercompany Note Guarantor under this Intercompany Note Guarantee shall have been satisfied by payment in full. 7. REINSTATEMENT. This Intercompany Note Guarantee shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by a Beneficiary for any reason whatsoever, including, without limitation, upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Intercompany Note Maker or any Intercompany Note Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Intercompany Note Maker or any Intercompany Note Guarantor or any substantial part 7 of its property, or otherwise, all as though such payments had not been made. 8. PAYMENTS. The Intercompany Note Guarantor hereby guarantees that payments hereunder will be paid to UCAR Finance or its Successors without setoff or counterclaim in the currency in which the applicable Obligation is due at the office of UCAR Finance located c/o UCAR International Inc., Brandywine West, 1521 Concord Pike, Suite 301, Wilmington, Delaware 19803 or at any such other address notified to the Intercompany Note Guarantor in writing by UCAR Finance or a Successor. All payments by the Intercompany Note Guarantor hereunder shall also be made free and clear of, and without reduction for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, other than Excluded Taxes, now or hereafter imposed, levied, collected, withheld or assessed by any country or by any political subdivision thereof (collectively "Taxes"); PROVIDED, HOWEVER, that if any Taxes are required to be withheld from any such payment, the amounts so payable by the Intercompany Note Guarantor shall be increased to the extent necessary to yield to UCAR Finance and its Successors, on a net basis after payment of all Taxes and after payment of all Excluded Taxes imposed by any relevant jurisdiction on any additional amounts payable under this Section 8, the original amount payable hereunder. Whenever any Taxes are payable by the Intercompany Note Guarantor, as promptly as possible thereafter it shall send to UCAR Finance and the Trustee a certified copy of an original receipt showing payment thereof. If the Intercompany Note Guarantor fails to pay any Taxes when due or fails to remit to UCAR Finance and the Trustee as aforesaid the required documentary evidence thereof, the Intercompany Note Guarantor shall indemnify UCAR Finance and its Successors for any incremental taxes, interest, penalties or other liabilities that may become payable by them or to which they may be subjected as a result of such failure. A certificate of UCAR Finance or the Trustee as to the amount of any such taxes, interest or penalties shall be prima facie evidence thereof. For the purpose of this Section 8, the term "Excluded Taxes" shall mean, in relation to any person, those Taxes which are imposed by any jurisdiction or any political subdivision thereof as a result of such person (i) carrying on a trade or business therein or having a permanent establishment therein, (ii) being organized under the laws of such jurisdiction or any political subdivision thereof, or (iii) being or being deemed to be resident in such jurisdiction, or which would not have been imposed had such person satisfied a relevant 8 authority that such person was not a person mentioned in items (i), (ii) or (iii) above. 9. INFORMATION. The Intercompany Note Guarantor assumes all responsibility for being and keeping itself informed of the financial condition and assets of the Intercompany Note Makers and other Intercompany Note Guarantors and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that the Intercompany Note Guarantor assumes and incurs hereunder, and agrees that UCAR Finance and its Successors will not have any duty to advise the Intercompany Note Guarantor of information known to it regarding such circumstances or risks. 10. COVENANTS. The Intercompany Note Guarantor covenants and agrees with UCAR Finance and its Successors that, from and after the date of this Intercompany Note Guarantee until the earlier to occur of (i) the date upon which the Obligations are paid in full and (ii) the date that the Intercompany Note Guarantor is released from its guarantee hereunder in accordance with Section 12, it will comply with each covenant set forth in the Indenture to the extent that it relates to the Intercompany Note Guarantors. 11. NOTICES. All notices, requests and demands to or upon UCAR Finance or the Intercompany Note Guarantor under this Intercompany Note Guarantee shall be given or made in accordance with Section 14.02 of the Indenture and addressed as follows: (a) if to UCAR Finance at its address for notices provided in Section 14.02 of the Indenture; and (b) if to the Intercompany Note Guarantor, at its address for notices set forth under its signature below. Each of UCAR Finance and the Intercompany Note Guarantor may change its address and transmission numbers for notices by notice in the manner provided in this Section. A copy of any notice given under this Intercompany Note Guarantee shall be given to the Trustee at its address for notices provided in Section 14.02 of the Indenture. 12. RELEASE. Upon the sale or the other disposition (including by way of consolidation or merger) of the Intercompany Note Guarantor or the sale or disposition of all or substantially all the assets of the Intercompany Note Guarantor (in each case other than a sale or disposition to UCAR International Inc. or an Affiliate of 9 UCAR International Inc.), the Intercompany Note Guarantor shall be deemed released from all obligations under this Intercompany Note Guarantee without any further action. At the request and expense of UCAR Finance, the Trustee shall execute and deliver an appropriate instrument evidencing such release. Upon the merger or consolidation of the Intercompany Note Guarantor with or into, or the dissolution and liquidation of the Intercompany Note Guarantor into, a Foreign Restricted Subsidiary that is or becomes an Intercompany Note Guarantor or another Person that Guarantees the Intercompany Notes or the designation of the Intercompany Note Guarantor as an Unrestricted Subsidiary as permitted by the Indenture, from and after such designation, the Intercompany Note Guarantor shall be released from all obligations under this Intercompany Note Guarantee without any further action. 13. COUNTERPARTS. Delivery of an executed counterpart of a signature page of this Intercompany Note Guarantee by facsimile transmission shall be effective as delivery of a manually executed copy of this Intercompany Note Guarantee. 14. SEVERABILITY. Any provision of this Intercompany Note Guarantee which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the prohibited or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the prohibited or unenforceable provisions. 15. INTEGRATION. This Intercompany Note Guarantee represents the agreement of the Intercompany Note Guarantor with respect to the subject matter hereof and there are no promises or representations by the Intercompany Note Guarantor or UCAR Finance relative to the subject matter hereof not reflected herein. 16. AMENDMENTS IN WRITING; NO WAIVER, CUMULATIVE REMEDIES. 20.None of the terms or provisions of this Intercompany Note Guarantee may be waived, amended, supplemented or otherwise modified except to the extent necessary to comply with changes with applicable law; 10 PROVIDED, HOWEVER, that such amendments to comply with applicable law shall not adversely affect the interests of the Holders of the Notes. Any waiver, amendment, supplement or other modification shall be in the form of a written instrument executed by the Intercompany Note Guarantor and UCAR Finance, as provided in the Indenture. UCAR Finance or a Successor shall notify the Trustee in writing thereof. (b) UCAR Finance and its Successors shall not by any act (except in the case of the a written instrument pursuant to Section 16(a) hereof) or delay be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default (as defined in the Indenture) or Event of Default (as defined in the Indenture) or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of UCAR Finance or its Successors, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by UCAR Finance or its Successors of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which UCAR Finance or its Successors would otherwise have on any future occasion. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 17. SECTION HEADINGS. The section headings used in this Intercompany Note Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 18. SUCCESSORS AND ASSIGNS. This Intercompany Note Guarantee shall be binding upon the successors and assigns of the Intercompany Note Guarantor and shall inure to the benefit of the Intercompany Note Guarantor and UCAR Finance and their successors and assigns; PROVIDED that this Intercompany Note Guarantee may not be assigned by the Intercompany Note Guarantor, except as permitted in the Indenture. 19. GOVERNING LAW. THIS INTERCOMPANY NOTE GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 11 20. SUBMISSION TO JURISDICTION; WAIVERS. The Intercompany Note Guarantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Intercompany Note Guarantee, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United `States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Intercompany Note Guarantor at its address set forth in Section 11; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 21. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS INTERCOMPANY NOTE GUARANTEE. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY, 12 AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 21. 13 IN WITNESS WHEREOF, the undersigned has caused this Intercompany Note Guarantee to be duly executed and delivered by its duly authorized officer as of the day and year first above written. [NAME OF INTERCOMPANY NOTE GUARANTOR] by ------------------------------------ Name: Title: Address: Attention: Facsimile: 14 SCHEDULE 1 UCAR S.A. UCAR Electrodos Iberica, S.L. UCAR Holdings S.A. UCAR Carbon Mexicana, S.A. de C.V. UCAR S.p.A. Elektrode Maatskappy (Proprietary) Limited Schedule I PLEDGED INTERCOMPANY NOTES --------------------------
Name of Principal Location of Intercompany Date of Amount of UCC-1 Note Maker Intercompany Note Intercompany Note Filing ---------- ----------------- ----------------- ------ UCAR S.A. February 15, 2002 (euro)112,258,643.90 Delaware UCAR Carbon Mexicana, S.A. de C.V. February 15, 2002 $92,265,000.00 Delaware UCAR S.p.A February 15, 2002 (euro)16,750,000.00 Delaware UCAR Holdings S.A. February 15, 2002 (euro)126,900,000.00 Delaware EMSA (Pty) Ltd. February 15, 2002 ZAR595,146,207.74 Delaware UCAR Electrodos Iberica, S.L. March 1, 2002 (euro)17,110,000.00 Delaware
Schedule II PLEDGED INTERCOMPANY NOTE GUARANTIES ------------------------------------
Intercompany Note Date of Guaranty Agreement Location of Ucc-1 Filing UCAR Limited February 15, 2002 Delaware UCAR SNC February 15, 2002 Delaware UCAR Holdings S.A. February 15, 2002 Delaware UCAR Inc. February 15, 2002 Delaware UCAR Carbon S.A. February 15, 2002 Delaware UCAR Produtos de Carbono S.A. February 15, 2002 Delaware UCAR Carbon Mexicana, S.A de C.V. February 15, 2002 Delaware UCAR S.A. February 15, 2002 Delaware UCAR S.p.A. February 15, 2002 Delaware UCAR Electrodos Iberica, S.L. March 1, 2002 Delaware
RULE 144A/REGULATION S APPENDIX PROVISIONS RELATING TO INITIAL SECURITIES, ------------------------------------------ PRIVATE EXCHANGE SECURITIES --------------------------- AND EXCHANGE SECURITIES ----------------------- 1. DEFINITIONS. 1.1. DEFINITIONS. For the purposes of this Appendix the following terms shall have the meanings indicated below: "Applicable Procedures" means, with respect to any transfer or transaction involving a Temporary Regulation S Global Security or beneficial interest therein, the rules and procedures of the Depository, Euroclear and Clearstream for such a Temporary Regulation S Global Security, in each case to the extent applicable to such transaction and as in effect from time to time. "Clearstream" means Clearstream Banking, societe anonyme, or any successor securities clearing agency. "Definitive Security" means a certificated Initial Security or Exchange Security or Private Exchange Security (bearing the Restricted Securities Legend if the transfer of such Security is restricted by applicable law) that does not include the Global Securities Legend. "Depository" means The Depository Trust Company, its nominees and their respective successors. "Distribution Compliance Period", with respect to any Securities, means the period of 40 consecutive days beginning on and including the later of (i) the day on which such Securities are first offered to Persons other than distributors (as defined in Regulation S under the Securities Act) in reliance on Regulation S and (ii) the Issue Date with respect to such Securities. "Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear System, or any successor securities clearing agency. "Exchange Securities" means (1) the 10 1/4% Senior Notes due 2012 issued pursuant to the Indenture in connection with a Registered Exchange Offer pursuant to a Registration Rights Agreement and (2) Additional Securities, if any, issued pursuant to a registration statement filed with the SEC under the Securities Act. 2 "Global Securities Legend" means the legend set forth under that caption in Exhibit 1 to this Appendix. "Initial Purchasers" means (1) with respect to the Initial Securities issued on the Issue Date, Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., ABN AMRO Incorporated, Fleet Securities, Inc. and Scotia Capital (USA) Inc. and (2) with respect to each issuance of Additional Securities, the Persons purchasing such Additional Securities under the related Purchase Agreement. "Initial Securities" means (1) $400,000,000 aggregate principal amount of 10 1/4% Senior Notes due 2012 issued on the Issue Date and (2) Additional Securities, if any, issued in a transaction exempt from the registration requirements of the Securities Act. "Private Exchange" means the offer by the Company, pursuant to a Registration Rights Agreement, to the Initial Purchasers to issue and deliver to each Initial Purchaser, in exchange for the Initial Securities held by the Initial Purchaser as part of its initial distribution, a like aggregate principal amount of Private Exchange Securities. "Private Exchange Securities" means any 10 1/4% Senior Notes due 2012 issued in connection with a Private Exchange. "Purchase Agreement" means (1) with respect to the Initial Securities issued on the Issue Date, the Purchase Agreement dated February 8, 2002, among the Company, the Guarantors and the Initial Purchasers, and (2) with respect to each issuance of Additional Securities, the purchase agreement or underwriting agreement among the Company and the Persons purchasing such Additional Securities. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registered Exchange Offer" means the offer by the Company, pursuant to a Registration Rights Agreement, to certain Holders of Initial Securities, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of Exchange Securities registered under the Securities Act. "Registration Rights Agreement" means (1) with respect to the Initial Securities issued on the Issue Date, the Registration Rights Agreement dated February 15, 2002, 3 among the Company and the Initial Purchasers, and (2) with respect to each issuance of Additional Securities issued in a transaction exempt from the registration requirements of the Securities Act, the registration rights agreement, if any, among the Company, the Guarantors and the Persons purchasing such Additional Securities under the related Purchase Agreement. "Restricted Securities Legend" means the legend set forth in Section 2.3(e)(i) herein. "Rule 144A Securities" means all Initial Securities offered and sold to QIBs in reliance on Rule 144A. "Securities Act" means the Securities Act of 1933. "Securities Custodian" means the custodian with respect to a Global Security (as appointed by the Depository), or any successor Person thereto, and shall initially be the Trustee. "Shelf Registration Statement" means the registration statement issued by the Company and the Guarantors in connection with the offer and sale of Initial Securities or Private Exchange Securities pursuant to a Registration Rights Agreement. "Transfer Restricted Securities" means Definitive Securities or any other Securities that bear or are required to bear the Restricted Securities Legend. 1.2. OTHER DEFINITIONS. ------------------ Defined in Term Section: ---- ----------- "Agent Members".......................................................2.1(b) "Global Security".....................................................2.1(a) "Permanent Regulation S Global Security"..............................2.1(a) "Regulation S"........................................................2.1(a) "Rule 144A"...........................................................2.1(a) "Rule 144A Global Security"...........................................2.1(a) "Temporary Regulation S Global Security"..............................2.1(a) 2. THE SECURITIES. 2.1. (a) FORM AND DATING. The Initial Securities will be offered and sold by the Company pursuant to a Purchase Agreement. The Initial Securities will be resold initially only to (i) QIBs in reliance on Rule 144A under the 4 Securities Act ("Rule 144A") and (ii) Persons other than U.S. Persons (as defined in Regulation S) in reliance on Regulation S under the Securities Act ("Regulation S"). Initial Securities may thereafter be transferred to, among others, QIBs and purchasers in reliance on Regulation S, in each case, subject to the restrictions on transfer set forth herein. Initial Securities initially resold pursuant to Rule 144A shall be issued initially in the form of one or more permanent global Securities in definitive, fully registered form (collectively, the "Rule 144A Global Security") and Initial Securities initially resold pursuant to Regulation S shall be issued initially in the form of one or more temporary global securities in definitive, fully registered form (collectively, the "Temporary Regulation S Global Security"), in each case without interest coupons and with the Global Securities Legend and Restricted Securities Legend, which shall be deposited on behalf of the purchasers of the Initial Securities represented thereby with the Securities Custodian, and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company and authenticated by the Trustee as provided in the Indenture. Beneficial ownership interests in the Temporary Regulation S Global Security will not be exchangeable for interests in the Rule 144A Global Security, a permanent global security (the "Permanent Regulation S Global Security"), or any other Security without a Restricted Securities Legend until the expiration of the Distribution Compliance Period. The Rule 144A Global Security, the Temporary Regulation S Global Security and the Permanent Regulation S Global Security are collectively referred to herein as "Global Securities"; PROVIDED, that the term "Global Security" when used in Sections 2.1(c), 2.3(g), 2.3(h)(i) and 2.4 shall also include any Security in global form issued in connection with a Registered Exchange Offer. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as hereinafter provided. (b) BOOK-ENTRY PROVISIONS. This Section 2.1(b) shall apply only to a Global Security deposited with or on behalf of the Depository. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b) and Section 2.2, authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depository for such Global Security or Global Securities or the nominee of such Depository and (b) shall be delivered by the Trustee to such Depository or pursuant to such 5 Depository's instructions or held by the Trustee as Securities Custodian. Members of, or participants in, the Depository ("Agent Members") shall have no rights under the Indenture with respect to any Global Security held on their behalf by the Depository or by the Trustee as the Securities Custodian or under such Global Security, and the Company, the Trustee and any agent of the Company or the Trustee shall be entitled to treat the Depository as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices of such Depository governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (c) CERTIFICATED SECURITIES. Except as provided in this Section 2.1 or Section 2.3 or 2.4, owners of beneficial interests in Global Securities shall not be entitled to receive physical delivery of Definitive Securities. 2.2. AUTHENTICATION. The Trustee shall authenticate and deliver: (1) on the Issue Date, an aggregate principal amount of $400,000,000 10 1/4% Senior Notes due 2012, (2) any Additional Securities for an original issue in an aggregate principal amount specified in the written order of the Company pursuant to Section 2.02 of the Indenture and (3) Exchange Securities or Private Exchange Securities for issue in a Registered Exchange Offer or a Private Exchange, respectively, pursuant to a Registration Rights Agreement, for a like principal amount of Initial Securities, in each case upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and, in the case of any issuance of Additional Securities pursuant to Section 2.13 of the Indenture, shall certify that such issuance is in compliance with Section 4.03 of the Indenture. 2.3. TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF DEFINITIVE SECURITIES. When Definitive Securities are presented to the Registrar or a co-registrar with a request: 6 (x) to register the transfer of such Definitive Securities; or (y) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations, the Registrar or co-registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; PROVIDED, HOWEVER, that the Definitive Securities surrendered for transfer or exchange: (i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Registrar or co-registrar, duly executed by the Holder thereof or its attorney duly authorized in writing; and (ii) if such Definitive Securities are Transfer Restricted Securities, they are being transferred or exchanged pursuant to an effective registration statement under the Securities Act, pursuant to Section 2.3(b) or pursuant to clause (A), (B) or (C) below, and are accompanied by the following additional information and documents, as applicable: (A) if such Definitive Securities are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in the form set forth on the reverse of the Initial Security); or (B) if such Definitive Securities are being transferred to the Company, a certification to that effect (in the form set forth on the reverse of the Initial Security); or (C) if such Definitive Securities are being transferred (x) pursuant to an exemption from registration in accordance with Rule 144A, Regulation S or Rule 144 under the Securities Act; or (y) in reliance upon another exemption from the requirements of the Securities Act: (i) a certification to that effect (in the form set forth on the reverse of the Security) and (ii) if the Company so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in Section 2.3(e)(i). 7 (b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE SECURITY FOR A BENEFICIAL INTEREST IN A GLOBAL SECURITY. A Definitive Security may not be exchanged for a beneficial interest in a Rule 144A Global Security or a Permanent Regulation S Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (i) certification (in the form set forth on the reverse of the Initial Security) that such Definitive Security is either (A) being transferred to a QIB in accordance with Rule 144A or (B) is being transferred after expiration of the Distribution Compliance Period by a Person who initially purchased such Security in reliance on Regulation S to a buyer who elects to hold its interest in such Security in the form of a beneficial interest in the Permanent Regulation S Global Security; and (ii) written instructions directing the Trustee to make, or to direct the Securities Custodian to make, an adjustment on its books and records with respect to such Rule 144A Global Security (in the case of a transfer pursuant to clause (b)(i)(A)) or Permanent Regulation S Security (in the case of a transfer pursuant to clause (b)(i)(B)) to reflect an increase in the aggregate principal amount of the Securities represented by the Rule 144A Global Security or Permanent Regulation S Global Security, as applicable, such instructions to contain information regarding the Depository account to be credited with such increase, then the Trustee shall cancel such Definitive Security and cause, or direct the Securities Custodian to cause, in accordance with the standing instructions and procedures existing between the Depository and the Securities Custodian, the aggregate principal amount of Securities represented by the Rule 144A Global Security or Permanent Regulation S Global Security, as applicable, to be increased by the aggregate principal amount of the Definitive Security to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Rule 144A Global Security or Permanent Regulation S Global Security, as applicable, equal to the principal amount of the Definitive Security so canceled. If no Rule 144A Global Securities or Permanent Regulation S Global Securities, as applicable, are then outstanding, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the form 8 START HERE of an Officers' Certificate, a new Rule 144A Global Security or Permanent Regulation S Global Security, as applicable, in the appropriate principal amount. (c) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. (i) The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depository, in accordance with the Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depository therefor. A transferor of a beneficial interest in a Global Security shall deliver to the Registrar a written order given in accordance with the Depository's procedures containing information regarding the participant account of the Depository to be credited with a beneficial interest in the Global Security. The Registrar shall, in accordance with such instructions, instruct the Depository to credit to the account of the Person specified in such instructions a beneficial interest in the Global Security and to debit the account of the Person making the transfer the beneficial interest in the Global Security being transferred. Transfers by an owner of a beneficial interest in the Rule 144A Global Security to a transferee who takes delivery of such interest through the Regulation S Global Security, whether before or after the expiration of the Distribution Compliance Period, shall be made only upon receipt by the Trustee of a certification in the form provided on the reverse of the Initial Securities from the transferor to the effect that such transfer is being made in accordance with Regulation S or (if available) Rule 144 under the Securities Act and that, if such transfer is being made prior to the expiration of the Distribution Compliance Period, the interest transferred shall be held immediately thereafter through Euroclear or Clearstream. (ii) If the proposed transfer is a transfer of a beneficial interest in one Global Security to a beneficial interest in another Global Security, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Security to which such interest is being transferred in an amount equal to the principal amount of the interest to be so transferred, and the Registrar shall reflect on its books and records the date and a corresponding decrease in the principal amount of the Global Security from which such interest is being transferred. (iii) Notwithstanding any other provisions of this Appendix (other than the provisions set forth in Section 2.4), a Global Security may not be transferred 9 as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (iv) In the event that a Global Security is exchanged for Definitive Securities pursuant to Section 2.4 of this Appendix, prior to the consummation of a Registered Exchange Offer or the effectiveness of a Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements set forth on the reverse of the Initial Securities intended to ensure that such transfers comply with Rule 144A, Regulation S or such other applicable exemption from registration under the Securities Act, as the case may be) and such other procedures as may from time to time be adopted by the Company. (d) RESTRICTIONS ON TRANSFER OF TEMPORARY REGULATION S GLOBAL SECURITIES. During the Distribution Compliance Period, beneficial ownership interests in Temporary Regulation S Global Securities may only be sold, pledged or transferred through Euroclear or Clearstream in accordance with the Applicable Procedures and only (i) to the Company, (ii) so long as such Security is eligible for resale pursuant to Rule 144A, to a Person whom the selling holder reasonably believes is a QIB that purchases for its own account or for the account of a QIB to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, (iii) in an offshore transaction in accordance with Regulation S, (iv) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if applicable) under the Securities Act or (v) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. (e) LEGEND. (i) Except as permitted by the following paragraphs (ii), (iii) and (iv), each Security certificate evidencing the Global Securities and the Definitive Securities (and all Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form: 10 THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. Each Definitive Security will also bear the following additional legend: IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act, the Registrar shall permit the transferee thereof to exchange such Transfer Restricted Security for a certificated Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the transferor thereof certifies in writing to the Registrar that such sale or transfer was made in reliance on Rule 144 (such 11 certification to be in the form set forth on the reverse of the Security). (iii) After a transfer of any Initial Securities or Private Exchange Securities pursuant to and during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities or Private Exchange Securities, as the case may be, all requirements pertaining to legends on such Initial Security or such Private Exchange Security will cease to apply, the requirements requiring any such Initial Security or such Private Exchange Security issued to certain Holders be issued in global form will cease to apply, and a certificated Initial Security or Private Exchange Security or an Initial Security or Private Exchange Security in global form, in each case without restrictive transfer legends, will be available to the transferee of the Holder of such Initial Securities or Private Exchange Securities upon exchange of such transferring Holder's certificated Initial Security or Private Exchange Security or appropriate directions to transfer such Holder's interest in the Global Security, as applicable. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will still apply with respect to Holders of such Initial Securities that do not exchange their Initial Securities, and Exchange Securities in certificated or global form, in each case without the Restrictive Securities Legend will be available to Holders that exchange such Initial Securities in such Registered Exchange Offer. (v) Upon the consummation of a Private Exchange with respect to the Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will still apply with respect to Holders of such Initial Securities that do not exchange their Initial Securities, and Private Exchange Securities in global form with the global securities legend and the Restricted Securities Legend hereto will be available to Holders that exchange such Initial Securities in such Private Exchange. (f) CANCELLATION OR ADJUSTMENT OF GLOBAL SECURITY. At such time as all beneficial interests in a Global Security have either been exchanged for Definitive 12 Securities, redeemed, purchased or canceled, such Global Security shall be returned to the Depository for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for certificated Securities, redeemed, purchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction. (g) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF SECURITIES. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Securities and Global Securities at the Registrar's or co-registrar's request. (ii) No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.06, 4.06, 4.09 and 9.05 and 11.03 of the Indenture). (iii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of (a) any Definitive Security selected for redemption in whole or in part pursuant to Article 3 of this Indenture, except the unredeemed portion of any Definitive Security being redeemed in part, or (b) any Security for a period beginning 15 Business Days before the mailing of a notice of an offer to repurchase or redeem Securities or 15 Business Days before an interest payment date. (iv) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security 13 is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (v) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. (h) NO OBLIGATION OF THE TRUSTEE. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in the Depository or other Person with respect to the accuracy of the books or records, or the acts or omissions, of the Depository or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Depository or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depository participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 14 2.4. CERTIFICATED SECURITIES. (a) A Global Security deposited with the Depository or with the Trustee as Securities Custodian for the Depository pursuant to Section 2.1 shall be transferred to the beneficial owners thereof in the form of Definitive Securities in an aggregate principal amount equal to the principal amount of such Global Security, in exchange for such Global Security, only if such transfer complies with Section 2.3 hereof and (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time such Depository ceases to be a "clearing agency" registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days of such notice, or (ii) an Event of Default has occurred and is continuing or (iii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Securities under this Indenture. (b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this Section shall be surrendered by the Depository to the Trustee located at its principal corporate trust office in Boston, Massachusetts, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of Definitive Securities of authorized denominations. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 principal amount and any integral multiple thereof and registered in such names as the Depository shall direct. Any Definitive Security delivered in exchange for an interest in the Transfer Restricted Security shall, except as otherwise provided by Section 2.3(e) hereof, bear the restricted securities legend set forth in Exhibit 1 hereto. (c) Subject to the provisions of Section 2.4(b) hereof, the registered Holder of a Global Security shall be entitled to grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (d) In the event of the occurrence of one of the events specified in Section 2.4(a) hereof, the Company shall promptly make available to the Trustee a reasonable supply 15 of Definitive Securities in definitive, fully registered form without interest coupons. EXHIBIT 1 to RULE 144A/REGULATION S APPENDIX [FORM OF FACE OF INITIAL SECURITY] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF 2 CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. [Definitive Securities Legend] IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. 3 CUSIP No. ___________ ISIN ___________ No. ___________ $___________ 10 1/4% Senior Note due 2012 UCAR Finance Inc., a Delaware corporation, promises to pay to [Cede & Co.], or registered assigns, the principal sum of _______ Dollars on [ ], 2012. Interest Payment Dates: and , commencing , 2002. Record Dates: and . Additional provisions of this Security are set forth on the other side of this Security. Dated: UCAR FINANCE INC., by ---------------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the Indenture. STATE STREET BANK AND TRUST COMPANY as Trustee, by ----------------------------- Authorized Signatory 4 [FORM OF REVERSE SIDE OF INITIAL SECURITY] 10 1/4% Senior Note due 2012 1. INTEREST. UCAR Finance Inc., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above; PROVIDED, HOWEVER, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, additional interest will accrue on this Security at a rate of 0.50% per annum (increasing by an additional 0.50% per annum after each subsequent 90-day period that occurs after the date on which such Registration Default occurs up to a maximum additional interest rate of 2.00% per annum which interest shall be calculated by the Company and certified to the Trustee) from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. The Company will pay interest semiannually in arrears on February 15 and August 15 of each year, commencing August 15, 2002. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 15, 2002. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Company will pay interest on overdue principal at the rate borne by the Securities plus 1% per annum, and it will pay interest on overdue installments of interest at such higher rate to the extent lawful. 2. METHOD OF PAYMENT. The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the February 1 or August 1 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Securities represented by 5 a Global Security (including principal, premium, if any, and interest) will be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company will make all payments in respect of a certificated Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof; PROVIDED, HOWEVER, that payments on a certificated Security will be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust Company (the "Trustee") will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE. The Company issued the Securities under an Indenture dated as of February 15, 2002 ("Indenture"), among the Company, the Guarantors and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the TIA for a statement of those terms. The Securities are general obligations of the Company, except to the extent of the limited security interest in the Intercompany Note Obligations. The Company shall be entitled, subject to its compliance with Section 4.03 of the Indenture, to issue Additional Securities pursuant to Section 2.13 of the Indenture. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor will be treated as a single class for all purposes under the Indenture. The 6 Indenture contains covenants that limit the ability of UCAR International and its subsidiaries to incur additional indebtedness; pay dividends or distributions on, or redeem or repurchase capital stock; make investments; issue or sell capital stock of subsidiaries; engage in transactions with affiliates; create liens on assets; transfer or sell assets; guarantee indebtedness; restrict dividends or other payments of subsidiaries; allow the Company to engage in certain businesses; consolidate, merge or transfer all or substantially all of its assets and the assets of its subsidiaries; and engage in sale/leaseback transactions. These covenants are subject to important exceptions and qualifications. 5. OPTIONAL REDEMPTION. Except as set forth below, the Company shall not be entitled to redeem the Securities at its option prior to February 15, 2007. On and after February 15, 2007, the Company shall be entitled at its option to redeem all or a portion of the Securities upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed in percentages of principal amount on the redemption date), plus accrued and unpaid interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on February 15 of the years set forth below: Redemption Period Price -------------------------------------------------- 2007 105.125% 2008 103.417% 2009 101.708% 2010 and thereafter 100.000% In addition, prior to February 15, 2005, the Company shall be entitled at its option on one or more occasions to redeem Securities (which includes Additional Securities, if any) in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the Securities (which includes Additional Securities, if any) originally issued at a redemption price (expressed as a percentage of principal amount) of 110.25%, plus accrued and unpaid interest to the redemption date, with the net cash 7 proceeds from one or more Public Equity Offerings; PROVIDED, HOWEVER, that (1) at least 65% of such aggregate principal amount of Securities (which includes Additional Securities, if any) remains outstanding immediately after the occurrence of each such redemption (other than Securities held, directly or indirectly, by the Company or its Affiliates); and (2) each such redemption occurs within 60 days after the date of the related Public Equity Offering. 6. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at its registered address. Securities in denominations larger than $1,000 principal amount may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. PUT PROVISIONS. Upon a Change of Control, any Holder of Securities will have the right to cause the Company to purchase all or any part of the Securities of such Holder at a purchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued and unpaid interest to the date of purchase (subject to the right of Holders on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture. Under certain circumstances as set forth in the Indenture, the Company will be required to offer to purchase Securities with Excess Intercompany Note Prepayment Proceeds. 8. GUARANTY. The payment by the Company of the principal of, and premium and interest on, the Securities is fully and unconditionally guaranteed on a joint and several senior unsecured basis by each of the Guarantors. In addition, the 8 Guarantee of UCAR Carbon is secured by a limited pledge of Pledged Graftech Stock. 9. PLEDGES The Securities will be secured by a pledge of Intercompany Notes and Intercompany Note Guaranties, subject to the limitations set forth in the Indenture. 10. DENOMINATIONS; TRANSFER; EXCHANGE. The Securities are in registered form without coupons in denominations of $1,000 principal amount and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer or exchange of any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. 11. PERSONS DEEMED OWNERS. The registered Holder of this Security may be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY. If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 13. DISCHARGE AND DEFEASANCE. Subject to certain conditions, the Company, the Guarantors and the Intercompany Note Obligors at any time shall be entitled to terminate some or all of their respective obligations under the Securities, the Indenture, the Graftech Pledge Agreement, the Lien Subordination 9 Agreement, the Intercompany Notes and the Intercompany Note Guaranties if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 14. AMENDMENT, WAIVER. Subject to certain exceptions set forth in the Indenture, (i) the Indenture and the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount outstanding of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company, the Guarantors and the Trustee shall be entitled to amend the Indenture, the Graftech Pledge Agreement, the Lien Subordination Agreement, the Intercompany Notes, the Intercompany Note Guaranties or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add Guarantees or Intercompany Notes with respect to the Securities, including Subsidiary Guaranties and Intercompany Note Guaranties, or to secure the Securities, or to add covenants or surrender rights or powers conferred upon the Company, any Guarantor or any Intercompany Note Obligor, or to comply with any requirements of the SEC in connection with qualifying or maintaining the qualification of the Indenture under the TIA, or to make changes to the Intercompany Notes or the Intercompany Note Guaranties, as applicable, permitted under the terms thereof or to make any change that does not adversely affect the rights of any Securityholder. 15. DEFAULTS AND REMEDIES. Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities when the same becomes due at the Stated Maturity, upon redemption pursuant to paragraph 5 of the Securities, upon declaration of acceleration or otherwise, or failure by the Company to purchase Securities when required; (iii) failure by the Company, any Guarantor or any Intercompany Note Obligor to comply with other agreements in the Indenture or the Securities, in certain cases subject to 10 notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company or any Guarantor if the amount accelerated (or so unpaid) exceeds $10.0 million; (v) certain events of bankruptcy or insolvency with respect to the Company, any Guarantor and the Significant Subsidiaries; (vi) certain judgments or decrees for the payment of money in excess of $10.0 million, (vii) certain defaults with respect to Guaranties, Intercompany Notes or Intercompany Note Guaranties; and (viii) certain defaults relating to the security interests in the Graftech Pledged Stock, the Intercompany Notes and the Intercompany Note Guaranties, or any prepayments with respect to the Intercompany Notes except as permitted under Article 11 of the Indenture. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives indemnity or security reasonably satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest on any Security) if it determines that withholding notice is in the interest of the Holders. 16. TRUSTEE DEALINGS WITH THE COMPANY. Subject to certain limitations imposed by the TIA and the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with UCAR International or its Affiliates with the same rights it would have if it were not Trustee. 17. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Company, any Guarantor, any Intercompany Note Obligor or the Trustee shall not have any liability for any obligations of the Company, any Guarantor or any 11 Intercompany Note Obligor under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 18. AUTHENTICATION. This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 19. ABBREVIATIONS. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gifts to Minors Act). 20. CUSIP NUMBERS AND ISINS. The Company has caused CUSIP numbers and corresponding ISINs to be printed on the Securities and has directed the Trustee to use CUSIP numbers and corresponding ISINs in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 21. HOLDERS' COMPLIANCE WITH REGISTRATION RIGHTS AGREEMENT. Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein. 12 22. GOVERNING LAW. THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Company will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: UCAR Finance Inc. c/o UCAR International Inc. Brandywine West 1521 Concord Pike, Suite 301 Wilmington, Delaware 19803 Attention: Director of Investor Relations 13 ________________________________________________________________________________ ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ________________ Your Signature: _____________________ _______________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. 14 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER RESTRICTED SECURITIES. In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) |_| inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (2) |_| outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933 and such Security shall be held immediately after the transfer through Euroclear or Clearstream until the expiration of the Distribution Compliance Period; or (3) |_| pursuant to the exemption from registration provided by Rule 144 under the Securities Act of 1933; or (4) |_| to the Company; or (5) |_| pursuant to an effective registration statement under the Securities Act of 1933; or (6) |_| to the Registrar for registration in the name of the Holder, without transfer. 15 If such transfer is being made pursuant to an offshore transaction in accordance with Rule 904 under the Securities Act, the undersigned further certifies that: (i) the offer of the Securities was not made to a person in the United States; (ii) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; (iii) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903 or Rule 904 of Regulation S, as applicable; (iv) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; (v) we have advised the transferee of the transfer restrictions applicable to the Securities; and (vi) if the circumstances set forth in Rule 904(B) under the Securities Act, are applicable, we have complied with the additional conditions therein, including (if applicable) sending a confirmation or other notice stating that the Securities may be offered and sold during the distribution compliance period specified in Rule 903 of Regulation S; pursuant to registration of the Securities under the Securities Act; or pursuant to an available exemption from the registration requirements under the Securities Act. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; PROVIDED, HOWEVER, that if box (2), (3) or (4) is checked, the Trustee shall be entitled to require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration 16 requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. ------------------------ Signature Signature Guarantee: - --------------------------- ------------------------- Signature must be guaranteed Signature Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. _______________________________________________________________________________ TO BE COMPLETED BY PURCHASER IF (1) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ________________ ______________________________ NOTICE: To be executed by an executive officer 17 [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made: Principal Amount of Amount of Amount of Signature of decrease in increase in this Global authorized Principal Principal Security officer of amount of amount of following Trustee or Date of this Global this Global such decrease Securities Exchange Security Security or increase Custodian 18 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Sections 4.06, 4.09 or 11.03 of the Indenture, check the box: _ |_| If you want to elect to have only part of this Security purchased by the Company pursuant to Sections 4.06, 4.09 or 11.03 of the Indenture, state the amount in principal amount: $ Date: _______________ Your Signature: _______________________ (Sign exactly as your name appears on the other side of this Security.) Signature Guarantee: _____________________________________________________ (Signature must be guaranteed) Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. EXHIBIT A [FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY*/**/] _____________ _____________ */ If the Security is to be issued in global form add the Global Securities Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1 captioned "TO BE ATTACHED TO GLOBAL SECURITIES - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY". **/ If the Security is a Private Exchange Security issued in a Private Exchange to an Initial Purchaser holding an unsold portion of its initial allotment, add the Restricted Securities Legend from Exhibit 1 to Appendix A and replace the Assignment Form included in this Exhibit A with the Assignment Form included in such Exhibit 1. 2 CUSIP No. ___________ ISIN ___________ No.__________ $_________ 10 1/4% Senior Note due 2012 UCAR Finance Inc., a Delaware corporation, promises to pay to [Cede & Co.], or registered assigns, the principal sum of _______ Dollars on [ ], 2012. Interest Payment Dates: February 15 and August 15, commencing August 15, 2002. Record Dates: February 1 and August 1. Additional provisions of this Security are set forth on the other side of this Security. Dated: UCAR FINANCE INC., by ------------------------------------ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee, by ---------------------------------- Authorized Signatory 3 [FORM OF REVERSE SIDE OF INITIAL SECURITY] 10 1/4% Senior Note due 2012 1. INTEREST. UCAR Finance Inc., a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above [; PROVIDED, HOWEVER, THAT IF A REGISTRATION DEFAULT (AS DEFINED IN THE REGISTRATION RIGHTS AGREEMENT) OCCURS, ADDITIONAL INTEREST WILL ACCRUE ON THIS SECURITY AT A RATE OF 0.50% PER ANNUM (INCREASING BY AN ADDITIONAL 0.50% PER ANNUM AFTER EACH SUBSEQUENT 90-DAY PERIOD THAT OCCURS AFTER THE DATE ON WHICH SUCH REGISTRATION DEFAULT OCCURS UP TO A MAXIMUM ADDITIONAL INTEREST RATE OF 2.00% PER ANNUM WHICH INTEREST SHALL BE CALCULATED BY THE COMPANY AND CERTIFIED TO THE TRUSTEE) FROM AND INCLUDING THE DATE ON WHICH ANY SUCH REGISTRATION DEFAULT SHALL OCCUR TO BUT EXCLUDING THE DATE ON WHICH ALL REGISTRATION DEFAULTS HAVE BEEN CURED.](1) The Company will pay interest semiannually in arrears on February 15 and August 15 of each year, commencing August 15, 2002. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 15, 2002. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Company will pay interest on overdue principal at the rate borne by the Securities plus 1% per annum, and it will pay interest on overdue installments of interest at such higher rate to the extent lawful. 2. METHOD OF PAYMENT. The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the February 1 or August 1 next preceding the interest payment date even if Securities are canceled after the ________________ 1 Insert if at the date of issuance of the Exchange Security or Private Exchange Security (as the case may be) any Registration Default has occurred with respect to the related Initial Securities during the interest period in which such date of issuance occurs. 4 record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Securities represented by a Global Security (including principal, premium, if any, and interest) will be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company will make all payments in respect of a certificated Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof; PROVIDED, HOWEVER, that payments on a certificated Security will be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust Company (the "Trustee") will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE. The Company issued the Securities under an Indenture dated as of February 15, 2002 ("Indenture"), among the Company, the Guarantors and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the TIA for a statement of those terms. The Securities are general obligations of the Company, except to the extent of the limited security interest in the Intercompany Note Obligations. The Company shall be entitled, subject to its compliance with 5 Section 4.03 of the Indenture, to issue Additional Securities pursuant to Section 2.13 of the Indenture. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor will be treated as a single class for all purposes under the Indenture. The Indenture contains covenants that limit the ability of UCAR International and its subsidiaries to incur additional indebtedness; pay dividends or distributions on, or redeem or repurchase capital stock; make investments; issue or sell capital stock of subsidiaries; engage in transactions with affiliates; create liens on assets; transfer or sell assets; guarantee indebtedness; restrict dividends or other payments of subsidiaries; allow the Company to engage in certain businesses; consolidate, merge or transfer all or substantially all of its assets and the assets of its subsidiaries; and engage in sale/leaseback transactions. These covenants are subject to important exceptions and qualifications. 5. OPTIONAL REDEMPTION. Except as set forth below, the Company shall not be entitled to redeem the Securities at its option prior to February 15, 2007. On and after February 15, 2007, the Company shall be entitled at its option to redeem all or a portion of the Securities upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed in percentages of principal amount on the redemption date), plus accrued and unpaid interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on February 15 of the years set forth below: Redemption Period Price ------------------------------------------------------- 2007 105.125% 2008 103.417% 2009 101.708% 2010 and thereafter 100.000% In addition, prior to February 15, 2005, the Company shall be entitled at its option on one or more occasions to redeem Securities (which includes Additional Securities, if any) in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the Securities (which includes Additional 6 Securities, if any) originally issued at a redemption price (expressed as a percentage of principal amount) of 110.25%, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more Public Equity Offerings; PROVIDED, HOWEVER, that (1) at least 65% of such aggregate principal amount of Securities (which includes Additional Securities, if any) remains outstanding immediately after the occurrence of each such redemption (other than Securities held, directly or indirectly, by the Company or its Affiliates); and (2) each such redemption occurs within 60 days after the date of the related Public Equity Offering. 6. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at its registered address. Securities in denominations larger than $1,000 principal amount may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. PUT PROVISIONS. Upon a Change of Control, any Holder of Securities will have the right to cause the Company to purchase all or any part of the Securities of such Holder at a purchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued and unpaid interest to the date of purchase (subject to the right of Holders on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture. Under certain circumstances as set forth in the Indenture, the Company will be required to offer to purchase Securities with Excess Intercompany Note Prepayment Proceeds. 8. GUARANTY. 7 The payment by the Company of the principal of, and premium and interest on, the Securities is fully and unconditionally guaranteed on a joint and several senior unsecured basis by each of the Guarantors. In addition, the Guarantee of UCAR Carbon is secured by a limited pledge of Pledged Graftech Stock. 9. PLEDGES. The Securities will be secured by a pledge of Intercompany Notes and Intercompany Note Guaranties, subject to the limitations set forth in the Indenture. 10. DENOMINATIONS; TRANSFER; EXCHANGE. The Securities are in registered form without coupons in denominations of $1,000 principal amount and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer or exchange of any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. 11. PERSONS DEEMED OWNERS. The registered Holder of this Security may be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY. If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 8 13. DISCHARGE AND DEFEASANCE. 9 Subject to certain conditions, the Company, the Guarantors and the Intercompany Note Obligors at any time shall be entitled to terminate some or all of their respective obligations under the Securities, the Indenture, the Graftech Pledge Agreement, the Lien Subordination Agreement the Intercompany Notes and the Intercompany Note Guaranties if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 14. AMENDMENT, WAIVER. Subject to certain exceptions set forth in the Indenture, (i) the Indenture and the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount outstanding of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company, the Guarantors and the Trustee shall be entitled to amend the Indenture, the Graftech Pledge Agreement, the Lien Subordination Agreement, the Intercompany Notes, the Intercompany Note Guaranties or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add Guarantees or Intercompany Notes with respect to the Securities, including Subsidiary Guaranties and Intercompany Note Guaranties, or to secure the Securities, or to add covenants or surrender rights or powers conferred upon the Company, any Guarantor or any Intercompany Note Obligor, or to comply with any requirements of the SEC in connection with qualifying or maintaining the qualification of the Indenture under the TIA, or to make changes to the Intercompany Notes or the Intercompany Note Guaranties, as applicable, permitted under the terms thereof or to make any change that does not adversely affect the rights of any Securityholder. 15. DEFAULTS AND REMEDIES. Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities when the same becomes due at the Stated Maturity, upon redemption pursuant to paragraph 5 of the Securities, 10 upon declaration of acceleration or otherwise, or failure by the Company to purchase Securities when required; (iii) failure by the Company, any Guarantor or any Intercompany Note Obligor to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company or any Guarantor if the amount accelerated (or so unpaid) exceeds $10.0 million; (v) certain events of bankruptcy or insolvency with respect to the Company, any Guarantor and the Significant Subsidiaries; (vi) certain judgments or decrees for the payment of money in excess of $10.0 million, (vii) certain defaults with respect to Guaranties, Intercompany Notes or Intercompany Note Guaranties; and (viii) certain defaults relating to the security interests in the Graftech Pledged Stock, the Intercompany Notes and the Intercompany Note Guaranties, or any prepayments with respect to the Intercompany Notes except as permitted under Article 11 of the Indenture. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives indemnity or security reasonably satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest on any Security) if it determines that withholding notice is in the interest of the Holders. 16. TRUSTEE DEALINGS WITH THE COMPANY. Subject to certain limitations imposed by the TIA and the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with UCAR International or its Affiliates with the same rights it would have if it were not Trustee. 11 17. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Company, any Guarantor, any Intercompany Note Obligor or the Trustee shall not have any liability for any obligations of the Company, any Guarantor or any Intercompany Note Obligor under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 18. AUTHENTICATION. This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 19. ABBREVIATIONS. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gifts to Minors Act). 20. CUSIP NUMBERS AND ISINS. The Company has caused CUSIP numbers and corresponding ISINs to be printed on the Securities and has directed the Trustee to use CUSIP numbers and corresponding ISINs in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 21. HOLDERS' COMPLIANCE WITH REGISTRATION RIGHTS AGREEMENT. EACH HOLDER OF A SECURITY, BY ACCEPTANCE HEREOF, ACKNOWLEDGES AND AGREES TO THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, INCLUDING THE OBLIGATIONS OF 12 THE HOLDERS WITH RESPECT TO A REGISTRATION AND THE INDEMNIFICATION OF THE COMPANY TO THE EXTENT PROVIDED THEREIN.] (2) 22. GOVERNING LAW. THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Company will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: UCAR Finance Inc. c/o UCAR International Inc. Brandywine West 1521 Concord Pike, Suite 301 Wilmington, Delaware 19803 Attention: Director of Investor Relations ________________ 2 Delete if this Security is not being issued in exchange for an Initial Security. 13 ________________________________________________________________________________ ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ________________ Your Signature: _____________________ ________________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. 14 [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made: Principal Amount of Amount of Amount of Signature of decrease in increase in this Global authorized Principal Principal Security officer of amount of amount of following Trustee or Date of this Global this Global such decrease Securities Exchange Security Security or increase Custodian 15 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Sections 4.06, 4.09 or 11.03 of the Indenture, check the box: _ |_| If you want to elect to have only part of this Security purchased by the Company pursuant to Sections 4.06, 4.09 or 11.03 of the Indenture, state the amount in principal amount: $ Date: _______________ Your Signature: _______________________ (Sign exactly as your name appears on the other side of this Security.) Signature Guarantee: _____________________________________________________ (Signature must be guaranteed) Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. EX-4 4 ucar10kmar02ex42.txt EXHIBIT 4.2 EXHIBIT 4.2 EXECUTION COPY $400,000,000 UCAR FINANCE INC. 10 1/4% Senior Notes due 2012 REGISTRATION RIGHTS AGREEMENT February 15, 2002 Credit Suisse First Boston Corporation J.P. Morgan Securities Inc. As Representatives of the Several Initial Purchasers c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Dear Sirs: UCAR Finance Inc., a Delaware corporation (the "ISSUER"), proposes to issue and sell to Credit Suisse First Boston Corporation and J.P. Morgan Securities Inc. ABN AMRO Incorporated, Fleet Securities, Inc. and Scotial Capital (USA) Inc. (collectively, the "INITIAL PURCHASERS"), upon the terms set forth in a purchase agreement dated February 8, 2002 (the "PURCHASE AGREEMENT"), $400,000,000 aggregate principal amount of its 10 1/4% Senior Notes due 2012 (the "INITIAL SECURITIES") to be guaranteed (the "GUARANTIES") by UCAR International Inc. and each of the entities listed in Schedule A herein (together with UCAR International Inc., the "GUARANTORS" and, collectively with the Issuer, the "COMPANY"). The Initial Securities will be issued pursuant to an Indenture, dated as of February 15, 2002 (the "INDENTURE"), among the Issuer, the Guarantors named therein and State Street Bank and Trust Company, as trustee (the "TRUSTEE"). As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company agrees with the Initial Purchasers, for the benefit of the Initial Purchasers and the holders of the Securities (as defined below) (collectively the "HOLDERS"), as follows: 1. REGISTERED EXCHANGE OFFER. Unless not permitted by applicable law (after the Company has complied with the ultimate paragraph of this Section 1), the Company shall prepare and, not later than 75 days (such 75th day being a "FILING DEADLINE") after the date on which the Initial Purchasers purchase the Initial Securities pursuant to the Purchase Agreement (the "CLOSING DATe"), file with the Securities and Exchange Commission (the "COMMISSION") a registration statement (the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate form under the Securities Act of 1933, as amended (the "SECURITIES ACT"), with respect to a proposed offer (the "REGISTERED EXCHANGE OFFER") to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of debt securities of the Company issued under the Indenture, identical in all material respects to the Initial Securities and registered under the Securities Act (the "EXCHANGE SECURITIES"). The Company shall use its commercially reasonable best efforts to (i) cause such Exchange Offer Registration Statement to become effective under the Securities Act within 140 days after the Closing Date (such 140th day being an "EFFECTIVENESS DEADLINE") and (ii) keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "EXCHANGE OFFER REGISTRATION PERIOD"). If the Company commences the Registered Exchange Offer, the Company (i) will be entitled to consummate the Registered Exchange Offer 30 days after such commencement (provided that the Company has accepted all the Initial Securities theretofore validly tendered in accordance with the terms of the Registered Exchange Offer) and (ii) will be required to consummate the Registered Exchange Offer no later than 40 days after the date on which the Exchange Offer Registration Statement is declared effective (such 40th day being the "CONSUMMATION DEADLINE"). Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Securities electing to exchange the Initial Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Initial Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an "EXCHANGING DEALER"), is required to deliver a prospectus containing the information set forth in (a) Annex A hereto on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell Securities (as defined below) acquired in exchange for Initial Securities constituting any portion of an unsold allotment, is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its commercially reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided, however, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180-days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Initial Securities acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the "Private Exchange") for the Initial Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects to the Initial Securities (the "Private Exchange Securities"). The Initial Securities, the Exchange Securities and the Private Exchange Securities are herein collectively called the "Securities". In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply with all applicable laws. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: 2 (x) accept for exchange all the Securities validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (y) deliver to the Trustee for cancellation all the Initial Securities so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Initial Securities, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Initial Securities of such Holder so accepted for exchange. The Indenture will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Initial Securities surrendered in exchange therefor or, if no interest has been paid on the Initial Securities, from the date of original issue of the Initial Securities. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker-dealer, that it will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If following the date hereof there has been announced a change in Commission policy with respect to exchange offers that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Registered Exchange Offer is permitted by applicable federal law, the Company will seek a no-action letter or other favorable decision from the Commission allowing the Company to consummate the Registered Exchange Offer. The Company will pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Company will take all such other actions as may be requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (i) participating in telephonic conferences with the Commission, (ii) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that the Registered Exchange Offer should be permitted and (iii) diligently pursuing a resolution (which need not be favorable) by the Commission staff. 2. SHELF REGISTRATION. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated by the 180th day after the Closing Date, (iii) any Initial Purchaser so requests with respect to the Initial Securities (or the Private Exchange Securities) not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer 3 or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not receive freely tradeable Exchange Securities on the date of the exchange and any such Holder so requests, the Company shall take the following actions (the date on which any of the conditions described in the foregoing clauses (i) through (iv) occur, including in the case of clauses (iii) or (iv) the receipt of the required notice, being a "TRIGGER DATE"): (a) The Company shall promptly (but in no event more than the later of (i) 45 days after the Trigger Date and (ii) 75 days after the Closing Date (such date being a "FILING DEADLINE")) file with the Commission and thereafter use its commercially reasonable best efforts to cause to be declared effective no later than 60 days after the Filing Deadline (such 60th day being an "EFFECTIVENESS Deadline") a registration statement (the "SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer Registration Statement, a "REGISTRATION STATEMENT") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "SHELF REGISTRATION"); provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its commercially reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the date of its effectiveness or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) are no longer restricted securities (as defined in Rule 144 under the Securities Act, or any successor rule thereof). The Company shall be deemed not to have used its commercially reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. REGISTRATION PROCEDURES. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as 4 amended (the "EXCHANGE ACT")) of Exchange Securities received by such broker-dealer in the Registered Exchange Offer (a "PARTICIPATING BROKER-DEALER"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders. (b) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus do not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (g) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such 5 persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities pursuant to any Registration Statement the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. 6 (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form with an underwriter or underwriters reasonably acceptable to the Company) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, upon execution of customary confidentiality agreements reasonably satisfactory to the Company and its counsel, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that the matters to be covered by such opinion shall include, without limitation, as customary, the due incorporation and good standing of the Company and its domestic subsidiaries; the qualification of the Company and its domestic subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(o) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities; the absence of material legal or governmental proceedings involving the Company and its subsidiaries; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 3(o) hereof; the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act, respectively; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from any documents incorporated by reference therein of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Shelf Registration Statement to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (r) In the case of the Registered Exchange Offer, if requested by any Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to such Initial Purchaser or such Participating Broker-Dealer signed opinions in the form set forth in 7 Section 6(c)-(d) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants to deliver to such Initial Purchaser or such Participating Broker-Dealer comfort letters, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Initial Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on the Initial Securities so exchanged that such Initial Securities are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall the Initial Securities be marked as paid or otherwise satisfied. (t) The Company will use its commercially reasonable best efforts to (a) if the Initial Securities have been rated prior to the initial sale of such Initial Securities, confirm such ratings will apply to the Securities covered by a Registration Statement, or (b) if the Initial Securities were not previously rated, cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "Rules") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. (v) The Company shall use its commercially reasonable best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. REGISTRATION EXPENSES. (a) All expenses incident to the Company's performance of and compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement is ever filed or becomes effective, including without limitation; (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state "blue sky" or securities laws; (iii) all expenses of printing (including printing certificates for the Securities to be issued in the Registered Exchange Offer and the Private Exchange and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company; (v) all application and filing fees in connection with listing the Exchange Securities on a national securities exchange or automated quotation system pursuant to the requirements hereof; and 8 (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance); but excluding fees and expenses of counsel to any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any underwriting discounts and commissions (including any fees and expenses of counsel of, and discounts and commissions relating to, any "qualified independent underwriter" engaged pursuant to Section 3(u) hereof) and transfer taxes relating to the sale or disposition of any Securities by a Holder; provided, however, that nothing herein shall be construed to limit the Company's obligations under Section 4(b) herein. The Company will bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company. (b) In connection with any Registration Statement required by this Agreement, the Company will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities who are tendering Initial Securities in the Registered Exchange Offer and/or selling or reselling Securities pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Cravath, Swaine & Moore unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. 5. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer, their respective affiliates which will be participating in any offering of the Securities and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the "Indemnified Parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse without limitation, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker-Dealer from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker-Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder or Participating Broker-Dealer results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder or Participating Broker-Dealer; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities 9 Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company, its directors, its officers who sign any Registration Statement, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such director, officer or controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse without limitation, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its directors, officers who sign any Registration Statement or controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action, and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or 10 defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party, each of the Company's directors, each officer who signs any Registration Statement, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. ADDITIONAL INTEREST UNDER CERTAIN CIRCUMSTANCES. (a) Additional interest (the "Additional Interest") with respect to the Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iv) below being herein called a "Registration Default"): (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline; (ii) any Registration Statement required by this Agreement is not declared effective by the Commission on or prior to the applicable Effectiveness Deadline; (iii) the Registered Exchange Offer has not been consummated on or prior to the Consummation Deadline; or (iv) any Registration Statement required by this Agreement has been declared effective by the Commission but (A) such Registration Statement thereafter ceases to be effective or (B) such Registration Statement or the related prospectus ceases to be usable in connection with resales of Transfer Restricted Securities during the periods specified herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Each of the foregoing will constitute a Registration Default whatever the reason for any such event and whether it is voluntary or involuntary or is beyond the control of the Company or pursuant to operation of law or as a result of any action or inaction by the Commission. Additional Interest shall accrue on the Securities over and above the interest set forth in the title of the Securities from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at a rate of 0.50% per annum (the "ADDITIONAL INTEREST RATE") for the first 90-day period immediately following the occurrence of such Registration Default. The Additional Interest Rate shall increase by an additional 0.50% per annum with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum Additional Interest Rate of 2.0% per annum. The Additional Interest Rate shall not increase beyond 0.50% per annum during any 90-day period in the case of concurrent Registration Defaults during any such period. (b) A Registration Default referred to in Section 6(a)(iv) hereof shall be deemed not to have occurred and be continuing in relation to a Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such 11 Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events with respect to the Company that would need to be described in such Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured. (c) Any amounts of Additional Interest due pursuant to Section 6(a) will be payable in cash on the regular interest payment dates with respect to the Securities. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest Rate by the principal amount of the Securities and further multiplied by a fraction, the numerator of which is the number of days such Additional Interest Rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. (d) "TRANSFER RESTRICTED SECURITIES" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of an Initial Security for an Exchange Security, the date on which such Exchange Security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 7. RULES 144 AND 144A. The Company shall use its commercially reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Initial Securities identified to the Company by the Initial Purchasers upon request. Upon the request of any Holder of Initial Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("MANAGING UNDERWRITERS") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering, subject to the approval of the Company, which shall not be unreasonably withheld. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. MISCELLANEOUS. (a) REMEDIES. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Section 1 and 2 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Sections 1 and 2 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 12 (b) NO INCONSISTENT AGREEMENTS. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents, whose decision shall be binding on all Holders. Without the consent of the Holder of each Security affected thereby, however, no modification may change the provisions relating to the payment of Additional Interest and the provisions of Section 5 hereof. (d) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company. (2) if to the Initial Purchasers; Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010-3629 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group with a copy to: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Fax No.: (212) 474-3700 Attention: William J. Whelan, III (3) if to the Company, at its address as follows: UCAR Finance Inc. c/o UCAR International Inc. Brandywine West 1521 Concord Pike, Suite 301 Wilmington, Delaware 19803 Fax No.: (302) Attention: General Counsel with a copy to: Kelley Drye & Warren LLP Two Stamford Plaza 281 Tresser Boulevard Stamford, CT 06901 Fax No.: (203) 327-2669 Attention: M. Ridgway Barker All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. 13 (e) THIRD PARTY BENEFICIARIES. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. (f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns. (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (j) SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) SECURITIES HELD BY THE COMPANY. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (l) SUBMISSION TO JURISDICTION. By the execution and delivery of this Agreement, the Company submits to the non-exclusive jurisdiction of the Federal and State courts in the Borough of Manhattan in the City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 14 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Issuer a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the several Initial Purchasers, the Issuer and the Guarantors in accordance with its terms. Very truly yours, UCAR FINANCE INC. by /s/ KAREN G. NARWOLD ----------------------------------------- Name: Karen G. Narwold Title: Vice President UCAR INTERNATIONAL INC. by /s/ KAREN G. NARWOLD ----------------------------------------- Name: Karen G. Narwold Title: Vice President UCAR GLOBAL ENTERPRISES INC. by /s/ KAREN G. NARWOLD ----------------------------------------- Name: Karen G. Narwold Title: Vice President UCAR CARBON COMPANY INC. by /s/ KAREN G. NARWOLD ----------------------------------------- Name: Karen G. Narwold Title: Vice President UCAR COMPOSITES INC. by /s/ KAREN G. NARWOLD ----------------------------------------- Name: Karen G. Narwold Title: Vice President UCAR CARBON TECHNOLOGY LLC by /s/ KAREN G. NARWOLD ----------------------------------------- Name: Karen G. Narwold Title: Vice President UCAR HOLDINGS III INC. by /s/ KAREN G. NARWOLD ----------------------------------------- Name: Karen G. Narwold Title: Vice President UCAR INTERNATIONAL TRADING INC. by /s/ KAREN G. NARWOLD ----------------------------------------- Name: Karen G. Narwold Title: Vice President UCAR INTERNATIONAL HOLDINGS INC. by /s/ KAREN G. NARWOLD ----------------------------------------- Name: Karen G. Narwold Title: Vice President The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION J.P. MORGAN SECURITIES INC. ABN AMRO INCORPORATED FLEET SECURITIES, INC. SCOTIA CAPITAL (USA) INC. By: CREDIT SUISSE FIRST BOSTON CORPORATION by /s/ G.M. LODGE ----------------------------------------- Name: G.M. Lodge Title: Managing Director By: J.P. MORGAN SECURITIES INC. by ----------------------------------------- Name: Title: The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION J.P. MORGAN SECURITIES INC. ABN AMRO INCORPORATED FLEET SECURITIES, INC. SCOTIA CAPITAL (USA) INC. By: CREDIT SUISSE FIRST BOSTON CORPORATION by ----------------------------------------- Name: Title: By: J.P. MORGAN SECURITIES INC. by /s/ KENNETH A. LANG ----------------------------------------- Name: Kenneth A. Lang Title: MD SCHEDULE A GUARANTOR UCAR International Inc. UCAR Global Enterprises Inc. UCAR Carbon Company Inc. UCAR Composites Inc. UCAR Technology LLC UCAR Holdings III Inc. UCAR International Trading Inc. UCAR International Holdings Inc. 18 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 19 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Initial Securities, where such Initial Securities were acquired by such broker-dealer as a result of market- making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." 20 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 200 , all alers effecting transactions in the Exchange Securities may be required to deliver a prospectus.(1) The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - ---------------- 1 In addition, the legend required by Item 502(e) of Regulation S-K will appear on the inside front cover page of the Exchange Offer prospectus below the Table of Contents. 21 ANNEX D [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ----------------------------------------------------- Address: ----------------------------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 22 EX-4 5 ucar10kmar02ex44.txt EXHIBIT 4.4 EXHIBIT 4.4 AMENDMENT NO. 1 TO RIGHTS AGREEMENT Amendment No. 1 (the "Amendment") dated as of November 1, 2000 among UCAR International Inc. (the "Company"), The Bank of New York ("BONY") and Computershare Investor Services, LLC ("Computershare"), to the Rights Agreement (the "Rights Agreement") dated as of August 7, 1998 between the Company and BONY, as Rights Agent. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company and BONY are parties to the Rights Agreement; WHEREAS, the parties desire to have Computershare become the Rights Agent under the Rights Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Company, BONY and Computershare agree as follows: 1. DEFINITIONS. Except as otherwise defined in this Amendment, all capitalized terms used in this Amendment shall have their respective meanings set forth in the Rights Agreement. 2. AMENDMENT TO DEFINITION OF RIGHTS AGENT. The definition of "Rights Agent" contained in the Rights Agreement is hereby amended to replace "BONY" with "Computershare," and whenever used in the Rights Agreement or any other agreement or instrument executed and delivered pursuant thereto or in connection therewith, all references to the Rights Agent shall mean Computershare instead of BONY. 3. AMENDMENT TO CHANGE OF RIGHTS AGENT. Section 21 of the Rights Agreement is hereby amended as follows: Delete the sentence that begins on line 10 of page 47 with "Any successor rights agent. . . ." and ends on line 15 with ". . . combined capital and surplus of at least $50,000,000" and replace it with: Any successor Rights Agent, whether appointed by the Company or by such a court, shall be: (a) a corporation, limited liability company or trust company (or similar form of entity under the laws of any state of the United States or a foreign jurisdiction) authorized to conduct business under the laws of the United States or any state of the United States, which is authorized under such laws to exercise corporate trust, fiduciary or stockholder services powers and is subject to supervision or examination by a federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $10,000,000; or (b) an Affiliate controlled by a corporation, limited liability company or entity described in clause (a) of this sentence. 4. AGREEMENT TO BE BOUND. Computershare hereby agrees to be bound by all of the terms and conditions set forth in the Rights Agreement as Rights Agent thereunder, and agrees to undertake and perform all of the duties and obligations expressly imposed on the Rights Agent thereunder, including, without limitation, all of the duties and obligations set forth in Section 20 thereunder. 5. NOTICES. Section 26 of the Rights Agreement is hereby amended to replace the Company's address with the following address: UCAR International Inc. 3102 West End Avenue, Suite 1100 Nashville, Tennessee 37203 Attention: Corporate Secretary and to replace BONY's address with the following address for Computershare: Computershare Investor Services, LLC Two North LaSalle Street, 3rd Floor Chicago, Illinois 60602 Attention: Relationship Manager 6. ONGOING FORCE AND EFFECT. (a) Except as expressly provided herein, all of the terms and conditions of the Rights Agreement shall remain unmodified and continue in full force and effect. (b) From and after the execution and delivery hereof, all references to the Rights Agreement contained in other agreements or instruments (however the Rights Agreement may be defined in such other agreements or instruments) shall hereafter refer to the Rights Agreement as amended pursuant to this Amendment. 7. MISCELLANEOUS. (a) No waiver, amendment or modification hereof shall be valid unless effected in the manner required by the Rights Agreement. (b) This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within the State of Delaware, provided, however, that the rights and obligations of the Rights Agent shall be governed by and construed in accordance with the laws of the State of New York. (c) This Amendment shall be binding upon, and shall inure to the benefit of, the parties and their respective successors and permitted assigns. 2 (d) The captions and paragraph headings used in this Amendment have been inserted for convenience of reference only, and shall not affect the construction or interpretation of any provision hereof. (e) This Amendment may be executed in any number of counterparts, each of which shall be deemed to constitute an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above. UCAR INTERNATIONAL INC. By: /S/ KAREN G. NARWOLD --------------------------------- COMPUTERSHARE INVESTOR SERVICES, LLC By: /S/ Steven Rothbloom --------------------------------- THE BANK OF NEW YORK By: /S/ DIANA M. AJJAN ----------------------------- Vice President 3 EX-10 6 ucar10kmar02ex1010.txt EXHIBIT 10.10 EXHIBIT 10.10 CONFORMED COPY FOURTH AMENDMENT dated as of December 6, 2001 (this "Amendment") to Credit Agreement dated as of February 22, 2000 (as previously amended, the "Credit Agreement") among UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("Global"), UCAR FINANCE INC., a Delaware corporation (the "Borrower"), the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and JPMORGAN CHASE BANK, as Administrative Agent, Collateral Agent and Issuing Bank. A. Pursuant to the Credit Agreement, the Lenders and the Issuing Bank have extended and have agreed to extend credit to the Borrower and the LC Subsidiaries, on the terms and subject to the conditions set forth therein. B. The Borrower has requested an amendment of the Credit Agreement as set forth herein. C. The Required Lenders are willing to agree to such amendment on the terms and subject to the conditions set forth herein. D. Each capitalized term used and not otherwise defined herein shall have the meaning assigned to it in the Credit Agreement. Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT. (a)(i) Each of the following definitions in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "AMENDMENT FEES" shall mean, collectively, the Amendment Fee as such term is defined in each of the First Amendment dated as of October 11, 2000 to this Agreement, the Second Amendment dated as of April 25, 2001 to this Agreement, the Third Amendment dated as of July 10, 2001 to this Agreement, and the Fourth Amendment dated as of November 30, 2001, to this Agreement, plus any other fees, costs and expenses incurred in connection with such amendments, including, but not limited to, attorneys' fees, PROVIDED that the aggregate amount of the 2 "Amendment Fees" for purposes of the calculations referred to in Sections 7.11 and 7.12 shall not exceed $7 million. "INTERCOMPANY REVOLVING LOAN" shall mean a loan made by the Borrower to an Intercompany Borrower in accordance with the provisions of Section 3.01(b) or made or arising in the Realignment Transactions. "INTERCOMPANY TERM LOAN" shall mean a loan made by the Borrower to an Intercompany Borrower in accordance with the provisions of Section 3.01(a) or made or arising in the Realignment Transactions. "REALIGNMENT TRANSACTIONS" shall mean the transactions specified on Schedule 10.15, as modified in accordance with the penultimate sentence of Section 10.15. (ii) Section 1.01 of the Credit Agreement is hereby amended by adding thereto, in the appropriate alphabetical order the following definition: "CASH FLOW NOTES" shall mean Indebtedness of UCAR S.A. (a) owed to any Foreign Subsidiary; (b) incurred under Section III.1 of Schedule 10.15 or incurred thereafter for the purpose of advancing cash from such Foreign Subsidiary to UCAR, Global, the Borrower or another Wholly Owned Domestic Subsidiary; (c) subordinated to the payment in full of all obligations of UCAR S.A. in respect of its Intercompany Loans; and (d) limited in recourse to the assets of UCAR S.A. other than the Capital Stock of the Subsidiaries owned by UCAR S.A. (b) The definition of "INTERCOMPANY BORROWERS" is hereby amended by deleting the reference therein to "UCAR Electrodos S.l." and replacing it with a reference to "UCAR Electrodos II, S.L., EMSA (Pty) Limited, UCAR Carbon Mexicana S.A. de C.V. and each other Wholly Owned Subsidiary that borrows, incurs, assumes or otherwise becomes the obligor in respect of any Intercompany Revolving Loan or Intercompany Term Loan as a result of any Realignment Transaction". (c) The definition of "PREPAYMENT EVENT" is hereby amended by adding after the reference to "Section 7.01" contained in clause (d) thereof the phrase "(other than clauses (xiii) and (xiv) of 7.01(a))". (d) Section 2.10(c) of the Credit Agreement is hereby amended by inserting after the reference to "60%" in clause (ii) of the parenthetical contained therein the phrase "or (iii) in the case of that portion of Indebtedness incurred under Section 7.01(a)(xiv) that is referred to in clause (B) of the proviso thereto, 50%". (e) Section 3.03(b) of the Credit Agreement is hereby amended by adding at the end of clause (i) thereof the phrase "and up to $40,000,000 of the Intercompany Term Loans of each of EMSA (Pty) Limited and UCAR Carbon Mexicana S.A. de C.V. may be prepaid with the proceeds of unsecured Indebtedness incurred by such Intercompany 3 Borrower in its jurisdiction of organization if all the Net Proceeds of such prepayment of Intercompany Term Loans are applied by the Borrower to prepay Term Borrowings in accordance with Section 2.10(c)"; and by adding at the beginning of clause (ii) thereof the phrase "in addition to prepayments otherwise permitted by clause (i) or (iii) of this Section 3.03 (b)". (f) Section 7.01(a) of the Credit Agreement is hereby amended by renumbering the last clause thereof "(xv)" rather than "(xiii)"; changing the reference in such new clause (xv) from "(xii)" to "(xiv)"; deleting the "and" at the end of clause (xii) thereof; and inserting between such clause (xii) and new clause (xv) the following new clauses: (xiii) unsecured Indebtedness of EMSA (Pty) Limited or UCAR Carbon Mexicana S.A. de C.V. in an aggregate principal amount for each not to exceed $40,000,000, PROVIDED that such Indebtedness is borrowed from lenders in the jurisdiction of organization of such Intercompany Borrower and that all the Net Proceeds thereof are applied by such Intercompany Borrower to prepay Intercompany Term Loans, and by the Borrower to prepay Term Loans, in accordance with Section 2.10(c); (xiv) unsecured Indebtedness of the Borrower not guaranteed by any person other than UCAR and Global in an aggregate principal amount not to exceed $300,000,000, and any unsecured Guarantee by UCAR or Global of such Indebtedness, PROVIDED that (A) 100% of the Net Proceeds of the first $200,000,000 aggregate principal amount thereof, and (B) 50% of the Net Proceeds of the next $100,000,000 aggregate principal amount thereof, shall be applied to prepay Term Loans in accordance with Section 2.10(c); and (g) Section 7.06(a) of the Credit Agreement is hereby amended by deleting the phrase "Loan Party" immediately before the parenthetical contained therein. (h) Section 7.11 of the Credit Agreement is hereby amended by adding at the end of the proviso thereto the following proviso: "; PROVIDED FURTHER HOWEVER, that for purposes of calculating the Interest Coverage Ratio to determine compliance with this Section, (A) to the extent that any amount of the Amendment Fees is deducted in determining the consolidated net income of UCAR, Global, the Borrower and the Subsidiaries and is not added back by the definition of EBITDA, such amount shall be added back to EBITDA, and (B) Cash Interest Expense shall not include any amounts attributable to Indebtedness incurred to finance the Amendment Fees." (i) Section 7.12 of the Credit Agreement is hereby amended by adding at the end of the proviso thereto the following proviso: 4 "; PROVIDED FURTHER HOWEVER, that for purposes of calculating the Leverage Ratio to determine compliance with this Section, (A) to the extent that any amount of the Amendment Fees is deducted in determining the consolidated net income of UCAR, Global, the Borrower and the Subsidiaries and is not added back by the definition of EBITDA, such amount shall be added back to EBITDA, and (B) Net Debt shall not include Indebtedness incurred to finance the Amendment Fees." (j) Article VII is hereby amended by adding at the end thereof the following new Section 7.14: "SECTION 7.14. UCAR S.A. Notwithstanding any provision to the contrary contained in this Agreement, UCAR S.A. shall not, without the prior written consent of the Administrative Agent (a) transfer to any Subsidiary (other than a Wholly Owned Subsidiary that is a Loan Party) any Capital Stock of any Subsidiary acquired by it in connection with the Realignment Transactions or (b) incur, create, assume or otherwise become liable for or permit to exist any Indebtedness of UCAR S.A., other than Indebtedness incurred under Section 7.01(a)(i), (ii), (iii), (iv), (v), (vii), (viii), (x), (xii)(B) or (xv); PROVIDED that (x) any Indebtedness incurred under such clause (iii), (iv) or (vii) shall have been incurred solely to finance or support the operations of UCAR S.A. (and not the operations of any of its Affiliates), (y) the aggregate amount at any time outstanding of Indebtedness incurred under such clause (vii) shall not exceed SFr5,000,000 and (z) any Indebtedness incurred by UCAR S.A. under such clause (v) shall constitute a Cash Flow Note. UCAR, Global and the Borrower shall use their best efforts, consistent with optimizing their tax position, to minimize the aggregate principal amount of Cash Flow Notes outstanding at any time. (k) The Credit Agreement is hereby amended by adding at the end thereof the following new Section 10.15 and adding to the Schedules to the Credit Agreement new Schedule 10.15 in the form attached hereto: "SECTION 10.15. BUSINESS REALIGNMENT. Notwithstanding any provision of this Agreement to the contrary, the Loan Parties are expressly permitted to consummate the transactions set forth on Schedule 10.15 hereto, PROVIDED that (a) the Loan Parties shall on or prior to the consummation of any Realignment Transaction have (i) executed and delivered to the Collateral Agent a reaffirmation agreement satisfactory in form and scope to the Collateral Agent, reaffirming the security interests and guarantees not required to be released in connection with the Realignment Transactions and confirming the obligations of the Loan Parties to provide additional collateral and other further assurances contemplated by the Loan Documents, (ii) delivered a completed Perfection Certificate giving effect to the Realignment 5 Transactions to be consummated, (iii) taken, or arranged for the taking of, all actions required or reasonably requested by the Collateral Agent to satisfy the Collateral and Guarantee Requirement after giving effect to the Realignment Transactions to be consummated and (iv) delivered such legal opinions and evidence of authority as the Collateral Agent shall have reasonably requested, all in form and scope satisfactory to the Collateral Agent, and (b) substantially all the Realignment Transactions shall (subject to the next succeeding sentence) be consummated on or prior to December 31, 2001, PROVIDED that those set forth in Sections III.4 and III.5 of Schedule 10.15 may be consummated at a later time subject to the conditions set forth in clauses (a) and (b) of this proviso insofar as they apply to such deferred Realignment Transactions and the parties thereto. The Agents are hereby directed and authorized to take such action and execute such documents as the Borrower may reasonably request, at the Borrower's sole expense, including the release of any Lien or the consent to any transfer of any asset subject to any Lien, to facilitate or permit the Realignment Transactions. It is understood that the Realignment Transactions may be modified with the prior written consent of the Administrative Agent to eliminate or alter particular transactions set forth on Schedule 10.15 or to include transactions not set forth on Schedule 10.15, PROVIDED, that no such changes shall, in the judgment of the Collateral Agent, taken together with any other changes, (i) reduce the benefit to the Lenders of the Collateral and the Guarantees, taken as a whole, in any material respect from that anticipated after giving effect to the Realignment Transactions as described on Schedule 10.15 or (ii) otherwise be adverse in any material respect to the rights or interests of the Lenders. In making any determination referred to in the proviso to the immediately preceding sentence, the Administrative Agent may if it deems appropriate, but shall not be required to, communicate any proposed modifications to the Realignment Transactions to the Lenders prior to its consent thereto, and shall be entitled, in the absence of any contrary communication received from any Lender within a reasonable period of time specified in such communication, to assume that such Lender agrees that the proposed modification will satisfy the standards set forth in clauses (i) and (ii) of such proviso." (l) All references in the Credit Agreement to "Graph-Tech Inc." shall be changed to references to "Graftech Technology Company Inc." SECTION 2. REPRESENTATIONS AND WARRANTIES. Each of UCAR, Global and the Borrower represents and warrants to each Lender that after giving effect to this Amendment: (a) the representations and warranties set forth in Article IV of the Credit Agreement are true and correct in all material respects on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties were true and correct in all material respects as of the earlier date), and (b) no Default or Event of Default has occurred and is continuing. SECTION 3. EFFECTIVENESS. This Amendment shall become effective as of the date first written above on the date (the "AMENDMENT EFFECTIVE DATE") on which the 6 Administrative Agent or its counsel shall have received counterparts of this Amendment that, when taken together, bear the signatures of the Borrower, UCAR, Global and the Required Lenders. SECTION 4. AMENDMENT FEE. The Borrower agrees to pay to each Lender that executes and delivers to the Administrative Agent (or its counsel) a copy of this Amendment at or prior to 5:00 p.m., New York City time, on December 6, 2001 an amendment fee (the "AMENDMENT FEE") in an amount equal to 0.10% of such Lender's Revolving Commitment (whether used or unused) and outstanding Term Loans, in each case as of the Amendment Effective Date; PROVIDED that the Borrower shall have no liability for any such Amendment Fee if this Amendment does not become effective. Such Amendment Fee shall be payable on the Amendment Effective Date to each Lender entitled to receive such fee as determined pursuant to this Section 4. SECTION 5. EFFECT OF AMENDMENT. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders, the Issuing Bank, the Collateral Agent or the Administrative Agent, under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Borrower to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances. SECTION 6. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Delivery of any executed counterpart of a signature page of this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof. SECTION 7. APPLICABLE LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 8. HEADINGS. The headings of this Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. [SIGNATURE PAGES FOLLOW] 7 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date and year first above written. UCAR INTERNATIONAL INC., By: /S/ CORRADO DEGASPERIS ---------------------- Name: Corrado DeGasperis Title: UCAR GLOBAL ENTERPRISES INC., By: /S/ CORRADO DeGasperis ---------------------- Name: Corrado DeGasperis Title: UCAR FINANCE INC., By: /S/ CORRADO DEGASPERIS ---------------------- Name: Corrado DeGasperis Title: JPMORGAN CHASE BANK, as a Lender, and as Administrative Agent, Collateral Agent and Issuing Bank, By: /S/ JAMES RAMAGE ---------------- Name: James Ramage Title: Managing Director 8 Signature Page to Fourth Amendment to UCAR Finance Inc. Credit Agreement. CREDIT SUISSE FIRST BOSTON By: /S/ MARK E. GLEASON -------------------- Name: Mark E. Gleason Title: Director By: /S/ JOHN D. LEWIS ----------------- Name: John D. Lewis Title: Associate BANK OF AMERICA, N.A. By: /S/ H. LEONARD NORMAN ---------------------- Name: H. Leonard Norman Title: Managing Director FLEET NATIONAL BANK By: /S/ IRENE BERTOZZI BARTENSTEIN ------------------------------- Name: Irene Bertozzi Bartenstein Title: Vice President THE BANK OF NOVA SCOTIA By: /S/ TODD MELLER ---------------- Name: Todd Meller Title: Managing Director FIRST UNION NATIONAL BANK By: /S/ ROBERT BROWN ----------------- Name: Robert Brown Title: Vice President 9 ABN AMRO BANK N.V. By: /S/ JAMES S. KREITLER ---------------------- Name: James S. Kreitler Title: Group Vice President By: /S/ CRAIG W. TRAUTWEIN ---------------------- Name: Craig W. Trautwein Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By: /S/ ATTILA KOC --------------- Name: Attila Koc Title: Senior Vice President MELLON BANK, N.A. By: /S/ JOHN R. COOPER ------------------ Name: John R. Cooper Title: Vice President CREDIT INDUSTRIEL ET COMMERCIAL By: /S/ GARY GEORGE ---------------- Name: Gary George Title: Manager By: /S/ TIM HUBAND --------------- Name: Time Huband Title: Manager GENERAL ELECTRIC CAPITAL CORPORATION By: /S/ GREGORY HONG ---------------- Name: Gregory Hong Title: Duly Authorized Signatory 10 THE BANK OF NEW YORK By: /S/ STEVEN CAVALUZZO -------------------- Name: Steven Cavaluzzo Title: Vice President PNC BANK NATIONAL ASSOCIATION By: /S/ LOUIS K. MCLINDEN, JR. --------------------------- Name: Louis K. McLinded, Jr. Title: Vice President CIBC WORLD MARKETS PLC By: /S/ JANE CURRY -------------- Name: Jane Curry Title: Associate THE FUJI BANK, LIMITED By: /S/ JOHN DOYLE -------------- Name: John Doyle Title: Vice President and Manager PB CAPITAL CORPORATION By: /S/ RONNI J. LEOPOLD -------------------- Name: Ronnie J. Leopold Title: Vice President By: /S/ AURELIO ALMONTE ------------------- Name: Aurelio Almonte Title: Associate 11 NATIEXIS BANQUES POPULAIRES By: /S/ FRANK H. MADDEN ------------------- Name: Frank H. Madden Title: Vice President & Group Manager By: /S/ HARRIS FROMMER ------------------ Name: Harris Frommer Title: Assistant Vice President BANK PEKAO SA By: /S/ HUSSEIN B. EL-TAWIL ----------------------- Name: Hussein B. El-Tawil Title: Vice President MONUMENT CAPITAL LTD., as Assignee By: Alliance Capital Management L.P., As Investment Manager By: Alliance Capital Management Corporation, as General Partner By: /S/ SVERKER JOHANSSON --------------------- Name: Sverker Johansson Title: Vice President AIMCO CDO SERIES 2000-A By: /S/ --- Name: Title: By: /S/ --- Name: Title: Authorized Signatory 12 ALLSTATE LIFE INSURANCE COMPANY By: /S/ --- Name: Title: By: /S/ --- Name: Title: Authorized Signatory AMMC CDO I, LIMITED By: American Money Management Corp., as Collateral Manager By: /S/ DAVID P. MEYER ------------------ Name: David P. Meyer Title: Vice President AMMC CDO II, LIMITED By: American Money Management Corp., as Collateral Agent By: /S/ DAVID P. MEYER ------------------ Name: David P. Meyer Title: Vice President ARES III CLO LTD. By: ARES CLO Management LLC, Investment Manager By: /S/ DAVID A. SACHS ------------------ Name: David A. Sachs Title: Vice President 13 ARES IV CLO LTD. By: Ares CLO Management IV, L.P., Investment Manager By: Ares CLO GP IV, LLC, Its Managing Member By: /S/ DAVID A. SACHS ------------------- Name: David A. Sachs Title: Vice President Sankaty Adivsors, Inc., as Collateral Manager for BRANT POINT CBO 1999-1 LTD., as Term Lender By: /S/ DIANE J. EXTER ------------------- Name: Diane J. Exter Title: Managing Director Portfolio Manager Sankaty Adivsors, Inc., as Collateral Manager for GREAT POINT CLO 1999-1 LTD., as Term Lender By: /S/ DIANE J. EXTER ------------------- Name: Diane J. Exter Title: Managing Director Portfolio Manager SANKATY HIGH YIELD ASSET PERTNERS, L.P. By: /S/ DIANE J. EXTER ------------------- Name: Diane J. Exter Title: Managing Director Portfolio Manager SANKATY HIGH YIELD PARTNERS II, L.P. By: /S/ DIANE J. EXTER ------------------- Name: Diane J. Exter Title: Managing Director Portfolio Manager 14 SANKATY HIGH YIELD PARTNERS III, L.P. By: /S/ DIANE J. EXTER ------------------- Name: Diane J. Exter Title: Managing Director Portfolio Manager HARBOUR TOWN FINDING TRUST By: /S/ANN E. MORRIS ---------------- Name: Ann E. Morris Title: Authorized Agent APEX (TRIMARAN) CDO I, LTD. By Trimaran Advisors, L.L.C. By: /S/ DEAN T. CRIARES ------------------- Name: Dan T. Criares Title: Managing Director SAWGRASS TRADING LLC By: /S/ DIANA L. MUSHILL ---------------------- Name: Diana L. Mushill Title: Assistant Vice President CARLYLE HIGH YIELD PARTNERS II, LTD. By: /S/ LINDA M. PACE ------------------- Name: Linda M. Pace Title: Vice President 15 CARLYLE HIGH YIELD PARTNERS III, LTD. By: /S/ LINDA M. PACE ------------------- Name: Linda M. Pace Title: Vice President CARLYLE HIGH YIELD PARTNERS, L.P. By: /S/ LINDA M. PACE ----------------- Name: Linda M. Pace Title: Vice President KZH CNC LLC By: /S/ SUSAN LEE ------------- Name: Susan Lee Title: Authorized Agent WINGED FOOT FUNDING TRUST By: /S/ ANN E. MORRIS ------------------- Name: Ann E. Morris Title: Authorized Agent EATON VANCE CDO III, LTD. By: Eaton Vance Management as Investment Advisor By: /S/ PAYSON F. SWAFFIELD ------------------------- Name: Payson F. Swaffield Title: Vice President EATON VANCE SENIOR INCOME TRUST By: Eaton Vance Management As Investment Advisor By: /S/ PAYSON F. SWAFFIELD ----------------------- Name: Payson F. Swaffield Title: Vice President 16 GRAYSON & CO. By: Boston Management and Research As Investment Advisor By: /S/ PAYSON F. SWAFFIELD ----------------------- Name: Payson F. Swaffield Title: Vice President SENIOR DEBT PORTFOLIO By: Boston Management and Research As Investment Advisor By: /S/ PAYSON F. SWAFFIELD ----------------------- Name: Payson F. Swaffield Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /S/ GREGORY HONG ---------------- Name: Gregory Hong Title: Duly Authorized Signatory BLUE SQUARE FUNDING SERIES 3 By: Bankers Trust Company, as Trustee By: /S/ SUSAN ANDERSON ------------------ Name: Susan Anderson Title: Assistant Vice President ELF FUNDING CAPITAL MANAGEMENT, L.P. By: Highland Capital Management, L.P. As Collateral Manager By: /S/ MARK K. OKADA, CFA ----------------------- Name: Mark K. Okada Title: Executive Vice President 17 GLENEAGLES TRADING LLC By: /S/ DIANA L. MUSHILL -------------------- Name: Diana L. Mushill Title: Assistant Vice President PAMCO CAYMAN LTD. By: Highland Capital Management, L.P. As Collateral Manager By: /S/ MARK K. OKADA ----------------- Name: Mark K. Okada Title: Executive Vice President INDOSUEZ CAPITAL FUNDING IV, L.P. By: Indosuez Capital as Portfolio Advisor By: /S/ ANDREW BRADY ---------------- Name: Andrew Brady Title: Vice President ARCHIMEDES FUNDING II, LTD. By: ING Capital Advisors LLC, As Collateral Manager By: /S/ GORDON R. COOK ------------------ Name: Gordon R. Cook Title: Vice President ARCHIMEDES FUNDING III, LTD. By: ING Capital Advisors LLC, As Collateral Manager By: /S/ GORDON R. COOK ------------------ Name: Gordon R. Cook Title: Vice President 18 SEQUILS-ING I (HBDGM), LTD. By: ING Capital Advisors LLC, As Collateral Manager By: /S/ GORDON R. COOK ------------------ Name: Gordon R. Cook Title: Vice President SWISS LIFE US RAINBOW LIMITED By: ING Capital Advisors LLC, As Collateral Manager By: /S/ GORDON R. COOK ------------------ Name: Gordon R. Cook Title: Vice President KZH ING - 1 LLC By: /S/ SUSAN LEE ------------- Name: Susan Lee Title: Authorized Agent KZH ING - 2 LLC By: /S/ SUSAN LEE ------------- Name: Susan Lee Title: Authorized Agent KZH ING - 3 LLC By: /S/ SUSAN LEE ------------- Name: Susan Lee Title: Authorized Agent 19 AERIES FINANCE-II LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent BY: GREGORY STOCKLE ------------------- Name: Gregory Stockle Title: Authorized Signatory AMARA 2 FINANCE LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent BY: GREGORY STOCKLE ------------------- Name: Gregory Stockle Title: Authorized Signatory AVALON CAPITAL LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent BY: GREGORY STOCKLE Name: Gregory Stockle --------------------- Title: Authorized Signatory AVALON CAPITAL LTD. 2 By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent BY: GREGORY STOCKLE Name: Gregory Stockle --------------------- Title: Authorized Signatory CERES II FINANCE LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent BY: GREGORY STOCKLE Name: Gregory Stockle --------------------- Title: Authorized Signatory 20 CHARTER VIEW PORTFOLIO By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent BY: GREGORY STOCKLE ------------------- Name: Gregory Stockle Title: Authorized Signatory TRITON CDO IV, LIMITED By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent BY: GREGORY STOCKLE ------------------- Name: Gregory Stockle Title: Authorized Signatory KATONAH I, LTD. By: /S/ RALPH DELLA ROCCA --------------------- Name: Ralph Della Rocca Title: Authorized Officer Katonah LLC as Manager KATONAH II, LTD. By: /S/ RALPH DELLA ROCCA --------------------- Name: Ralph Della Rocca Title: Authorized Officer Katonah LLC as Manager MAPLEWOOD (CAYMAN) LTD. By: Mass Mutual Life Insurance Co. As Investment Manager By: /S/ STEVEN J. KATZ ------------------ Name: Steven J. Katz Title: Second Vice President and Associate General Counsel 21 MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: /S/ STEVEN J. KATZ ------------------ Name: Steven J. Katz Title: Second Vice President and Associate General Counsel SIMSBURY CLO, LTD. By: Mass Mutual Life Insurance Co. As Collateral Manager By: /S/ STEVEN J. KATZ ------------------ Name: Steven J. Katz Title: Second Vice President and Associate General Counsel MOUNTAIN CAPITAL CLO II LTD. By: /S/ CHRIS SIDDONS ----------------- Name: Chris Siddons Title: Director MUZINICH CASHFLOW CBO LTD. By: /S/ DANIEL NACCARELLA --------------------- Name: Daniel Naccarella Title: Authorized Signatory ADDISON CDO, LIMITED (ACCT 1279) BY: Pacific Investment Management Company LLC, as its Investment Advisor By: /S/ MOHAN V. PHANSALKAR ----------------------- Name: Mohan V. Phansalkar Title: Executive Vice President 22 ATHENA CDO, LIMITED (ACCT 1277) BY: Pacific Investment Management Company LLC, as its Investment Advisor By: /S/ MOHAN V. PHANSALKAR ----------------------- Name: Mohan V. Phansalkar Title: Executive Vice President BEDFORD CDO, LIMITED (ACCT 1276) BY: Pacific Investment Management Company LLC, as its Investment Advisor By: /S/ MOHAN V. PHANSALKAR ----------------------- Name: Mohan V. Phansalkar Title: Executive Vice President CAPTIVA III FINANCE LTD. (ACCT 275), As Advised by Pacific Investment Management Company LLC By: /S/ DAVID DYER -------------- Name: David Dyer Title: Director DELANO COMPANY (ACCT 274) BY: Pacific Investment Management Company LLC, as its Investment Advisor By: /S/ MOHAN V. PHANSALKAR ----------------------- Name: Mohan V. Phansalkar Title: Executive Vice President JISSEKIKUN FUNDING, LTD. (ACCT 1228) BY: Pacific Investment Management Company LLC, as its Investment Advisor By: /S/ MOHAN V. PHANSALKAR ----------------------- Name: Mohan V. Phansalkar Title: Executive Vice President 23 JACKSON NATIONAL LIFE INSURANCE COMPANY By: PPM America, Inc., as Attorney-in-Fact By: /S/ JOHN WALDING ---------------- Name: John Walding Title: Senior Managind Director PPM SPYGLASS FUNDING TRUST By: /S/ ANN E. MORRIS ----------------- Name: Ann E. Morris Title: Authorized Agent KZH RIVERSIDE LLC By: /S/ SUSAN LEE ------------- Name: Susan Lee Title: Authorized Agent SCUDDER FLOATING RATE FUND By: /S/ KENNETH WEBER ----------------- Name: Kenneth Weber Title: Senior Vice President STANFIELD CLO LTD. By: Stanfield Capital Partners LLC as its Collateral Manager By: /S/ CHRISTOPHER A. BONDY ------------------------ Name: Christopher A. Bondy Title: Partner 24 STANFIELD/RMF TRANSATLANTIC CDO LTD. By: Stanfield Capital Partners LLC as its Collateral Manager By: /S/ CHRISTOPHER A. BONDY ------------------------ Name: Christopher A. Bondy Title: Partner LIBERTY - STEIN ROE ADVISOR FLOATING RATE ADVANTAGE FUND By: Stein Roe & Farnham Incorporated, as Advisor By: /S/ JAMES R. FELLOWS -------------------- Name: James R. Fellows Title: Senior Vice President & Portfolio Manager SRF 2000 LLC By: /S/ DIANA MUSHILL ----------------- Name: Diana Mushill Title: Assistant Vice President SRF TRADING, INC. By: /S/ DIANA MUSHILL ----------------- Name: Diana Mushill Title: Assistant Vice President STEIN ROE & FARNHAM CLO I LTD. By: Stein Roe & Farnham Incorporated, as Portfolio Manager By: /S/ JAMES R. FELLOWS -------------------- Name: James R. Fellows Title: Senior Vice President & Portfolio Manager 25 STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY By: /S/ JAMES R. FELLOWS -------------------- Name: James R. Fellows Title: Senior Vice President Stein Roe & Farnham Incorporated, as Advisor to the Stein Roe Floating Rate Limited Liability Company GALAXY CLO 1999-1, LTD. By: SAI Investment Advisor, Inc. Its Collateral Manager By: /S/ STEVEN OH -------------- Name: Steven Oh Title: Authorized Agent KZH SOLIEL - 2 LLC By: /s/ Susan Lee Name: Susan Lee Title: Authorized Agent TORONTO DOMINION (NEW YORK), INC. By: /S/ STACEY MALEK ---------------- Name: Stacey Malek Title: Vice President VAN KAMPEN CLO II, LIMITED By: Van Kampen Management Inc. As Collateral Manager By: /S/ DARVIN D. PIERCE -------------------- Name: Darvin D. Pierce Title: Executive Director 26 VAN KAMPEN PRIME RATE INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /S/ DARVIN D. PIERCE -------------------- Name: Darvin D. Pierce Title: Executive Director VAN KAMPEN SENIOR INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /S/ DARVIN D. PIERCE -------------------- Name: Darvin D. Pierce Title: Executive Director VAN KAMPEN SENIOR FLOATING RATE FUND By: Van Kampen Investment Advisory Corp. By: /S/ DARVIN D. PIERCE -------------------- Name: Darvin D. Pierce Title: Executive Director EX-10 7 ucar10kmar02ex1011.txt EXHIBIT 10.11 EXHIBIT 10.11 CONFORMED COPY FIFTH AMENDMENT dated as of January 18, 2002 (this "Amendment") to Credit Agreement dated as of February 22, 2000 (as previously amended, the "Credit Agreement") among UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("Global"), UCAR FINANCE INC., a Delaware corporation (the "Borrower"), the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and JPMORGAN CHASE BANK, as Administrative Agent, Collateral Agent and Issuing Bank. A. Pursuant to the Credit Agreement, the Lenders and the Issuing Bank have extended and have agreed to extend credit to the Borrower and the LC Subsidiaries, on the terms and subject to the conditions set forth therein. B. The Borrower has requested an amendment of the Credit Agreement as set forth herein. C. The Required Lenders are willing to agree to such amendment on the terms and subject to the conditions set forth herein. D. Each capitalized term used and not otherwise defined herein shall have the meaning assigned to it in the Credit Agreement. Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT. (a)(i) Section 1.01 of the Credit Agreement is hereby amended by amending and restating in its entirety the definition of "Amendment Fees" as follows: "AMENDMENT FEES" shall mean, collectively, the Amendment Fee as such term is defined in each of the First Amendment dated as of October 11, 2000 to this Agreement, the Second Amendment dated as of April 25, 2001 to this Agreement, the Third Amendment dated as of July 10, 2001 to this Agreement, the Fourth Amendment dated as of December 6, 2001 to this Agreement, and the Fifth Amendment dated as of January 18, 2002 to this Agreement, plus any other fees, costs and expenses incurred in connection with such amendments, including, but not limited to, attorneys' fees. (b) Section 1.01 of the Credit Agreement is hereby amended by adding thereto, in the appropriate alphabetical order the following definitions: "EU LETTER OF CREDIT" shall mean any letter of credit issued to secure the payment to the European Union of the antitrust fine owed thereto. "GRAFTECH" shall mean, initially, Graftech Inc. and, following its name change in the Realignment Transactions, Graftech Technology Company Inc. "INTERCOMPANY SENIOR LOANS" shall mean a loan (a) made by the Borrower to an Intercompany Borrower having substantially the same terms as the Intercompany Term Loans (or other terms approved by the Administrative Agent), but not secured by any asset (other than, at any time that Graftech is not a guarantor of the Senior Notes, a Lien on the Capital Stock of Graftech then held by UCAR, Global or any Subsidiary that is junior to the Lien of the Lenders thereon) and not benefiting from any Guarantee (other than unsecured guarantees from Subsidiaries that guarantee the Intercompany Loans and other than in the case of the Intercompany Senior Loan of UCAR Holdings S.A., which may be guaranteed by UCAR SNC; PROVIDED that the Intercompany Loans of UCAR Holdings S.A. are also guaranteed by UCAR SNC); (b) all the proceeds of which shall have been used by such Intercompany Borrower to repay Intercompany Term Loans; and (c) at the time of the initial issuance thereof, the principal amount of which shall be in the same proportion to the principal amount of the Intercompany Term Loan of such Intercompany Borrower as the proportion between the Intercompany Senior Loan and the Intercompany Term Loan of each other Intercompany Borrower. "SENIOR NOTES" shall mean senior notes of the Borrower having terms no less favorable to the Borrower and the Lenders than those contemplated by Exhibit A to the Fifth Amendment to this Agreement. (c) The definition of "Applicable Rate" is hereby amended by deleting Tables I and II set forth therein and substituting therefor the following:
TABLE I -------------------------------------------------------------------- COMMITMENT EUROCURRENCY BASE RATE FEE LEVERAGE RATIO: SPREAD SPREAD RATE -------------------------------------------------------------------- CATEGORY 1 > 3.75 3.375% 2.375% 0.500% - -------------------------------------------------------------------- CATEGORY 2 < 3.75 and > 3.50 3.250% 2.250% 0.500% - --------------------------------------------------------------------- CATEGORY 3 < 3.50 > 2.75 3.125% 2.125% 0.500% - --------------------------------------------------------------------- CATEGORY 4 < 2.75 and > 2.50 2.875% 1.875% 0.500% - --------------------------------------------------------------------- CATEGORY 5 < 2.50 and > 2.25 2.375% 1.375% 0.375% - --------------------------------------------------------------------- CATEGORY 6 < 2.25 and > 2.00 2.125% 1.125% 0.375% - --------------------------------------------------------------------- CATEGORY 7 < 2.00 and > 1.75 1.875% 0.875% 0.375% - --------------------------------------------------------------------- CATEGORY 8 < 1.75 1.375% 0.375% 0.375% --------------------------------------------------------------------- TABLE II --------------------------------------------------------------------- LEVERAGE RATIO: EUROCURRENCY BASE RATE SPREAD SPREAD --------------------------------------------------------------------- CATEGORY 1 > 3.75 3.625% 2.625% - --------------------------------------------------------------------- CATEGORY 2 < 3.75 and > 3.50 3.500% 2.500% - --------------------------------------------------------------------- CATEGORY 3 < 3.50 > 2.75 3.375% 2.375% - --------------------------------------------------------------------- CATEGORY 4 < 2.75 and > 2.50 3.375% 2.375% - --------------------------------------------------------------------- CATEGORY 5 < 2.50 and > 2.25 2.875% 1.875% - --------------------------------------------------------------------- CATEGORY 6 < 2.25 and > 2.00 2.875% 1.875% - --------------------------------------------------------------------- CATEGORY 7 < 2.00 and > 1.75 2.875% 1.875% - --------------------------------------------------------------------- CATEGORY 8 < 1.75 2.875% 1.875% ---------------------------------------------------------------------
(d) The definition of "Collateral and Guarantee Requirement" is hereby amended by adding at the end of clause (a) thereof the phrase "; and PROVIDED FURTHER that no person shall be required to pledge any Intercompany Senior Loan". (e) The definition of "Total Debt" is hereby amended by inserting the phrase "without duplication" before the phrase "all Capital". (f) The definition of "EBITDA" is hereby amended by deleting the "and" prior to clause (g) thereof and inserting immediately prior to the phrase ", minus" the phrase "and (h) any breakage fees or other fees or expenses paid in connection with the prepayment of Term Loans in connection with the issuance of the Senior Notes". (g) The definition of "Wholly Owned Subsidiary" is hereby amended by deleting the phrase "any Subsidiary included in Brazil or" and by inserting after the phrase "Russian corporation," the phrase "Graftech, UCAR Carbon Mexicana S.A. de C.V., UCAR Carbon S.A. or any subsidiary of any of the foregoing". (h) Section 1.03 of the Credit Agreement is hereby amended by adding at the end thereof the sentence: "Each reference herein to "director's qualifying shares" or similar terms shall be deemed to include a reference to "or other de minimis amounts of equity required under applicable local law to be owned by local persons". (i) Section 2.09(d) of the Credit Agreement is hereby amended by inserting in the proviso thereof immediately following the phrase "with the Net Proceeds received from the UCAR Equity Offering" the phrase "or the issuance of the Senior Notes". (j) Section 2.10(c) of the Credit Agreement is hereby amended by deleting in clause (iii) of the parenthetical contained therein the phrase "clause (B) of the proviso thereto" and replacing it with the phrase "clause (A)(2) or (B)(y) of the proviso thereto". (k) Section 3.03(b) of the Credit Agreement is hereby amended by deleting the "and" at the end of clause (ii) thereof, replacing the "." at the end of clause (iii) thereof with "; and" and adding immediately after clause (iii) thereof the following new clause (iv): "(iv) the proceeds of each Intercompany Borrower's Intercompany Senior Loan may be used to prepay the Intercompany Term Loan of such Intercompany Borrower." (l) Section 7.01(a) of the Credit Agreement is hereby amended by (i) inserting in clause (xiii) thereof between the phrases "Term Loans," and "and by the Borrower" the phrase "(or are otherwise advanced to the Borrower)"; and (ii) deleting clause (xiv) and substituting therefor the following: "(xiv) Senior Notes not guaranteed by any person other than UCAR, Global and the Domestic Subsidiaries in an aggregate principal amount not to exceed $400,000,000; any unsecured Guarantee by UCAR, Global or any Domestic Subsidiary of the Senior Notes; and Intercompany Senior Loans (and Guarantees of the Intercompany Senior Loans by Subsidiaries that Guarantee the Intercompany Loans and any Guarantee by UCAR SNC of the Intercompany Senior Loan of UCAR Holdings S.A.; PROVIDED that the Intercompany Loans of UCAR Holdings S.A. are guaranteed by UCAR SNC) in an aggregate principal amount at the time of the incurrence of any thereof not to exceed the aggregate principal amount of the Senior Notes at such time; PROVIDED that (A) if the aggregate principal amount of the Senior Notes exceeds $300,000,000, then (1) 100% of the Net Proceeds of the first $250,000,000 aggregate principal amount thereof, and (2) 50% of the Net Proceeds of the next $150,000,000 aggregate principal amount thereof, shall be applied to prepay Term Loans in accordance with Section 2.10(c); and (B) if the aggregate principal amount of the Senior Notes does not exceed $300,000,000, then (x) 100% of the Net Proceeds of the first $200,000,000 aggregate principal amount thereof, and (y) 50% of the Net Proceeds of the next $100,000,000 aggregate principal amount thereof, shall be applied to prepay Term Loans in accordance with Section 2.10(c); and" (m) Section 7.01(b)(iv) is hereby amended by replacing the "and" therein with a "," and inserting after the reference therein to "(xii)" a reference to "and (xiv)". (n) Section 7.02 of the Credit Agreement is hereby amended by (i) adding at the end of clause (n) thereof the phrase "or is effectively stayed", and (ii) deleting the "and" at the end of clause (t) thereof, replacing the "." at the end of clause (u) thereof with ";" and adding immediately after clause (u) thereof the following new clauses (v) and (w): "(v) Liens on Intercompany Senior Loans to secure Senior Notes or to secure the Obligations, PROVIDED that the aggregate principal amount of Intercompany Senior Loans securing Senior Notes shall not at any time exceed the aggregate principal amount at such time of the Senior Notes; and (w) at any time that Graftech is not a guarantor of the Senior Notes, a Lien on the Capital Stock of Graftech then held by UCAR, Global or any Subsidiary that is junior to the Lien of the Lenders thereon." (o) Section 7.04(j) of the Credit Agreement is hereby amended by (i) replacing each reference to "2.75:1.00" in the Schedule A referred to therein with a reference to "4.50:1.00" and by replacing the reference in such Schedule A to "$75,000,000" in the category based on the Leverage Ratio being "greater than or equal to 4.50:1.00" with a reference to "$50,000,000", (ii) deleting the references to "Effective Date" in clause (ii) thereof and replacing them with "Amendment Effective Date (as defined in the Fifth Amendment to this Agreement)" and (iii) adding at the end thereof the phrase "(it being understood that any noncash investment in the Jilin joint venture made after the Amendment Effective Date (as defined in the Fifth Amendment to this Agreement) pursuant to a contractual commitment entered into prior to the such date shall not be counted in determining compliance with the numerical limitations hereof)". (p) Clause (c) of Section 7.08 of the Credit Agreement is hereby deleted and replaced with the following: "(c) in the case of the Borrower, own any Capital Stock of any person or engage at any time in any business activity other than (i) performance of its obligations under the Loan Documents and in respect of the Senior Notes, (ii) ownership of the Intercompany Loans and the Intercompany Senior Loans, (iii) conducting treasury and cash management functions for UCAR, Global and the Subsidiaries consistent with past practices and (iv) activities required by law to maintain its status as a corporation. (q) Section 7.09 of the Credit Agreement is hereby amended by adding at the end thereof the following new paragraph (d): "(d) Directly or indirectly, make any payment, retirement, repurchase or redemption on account of all or any part of the principal of the Senior Notes or directly or indirectly prepay or defease all or any portion of the Senior Notes, except that the Borrower may, to the extent permitted without penalty or premium under the Senior Notes prior to the third anniversary of the issuance thereof and so long as no Default or Event of Default shall exist or result therefrom, prepay up to 35% of the initial aggregate principal amount of the Senior Notes with (i) if at the time of receipt thereof the Leverage Ratio at the end of the most recent fiscal quarter for which financial statements shall have been received under Section 6.04(a) or (b) (computed on a pro forma basis after giving effect to the prepayment to be made) is less than 3.75 to 1.00, up to 50% of the proceeds received by UCAR or any of its subsidiaries from the UCC/MC Lawsuit (including a judgment thereunder or a settlement thereof or arising out of any other disposition of the claims therein) or (ii) the portion of the Net Proceeds remaining in respect of the issuance of any Capital Stock of UCAR after giving effect to the prepayment of Loans required under Section 2.10(c) in respect thereof; PROVIDED that, substantially contemporaneously with such prepayment of Senior Notes, Intercompany Senior Loans shall be released from the Lien of the Senior Notes in an aggregate principal amount sufficient so that the aggregate principal amount of Intercompany Senior Loans subject to such Lien shall not exceed the aggregate principal amount of the Senior Notes." (r) Section 7.11 of the Credit Agreement is hereby amended by (i) deleting the table set forth therein and substituting therefor the following: ---------------------------------------------------------------- FROM AND INCLUDING: TO AND INCLUDING: RATIO: ---------------------------------------------------------------- Fifth Amendment September 30, 2003 1.75:1.0 Effective Date ---------------------------------------------------------------- October 1, 2003 December 31, 2004 2.00:1.0 ---------------------------------------------------------------- January 1, 2005 September 30, 2005 2.50:1.0 ---------------------------------------------------------------- October 1, 2005 September 30, 2006 3.00:1.0 ---------------------------------------------------------------- October 1, 2006 Tranche B Maturity 3.50:1.0 Date ---------------------------------------------------------------- and (ii) deleting the further proviso contained therein and replacing it with the following further proviso: "; PROVIDED FURTHER HOWEVER, that for purposes of calculating the Interest Coverage Ratio to determine compliance with this Section, (A) to the extent that (i) any amount of the Amendment Fees, (ii) any fees, costs and expenses (including fees of counsel and experts) paid or incurred by UCAR, Global, the Borrower or any Subsidiary in connection with the UCC/MC Lawsuit, up to $20,000,000 in the aggregate and $3,000,000 in any one fiscal quarter or (iii) any fees, costs and expenses paid or incurred by UCAR, Global, the Borrower or any LC Subsidiary in respect of any EU Letter of Credit are deducted in determining the consolidated net income of UCAR, Global, the Borrower and the Subsidiaries and are not added back by the definition of EBITDA, such amount shall be added back to EBITDA, and (B) Cash Interest Expense shall not include any amounts attributable to Indebtedness incurred to finance the Amendment Fees, the EU Letter of Credit or the fees, costs or expenses paid in connection with the UCC/MC Lawsuit." (s) Section 7.12 of the Credit Agreement is hereby amended by (i) deleting the table set forth therein and substituting therefor the following: ---------------------------------------------------------------- FROM AND INCLUDING: TO AND INCLUDING: RATIO: ---------------------------------------------------------------- Effective Date of Fifth September 30, 2002 6.50:1.0 Amendment ---------------------------------------------------------------- October 1, 2002 December 31, 2002 6.25:1.0 ---------------------------------------------------------------- January 1, 2003 September 30, 2003 5.75:1.0 ---------------------------------------------------------------- October 1, 2003 December 31, 2003 5.00:1.0 ---------------------------------------------------------------- January 1, 2004 September 30, 2004 4.00:1.0 ---------------------------------------------------------------- October 1, 2004 September 30, 2005 3.75:1.0 ---------------------------------------------------------------- October 1, 2005 September 30, 2006 3.75:1.0 ---------------------------------------------------------------- October 1, 2006 Tranche B Maturity Date 3.50:1.0 ---------------------------------------------------------------- and (ii) deleting the further proviso contained therein and replacing it with the following further proviso: "; PROVIDED FURTHER HOWEVER, that for purposes of calculating the Leverage Ratio to determine compliance with this Section, (A) to the extent that (i) any amount of the Amendment Fees, (ii) any fees, costs and expenses (including fees of counsel and experts) paid or incurred by UCAR, Global, the Borrower or any Subsidiary in connection with the UCC/MC Lawsuit, up to $20,000,000 in the aggregate and $3,000,000 in any one fiscal quarter or (iii) any fees, costs and expenses paid or incurred by UCAR, Global, the Borrower or any LC Subsidiary in respect of any EU Letter of Credit are deducted in determining the consolidated net income of UCAR, Global, the Borrower and the Subsidiaries and is not added back by the definition of EBITDA, such amount shall be added back to EBITDA, and (B) Net Debt shall not include Indebtedness incurred to finance (i) the Amendment Fees, (ii) any fees, costs and expenses (including fees of counsel and experts) paid or incurred by UCAR, Global, the Borrower or any Subsidiary in connection with the UCC/MC Lawsuit, up to $20,000,000 in the aggregate and $3,000,000 in any one fiscal quarter or (iii) any fees, costs and expenses paid or incurred by UCAR, Global, the Borrower or any LC Subsidiary in respect of any EU Letter of Credit." (t) Each of the following provisions of the Credit Agreement relating to Graftech shall be amended as set forth below: (i) The penultimate sentence of the definition of "Collateral and Guarantee Requirement" is hereby amended by deleting the "(a)" therein and by deleting the phrase "and (b) none of UCAR, Global or any Subsidiary shall be required to pledge the Capital Stock of Graftech Technology Company Inc" (ii) The definition of "Unrestricted Subsidiary" is hereby amended to delete in clause (a) the phrase "Graftech Technology Company Inc. and"; to delete in the parenthetical contained in clause (a) the phrase "other than Graftech Technology Company Inc."; and to delete in clause (a) the parenthetical "(except that the Capital Stock of Graftech Technology Company Inc. may be so owned while UCAR is diligently acting to transfer the ownership of such Capital Stock to UCAR)". (iii) Section 7.04(j) is hereby amended by deleting the phrase "(A) no more than $15,000,000 of such amount at any time may be invested in Graftech Technology Company Inc. and (B)". (iv) Section 7.05 is hereby amended by (i) deleting the phrase ", subject to Section 7.06(f)," from the last sentence of clause (i) thereof, (ii) adding an "and" at the end of such clause (i), (iii) deleting clause (k) therefrom, and (iv) relettering the last clause thereof "(k)" rather than "(l)". (v) Section 7.06 shall be amended by deleting clause (f) and clause (g) thereof, adding at the end of clause (e) thereof the word "and" and by relettering the last clause thereof "(f)" rather than "(h)". (u) The Agents are hereby directed and authorized to take such action and to execute such documents as the Borrower may reasonably request, at the Borrower's sole expense, including consents to the Liens permitted under Section 7.02(v) and (w), to facilitate or permit the transactions contemplated hereunder in respect of the Senior Notes, the Intercompany Senior Loans and the Intercompany Term Loans. SECTION 2. REPRESENTATIONS AND WARRANTIES. Each of UCAR, Global and the Borrower represents and warrants to each Lender as of the date hereof and as of the Amendment Effective Date that after giving effect to this Amendment: (a) the representations and warranties set forth in Article IV of the Credit Agreement are true and correct in all material respects on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties were true and correct in all material respects as of the earlier date), and (b) no Default or Event of Default has occurred and is continuing. SECTION 3. EFFECTIVENESS. This Amendment shall become effective when the Administrative Agent or its counsel shall have received counterparts of this Amendment that, when taken together, bear the signatures of the Borrower, UCAR, Global and the Required Lenders, but the provisions of Section 1 above shall not become effective until as of the first date (the "AMENDMENT EFFECTIVE DATE") on which the following conditions are met: (a) the Borrower shall have received gross proceeds in respect of the Senior Notes in an amount not less than $250,000,000 and Term Loans shall have been prepaid in an aggregate principal amount not less than that required under Sections 2.10(c) and 7.01(a)(xiv) as amended hereby in connection with the issuance of such Senior Notes; (b) the Collateral and Guarantee Requirement shall have been satisfied with respect to Graftech and in connection therewith each of Graftech and its subsidiaries shall have become a Guarantor and shall have entered into each applicable Security Document and UCAR Carbon Company Inc. shall have pledged all the Capital Stock of Graftech to secure the Obligations; (c) each Lender shall have received the Amendment Fee required to be paid to it pursuant to Section 4 below and (d) the representations and warranties set forth in Section 2 above shall be true and correct on and as of such date. Notwithstanding anything herein to the contrary, the Amendment Effective Date shall not occur after March 15, 2002. SECTION 4. AMENDMENT FEE. The Borrower agrees to pay to each Lender that executes and delivers to the Administrative Agent (or its counsel) a copy of this Amendment at or prior to 5:00 p.m., New York City time, on January 18, 2002, an amendment fee (the "AMENDMENT FEE") in an amount equal to 0.25% of such Lender's Revolving Commitment (whether used or unused) and outstanding Term Loans, in each case based on the amount outstanding immediately after the issuance of the Senior Notes and the application of the Net Proceeds therefrom in accordance with Section 2.10(c); PROVIDED that the Borrower shall have no liability for any such Amendment Fee if the Amendment Effective Date shall not occur. Such Amendment Fee shall be payable on the Amendment Effective Date. SECTION 5. EFFECT OF AMENDMENT. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders, the Issuing Bank, the Collateral Agent or the Administrative Agent, under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Borrower to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances. SECTION 6. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Delivery of any executed counterpart of a signature page of this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof. SECTION 7. APPLICABLE LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 8. HEADINGS. The headings of this Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. [SIGNATURE PAGES FOLLOW] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date and year first above written. UCAR INTERNATIONAL INC., By: /s/ Walter D. Carter, Jr. ------------------------- Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR GLOBAL ENTERPRISES INC., By: /s/ Walter D. Carter, Jr. ------------------------- Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR FINANCE INC., By: /s/ Walter D. Carter, Jr. ------------------------- Name: Walter D. Carter, Jr. Title: Assistant Treasurer JPMORGAN CHASE BANK, as a Lender, and as Administrative Agent, Collateral Agent and Issuing Bank, By: /s/ Jim Ramage -------------- Name: Jim Ramage Title: Managing Director Signature Page to Fifth Amendment to UCAR Finance Inc. Credit Agreement. CREDIT SUISSE FIRST BOSTON By: /s/ Paul J. Corona ------------------ Name: Paul J. Corona Title: Director By: /s/ Mark E. Gleason ------------------- Name: Mark E. Gleason Title: Director BANK OF AMERICA, N.A. By: /s/ Harold L. Norman -------------------- Name: Harold L. Norman Title: Managing Director FLEET NATIONAL BANK By: /s/ Irene Bertozzi Bartenstein ------------------------------ Name: Irene Bertozzi Bartenstein Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ Todd Meller --------------- Name: Todd Meller Title: Managing Director FIRST UNION NATIONAL BANK By: /s/ Robert Brown ---------------- Name: Robert Brown Title: Vice President ABN AMRO BANK N.V. By: /s/ James S. Kreitler --------------------- Name: James S. Kreitler Title: Group Vice President By: /s/ Craig W. Trautwein ---------------------- Name: Craig W. Trautwein Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Attila Koc --------------- Name: Attila Koc Title: Senior Vice President MELLON BANK, N.A. By: /s/ Peter K. Lee ---------------- Name: Peter K. Lee Title: Vice President INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ John Dippo -------------- Name: John Dippo Title: Senior Vice President CREDIT INDUSTRIEL ET COMMERCIAL By: /s/ Gary George ---------------- Name: Gary George Title: Manager By: /s/ Tim Huband --------------- Name: Time Huband Title: Manager GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Gregory L. Hong ------------------- Name: Gregory L. Hong Title: Duly Authorized Signatory THE BANK OF NEW YORK By: /s/ Christine T. Rio -------------------- Name: Christine T. Rio Title: Vice President CREDIT AGRICOLE INDOSUEZ By: /s/ Larry Materi ---------------- Name: Larry Materi Title: Vice President By: /s/ Theodore D. Tice -------------------- Name: Theodore D. Tice Title: Senior Relationship Manager PNC BANK NATIONAL ASSOCIATION By: /s/ Louis K. Mclinden, Jr. --------------------------- Name: Louis K. McLinded, Jr. Title: Vice President CIBC WORLD MARKETS PLC By: /s/ S.E.Devane -------------- Name: S. E. DeVane Title: Authorized Signatory THE FUJI BANK, LIMITED By: /s/ John Doyle -------------- Name: John Doyle Title: Vice President and Manager PB CAPITAL CORPORATION By: /s/ Christopher J. Ruzzi ------------------------ Name: Christopher J. Ruzzi Title: Vice President By: /s/ Aurelio Almonte ------------------- Name: Aurelio Almonte Title: Associate NATIEXIS BANQUES POPULAIRES By: /s/ Frank H. Madden ------------------- Name: Frank H. Madden Title: Vice President & Group Manager By: /s/ Harris Frommer ------------------ Name: Harris Frommer Title: Assistant Vice President BANK PEKAO SA By: /s/ Hussein B. El-Tawil ----------------------- Name: Hussein B. El-Tawil Title: Vice President MONUMENT CAPITAL LTD., as Assignee By: Alliance Capital Management L.P., As Investment Manager By: Alliance Capital Management Corporation, as General Partner By: /s/ Sverker Johansson --------------------- Name: Sverker Johansson Title: Vice President AIMCO CDO SERIES 2000-A By: /s/ Jerry D. Zinkula -------------------- Name: Jerry D. Zinkula Title: Authorized Signatory By: /s/ Chris Goergen ----------------- Name: Chris Georgen Title: Authorized Signatory ALLSTATE LIFE INSURANCE COMPANY By: /s/ Jerry D. Zinkula -------------------- Name: Jerry D. Zinkula Title: Authorized Signatory By: /s/ Chris Goergen ----------------- Name: Chris Georgen Title: Authorized Signatory SIMCO CLO SERIES 2001-A By: /s/ Jerry D. Zinkula -------------------- Name: Jerry D. Zinkula Title: Authorized Signatory By: /s/ Chris Goergen ----------------- Name: Chris Georgen Title: Authorized Signatory AMMC CDO I, LIMITED By: American Money Management Corp., as Collateral Manager By: /s/ David P. Meyer ------------------ Name: David P. Meyer Title: Vice President AMMC CDO II, LIMITED By: American Money Management Corp., as Collateral Agent By: /s/ David P. Meyer ------------------ Name: David P. Meyer Title: Vice President ARES III CLO LTD. By: ARES CLO Management LLC, Investment Manager By: /s/ Seth J. Brufsky ------------------- Name: Seth J. Brufsky Title: Vice President ARES IV CLO LTD. By: Ares CLO Management IV, L.P., Investment Manager By: Ares CLO GP IV, LLC, Its Managing Member By: /s/ Seth J. Brufsky ------------------- Name: Seth J. Brufsky Title: Vice President ARES LEVERAGED INVESTMENT FUND II, L.P. By: ARES Management II, L.P. Its General Partner By: /s/ Seth J. Brufsky ------------------- Name: Seth J. Brufsky Title: Vice President ARES V CLO LTD. By: Ares CLO Management V, L.P., Investment Manager By: Ares CLO GP V, LLC, Its Managing Member By: /s/ Seth J. Brufsky ------------------- Name: Seth J. Brufsky Title: Vice President Sankaty Adivsors, Inc., as Collateral Manager for BRANT POINT CBO 1999-1 LTD., as Term Lender By: /s/ Diane J. Exter ------------------ Name: Diane J. Exter Title: Managing Director Portfolio Manager Sankaty Advisors, Inc., as Collateral Manager for GREAT POINT CLO 1999-1 LTD., as Term Lender By: /s/ Diane J. Exter ------------------ Name: Diane J. Exter Title: Managing Director Portfolio Manager Sankaty Advisors, Inc., as Collateral Manager for RACE POINT CLO, LIMITED, as Term Lender By: /s/ Diane J. Exter ------------------ Name: Diane J. Exter Title: Managing Director Portfolio Manager SANKATY HIGH YIELD ASSET PARTNERS, L.P. By: /s/ Diane J. Exter ------------------ Name: Diane J. Exter Title: Managing Director Portfolio Manager SANKATY HIGH YIELD PARTNERS III, L.P. By: /s/ Diane J. Exter ------------------ Name: Diane J. Exter Title: Managing Director Portfolio Manager HARBOUR TOWN FINDING TRUST By: /s/ Kelly W. Warnement ---------------------- Name: Kelly W. Warnement Title: Authorized Agent RIVIERA FUNDING LLC By: /s/ Diana L. Mushill -------------------- Name: Diana L. Mushill Title: Assistant Vice President APEX (TRIMARAN) CDO I, LTD. By Trimaran Advisors, L.L.C. By: /s/ David A. Millison --------------------- Name: David A. Millison Title: Managing Director SAWGRASS TRADING LLC By: /s/ Ann E. Morris ----------------- Name: Ann E. Morris Title: Assistant Vice President CARLYLE HIGH YIELD PARTNERS II, LTD. By: /s/ Linda M. Pace ----------------- Name: Linda M. Pace Title: Vice President CARLYLE HIGH YIELD PARTNERS III, LTD. By: /s/ Linda M. Pace ----------------- Name: Linda M. Pace Title: Vice President CARLYLE HIGH YIELD PARTNERS, L.P. By: /s/ Linda M. Pace ----------------- Name: Linda M. Pace Title: Vice President KZH CNC LLC By: /s/ Susan Lee ------------- Name: Susan Lee Title: Authorized Agent WINGED FOOT FUNDING TRUST By: /s/ Diana L. Mushill -------------------- Name: Diana L. Mushill Title: Authorized Agent EATON VANCE SENIOR INCOME TRUST By: Eaton Vance Management As Investment Advisor By: /s/ Barbara Campbell -------------------- Name: Barbara Campbell Title: Vice President GRAYSON & CO. By: Boston Management and Research As Investment Advisor By: /s/ Barbara Campbell -------------------- Name: Barbara Campbell Title: Vice President SENIOR DEBT PORTFOLIO By: Boston Management and Research As Investment Advisor By: /s/ Barbara Campbell -------------------- Name: Barbara Campbell Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Gregory Hong ---------------- Name: Gregory Hong Title: Duly Authorized Signatory HARCH CLO I, LTD. By: /s/ Michael E. Lewitt --------------------- Name: Michael E. Lewitt Title: Authorized Signatory BLUE SQUARE FUNDING SERIES 3 By: Bankers Trust Company, as Trustee By: /s/ Susan Anderson ------------------ Name: Susan Anderson Title: Assistant Vice President ELF FUNDING TRUST I By: Highland Capital Management, L.P. As Collateral Manager By: /s/ Todd Travers ---------------- Name: Todd Travers Title: Senior Portfolio Manager GLENEAGLES TRADING LLC By: /s/ Diana L. Mushill -------------------- Name: Diana L. Mushill Title: Assistant Vice President PAMCO CAYMAN LTD. By: Highland Capital Management, L.P. As Collateral Manager By: /s/ Todd Travers ---------------- Name: Todd Travers Title: Senior Portfolio Manager INDOSUEZ CAPITAL FUNDING IV, L.P. By: RBC Leveraged Capital as Portfolio Advisor By: /s/ Melissa Marano ------------------ Name: Melissa Marano Title: Director ARCHIMEDES FUNDING II, LTD. By: ING Capital Advisors LLC, As Collateral Manager By: /s/ Gordon R. Cook ------------------ Name: Gordon R. Cook Title: Senior Vice President & Portfolio Manager ARCHIMEDES FUNDING III, LTD. By: ING Capital Advisors LLC, As Collateral Manager By: /s/ Gordon R. Cook ------------------ Name: Gordon R. Cook Title: Senior Vice President & Portfolio Manager KZH ING-1 LLC By: /s/ Susan Lee ------------- Name: Susan Lee Title: Authorized Agent KZH ING-2 LLC By: /s/ Susan Lee ------------- Name: Susan Lee Title: Authorized Agent KZH ING-3 LLC By: /s/ Susan Lee ------------- Name: Susan Lee Title: Authorized Agent SEQUILS-ING I (HBDGM), LTD. By: ING Capital Advisors LLC, As Collateral Manager By: /s/ Gordon R. Cook ------------------ Name: Gordon R. Cook Title: Senior Vice President & Portfolio Manager SWISS LIFE US RAINBOW LIMITED By: ING Capital Advisors LLC, As Collateral Manager By: /s/ Gordon R. Cook ------------------ Name: Gordon R. Cook Title: Senior Vice President & Portfolio Manager COPERNICUS CDO EURO-I B.V. By: ING Capital Advisors LLC, as Collateral Manager By: /s/ Gordon R. Cook ------------------ Name: Gordon R. Cook Title: Senior Vice President & Portfolio Manager AERIES FINANCE-II LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent By: /s/ Gregory Stockle ------------------- Name: Gregory Stockle Title: Authorized Signatory AMARA 2 FINANCE LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Advisor By: /s/ Gregory Stockle ------------------- Name: Gregory Stockle Title: Authorized Signatory AVALON CAPITAL LTD. By: INVESCO Senior Secured Management, Inc. as Portfolio Advisor By: /s/ Gregory Stockle ------------------- Name: Gregory Stockle Title: Authorized Signatory AVALON CAPITAL LTD. 2 By: INVESCO Senior Secured Management, Inc. as Portfolio Advisor By: /s/ Gregory Stockle ------------------- Name: Gregory Stockle Title: Authorized Signatory CERES II FINANCE LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent (Financial) By: /s/ Gregory Stockle ------------------- Name: Gregory Stockle Title: Authorized Signatory CHARTER VIEW PORTFOLIO By: INVESCO Senior Secured Management, Inc. as Investment Advisor By: /s/ Gregory Stockle ------------------- Name: Gregory Stockle Title: Authorized Signatory TRITON CDO IV, LIMITED By: INVESCO Senior Secured Management, Inc. as Investment Advisor By: /s/ Gregory Stockle ------------------- Name: Gregory Stockle Title: Authorized Signatory KATONAH I, LTD. By: /s/ Ralph Della Rocca --------------------- Name: Ralph Della Rocca Title: Authorized Officer Katonah Capital, L.L.C. as Manager KATONAH II, LTD. By: /s/ Ralph Della Rocca --------------------- Name: Ralph Della Rocca Title: Authorized Officer Katonah Capital, L.L.C. as Manager MAPLEWOOD (CAYMAN) LTD. By: Mass Mutual Life Insurance Co. As Investment Manager By: /s/ Steven J. Katz ------------------ Name: Steven J. Katz Title: Second Vice President and Associate General Counsel MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: /s/ Steven J. Katz ------------------ Name: Steven J. Katz Title: Second Vice President and Associate General Counsel SIMSBURY CLO, LTD. By: Mass Mutual Life Insurance Co. As Collateral Manager By: /s/ Steven J. Katz ------------------ Name: Steven J. Katz Title: Second Vice President and Associate General Counsel MOUNTAIN CAPITAL CLO II LTD. By: /s/ Guy Major ------------- Name: Guy Major Title: Director MUZINICH CASHFLOW CBO LTD. By: /s/ Daniel Naccarella --------------------- Name: Daniel Naccarella Title: Authorized Signatory OCTAGON INVESTMENT PARTNERS II, LLC By: Octagon Credit Investors, LLC As sub-investment manager By: /s/ Michael B. Nechamkin ------------------------ Name: Michael B. Nechamkin Title: Portfolio Manager OCTAGON INVESTMENT PARTNERS III, LTD By: Octagon Credit Investors, LLC As Portfolio Manager By: /s/ Michael B. Nechamkin ------------------------ Name: Michael B. Nechamkin Title: Portfolio Manager OCTAGON INVESTMENT PARTNERS IV, LTD By: Octagon Credit Investors, LLC As collateral manager By: /s/ Michael B. Nechamkin ------------------------ Name: Michael B. Nechamkin Title: Portfolio Manager ADDISON CDO, LIMITED (ACCT 1279) BY: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ Mohan V. Phansalkar ----------------------- Name: Mohan V. Phansalkar Title: Executive Vice President ATHENA CDO, LIMITED (ACCT 1277) BY: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ Mohan V. Phansalkar ----------------------- Name: Mohan V. Phansalkar Title: Executive Vice President BEDFORD CDO, LIMITED (ACCT 1276) BY: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ Mohan V. Phansalkar ----------------------- Name: Mohan V. Phansalkar Title: Executive Vice President CAPTIVA III FINANCE LTD. (ACCT 275), As Advised by Pacific Investment Management Company LLC By: /s/ David Dyer -------------- Name: David Dyer Title: Director DELANO COMPANY (ACCT 274) BY: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ Mohan V. Phansalkar ----------------------- Name: Mohan V. Phansalkar Title: Executive Vice President JISSEKIKUN FUNDING, LTD. (ACCT 1228) BY: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ Mohan V. Phansalkar ----------------------- Name: Mohan V. Phansalkar Title: Executive Vice President JACKSON NATIONAL LIFE INSURANCE COMPANY By: PPM America, Inc., as Attorney-in-Fact By: /s/ David C. Wagner ------------------- Name: David C. Wagner Title: Managing Director PPM SPYGLASS FUNDING TRUST By: /s/ Diana L. Mushill -------------------- Name: Diana L. Mushill Title: Authorized Agent KZH RIVERSIDE LLC By: /s/ Susan Lee ------------- Name: Susan Lee Title: Authorized Agent SCUDDER FLOATING RATE FUND By: /s/ Kenneth Weber ----------------- Name: Kenneth Weber Title: Senior Vice President STANFIELD CLO LTD. By: Stanfield Capital Partners LLC as its Collateral Manager By: /s/ Christopher E. Jansen ------------------------- Name: Christopher E. Jansen Title: Managing Partner HAMILTON CDO, LTD. By: Stanfield Capital Pertners LLC As its Collateral Manager By: /s/ Christopher E. Jansen ------------------------- Name: Christopher E. Jansen Title: Managing Partner STANFIELD/RMF TRANSATLANTIC CDO LTD. By: Stanfield Capital Partners LLC as its Collateral Manager By: /s/ Christopher E. Jansen ------------------------- Name: Christopher E. Jansen Title: Managing Partner LIBERTY - STEIN ROE ADVISOR FLOATING RATE ADVANTAGE FUND By: Stein Roe & Farnham Incorporated, as Advisor By: /s/ James R. Fellows -------------------- Name: James R. Fellows Title: Senior Vice President & Portfolio Manager SRF 2000 LLC By: /s/ Diana Mushill ----------------- Name: Diana Mushill Title: Assistant Vice President SRF TRADING, INC. By: /s/ Diana Mushill ----------------- Name: Diana Mushill Title: Assistant Vice President STEIN ROE & FARNHAM CLO I LTD. By: Stein Roe & Farnham Incorporated, as Portfolio Manager By: /s/ James R. Fellows -------------------- Name: James R. Fellows Title: Senior Vice President & Portfolio Manager STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY By: /s/ James R. Fellows -------------------- Name: James R. Fellows Title: Senior Vice President Stein Roe & Farnham Incorporated, as Advisor to the Stein RoeFloating Rate Limited Liability Company GALAXY CLO 1999-1, LTD. By: SAI Investment Advisor, Inc. Its Collateral Manager By: /s/ John G. Latham ------------------- Name: John G. Latham Title: Authorized Agent KZH SOLIEL - 2 LLC By: /s/ Susan Lee ------------- Name: Susan Lee Title: Authorized Agent TORONTO DOMINION (NEW YORK), INC. By: /s/ Gwen Zirkle --------------- Name: Gwen Zirkle Title: Vice President VAN KAMPEN CLO II, LIMITED By: Van Kampen Management Investment Advisory Corp. as Collateral Manager By: /s/ Darvin D. Pierce -------------------- Name: Darvin D. Pierce Title: Executive Director VAN KAMPEN PRIME RATE INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce -------------------- Name: Darvin D. Pierce Title: Executive Director VAN KAMPEN SENIOR INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce -------------------- Name: Darvin D. Pierce Title: Executive Director VAN KAMPEN SENIOR FLOATING RATE FUND By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce -------------------- Name: Darvin D. Pierce Title: Executive Director EXHIBIT A TERM SHEET - SENIOR NOTES ISSUER: UCAR Finance Inc. PARENT COMPANY GUARANTORS: UCAR International Inc. and UCAR Global Enterprises Inc. PRINCIPAL AMOUNT: $250 - 400 million RANKING: Senior TERM: 8 - 10 years OPTIONAL REDEMPTION: 4 - 5 year non-call protection CLAWBACK: Up to 35% of the Notes may be redeemed at any time within __ years with the proceeds of an equity offering or at any time with net proceeds from our lawsuit initiated against our former parents. CHANGE OF CONTROL PUT: Change of control put at 101% CUSTOMARY COVENANTS: LIMITATION ON INDEBTEDNESS LIMITATION ON RESTRICTED PAYMENTS LIMITATION ON MERGERS AND CONSOLIDATIONS LIMITATION ON ASSET SALES LIMITATION ON PAYMENTS RESTRICTIONS AFFECTING SUBSIDIARIES LIMITATION ON TRANSACTIONS WITH AFFILIATES LIMITATION ON LIENS USE OF NET PROCEEDS: 100% of first $200 million (first $250 million, if offering is more than $300 million) and 50% of balance to be used to repay senior secured term bank debt; balance to be used for working capital and general corporate purposes (to reduce revolver pending use) STRUCTURE: Same as senior secured lenders (excluding security except for pledge of unsecured notes and, at any time that Graftech is not a guarantor of the Senior Notes, junior security on the shares of Graftech held by us) Senior unsecured guarantees by virtually all U.S. subsidiaries Equivalent structure by foreign subsidiaries (which cannot give guarantees for tax reasons): Foreign subsidiaries issue senior unsecured intercompany notes to UCAR Finance, in a principal amount equal to Senior Notes These notes are pledged to secure repayment of the Senior Notes No material priority debt incurred by foreign subsidiaries at the date of issuance of the Senior Notes, except secured intercompany notes to UCAR Finance, which are pledged to senior lenders Graftech and its subsidiaries will guarantee the Senior Notes on a senior unsecured basis: Unless we determine that the SEC reporting requirements would be unduly burdensome or detrimental to Graftech's business, in which case we would give a junior pledge on the shares of Graftech held by us to secure the Senior Notes Until Graftech either completes an IPO or we or Graftech sell privately a material portion of the equity of Graftech, at which time the guarantee would be released and a junior pledge would be created EX-10 8 ucar10kmar02ex1012.txt EXHIBIT 10.12 EXHIBIT 10.12 EXECUTION COPY REAFFIRMATION AGREEMENT, dated as of February 15, 2002 (as the same may from time to time be amended, supplemented or otherwise modified, this "Agreement"), among UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("Global"), UCAR Finance, Inc., a Delaware corporation (the "Borrower"), each Subsidiary Loan Party listed on the signature pages below (the "Subsidiary LOAN PARTIES"), each LC Subsidiary listed on the signature pages below (the "LC SUBSIDIARIES") and JPMORGAN CHASE BANK as Administrative Agent and Collateral Agent (in such capacities, "JPMORGAN CHASE")under the Credit Agreement referred to below. WHEREAS UCAR, the Borrower, certain Lenders, and JPMorgan Chase have entered into the Fourth Amendment (the "FOURTH AMENDMENT"), dated as of December 6, 2001, and the Fifth Amendment (the "Fifth Amendment") dated as of January 18, 2002, to the Credit Agreement dated as of February 22, 2000 (as amended after giving effect to the Fourth Amendment and the Fifth Amendment, the "CREDIT AGREEMENT") among UCAR, Global, the Borrower, the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and JPMorgan Chase Bank. WHEREAS each of UCAR, Global, the Borrower and the Subsidiary Loan Parties is party to each Security Document (such term and each other capitalized term used but not defined herein having the meaning assigned in the Credit Agreement) to which it is shown on SCHEDULE A hereto to be a party; UCAR, Global, the Borrower and the Subsidiary Loan Parties are party to the Guarantee Agreement; UCAR, Global, the Borrower and the Subsidiary Loan Parties are party to the Indemnity, Subrogation and Contribution Agreement; and each of the other Subsidiaries party hereto is party to each Guarantee Agreement and Security Document to which it is shown on SCHEDULE A hereto to be a party (the Security Documents, the Guarantee Agreements and the Indemnity, Subrogation and Contribution Agreement herein together referred to as the "COLLATERAL DOCUMENTS"). WHEREAS each of the parties signatory hereto (each a "REAFFIRMING PARTY") expects to realize, or has realized, substantial direct and indirect benefits as a result of the Fourth Amendment and the Fifth Amendment becoming effective and the consummation of the Realignment Transactions; and WHEREAS the execution and delivery of this Agreement is required under the Fourth Amendment in connection with the consummation of the Realignment Transactions and is required under the Fifth Amendment in connection with the satisfaction of the Collateral and Guarantee Requirement. 2 NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I REAFFIRMATION/AMENDMENT AND RESTATEMENT SECTION 1.1 REAFFIRMATION. Each of the Reaffirming Parties hereby consents to the Fourth Amendment, the Fifth Amendment and the Realignment Transactions and hereby confirms its respective guarantees, pledges and grants of security interests, as applicable, under each of the Collateral Documents to which it is party, and agrees that notwithstanding the effectiveness of the Fourth Amendment and the Fifth Amendment and the consummation of the Realignment Transactions such guarantees, pledges and grants of security interests shall continue to be in full force and effect and shall accrue to the benefit of the Lenders under the Credit Agreement, in each case with the exception of the pledges of Capital Stock under the Domestic Pledge Agreement specified on SCHEDULE B hereto, which will be released in connection with the Realignment Transactions. Each of the Reaffirming Parties further agrees to take any action that may be required or that is reasonably requested by the Administrative Agent or the Collateral Agent to ensure compliance by the Borrower with Section 6.11 of the Credit Agreement and hereby reaffirms its obligations under each similar provision of each Collateral Document to which it is party. SECTION 1.2 AMENDMENT AND RESTATEMENT. On and after the effectiveness of the Credit Agreement, (i) each reference in each Collateral Document to the "Credit Agreement", "thereunder", "thereof" or words of like import shall mean and be a reference to the Credit Agreement as such agreement may be amended, edified or supplemented and in effect from time to time, (ii) the definition of any term defined in any Collateral Document by reference to the terms defined in the Credit Agreement shall be amended to be defined by reference to the defined term in the Credit Agreement, as the same may be amended, modified or supplemented and in effect from time to time and (iii) pursuant to Section 6.11 of the Credit agreement and Section 3(b) of the Fifth Amendment. Schedule I to the Security Agreement, Schedule VII to the Intellectual Property Security Agreement and Schedules I and II to the Domestic Pledge Agreement are hereby amended as set forth on Attachments I through IV hereto, respectively, in each case with the intention and effect of granting the additional security interests resulting therefrom on the terms set forth in the applicable Collateral Document. ARTICLE II REPRESENTATIONS AND WARRANTIES Each Reaffirming Party hereby represents and warrants, which representations and warranties shall survive execution and delivery of this Agreement, as follows: SECTION 2.1 ORGANIZATION. Such Reaffirming Party is duly organized and validly existing in good standing under the laws of the jurisdiction of its formation. 3 SECTION 2.2 AUTHORITY; ENFORCEABILITY. Such Reaffirming Party has the power and authority to execute, deliver and carry out the terms and provisions of this Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement. Such Reaffirming Party has duly executed and delivered this Agreement, and this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 2.3 LOAN DOCUMENTS. The representations and warranties of such Reaffirming Party contained in each Loan Document are true and correct in all material respects on and as of the date hereof with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. ARTICLE III MISCELLANEOUS SECTION 3.1 INDEMNITY. Each Reaffirming Party agrees to indemnify JPMorgan Chase, each Lender and each of their respective directors, trustees, officers, employees and agents (each such person being called an "LNDEMNITEE") against, and to hold each Indemnitee harmless from any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs or expenses or disbursements (including reasonable attorneys' fees and expenses) of whatsoever kind or nature which may be imposed on, asserted against or incurred by any of the Indemnitees arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any Realignment Transaction or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto and thereto of their respective obligations thereunder or the consummation of the transactions contemplated hereby and thereby, or (ii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee (treating, for this purpose only, JPMorgan Chase, any Lender and its directors, trustees, officers and employees as a single Indemnitee). The obligations of such Reaffirming Party under this Section shall be secured hereby and shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Collateral Document, or any investigation made by or on behalf of JPMorgan Chase or any Lender. All amounts due under this Section 3.01 shall be payable on written demand therefor. SECTION 3.2 SETOFF, ETC. In addition to, and without limitation of, any rights of JPMorgan Chase and the Lenders under applicable law, if an Event of Default shall have occurred and be continuing, JPMorgan Chase and each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final (including all account balances, whether provisional or final and whether or not collected or available)) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of any 4 Reaffirming Party against any of and all the obligations of any Reaffirming Party now or hereafter existing under this Agreement or any other Loan Document held by JPMorgan Chase or such Lender (except that no asset of any Foreign Subsidiary may be set off and applied against any obligation of any Reaffirming Party that is a U. S. person), irrespective of whether or not JPMorgan Chase or such Lender shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. The rights of JPMorgan Chase, each Lender under this Section 3.2 are in addition to other rights and remedies (including other rights of setoff) which JPMorgan Chase or such Lender may have. SECTION 3.3 NOTICES. All notices and other communications hereunder shall be made at the addresses, in the manner and with the effect provided in Article X of the Credit Agreement; provided that, for this purpose, the address of each Reaffirming Party shall be the one specified for the Borrower under the Credit Agreement. SECTION 3.4 LIMITATION OF LIABILITY. No claim may be made by any Reaffirming Party or any other person against JPMorgan Chase, and any Lender, or the Affiliates, directors, trustees, officers, employees, attorneys or agents of any of them for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by the Credit Agreement, or any act, omission or event occurring in connection therewith; and each Reaffirming Party hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor and each Reaffirming Party agrees to notify JPMorgan Chase and any Lender, as applicable, of any such claim promptly upon learning of any such claim. SECTION 3.5 LIABILITY OF JPMORGAN CHASE AND ANY LENDER, ETC. If any claim is ever made upon JPMorgan Chase or any Lender for repayment or recovery of any amount or amounts received in payment or on account of any of the Obligations and any of the aforesaid payees repays all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property or (b) any settlement or compromise of any such claim effected by such payee with any such claimant (including the Borrower or any other obligor in respect of any Obligation), then and in such event each Reaffirming Party agrees that any such judgment, decree, order, settlement or compromise shall be binding upon it, notwithstanding any revocation hereof or the cancellation of any Loan Document or other instrument evidencing any liability of the Borrower or any other obligor in respect of any Obligation, and such Reaffirming Party shall be and remain liable to the aforesaid payees hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such payee. SECTION 3.6 CHOICE OF LAW: CONSENT TO JURISDICTION. THIS AGREEMENT SHALL BE IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH REAFFIRMING PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING 5 TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST ANY REAFFIRMING PARTY OR THEIR PROPERTIES IN THE COURTS OF ANY JURISDICTION. SECTION 3.7 EXPENSES. Each Reaffirming Party agrees to pay all reasonable costs, fees and expenses (including reasonable attorneys' fees and time charges of attorneys for JPMorgan Chase or any Lender, which attorneys may be employees of JPMorgan Chase or any Lender) incurred by JPMorgan Chase or any Lender in collecting or enforcing any Reaffirming Party's obligations under this Agreement. SECTION 3.8 LOAN DOCUMENT. This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 3.9 SECTION CAPTIONS. Section captions used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. SECTION 3.10 SEVERABILITY. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this 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 Agreement. SECTION 3.11 WAIVER OF JURY TRIAL. EACH OF THE REAFFIRMING PARTIES AND JPMORGAN CHASE BY ITS ACCEPTANCE HEREOF HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR JPMORGAN CHASE AND ANY LENDER TO ENTER INTO THE AMENDED AND RESTATED CREDIT AGREEMENT. 6 SECTION 3.12 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. SECTION 3.13 AMENDMENT. This Agreement may be waived, modified or amended only by a written agreement executed by each of the parties hereto. SECTION 3.14 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original but all of which shall together constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 3.15 NO NOVATION. Neither this Agreement nor the execution, delivery or effectiveness of the Credit Agreement shall extinguish the obligations for the payment of money outstanding under the Credit Agreement or the Credit Agreement or discharge or release the Lien or priority of the Pledge Agreement or any other security therefor. Nothing herein contained shall be construed as a substitution or novation of the obligations outstanding under the Credit Agreement or the Credit Agreement or instruments securing the same, which shall remain in full force and effect, except to any extent modified hereby or by instruments executed concurrently herewith. Nothing implied in this Agreement, the Amendment or in any other document contemplated hereby or thereby shall be construed as a release or other discharge of any Borrower or any Guarantor or any Subsidiary Pledgor or any Pledgor or any party to the Indemnity, Subrogation and Contribution Agreement under any Collateral Document from any of its obligations and liabilities as a "Borrower", "Guarantor", "Subsidiary Loan Party", "Pledgor" or "party to the Indemnity, Subrogation and Contribution Agreement" under the Credit Agreement or the Collateral Documents. Each of the Credit Agreement and the Collateral Documents shall remain in full force and effect, until (as applicable) and except to any extent modified hereby or by the Amendment or in connection herewith and therewith. 7 IN WITNESS WHEREOF, each Reaffirming Party and JPMorgan Chase as Administrative Agent and Collateral Agent for the benefit of the Lenders caused this Agreement to be duly executed and delivered as of the date first above written. UCAR INTERNATIONAL INC., By:________________________________ Name: Title: UCAR GLOBAL ENTERPRISES INC., By:________________________________ Name: Title: UCAR FINANCE INC., By:________________________________ Name: Title: UCAR CARBON COMPANY INC., By:________________________________ Name: Title: 8 UCAR INTERNATIONAL HOLDINGS INC., By:________________________________ Name: Title: UCAR INTERNATIONAL TRADING INC., By:________________________________ Name: Title: UCAR COMPOSITES INC., By:________________________________ Name: Title: UCAR S.A. By:________________________________ Name: Title: UCAR S.p.A. By:________________________________ Name: Title: UCAR HOLDINGS S.A. By:________________________________ Name: Title: UCAR ELECTRODOS, S.L., By:________________________________ Name: Title: UCAR CARBON MEXICANA, S.A. de C.V. By:________________________________ Name: Title: 9 UCAR INC., By:________________________________ Name: Title: UCAR LIMITED, By:________________________________ Name: Title: UCAR PRODUTOS DE CARBONO S.A., By:________________________________ Name: Title: UCAR CARBON S.A. By:________________________________ Name: Title: JPMORGAN CHASE BANK, as Administrative Agent and Collateral Agent, By:________________________________ Name: Title: 10 Reaffirmation Agreement Schedule A
PARTY SECURITY DOCUMENT - ----- ----------------- UCAR International, Inc. Domestic Pledge Agreement Guarantee Agreement Security Agreement Intellectual Property Security Agreement - ------------------------------------------------- ----------------------------------------------- UCAR Global Enterprises, Inc. Domestic Pledge Agreement Guarantee Agreement Security Agreement Intellectual Property Security Agreement - ------------------------------------------------- ----------------------------------------------- UCAR Finance, Inc. Domestic Pledge Agreement Guarantee Agreement Security Agreement Intellectual Property Security Agreement Intercompany Borrower Agreements - ------------------------------------------------- ----------------------------------------------- UCAR Carbon Company Inc. Domestic Pledge Agreement Guarantee Agreement Security Agreement Intellectual Property Security Agreement Mortgages in Ohio, Tennessee, West Virginia and New York - ------------------------------------------------- ----------------------------------------------- UCAR International Holdings Inc. (formerly UCAR Domestic Pledge Agreement Holdings II Inc.) Guarantee Agreement Security Agreement Intellectual Property Security Agreement - ------------------------------------------------- ----------------------------------------------- UCAR Holdings III Inc. Guarantee Agreement Security Agreement Intellectual Property Security Agreement - ------------------------------------------------- ----------------------------------------------- UCAR Composites Inc. Guarantee Agreement Security Agreement Intellectual Property Security Agreement - ------------------------------------------------- ----------------------------------------------- UCAR International Trading Inc. Guarantee Agreement Security Agreement Intellectual Property Security Agreement - ------------------------------------------------- ----------------------------------------------- UCAR S.A. Domestic Pledge Agreement Swiss Assignment Agreement dated as of February 22, 2000 - ------------------------------------------------- ----------------------------------------------- UCAR Electrodos, S.L. Mortgage over real property in Navarra, Spain - ------------------------------------------------- ----------------------------------------------- UCAR Carbon Mexicana, S.A de C.V. Two mortgages over real property in Apodaca, Mexico - ------------------------------------------------- ----------------------------------------------- UCAR Inc. Movable Hypothec Agreement dated as of February 22, 2000
11
Canadian Security Agreement dated as of February 22, 2000 - ------------------------------------------------- ----------------------------------------------- UCAR Carbon S.A. Domestic Pledge Agreement - ------------------------------------------------- ----------------------------------------------- UCAR Holdings S.A. Domestic Pledge Agreement - ------------------------------------------------- ----------------------------------------------- UCAR Ltd. Debenture dated February 22, 2000 Pledge Agreement dated February 22, 2000 - ------------------------------------------------- ----------------------------------------------- UCAR Produtos de Carbono S.A. Mortgages over real property in Candeias, Brazil - ------------------------------------------------- -----------------------------------------------
12 Reaffirmation Agreement Schedule B PLEDGES OF CAPITAL STOCK TO BE RELEASED
Pledgor Issuer Pledged Stock Percentage Pledged - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Global Enterprises UCAR Carbon S.A. No Certificates 65% Inc. (Brazil) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Global Enterprises UCAR Holding GmbH No Certificates 65% Inc. (Austria) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. Unicarbon Comercial No certificates 65% Ltda. (Brazil)* - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. UCAR Carbon Foreign 1 Share (Certificate 65% Sales Corporation No. 2) Inc.* - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. EMSA (Pty) Ltd. 4,062,500 Shares 65% (South Africa) (Certificate No. 36) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. UCAR Mexicana S.A de 269,828,025 Shares 65% C.V. (Mexico)** (Certificates No. 1 and 5) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. UCAR S.p.A. (Italy) 3,250,000 Shares 65% (Certificate No. 5) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. UCAR Electrodos, S.L. No Certificates (1 .1% (Spain) Share) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. UCAR Carbon Mexicana 27,231 Shares .1% S.A. de C.V. (Mexico) (Certificate Nos. 1,3 and 4) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR International UCAR SNC (France) No Certificates (1 .1% Holdings Inc. Share) - ------------------------- ----------------------- ----------------------- ----------------------- Unicarbon Comercial UCAR Carbon S.A. No Certificates 2.33% Ltda. (Brazil)** (Brazil) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Mexicana, S.A. de UCAR Carbon Mexicana, 5,944,099 Shares 99.8% CV. (Mexico)*** S.A. de C.V. (Mexico) (Certificates 27, 29 *** and 29) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR S.p.A. (Italy) UCAR Enegria S.r.l. No Certificates 100% (Italy) - ------------------------- ----------------------- ----------------------- -----------------------
* Entity has been dissolved. ** Unicarbon Comercial Ltda. was merged into UCAR Carbon S.A. on February 19, 2001, according to the Minute of the Quotaholders Meeting held on the same date and registered with the Commerce Registry of the State of Bahia on March 3, 2001. *** UCAR Mexicana S.A. de C.V. was merged into UCAR Carbon Mexicana S.A. de C.V. 13 Attachment I Amendment to Schedule I to the Security Agreement SUBSIDIARY GRANTORS UCAR Carbon Company Inc. UCAR International Holdings Inc. UCAR Holdings III Inc. UCAR Composites Inc. Graftech Inc. 14 Attachment II Reaffirmation Agreement Amendment to Schedule VII to the Intellectual Property Security Agreement PATENTS OWNED BY UCAR CARBON COMPANY INC.
PATENT NUMBER PATENT ISSUE DATE TITLE - ------------------------ --------------------- -------------------------------------------------- 5336015 08/09/1994 SELF CENTERING ELECTRODE JOINT - ------------------------ --------------------- -------------------------------------------------- 5167868 12/01/1992 CONDUCTIVE EXPANDABLE CARBONACEOUS PASTE MATERIAL - ------------------------ --------------------- -------------------------------------------------- 5280063 01/18/1994 ROOM TEMPERATURE SETTING CARBONACEOUS CEMENT WITH INCREASED ELECTRICAL CONDUCTIVITY AND FLEXURAL STRENGTH - ------------------------ --------------------- -------------------------------------------------- 5373051 12/13/1994 ROOM TEMPERATURE SETTING CARBONACEOUS CEMENT WITH INCREASED ELECTRICAL CONDUCTIVITY AND FLEXURAL STRENGTH - ------------------------ --------------------- -------------------------------------------------- 5550176 08/27/1996 ROOM TEMPERATURE SETTING CARBONACEOUS CEMENT WITH INCREASED ELECTRICAL CONDUCTIVITY AND FLEXURAL STRENGTH - ------------------------ --------------------- -------------------------------------------------- RE33760 12/03/1991 HIGH PURITY, HIGH TEMPERATURE PIPE THREAD SEALANT PASTE - ------------------------ --------------------- -------------------------------------------------- 6245400 06/12/2001 FLEXIBLE GRAPHITE WITH NON-CARRIER PSA BACKING AND RELEASE LINER - ------------------------ --------------------- -------------------------------------------------- 5167796 12/01/1992 METHOD FOR PRODUCING LOW SULFUR PREMIUM COKE FROM HIGH SULFUR DECANT OILS - ------------------------ --------------------- -------------------------------------------------- 4729689 03/08/1988 ELECTRODE MEMBER AND PROCESS FOR THE PRODUCTION THEREOF - ------------------------ --------------------- -------------------------------------------------- 4679206 07/07/1987 ELECTRODE JOINT THREAD FORM - ------------------------ --------------------- -------------------------------------------------- 4726995 02/23/1988 OXIDATION RETARDED GRAPHITE OR CARBON ELECTRODE AND METHOD FOR PRODUCING THE ELECTRODE - ------------------------ --------------------- -------------------------------------------------- 5413738 05/09/1995 CARBON-CARBON COMPOSITES CONTAINING POORLY GRAPHITIZING PITCH AS A BINDER AND/OR IMPREGNANT HAVING A REDUCED COEFFICIENT OF THERMAL EXPANSION AND IMPROVED FLEXURAL STRENGTH - ------------------------ --------------------- -------------------------------------------------- 5688155 11/18/1997 CARBON-CARBON COMPOSITES CONTAINING POORLY GRAPHITIZING PITCH AS A BINDER AND/OR IMPREGNANT HAVING A REDUCED COEFFICIENT OF - ------------------------ --------------------- --------------------------------------------------
15 THERMAL EXPANSION AND IMPROVED FLEXURAL STRENGTH - ------------------------ --------------------- -------------------------------------------------- 56007770 03/04/1997 CARBON-CARBON COMPOSITES CONTAINING POORLY GRAPHITIZING PITCH AS A BINDER AND/OR IMPREGNANT HAVING A REDUCED COEFFICIENT OF THERMAL EXPANSION AND IMPROVED FLEXURAL STRENGTH - ------------------------ --------------------- -------------------------------------------------- 4725161 02/16/1988 ELECTRODE JOINT - ------------------------ --------------------- -------------------------------------------------- 4844740 07/04/1989 HIGH COKING VALUE BINDER SYSTEM - ------------------------ --------------------- -------------------------------------------------- 4813805 03/21/1989 JOINT FOR CARBON ELECTRODES - ------------------------ --------------------- -------------------------------------------------- 5019426 05/28/1991 TOPICAL TREATMENT FOR SEALING CARBON AND GRAPHITE SURFACES - ------------------------ --------------------- -------------------------------------------------- 4875979 10/24/1989 TREATMENT OF PETROLEUM COKES TO INHIBIT COKE PUFFING - ------------------------ --------------------- -------------------------------------------------- 5110359 05/05/1992 TREATMENT OF PETROLEUM COKES TO INHIBIT COKE PUFFING - ------------------------ --------------------- -------------------------------------------------- 5118287 06/02/1992 TREATMENT OF PETROLEUM COKES TO INHIBIT COKE PUFFING - ------------------------ --------------------- -------------------------------------------------- 5143749 09/01/1992 METHOD FOR TREATING A GRAPHITE OR CARBON BODY TO FORM A PROTECTIVE COATING - ------------------------ --------------------- -------------------------------------------------- 5002981 03/26/1991 HIGH STRENGTH CARBONACEOUS CEMENT - ------------------------ --------------------- -------------------------------------------------- 5099438 03/24/1992 METHOD OF ON-LINE MONITORING OF AN ELECTRIC ARC FURNACE AND METHOD OF CONTROL - ------------------------ --------------------- -------------------------------------------------- 5478442 12/26/1995 APPARATUS FOR TREATMENT OF PETROLEUM COKES WITH A PUFFING INHIBITOR IN A ROTARY CALCINER - ------------------------ --------------------- -------------------------------------------------- 5115447 05/19/1992 IMPROVEMENT IN ARC FURNACE REGULATOR PERFORMANCE - ------------------------ --------------------- -------------------------------------------------- 5117439 05/26/1992 METHOD FOR OPERATING AN ELECTRODE GRAPHITIZATION FURNACE - ------------------------ --------------------- -------------------------------------------------- 5415755 05/16/1995 FASTENING ELEMENT FOR SECURING ELECTRODE JOINTS - ------------------------ --------------------- -------------------------------------------------- 5534133 07/09/1996 CONTINUOUS METHOD FOR INCREASING THE Q.I. CONCENTRATION OF LIQUID TAR WHILE CONCURRENTLY PRODUCING A Q.I. FREE TAR - ------------------------ --------------------- -------------------------------------------------- 5751759 05/12/1998 PRE-HEATING FURNACE FOR BAKED AMORPHOUS CARBON BODIES - ------------------------ --------------------- -------------------------------------------------- 5631919 05/20/1997 APPARATUS FOR LENGTHWISE GRAPHITIZATION (LWG) OF CARBON ELECTRODE BODIES - ------------------------ --------------------- -------------------------------------------------- 5843298 12/01/1998 PRODUCTION OF SOLIDS-FREE COAL TAR - ------------------------ --------------------- --------------------------------------------------
16 PITCH - ------------------------ --------------------- -------------------------------------------------- 6058133 05/02/2000 GRAPHITE ELECTRODES INCORPORATING STRESS-RELIEVING SLOTS - ------------------------ --------------------- -------------------------------------------------- 6214158 04/10/2001 HIGH TEMPERATURE CARBONACEOUS CEMENT - ------------------------ --------------------- -------------------------------------------------- 6280663 08/28/2001 A PIN CONNECTING CARBON ELECTRODES AND PROCESS THEREFOR - ------------------------ --------------------- -------------------------------------------------- 4847021 07/11/1989 PROCESS FOR PRODUCING HIGH DENSITY CARBON AND GRAPHITE ARTICLES - ------------------------ --------------------- -------------------------------------------------- 5107437 04/21/1992 A PROCESS FOR ISOSTATIC MOLDING - ------------------------ --------------------- -------------------------------------------------- 5639707 06/17/1997 HIGH SURFACE AREA SULFUR-CONTAINING ACTIVATED CARBON - ------------------------ --------------------- -------------------------------------------------- 5476679 12/19/1995 A GLASSY CARBON COATED GRAPHITE COMPONENT FOR USE IN THE PRODUCTION OF SILICON CRYSTAL GROWTH - ------------------------ --------------------- --------------------------------------------------
17 PATENTS OWNED BY GRAFTECH INC.
PATENT NUMBER PATENT ISSUE DATE TITLE - ------------------------ --------------------- -------------------------------------------------- 4895713 01/23/1990 INTERCALATION OF GRAPHITE - ------------------------ --------------------- -------------------------------------------------- 4826181 05/02/1989 COMPOSITES OF FLEXIBLE GRAPHITE PARTICLES AND AMORPHOUS CARBON - ------------------------ --------------------- -------------------------------------------------- 5225379 07/06/1993 COMPOSITES OF FLEXIBLE GRAPHITE PARTICLES AND AMORPHOUS CARBON - ------------------------ --------------------- -------------------------------------------------- 5228701 07/20/1993 FLEXIBLE GRAPHITE ARTICLES WITH AN AMORPHOUS CARBON PHASE AT THE SURFACE - ------------------------ --------------------- -------------------------------------------------- 4704231 11/03/1987 COMPOSITE COMPRISING NEARLY PARALLEL EXFOLIATED GRAPHITE WORMS - ------------------------ --------------------- -------------------------------------------------- 4946892 08/07/1990 COMPOSITES OF IN-SITU EXFOLIATED GRAPHITE - ------------------------ --------------------- -------------------------------------------------- 4872914 10/10/1989 HIGH PURITY, HIGH TEMPERATURE PIPE THREAD SEALANT PASTE - ------------------------ --------------------- -------------------------------------------------- RE33760 12/03/1991 HIGH PURITY, HIGH TEMPERATURE PIPE THREAD SEALANT PASTE - ------------------------ --------------------- -------------------------------------------------- 5085700 02/04/1992 HIGH PURITY, HIGH TEMPERATURE PIPE THREAD SEALANT PASTE - ------------------------ --------------------- -------------------------------------------------- 4911972 03/27/1990 INSULATING COMPOSITE GASKET - ------------------------ --------------------- -------------------------------------------------- 5130199 07/14/1991 FLEXIBLE GRAPHITE EXPANDABLE SEAL AND METHOD - ------------------------ --------------------- -------------------------------------------------- 5149518 09/22/1992 ULTRA-THIN PURE FLEXIBLE GRAPHITE - ------------------------ --------------------- -------------------------------------------------- 5582811 12/10/1996 STABLE BLISTER FREE FLEXIBLE GRAPHITE AND METHOD - ------------------------ --------------------- -------------------------------------------------- 4961991 10/09/1990 FLEXIBLE GRAPHITE LAMINATE - ------------------------ --------------------- -------------------------------------------------- 5176863 01/05/1993 FLEXIBLE GRAPHITE COMPOSITE FIRE RETARDANT WALLPAPER AND METHOD - ------------------------ --------------------- -------------------------------------------------- 5198063 03/30/1993 METHOD AND ASSEMBLY FOR REINFORCING FLEXIBLE GRAPHITE AND ARTICLE - ------------------------ --------------------- -------------------------------------------------- 5830809 11/03/1998 METHOD AND ASSEMBLY FOR REINFORCING FLEXIBLE GRAPHITE AND ARTICLE - ------------------------ --------------------- -------------------------------------------------- 5376450 12/27/1994 LOW SURFACE ACID INTERCALATED GRAPHITE AND METHOD - ------------------------ --------------------- -------------------------------------------------- 5192605 03/09/1993 EPOXY RESIN BONDED FLEXIBLE GRAPHITE LAMINATE AND METHOD - ------------------------ --------------------- -------------------------------------------------- 5451064 09/19/1995 EXHAUST SEAL RING - ------------------------ --------------------- -------------------------------------------------- 5443894 08/22/1995 FLAME RETARDANT ORIENTED STRAND BOARD STRUCTURE ELEMENT - ------------------------ --------------------- -------------------------------------------------- 5494506 02/27/1996 GAS FILTERING DEVICE FOR AIR BAG GENERATOR - ------------------------ --------------------- --------------------------------------------------
18 5756062 05/26/1998 CHEMICALLY MODIFIED GRAPHITE FOR ELECTROCHEMICAL CELLS - ------------------------ --------------------- -------------------------------------------------- 5677082 10/14/1997 COMPACTED CARBON FOR ELECTROCHEMICAL CELLS - ------------------------ --------------------- -------------------------------------------------- 5639576 06/17/1997 HETEROATOM INCORPORATED COKE FOR ELECTROCHEMICAL CELLS - ------------------------ --------------------- -------------------------------------------------- 5985452 11/16/1999 FLEXIBLE GRAPHITE COMPOSITE SHEET AND METHOD - ------------------------ --------------------- -------------------------------------------------- 6017633 01/25/2000 FLEXIBLE GRAPHITE COMPOSITE SHEET AND METHOD - ------------------------ --------------------- -------------------------------------------------- 6143218 11/07/2000 FLEXIBLE GRAPHITE COMPOSITE SHEET AND METHOD - ------------------------ --------------------- -------------------------------------------------- 5902762 05/11/1999 FLEXIBLE GRAPHITE COMPOSITE - ------------------------ --------------------- -------------------------------------------------- 5990027 11/23/1999 FLEXIBLE GRAPHITE COMPOSITE - ------------------------ --------------------- -------------------------------------------------- 5885728 03/23/1999 FLEXIBLE GRAPHITE COMPOSITE - ------------------------ --------------------- -------------------------------------------------- 6037074 03/14/2000 FLEXIBLE GRAPHITE COMPOSITE - ------------------------ --------------------- -------------------------------------------------- 6087034 07/11/2000 FLEXIBLE GRAPHITE COMPOSITE - ------------------------ --------------------- -------------------------------------------------- 6074585 06/13/2000 FLEXIBLE GRAPHITE COMPOSITE - ------------------------ --------------------- -------------------------------------------------- 5981072 11/09/1999 OXIDATION AND CORROSION RESISTANT FLEXIBLE GRAPHITE COMPOSITE SHEET AND METHOD - ------------------------ --------------------- -------------------------------------------------- 5846459 12/08/1998 FLEXIBLE GRAPHITE SHEET WITH DECREASED ANISOTROPY - ------------------------ --------------------- -------------------------------------------------- 6254993 07/03/2001 FLEXIBLE GRAPHITE SHEET WITH DECREASED ANISOTROPY - ------------------------ --------------------- -------------------------------------------------- 5976727 11/02/1999 ELECTRICALLY CONDUCTIVE SEAL FOR FUEL CELL ELEMENTS - ------------------------ --------------------- -------------------------------------------------- 6060189 05/09/2000 ELECTRICALLY CONDUCTIVE SEAL FOR FUEL CELL ELEMENTS - ------------------------ --------------------- -------------------------------------------------- 6149972 11/21/2000 EXPANDABLE GRAPHITE AND METHOD 30015-3 - ADD INVENTOR - R.A. REYNOLDS - ------------------------ --------------------- -------------------------------------------------- 6228914 05/08/2001 INTUMESCENT COMPOSITION AND METHOD - ------------------------ --------------------- --------------------------------------------------
19 PATENTS PENDING BY UCAR CARBON COMPANY INC. For reasons of confidentiality, this schedule is contained only on the original schedule held by the Collateral Agent. PATENTS PENDING BY GRAFTECH INC. For reasons of confidentiality, this schedule is contained only on the original schedule held by the Collateral Agent. 20 Attachment III Amendment to Schedule I to the Domestic Pledge Agreement PLEDGED STOCK
PLEDGOR ISSUER PLEDGED STOCK PERCENTAGE OF TOTAL EQUITY COVERED BY PLEDGE - ------------------------- ----------------------- ----------------------- ----------------------- UCAR International Inc. UCAR Global 100 shares 100% Enterprises Inc. (Certificate No. U0001) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR International Inc. UCAR Finance Inc. 100 shares 100% (Certificate No. 1) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Global Enterprises UCAR Carbon Company 500 shares 100% Inc. Inc. (Certificate No. 2) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. UCAR S.A. 113,750 shares 65% (Certificate No. 5) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. UCAR Composites Inc. 800 shares 100% (Certificate No. A3) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. UCAR International 100 shares 100% Holdings Inc. (Certificate No. 2) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. Union Carbide 25,000 preferred 100% Grafito, Inc. shares (Certificate No. 26) 200 common shares (Certificate No. 2) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR International UCAR Holdings III Inc. 100 shares 100% Holdings Inc. (Certificate No. 2) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. UCAR International 100 Shares 100% Trading Inc.** (Certificate No. 1) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. Carbographite Limited 2,600 Shares 65% (South Africa)** (Certificate No. 42) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. UCAR Holding GmbH No Certificates 31.67% (Austria) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR S.A. (Switzerland) UCAR Holding GmbH No Certificates 33.33% (Austria) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon S.A. UCAR Produtos de No Certificates 99.97% (Brazil) Carbono S.A. (Brazil) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Holdings S.A. UCAR SNC (France) No Certificates 100% (France) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Holdings III UCAR SNC (France) 1 share (No .1% Certificates) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Company Inc. UCAR Limited (UK) 5,249,999 Shares 65% (Certificate No. 9) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR Carbon Graftech Inc. 640 Class A Common 97.5% - ------------------------- ----------------------- ----------------------- -----------------------
21 Company Inc. Shares (Cert. No. 1) 1,200 Class B Common Shares (Cert. No. 1) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR International UCAR Inc. (Canada) 650 Shares 65% Holdings Inc. (Certificate No. 3) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR International UCAR Electrodos, S.L. No Certificates 65% Holdings Inc. (Spain) - ------------------------- ----------------------- ----------------------- ----------------------- UCAR International UCAR Holdings S.A. No Certificates 65% Holdings Inc. (France) - ------------------------- ----------------------- ----------------------- -----------------------
(PLEDGED NOTES ON NEXT PAGE) 22 PLEDGED NOTES
PLEDGOR ISSUER PRINCIPAL AMOUNT/REVOLVING NOTE LIMIT - --------------------------------- ------------------------------- ------------------------------- UCAR Finance Inc. UCAR Carbon Company Inc. $700,000,000 - --------------------------------- ------------------------------- ------------------------------- UCAR Finance Inc. UCAR S.A. (euro)336,000,000 - --------------------------------- ------------------------------- ------------------------------- UCAR Carbon Company Inc. UCAR International Inc. $407,260,872.59 - --------------------------------- ------------------------------- ------------------------------- UCAR Finance Inc. UCAR Inc. $60,000,000 - --------------------------------- ------------------------------- ------------------------------- UCAR Holdings S.A. UCAR Finance Inc. (euro)100,000,000 - --------------------------------- ------------------------------- ------------------------------- UCAR S.p.A. UCAR Finance Inc. (euro)30,000,000 - --------------------------------- ------------------------------- ------------------------------- UCAR Electrodos, S.L. UCAR Finance Inc. (euro)60,000,000 - --------------------------------- ------------------------------- ------------------------------- UCAR Limited UCAR Finance Inc. GBP 30,000,000 - --------------------------------- ------------------------------- ------------------------------- UCAR S.A. UCAR Finance Inc. (euro)300,000,000 - --------------------------------- ------------------------------- ------------------------------- UCAR Composites Inc. UCAR Finance Inc. $10,000,000 - --------------------------------- ------------------------------- ------------------------------- UCAR Carbon Company Inc. Graftech Inc. $15,000,000 - --------------------------------- ------------------------------- ------------------------------- Graftech Inc. UCAR Carbon Company Inc. $15,000,000 - --------------------------------- ------------------------------- ------------------------------- UCAR Carbon S.A. UCAR Carbon Company Inc. $5,000,000 - --------------------------------- ------------------------------- -------------------------------
23 Attachment IV Amendment to Schedule II to the Domestic Pledge Agreement PLEDGOR SUBSIDIARIES UCAR Holdings, S.A 4 Place de Etats-Unis Silic 214 F-94518 Rungis Cedex France UCAR S.N.C. 4 place de Etats-Unis Silic 214 F-94518 Rungis Cedex France UCAR S.p.A. Casella Postale 89 1-81100 Caserta Italy UCAR S.A. Route de Pallatex 1163 Etoy Switzerland UCAR Mexican S.A. de C.V. Carretera de Astrain S/N Monterrey, Nueva Leon Mexico 6400 UCAR Ltd. Claywheels Lane Wadsley Bridge Sheffield, 56 INF England UCAR Inc (send to Delaware) UCAR International Inc., Brandywine West 1521 Concord Pike, Suite 301 Wilmington, Delaware 19803 24 UCAR Carbon S.A. Av. Brigadeiro Faria Lima 1461 9? andar - cj. 94 01451-000 Sao Paulo - SP Brazil UCAR Produtos de Carbona S.A. Av. Brigadeiro Faria Lima 1461 9? andar - cj. 94 01451-000 Sao Paulo - SP Brazil 25 Signature page to Reaffirmation Agreement JPMORGAN CHASE BANK, as Administrative Agent and Collateral Agent, By: /s/ JAMES H. RAMAGE ---------------------------------------------- Name: James H. Ramage Title: Managing Director 26 IN WITNESS WHEREOF, each Reaffirming Party and JPMorgan Chase as Administrative Agent and Collateral Agent for the benefit of the Lenders caused this Agreement to be duly executed and delivered as of the date first above written. UCAR INTERNATIONAL INC., By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR GLOBAL ENTERPRISES INC., By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR FINANCE INC., By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR CARBON COMPANY INC., By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Assistant Treasurer 27 UCAR INTERNATIONAL HOLDINGS INC., By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Assistant Treasurer UCAR INTERNATIONAL TRADING INC., By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Attorney-in-Fact UCAR COMPOSITES INC., By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Attorney-in-Fact UCAR S.A. By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Attorney-in-Fact UCAR S.p.A. By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Attorney-in-Fact UCAR HOLDINGS S.A. By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Attorney-in-Fact UCAR ELECTRODOS, S.L., By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Attorney-in-Fact UCAR CARBON MEXICANA, S.A. de C.V. By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Attorney-in-Fact 28 UCAR INC., By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Attorney-in-Fact UCAR LIMITED, By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Attorney-in-Fact UCAR PRODUTOS DE CARBONO S.A., By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Attorney-in-Fact UCAR CARBON S.A. By: /s/ WALTER D. CARTER, JR. ---------------------------------------------- Name: Walter D. Carter, Jr. Title: Attorney-in-Fact JPMORGAN CHASE BANK, as Administrative Agent and Collateral Agent, By: ---------------------------------------------- Name: Title: EX-10 9 ucar10kmar02ex1013.txt EXHIBIT 10.13 Exhibit 10.13 EXECUTION COPY PLEDGE AGREEMENT PLEDGE AGREEMENT dated as of February 15, 2002, by UCAR SA a Swiss corporation (the "Pledgor"), in favor of UCAR FINANCE INC., a Delaware corporation with registered office at Brandywine West Building,1521 Concord Pike, Suite 301, Wilmington, DE 19803 (the "Pledgee"); each other capitalized term used but not defined herein having the meaning given it in Article I of the Credit Agreement dated as of February 22, 2000, among UCAR INTERNATIONAL INC., a Delaware corporation ("UCAR"), UCAR GLOBAL ENTERPRISES INC., a Delaware corporation ("GLOBAL") UCAR FINANCE INC., a Delaware corporation (the "Borrower"), the LC Subsidiaries from time to time party thereto, the Lenders from time to time party thereto and JPMORGAN CHASE BANK, as Administrative Agent, Collateral Agent and Issuing Bank (as the same has been or may be amended, supplemented or otherwise modified from time to time, (the "Credit Agreement")). W I T N E S S E T H : WHEREAS, on February 22, 2000, the Pledgor entered into an Intercompany Borrower Agreement, which is attached as Annex I (the "Intercompany Borrower Agreement"), with the Pledgee pursuant to which the Pledgee has made certain Intercompany Loans to the Pledgor; and WHEREAS, on February 22, 2000, the Pledgor has granted a guarantee, which is attached as Annex II (the "Guarantee") to guarantee the obligations of the Foreign Subsidiaries as defined in the Guarantee for the benefit of the Pledgee; and WHEREAS, pursuant to the Credit Agreement, it is a condition to the obligations of the Lenders to make the Loans which are prerequisite for making the Intercompany Loans and of the Issuing Bank to issue the Letters of Credit that the Pledgor shall have executed and delivered this Pledge Agreement. NOW, THEREFORE, in consideration of the premises and to continue to satisfy the conditions required by the Credit Agreement, the Pledgor hereby agrees with the Pledgee as follows: 1. DEFINED TERMS. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings assigned to them in the Credit Agreement. (b) The following terms shall have the following meanings: Pledge Agreement 2 ________________________________________________________________________________ "Additional Collateral" shall mean all rights of the Pledgor under any guarantees, security agreements or other instruments or documents guaranteeing or securing the Pledged Stock. "Collateral" shall mean the Pledged Stock, the Additional Collateral and all Proceeds thereof. "Collateral Account" any account established to hold money Proceeds, maintained under the sole dominion and control of and on terms and conditions reasonably satisfactory to the Pledgee, subject to withdrawal by the Pledgee or any person appointed by it for the account of the Pledgee and the Pledgor, as provided in Section 8(a) and Section 14. "Foreign Subsidiaries" shall have the meaning assigned to it in the Guarantee. "Issuer" shall mean any issuer of Pledged Stock hereunder. "Obligations" shall mean (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Intercompany Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Pledgor under the Guarantee (including, without limitation, all monetary obligations of the Foreign Subsidiaries under the Intercompany Notes and Intercompany Borrower Agreements, but only for so long as the Intercompany Notes and the rights of the Borrower under the Intercompany Borrower Agreements are pledged to the Collateral Agent). "Pledged Stock" shall mean all shares of Capital Stock listed on SCHEDULE I hereto, together with all certificates or bank statements demonstrating the existence and quantity of book-entry shares from time to time evidencing such Capital Stock. "Proceeds" shall mean all proceeds of any Pledged Stock and, in any event, shall include all payments, dividends or other distributions or other income on the Pledged Stock . "Securities Act" shall mean the Securities Act of 1933, as amended. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section references are to this Agreement unless otherwise specified. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. Pledge Agreement 3 ________________________________________________________________________________ 2. PLEDGE; GRANT OF SECURITY INTEREST; ASSIGNMENT OF SECURITY INTERESTS; LIMITATION OF OBLIGATIONS. The Pledgor hereby pledges, charges and delivers to the Pledgee and hereby grants to the Pledgee, a first priority security interest in, all the Pledged Stock now or at any time hereafter owned by such Pledgor as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration, upon one or more dates of prepayment or otherwise) of the Obligations. In relation to obligations of a Foreign Subsidiary (other than the Pledgor or any of its subsidiaries), Pledgor shall (a) only be liable to the Pledgee to the extent and in the maximum amount of the profits available for the distribution of dividends (being the balance sheet profits, such part of the general reserve which exceeds 50% of the share capital and any reserves made for the purpose of future distribution, all in accordance with art. 675(2) of the Swiss code of Obligations) at any given time; (b)(i) deduct from any such payments Swiss Anticipatory Tax (withholding tax) at the rate of 35 percent (or such other rate as in force from time to time) and subject to any applicable double taxation treaty; (ii) pay such deduction to the Swiss Federal Tax Administration; and (iii) give evidence to the Pledgee of such deduction in accordance with Section 2.16 of the Credit Agreement; and (c) gross-up pursuant to Section 2.16 of the Credit Agreement but only up to the maximum amount defined under (a) of this section. Any and all indemnities and guarantees contained in this Pledge Agreement and in the Loan Documents shall be construed in a manner consistent with this paragraph. The Pledgor will cause any shares of Capital Stock required to be pledged hereunder to be evidenced by duly executed certificates that are pledged and delivered to the Pledgee pursuant to the terms hereof. 3. STOCK POWERS AND INSTRUMENTS OF TRANSFER. Concurrently with the delivery to the Pledgee of each certificate representing one or more shares of Pledged Stock, the Pledgor shall deliver an undated stock power or instrument of transfer covering such certificate, duly executed in blank by the Pledgor with, if the Pledgee so requests, signature guaranteed. 4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants, as to itself and the Pledged Stock pledged by it hereunder, that: (a) The shares of Pledged Stock listed on SCHEDULE 1 constitute the portion of the issued and outstanding shares of all classes of the Capital Stock of the applicable Issuer set forth on Schedule I. (b) All the shares of the Pledged Stock have been duly and validly issued and are fully paid and nonassessable. Pledge Agreement 4 ________________________________________________________________________________ (c) Subject to Section 20(b), the Pledgor is the legal, record and beneficial owner of the Pledged Stocks, free of any and all Liens (other than Liens permitted by Section 7.02 of the Credit Agreement) or options in favor of, or claims of, any other person, except the security interest created by this Agreement. (d) This Agreement is effective to create in favor of the Pledgee, a legal, valid and enforceable security interest in the Pledged Stock and, when and to the extent the Pledged Stock are delivered to the Pledgee (or, as applicable in the case of Capital Stock of foreign Subsidiaries, the requisite filings or registrations are made), this Agreement will constitute a duly perfected first priority Lien on, and security interest in, all right, title and interest of the Pledgor thereunder in such Pledged Stock, in each case prior and superior in rights to any other person, subject to the agreements listed in Schedule 4.08 of the Credit Agreement. 5. COVENANTS. The Pledgor, as to itself and the Pledged Stock pledged by it hereunder, covenants and agrees with the Pledgee that, from and after the date of this Agreement until this Agreement is terminated and the security interest created hereby is released, subject to Section 20(b): (a) Any sums paid upon or in respect of the Pledged Stock upon the liquidation or dissolution (other than any liquidation or dissolution permitted by Section 6.01(a) of the Credit Agreement) of any Issuer shall, upon and during the continuance of an Event of Default, upon the written request of the Pledgee, be paid over to the Pledgee to be held and applied by it hereunder as provided in Section 8(a) and Section 14, and in case any distribution of capital shall be made on or in respect of the Pledged Stock or any property shall be distributed upon or with respect to the Pledged Stock, pursuant to the recapitalization or reclassification of capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, upon and during continuance of an Event of Default, upon the written request of the Pledgee, be delivered to the Pledgee to be held and applied by it hereunder as provided in Section 8(a) and Section 14. If any sums of money or property so paid or distributed in respect of the Pledged Stock shall be received by the Pledgor, the Pledgor shall, upon and during the continuance of an Event of Default, upon the written request of the Pledgee, until such money or property is paid or delivered to the Pledgee, hold such money or property in trust for the Pledgee, segregated from other funds of the Pledgor, for application in accordance with Section 8(a) and Section 14. (b) Without the prior written consent of the Pledgee, the Pledgor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any stock or other equity securities of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of any Issuer, except to the extent the same are permitted to be issued under the Credit Agreement, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Pledged Stock owned by it, except as not prohibited under the terms of the Credit Agreement, (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any person with respect to, any of such Pledged Stock, or any interest therein, except as not prohibited under the terms of the Credit Agreement and for the security interest created by this Agreement or (iv) enter into Pledge Agreement 5 ________________________________________________________________________________ any agreement or undertaking restricting the right or ability of the Pledgor or the Pledgee to sell, assign or transfer any of such Pledged Stock, except as not prohibited under the terms of the Credit Agreement. (c) The Pledgor shall maintain the security interest created by it under this Agreement as a first priority, perfected security interest and shall defend such security interest against claims and demands of all persons whomsoever. At any time and from time to time, upon the written request of the Pledgee, and at the sole expense of the Pledgor, the Pledgor shall promptly and duly execute and deliver such further instruments and documents and take such further actions as the Pledgee may reasonably request for the purposes of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted. If any amount payable under or in connection with any of the Pledged Stock owned by the Pledgor shall be or become evidenced by any promissory note, other instrument or chattel paper, such note, instrument or chattel paper shall, if so requested by the Pledgee, be immediately delivered to the Pledgee duly endorsed in a manner reasonably satisfactory to the Pledgee, to be held as Pledged Stock pursuant to this Agreement, provided that the use of the Proceeds of such Collateral shall nonetheless be governed by Sections 6 and 7. 6. CASH DIVIDENDS; VOTING RIGHTS; PROCEEDS. (a) Unless an Event of Default shall have occurred and be continuing and the Pledgee shall have given notice to the Pledgor of the Pledgee's intent to exercise its corresponding rights pursuant to Section 7 below, the Pledgor shall be permitted to receive, retain and use all cash dividends paid in accordance with the terms and conditions of the Credit Agreement in respect of the Pledged Stock to exercise all voting and corporate rights with respect to the Pledged Stock PROVIDED, HOWEVER, that no vote shall be cast or corporate right exercised or other action taken (regardless of whether an Event of Default has occurred and is continuing) which would materially and adversely affect the rights of the Pledgee or its ability to exercise same or result in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document. (b) Unless an Event of Default shall have occurred and be continuing and the Pledgee shall have given notice to the Pledgor of the Pledgee's intent to exercise its corresponding rights pursuant to Section 7 below, the Pledgor shall be permitted to receive, retain and use all other Proceeds (in addition to cash dividends as provided under Section 6(a) above) from the Pledged Stock. 7. RIGHTS OF THE PLEDGEE. If an Event of Default shall occur and be continuing and the Pledgee shall give notice of its intent to exercise such rights to the Pledgor, (i) the Pledgee shall have the right to receive any and all Proceeds paid in respect of the Pledged Stock or Additional Collateral and any and all Proceeds of Proceeds and make application thereof to the Obligations in the manner provided in Section 8(a) and Section 14 and (ii) all shares of the Pledged Stock the Pledgee or its nominee may thereafter exercise (1) all voting, corporate and other rights pertaining to such shares of the Pledged Stock at any meeting of shareholders of any Issuer or otherwise and (2) any and all rights of, conversion, exchange, subscription and any other rights, privileges or options pertaining to such shares of the Pledged Stock as if it were the absolute owner thereof (including the right to exchange at its discretion any and all the Pledged Stock upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by the Pledgor or the Pledgee of any right, Pledge Agreement 6 ________________________________________________________________________________ privilege or option pertaining to such shares of the Pledged Stock, and in connection therewith, the right to deposit and deliver any and all the Pledged Stock with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Pledgee may reasonably determine), all without liability except to account for property actually received by it, but the Pledgee shall have no duty to the Pledgor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. All Proceeds that are received by the Pledgor contrary to the provisions of this Section 7 shall be received in trust for the benefit of the Pledgee, shall be segregated from other property or funds of the Pledgor and shall be forthwith delivered to the Pledgee in the same form as so received (with any necessary endorsement). Any and all money and other property paid over to or received by the Pledgee pursuant to the provisions of this Section 7 shall be retained by the Pledgee in a Collateral Account to be established by the Pledgee upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 8(a) and Section 14. After all Events of Default under the Credit Agreement have been cured or waived, the Pledgee shall, within five Business Days after all such Events of Default have been cured or waived, repay to the Pledgor all cash dividends, interest or principal that the Pledgor would otherwise be permitted to retain pursuant to the terms of Section 6 above, but only to the extent such Proceeds remain in such Collateral Account. 8. REMEDIES. (a) If an Event of Default shall have occurred and be continuing the Pledgee shall apply all or any part of the Proceeds held in any Collateral Account in accordance with Section 14. (b) If an Event of Default shall have occurred and be continuing, the Pledgee may exercise, in addition to all other rights and remedies granted in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the governing law of this Agreement or any other applicable law. Without limiting the generality of the foregoing, the Pledgee, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice, required by law referred to below) to or upon the Pledgor or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Pledged Stock, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase or otherwise dispose of and deliver the Pledged Stock or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market, at any exchange, broker's board or office of the Pledgee or elsewhere upon such terms and conditions as it may reasonably deem advisable and at such prices as it may reasonably deem best, for cash or on credit or for future delivery without assumption of any risk (subject in every case to the case to the provisions of the Issuer's memorandum or association, its articles of association and, in the case of EMSA (Pty) Ltd., the Companies Act, 61 of 1973 (as amended), or any other applicable law). The Pledgee shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Pledged Stock so sold, free of (to the extent permitted by law) any right or equity of redemption in a Pledgor which right or equity is, to the extent permitted by law, hereby waived or released. The Pledgee shall apply any Proceeds from time to time held by it and the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses incurred in respect thereof or incidental to the care or safekeeping of any of Pledge Agreement 7 ________________________________________________________________________________ the Pledged Stock or reasonably relating to the Pledged Stock or the any or the rights of the Pledgee hereunder, including reasonable attorney's fees and disbursements of counsel to the Pledgee, to the payment in whole or in part of the Obligations, in the order set forth in Section 14. If any notice of a proposed sale or other disposition of Pledged Stock shall be required by law, such notice shall be in writing and deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Pledgor shall remain liable for any deficiency if the proceeds of any sale or other disposition of Pledged Stock are insufficient to pay the Obligations and the reasonable fees and disbursements of any attorneys employed by the Pledgee to collect such deficiency in its Obligations. 9. REGISTRATION RIGHTS; PRIVATE SALES. (a) If the Pledgee shall determine to exercise its right to sell any or all of the Pledged Stock pursuant to Section 8 hereof, and if in the opinion of the Pledgee it is necessary or advisable to have the Pledged Stock, or that portion thereof to be sold, registered under the provisions of the Securities Act, the Pledgor who owns such Pledged Stock will cause the Issuer thereof to (i) execute and deliver, and cause the directors and officers of such Issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the reasonable opinion of the Pledgee, necessary or advisable to register the Pledged Stock, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for a period expiring on the earlier of (A) one year from the date of the first public offering of the Pledged Stock and (B) such time that all of the Pledged Stock, or that portion thereof to be sold, is sold and (iii) to make all amendments thereto and/or to the related prospectus which, in the reasonable opinion of the Pledgee, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto. The Pledgor who owns such Pledged Stock agrees to cause such Issuer to comply with the provisions of the securities or <> laws of any and all jurisdictions which the Pledgee shall reasonably designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. The Pledgor agrees to (x) indemnify, defend and hold harmless Pledgee and the other Indemnities from and against all losses, liabilities, expenses, costs (including the reasonable fees and expenses of legal counsel to the Pledgee) and claims (including the costs of investigation) that they may incur insofar as any such loss, liability, expense, cost or claim arises out of or is based upon any alleged untrue statement of a material fact contained in any prospectus, offering circular or similar document (or any amendment or supplement thereto), or arises out of or is based upon any alleged omission to state a material fact required to be stated therein or necessary to make the statements in any writing thereof not misleading, except insofar as the same may have been caused by any untrue statement or omission based upon information furnished in writing to any Pledgor or the Issuer of such Pledged Stock by the Pledgee expressly for use therein, and (y) enter into an indemnification agreement with any underwriter of or placement agent for any Pledged Stock, on its standard form, to substantially the same effect. The Pledgor will bear all costs and expenses of carrying out its obligations under this Section 9. With respect to EMSA (Pty) Ltd., the provisions of this clause shall be subject to the provisions of the Companies Act, 61 of 1973 (as amended). Pledge Agreement 8 ________________________________________________________________________________ (b) The Pledgor recognizes that the Pledgee may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Pledgee shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree do so. (c) The Pledgor further agrees to use its best efforts to do or cause to be done all such other acts as may be reasonably necessary to make such sale or sales of all or any portion of the Pledged Stock owned by it pursuant to this Section valid and binding and in compliance with any and all other applicable requirements of the laws of any jurisdiction. The Pledgor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to the Pledgee, that the Pledgee had no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in the Section shall be specifically enforceable against the Pledgor. 10. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO ISSUER. The Pledgor hereby authorizes and instructs each Issuer that has issued Pledged Stock pledged by such Pledgor pursuant to Section 2 hereof to comply with any instruction received by it from the Pledgee in writing that (a) states that an Event of Default has occurred and (b) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from the Pledgor, and agrees that each such Issuer shall be fully protected in so complying. 11. PLEDGEE'S APPOINTMENT AS ATTORNEY-IN-FACT. (a) The Pledgor hereby irrevocably constitutes, and appoints the Pledgee and any officer or agent of the Pledgee, with full irrevocable power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Pledgor and in the name of the Pledgor or in the Pledgee's own name, from time to time in the Pledgee's discretion upon and during the continuance of an Event of Default, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, including without limitation, any financing statements, endorsements, assignments or other instruments of transfer. (b) The Pledgor hereby ratifies all that said attorneys shall lawfully do or cause to be done pursuant to the power of attorney granted in Section 11(a). All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. Pledge Agreement 9 ________________________________________________________________________________ 12. DUTY OF PLEDGEE. The Pledgee's sole duty with respect to the custody, safekeeping and physical preservation of the Pledged Stock in its possession, shall be to deal with it in the same manner as the Pledgee deals with similar securities and property for its own account, PROVIDED that investments shall be made at the option and sole discretion of the Pledgee and PROVIDED FURTHER that the Pledgee shall use reasonable efforts to make such investments. Neither the Pledgee nor any of its respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Pledged Stock or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Pledged Stock upon the request of the Pledgor or any other person or to take any other action whatsoever with regard to the Pledged Stock or any part thereof. 13. AUTHORITY OF PLEDGEE. The Pledgor acknowledges that the rights and responsibilities of the Pledgee under this Agreement with respect to any action taken by the Pledgee or the exercise or non-exercise by the Pledgee of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out this Agreement shall, as between the Pledgee, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Pledgee and the Pledgor, the Pledgee shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting. 14. APPLICATION OF PROCEEDS. The proceeds of any sale of the Pledged Stock pursuant to Section 8(b), as well as any collateral consisting of cash under Section 8(a), shall be applied by the Pledgee as follows: FIRST, to the payment of the reasonable costs and expenses of the Pledgee as set forth in Section 8(b); SECOND, to the payment of all amounts of the Obligations owed to the Pledgee in respect of Intercompany Loans made by it and outstanding; THIRD, to the payment and discharge in full of the Obligations (other than those referred to above); and FOURTH, after payment in full of all Obligations, to the applicable Pledgor, or the successors or assigns thereof, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, any Collateral then remaining. The Pledgee shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Pledged Stock by the Pledgee (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Pledgee or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Pledged Stock so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Pledgee or such officer or be answerable in any way for the misapplication thereof. Pledge Agreement 10 ________________________________________________________________________________ 15. SECURITY INTEREST ABSOLUTE. All rights of the Pledgee hereunder, the security interests granted hereunder and all obligations of the Pledgor hereunder shall be absolute and unconditional. 16. SURVIVAL OF AGREEMENT. All covenants, agreements, representations and warranties made by the Pledgor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Secured Parties and shall survive the making by the Lenders of the Loans, the execution and delivery to the Lenders of the Loan Documents and the issuance by the Issuing Bank of the Letters of Credit, regardless of any investigation made by the Secured Parties, or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or L/C Disbursement, or any Fee or any other amount payable under or in respect of this Agreement or any other Loan Document is outstanding and unpaid and so long as the Commitments have not been terminated. 17. PLEDGEE'S LIABILITIES AND EXPENSES; INDEMNIFICATION. (a) Notwithstanding anything to the contrary provided herein, the Pledgee assumes no liabilities with respect to any claims regarding the Pledgor's ownership (or purported ownership) of, or rights or obligations (or purported rights or obligations) arising from, the Pledged Stock or any use (or actual or alleged misuse) whether arising out of any past, current or future event, circumstance, act or omission or otherwise, or any claim, suit, loss, damage, expense or liability of any kind or nature arising out of or in connection with the Pledged Stock. All of such liabilities shall, as between the Pledgee and the Pledgor, be borne exclusively by the Pledgor. (b) The Pledgor hereby agrees to pay all reasonable expenses of the Pledgee and to indemnify the Pledgee with respect to any and all losses, claims, damages, liabilities and related expenses in respect of this Agreement or the Pledged Stock in each case to the extent the Borrower is required to do so pursuant to Section 10.03 of the Credit Agreement. (c) Any amounts payable by a Pledgor as provided hereunder shall be additional Obligations of it secured hereby and by its other Security Documents. Without prejudice to the survival of any other agreements contained herein, all indemnification and reimbursement obligations contained herein shall survive the payment in full of the principal and interest under the Credit Agreement, the expiration of the Letters of Credit and the termination of the Commitments or this Agreement. 18. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN Pledge Agreement 11 ________________________________________________________________________________ INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 19. 19. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) The Pledgor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner and to the extent permitted by the laws of the other jurisdiction. Nothing in this Agreement shall affect any right that the Pledgee may otherwise have to bring any action or proceeding relating to this Agreement against the Pledgor or its properties in the courts of Switzerland or any other competent jurisdiction. (b) The Pledgor and the Pledgee hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in a Swiss court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 20. TERMINATION AND RELEASE. (a) This Agreement and the security interest created hereunder shall terminate when all the Obligations have been fully and indefeasibly paid and when the Secured Parties have no further Commitments and no Letters of Credit are outstanding, at which time the Pledgee shall reassign or re-cede and deliver to the Pledgor, or to such person or persons as the Pledgor shall reasonably designate, against receipt, such of the Pledged Stock owned by the Pledgor as shall have not been sold or otherwise applied by the Pledgee pursuant to the terms hereof and shall still be held by it hereunder, together with appropriate instructions of reassignment or re-cession and release. Any such reassignment or re-cession shall be without recourse to or any warranty by the Pledgee and at the expense of the Pledgor. (b) All Pledged Stock sold, transferred or otherwise disposed of, in accordance with the terms of the Credit Agreement (including pursuant to a waiver or amendment of the terms thereof), shall be sold, transferred or otherwise disposed of free and clear of the Lien and the security interest created hereunder. In connection with the foregoing, (i) the Pledgee shall execute and deliver to the Pledgor with respect to the Pledged Stock owned by the Pledgor, or to such person or persons as the Pledgor shall reasonably designate, against receipt, such Pledged Stock sold, transferred or otherwise disposed together with appropriate instructions of reassignment or re-cession and release, (ii) any representation, warranty or covenant contained herein relating to the Pledged Stock shall no longer be deemed to be made with respect Pledge Agreement 12 ________________________________________________________________________________ to such sold, transferred or otherwise disposed Pledged Stock and (iii) all schedules hereto shall be amended to delete the name of the Issuer. Any such reassignment or re-cession shall be without recourse or to any warranty by the Pledgee and at the expense of the Pledgor. 21. NOTICES. All notices, requests and demands to or upon the Pledgee or the Pledgor under this Agreement shall be given or made in accordance with Section 10.01 of the Credit Agreement and addressed as follows: (a) if to Pledgee, at the following address: Brandywine West Building,1521 Concord Pike, Suite 301, Wilmington, DE 19803; (b) if to UCAR SA at the following address: UCAR SA, 17, route de Pallatex, 1163 Etoy, Switzerland. 22. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition of enforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 23. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. (a) None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Pledgor and the Pledgee, PROVIDED that any provision of this Agreement may be waived by the Required Secured Parties pursuant to a letter or agreement executed by the Pledgee or by telecopy transmission from the Pledgee. (b) The Pledgee shall not by any act (except by a written instrument pursuant in Section 23(a) hereof) or delay be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Pledgee, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise of any other right, power or privilege. A waiver by the Pledgee of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Pledgee would otherwise have on any future occasion. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. Pledge Agreement 13 ________________________________________________________________________________ 24. SECTION HEADINGS. The section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 25. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the successors and assigns of the Pledgor and shall inure to the benefit of the Pledgor, the Pledgee and their successors and assigns, PROVIDED that this Agreement may not be assigned by the Pledgor without the prior written consent of the Pledgee. 26. COUNTERPARTS. This Agreement may be executed in two or more original counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. 27. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF NEW YORK. IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly executed and delivered as of the date first above written. UCAR SA ------------------------------------ By /s/ Walter D. Carter --------------------------------- Name: Walter D. Carter Title: Attorney-in-Fact UCAR FINANCE INC. ------------------------------------ By /s/ Walter D. Carter ---------------------------------- Name: Walter D. Carter Title: Assistant Treasurer Pledge Agreement 14 ________________________________________________________________________________ ANNEX I to Pledge Agreement Intercompany Borrower Agreement Pledge Agreement 15 ________________________________________________________________________________ ANNEX II to Pledge Agreement Guarantee Pledge Agreement 16 ________________________________________________________________________________ SCHEDULE I to PLEDGE AGREEMENT ________________________________________________________________________________
PLEDGED STOCK: - ---------------------------------------- -------------------------------------------- -------------------------------- Name of Subsidiary Share Certificate(s) Percentage Ownership Represented by Share Certificate(s) - ---------------------------------------- -------------------------------------------- -------------------------------- - ---------------------------------------- -------------------------------------------- -------------------------------- UCAR Carbon Mexicana S.A. de C.V. To be inserted on February 19, 2002 To be inserted on February 19, (Mexico) 2002 - ---------------------------------------- -------------------------------------------- -------------------------------- UCAR S.p.A. (Italy) Share Certificate n.1 for 5,000 Shares 0.1% Share Certificate n.5 for 3,250,000 Shares 65% Share Certificate n.6 for 1,745,000 Shares 34.9% - ---------------------------------------- -------------------------------------------- -------------------------------- UCAR Carbon S.A. (Brazil) Uncertificated [97%] - ---------------------------------------- -------------------------------------------- -------------------------------- EMSA (Pty) Ltd. (South Africa) 2, 3 100% - ---------------------------------------- -------------------------------------------- --------------------------------
EX-10 10 ucar10kmar02ex1042.txt EXHIBIT 10.42 EXHIBIT 10.42 FIRST AMENDMENT TO THE UCAR CARBON COMPANY INC. BENEFITS PROTECTION TRUST The UCAR Carbon Benefits Protections Trust (Amended and Restated as of November 20, 2000) (the "Trust") is hereby amended as follows: 1. Paragraph (c) of Article SEVENTEENTH is amended by adding the following sentence at the end thereof to read as follows: "Notwithstanding the foregoing, upon the termination of the Trust any common stock of UCAR International Inc. remaining in the Trust which was contributed by UCAR International Inc. shall be returned to UCAR International Inc. 2. Paragraph (d) of Article SEVENTEENTH is amended by adding the following sentence immediately prior to the last sentence thereof to read as follows: "Notwithstanding the foregoing, upon the termination of the Trust any common stock of UCAR International Inc. remaining in the Trust which was contributed by UCAR International Inc. shall be returned to UCAR International Inc." 3. Paragraph (b) of Article EIGHTEENTH is amended in its entirety to read as follows: "(b) Notwithstanding any provision of this Agreement to the contrary, the assets of the Trust shall at all times be subject to claims of the creditors of the Company. In addition, any common stock of UCAR International Inc. held by the Trust which has been contributed to the Trust by UCAR International Inc. will also be subject to the claims of the general creditors of UCAR International Inc. under Federal and state law. In the event that (1) a final judicial determination is entered that the Company, or UCAR International Inc. is unable to pay its debts as such debts mature or (2) there shall have been filed by or against the Company or UCAR International Inc. in any court or other tribunal either of the United States or of any State or of any other authority now or hereafter exercising jurisdiction, a petition in bankruptcy or insolvency proceedings or for reorganization or for appointment of a receiver or trustee of all or substantially all of the Company's or UCAR International Inc.'s property under the present or any future Federal bankruptcy code or any other present or future applicable Federal, State or other bankruptcy or insolvency statute or law, then the Trustee shall not make payments for the Trust to any Participant or Beneficiary, but under either of such circumstances, the Trustee shall deliver any property held in the Trust only as a court or other tribunal of competent jurisdiction may direct to satisfy the claims of the Company's or UCAR International Inc.'s creditors. The Trustee shall resume payments under the terms of the Trust only after determining judicial decision to that effect. The Chief Financial Officer of the Company or UCAR International Inc., or an employee of the Company or UCAR International Inc. with duties similar to those of a Chief Financial Officer, and the Board of Directors of the Company or UCAR International Inc. shall have the duty to inform the Trustee of the insolvency of the Company or UCAR International Inc., respectively. The Trustee is empowered to retain, at the expense of the Trust, counsel and other appropriate experts, including accountants, to aid it in making any determination with regard to the Company's or UCAR International Inc.'s insolvency under this Paragraph (b) of Article EIGHTEENTH." 4. The amendments set forth herein shall be effective as of November 20, 2000. Dated: May 14, 2001 UCAR CARBON COMPANY INC. By: /s/ Edward F. Kent ----------------------------- MELLON BANK, N.A. By: /s/ Christine A. Bloom ----------------------------- EX-10 11 ucar10kmar02ex1046.txt EXHIBIT 10.46 EXHIBIT 10.46 FIRST AMENDMENT TO THE UCAR CARBON DEFERRAL PROGRAM TRUST The UCAR Carbon Deferral Program Trust (the "Trust") is hereby amended as follows: 1. Paragraph (d) of Section 2 of the Trust is amended by adding the following sentence at the end thereof to read as follows: "In addition, any common stock of UCAR International Inc. held by the Trust which has been contributed to the Trust by UCAR International Inc. will be subject to the claims of the general creditors of UCAR International Inc. under Federal and state law in the event of Insolvency." 2. Paragraph (b) of SECTION 15 of the Trust is amended by adding the following sentence at the end thereof to read as follows: "Notwithstanding the foregoing, upon the termination of the Trust any common stock of UCAR International Inc. remaining in the Trust which was contributed by UCAR International Inc. shall be returned to UCAR International Inc." 3. The amendments set forth herein shall be effective as of [November 20], 2000. Dated: May 14, 2001 UCAR CARBON COMPANY INC. By:/s/ Edward F. Kent -------------------------------------- VANGUARD FIDUCIARY TRUST COMPANY By:/s/ Dennis Simmons -------------------------------------- EX-10 12 ucar10kmar02ex1047.txt EXHIBIT 10.47 EXHIBIT 10.47 SECOND AMENDMENT TO THE UCAR CARBON ENHANCED RETIREMENT INCOME PLAN In accordance with Article VI, Section 2 of the UCAR Carbon Enhanced Retirement Income Plan (the "Plan"), the Plan is hereby amended as follows: 1. The GENERAL section of the Plan is amended to add the following new paragraph immediately before the last paragraph thereof: "This Plan shall also apply to any participants in the Corporation's Selective Severance Program ("SSP") if such participant is otherwise entitled to a benefit under this Plan." 2. A new Section 2 shall be added to Article I of the Plan to read as follows: "SECTION 2. An individual shall also be a Participant in this Plan if he or she is a participant in the SSP and is entitled to a benefit under this Plan pursuant to Section 1 above." 3. A new Article VIA is added to the Plan to read as follows: "ARTICLE VIA SELECTIVE SEVERANCE PROGRAM SECTION 1. This Article VIA shall apply to participants in the SSP. SECTION 2. The following terms shall have the designated meanings for purposes of this Article VIA: (i) "SP" or "SUPPLEMENTAL PENSION" is the amount a Participant's supplemental pension benefit under the SSP, and shall mean the amount determined as the sum of A, B and C, where: A= 1.8% of average monthly Compensation, B= .9% of average monthly Compensation if the Participant has five or more Years of Credited Service, and 0 if the Participant has fewer than five Years of Credited Service, and 1 C= one-third of 1% of average monthly Compensation times the Participant's number of whole Years of Credited Service in excess of ten. Average monthly Compensation and Years of Credited Service for purposes of the foregoing formula shall have the same meanings as set forth in Section 5.8 of the Retirement Plan determined without regard to the limitations of Code Section 401(a)(17). The benefit determined under the foregoing formula is defined to be a fifteen-year certain benefit. (ii) "FSP" or "FORMER SEVERANCE PLAN BENEFIT" shall mean the applicable benefit amount calculated under the Corporation's Selective Severance Program as in effect prior to January 1, 2001. (iii) "QSP" or "QUALIFIED SUPPLEMENTAL PENSION" shall mean the amount of a Participant's Supplemental Pension, if any, payable under the Retirement Plan after the limitations of Code Section 415 and Code Section 401(a)(17) have been applied. SECTION 3. The provisions of this Section 3 shall apply if the actuarial equivalent lump sum value of a Participant's QSP is greater than his or her FSP. (a) For Participants subject to this Section 3, the excess of the actuarial equivalent lump sum value of the Participant's QSP amount over his or her FSP amount is referred to as the "Benefit Reduction Amount" when expressed as an actuarial equivalent life annuity. (b) A Participant's Benefit Reduction Amount shall offset the amount of the Participant's benefit, if any, under this Plan, except that the Participant's benefit under this Plan shall not be reduced to below 0." 4. The provisions of this Second Amendment shall be effective as of January 1, 2001. UCAR CARBON COMPANY INC. By: /s/ John Arnold ------------------------------------ 2 EX-10 13 ucar10kmar02ex1048.txt EXHIBIT 10.48 EXHIBIT 10.48 THIRD AMENDMENT TO THE UCAR CARBON ENHANCED RETIREMENT INCOME PLAN In accordance with Article VI, Section 2 of the UCAR Carbon Supplemental Retirement Income Plan (the "Plan"), the Plan is hereby amended as follows: 1. Article VIA of the Plan is amended to add a new Section 4 thereto to read as follows: "SECTION 4. The provisions of this Article VIA shall be effective only with respect to Participants who are offered participation in the SSP on or before May 31, 2001." 2. The provisions of this Third Amendment shall be effective as of May 23, 2001. UCAR CARBON COMPANY INC. By: /s/ Karen G. Narwold ----------------------------------- EX-10 14 ucar10kmar02ex1052.txt EXHIBIT 10.52 EXHIBIT 10.52 SECOND AMENDMENT TO THE UCAR CARBON SUPPLEMENTAL RETIREMENT INCOME PLAN In accordance with Article VI, Section 2 of the UCAR Carbon Supplemental Retirement Income Plan (the "Plan"), the Plan is hereby amended as follows: 1. The GENERAL section of the Plan is amended to add the following new paragraph immediately before the last paragraph thereof: "This Plan shall also apply to any participants in the Corporation's Selective Severance Program ("SSP") if (1) the participant's SSP benefit payable under the Retirement Plan is limited by Code Section 415 or Code Section 401(a)(17), or (2) such participant is otherwise entitled to a benefit under this Plan." 2. A new Section 2 shall be added to Article I of the Plan to read as follows: "SECTION 2. An individual shall also be a Participant in this Plan if he or she is a participant in the SSP and (a) and/or (b) apply: (a) the participant's SSP benefit payable under the Retirement Plan is limited by Code Section 415 or Code Section 401(a)(17); (b) the participant is entitled to a benefit under this Plan pursuant to Section 1 above." 3. A new Article VIA is added to the Plan to read as follows: "ARTICLE VIA SELECTIVE SEVERANCE PROGRAM SECTION 1. This Article VIA shall apply to participants in the SSP. Except as otherwise noted herein, the provisions of this Article VIA shall apply in lieu of the provisions of Articles III, IV, and V of this Plan. 1 SECTION 2. The following terms shall have the designated meanings for purposes of this Article VIA: (i) "SP" or "SUPPLEMENTAL PENSION" is the amount a Participant's supplemental pension benefit under the SSP, and shall mean the amount determined as the sum of A, B and C, where: A= 1.8% of average monthly Compensation, B= .9% of average monthly Compensation if the Participant has five or more Years of Credited Service, and 0 if the Participant has fewer than five Years of Credited Service, and C= one-third of 1% of average monthly Compensation times the Participant's number of whole Years of Credited Service in excess of ten. Average monthly Compensation and Years of Credited Service for purposes of the foregoing formula shall have the same meanings as set forth in Section 5.8 of the Retirement Plan, determined without regard to the limitations of Code Section 401(a)(17). The benefit determined under the foregoing formula is defined to be a fifteen-year certain benefit. (ii) "FSP" or "FORMER SEVERANCE PLAN BENEFIT" shall mean the applicable benefit amount calculated under the Corporation's Selective Severance Program as in effect prior to January 1, 2001. (iii) "QSP" or "QUALIFIED SUPPLEMENTAL PENSION" shall mean the amount of a Participant's Supplemental Pension, if any, payable under the Retirement Plan after the limitations of Code Section 415 and Code Section 401(a)(17) have been applied. (iv) "NQSP" or "NONQUALIFIED SUPPLEMENTAL PENSION" shall mean the amount of a Participant's Supplemental Pension that cannot be paid under the Retirement Plan due to the limitations of Code Section 415 and Code Section 401(a)(17). A Participant's NQSP is determined under the following formula: SP - QSP SECTION 3. A Participant shall be eligible for a Supplemental Pension under this Article VIA if he or she satisfies the requirements of (a) or (b) of this Section 3. The amount of a Participant's Supplemental Pension under this Plan is referred to as the "Additional Supplemental Pension," and shall be payable in accordance with Sections 4 through 7 of this Article VIA. 2 (a) If a Participant's FSP is greater than the actuarial equivalent lump sum value of his or her SP, then an Additional Supplemental Pension equal to the NQSP shall be payable under this Plan. (b) If the actuarial equivalent lump sum value of a participant's SP is greater than or equal to his or her FSP, than the Additional Supplemental Pension payable under this Plan expressed as an actuarial equivalent monthly life annuity, if any, shall be determined under the following formula: FSP - ACTUARIAL EQUIVALENT LUMP SUM VALUE OF QSP If the foregoing formula produces an amount equal to or less than 0, then no Additional Supplemental Pension is payable under this Plan. SECTION 4. The actuarial equivalent value of a Participant's Additional Supplemental Pension will be paid in one of the following forms as elected by the Participant subject to Section 5 hereof: (a) The normal form as otherwise provided for under the Retirement Plan, (except that a Participant may not elect the level income option under Section 5.6 of the Retirement Plan) ("Normal Form"), or (b) In monthly installments, as follows ("Immediate Payment Option"):
Participant's Years of Credited Service (As Defined in the Retirement Plan) Number of Installments -------------------------------------------- ---------------------- Less than 5 2 months At least 5, but less than 10 3 months 10 or more 3 months plus three- eighths (3/8) of a month for each Year of Credited Service over 10 (which number shall be rounded down to the next whole number if a fractional number of months results from this formula)
SECTION 5.(a) The Immediate Payment Option shall be paid out as soon as practicable following the Participant's termination of employment. In addition, a Participant's failure to elect the Immediate Payment 3 Option upon termination of employment, shall be deemed to be an election to have the Additional Supplemental Pension paid in the Normal Form. (b) A Participant may elect to commence payment of his or her Additional Supplemental Pension in the Normal Form at anytime on or after the first day of the first month following termination of employment. To the extent a Participant has not made an election to commence payment of his or her Additional Supplemental Pension, payment shall be made in the Normal Form at such time as the Participant becomes entitled to a full (unreduced) benefit under the Retirement Plan. SECTION 6. A Participant shall be immediately 100% vested in his or her Additional Supplemental Pension under this Plan. SECTION 7. If a Participant dies before all payments of the Additional Supplemental Pension payable under Section 4(b) above have been made, then the balance of the Additional Supplemental Pension shall continue to be paid to the Participant's Beneficiary (as defined in the Retirement Plan, except that if no Beneficiary is provided for, then to the Participant's estate), until all payments have been made. SECTION 8. The provisions of this Section 8 shall apply if the actuarial equivalent lump sum value of a Participant's QSP is greater than his or her FSP. (a) For Participants subject to this Section 8, the excess of the actuarial equivalent lump sum value of the Participant's QSP amount over his or her FSP amount is referred to as the "Benefit Reduction Amount" when expressed as an actuarial equivalent life annuity. (b) A Participant's Benefit Reduction Amount shall be used first to offset the amount of the Participant's benefit, if any, under the Enhanced Retirement Income Plan. If the Participant has no Enhanced Retirement Income Plan benefit or the Participant's Benefit Reduction Amount has reduced the Participant's Enhanced Retirement Income Plan benefit to zero, but there is still a remaining Benefit Reduction Amount, then the remaining Benefit Reduction Amount shall be used to offset the amount of the Participant's benefit, if any, under the Equalization Benefit Plan. If the Participant has no Equalization Benefit Plan benefit or the Participant's remaining Benefit Reduction Amount has reduced the Participant's Equalization Benefit Plan benefit to zero, but there is still a remaining Benefit Reduction Amount, then the remaining Benefit Reduction Amount shall be used to offset the amount of the Participant's benefit, if any, under this Plan, except that the Participant's benefit under this Plan shall not be reduced to below 0." 4 4. The provisions of this Second Amendment shall be effective as of January 1, 2001. UCAR CARBON COMPANY INC. By:/s/ John Arnold --------------------------------- 5 EX-10 15 ucar10kmar02ex1053.txt EXHIBIT 10.53 EXHIBIT 10.53 THIRD AMENDMENT TO THE UCAR CARBON SUPPLEMENTAL RETIREMENT INCOME PLAN In accordance with Article VI, Section 2 of the UCAR Carbon Supplemental Retirement Income Plan (the "Plan"), the Plan is hereby amended as follows: 1. Article VIA of the Plan is amended to add a new Section 9 thereto to read as follows: "SECTION 9. The provisions of this Article VIA shall be effective only with respect to Participants who are offered participation in the SSP on or before May 31, 2001." 2. The provisions of this Third Amendment shall be effective as of May 23, 2001. UCAR CARBON COMPANY INC. By:/s/ Karen G. Narwold ------------------------------------------ EX-10 16 ucar10kmar02ex1054.txt EXHIBIT 10.54 EXHIBIT 10.54 SECOND AMENDMENT TO THE UCAR CARBON EQUALIZATION BENEFIT PLAN In accordance with Article VI, Section 2 of the UCAR Carbon Equalization Benefit Plan (the "Plan"), the Plan is hereby amended as follows: 1. The GENERAL section of the Plan is amended to add the following new paragraph immediately before the last paragraph thereof: "This Plan shall also apply to any participants in the Corporation's Selective Severance Program ("SSP") if such participant is otherwise entitled to a benefit under this Plan." 2. A new Section 2 shall be added to Article I of the Plan to read as follows: "SECTION 2. An individual shall also be a Participant in this Plan if he or she is a participant in the SSP and is entitled to a benefit under this Plan pursuant to Section 1 above." 3. A new Article VIA is added to the Plan to read as follows: "ARTICLE VIA SELECTIVE SEVERANCE PROGRAM SECTION 1. This Article VIA shall apply to participants in the SSP. SECTION 2. The following terms shall have the designated meanings for purposes of this Article VIA: (i) "SP" or "SUPPLEMENTAL PENSION" is the amount a Participant's supplemental pension benefit under the SSP, and shall mean the amount determined as the sum of A, B and C, where: A= 1.8% of average monthly Compensation, B= .9% of average monthly Compensation if the Participant has five or more Years of Credited Service, and 0 if the Participant has fewer than five Years of Credited Service, and 1 C= one-third of 1% of average monthly Compensation times the Participant's number of whole Years of Credited Service in excess of ten. Average monthly Compensation and Years of Credited Service for purposes of the foregoing formula shall have the same meanings as set forth in Section 5.8 of the Retirement Plan, determined without regard to the limitations of Code Section 401(a)(17). The benefit determined under the foregoing formula is defined to be a fifteen-year certain benefit. (ii) "FSP" or "FORMER SEVERANCE PLAN BENEFIT" shall mean the applicable benefit amount calculated under the Corporation's Selective Severance Program as in effect prior to January 1, 2001. (iii) "FSP" or "QUALIFIED SUPPLEMENTAL PENSION" shall mean the amount of a Participant's Supplemental Pension, if any, payable under the Retirement Plan after the limitations of Code Section 415 and Code Section 401(a)(17) have been applied. SECTION 3. The provisions of this Section 3 shall apply if the actuarial equivalent lump sum value of a Participant's QSP is greater than his or her FSP. (a) For Participants subject to this Section 3, the excess of the actuarial equivalent lump sum value of the Participant's QSP amount over his or her FSP amount is referred to as the "Benefit Reduction Amount" when expressed as an actuarial equivalent life annuity. (b) A Participant's Benefit Reduction Amount shall be used first to offset the amount of the Participant's benefit, if any, under the Enhanced Retirement Income Plan. If the Participant has no Enhanced Retirement Income Plan benefit or the Participant's Benefit Reduction Amount has reduced the Participant's Enhanced Retirement Income Plan benefit to zero, but there is still a remaining Benefit Reduction Amount, then the remaining Benefit Reduction Amount shall be used to offset the amount of the Participant's benefit, if any, under this Plan, except that the Participant's benefit under this Plan shall not be reduced to below 0." 2 4. The provisions of this Second Amendment shall be effective as of January 1, 2001. UCAR CARBON COMPANY INC. By: /s/ John Arnold ------------------------------------ 3 EX-10 17 ucar10kmar02ex1060.txt EXHIBIT 10.60 EXHIBIT 10.60 THIRD AMENDMENT TO THE UCAR CARBON EQUALIZATION BENEFIT PLAN In accordance with Article VI, Section 2 of the UCAR Carbon Equalization Benefit Plan (the "Plan"), the Plan is hereby amended as follows: 1. Article VIA of the Plan is amended to add a new Section 4 thereto to read as follows: "SECTION 4. The provisions of this Article VIA shall be effective only with respect to Participants who are offered participation in the SSP on or before May 31, 2001." 2. The provisions of this Third Amendment shall be effective as of May 23, 2001. UCAR CARBON COMPANY INC. By: /s/ Karen G. Narwold --------------------------------- 1. EX-21 18 ucar10kmar02ex211.txt EXHIBIT 21.1 EXHIBIT 21.1
Subsidiaries of UCAR International Inc. - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by UCAR International Inc. - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Finance Inc. Delaware 100% - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Global Enterprises Inc. Delaware 100% - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by UCAR Global Enterprises Inc. - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Carbon Company Inc. Delaware 100% - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by UCAR Carbon Company Inc. - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR International Holdings Inc. Delaware 100% - ---------------------------------------- -------------------------------------- -------------------------------------- Northanger Investments (Pty) Ltd.(a) South Africa 100% - ---------------------------------------- -------------------------------------- -------------------------------------- Graftech Inc. Delaware 97.5% - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR International Trading Inc. Delaware 100% - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Limited United Kingdom 100% - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR S.A. Switzerland 100%(b) - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Holding GmbH Austria 66.7%(c) - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Carbon (Malaysia) Sdn. Bhd.(a) Malaysia 100% - ---------------------------------------- -------------------------------------- -------------------------------------- Carbographite Limited(a) South Africa 100% - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Carbon Technology LLC Delaware 100% - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Composites Inc. California 100% - ---------------------------------------- -------------------------------------- -------------------------------------- Union Carbide Grafito, Inc. New York 100% - ---------------------------------------- -------------------------------------- -------------------------------------- Graphite Electrode Network LLC Delaware 100% - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by UCAR International Holdings Inc. - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Holdings III Inc. Delaware 100% - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Holdings S.A. France 100% - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Inc. Canada 100% - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by Northanger Investments (Pty) Ltd.(a) - ---------------------------------------- -------------------------------------- -------------------------------------- AGM (Pty) Ltd. South Africa 100% - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by UCAR S.A. - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Electrodos Iberica, Spain 99.9%(d) S.L. - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- EMSA (Pty.) Ltd. South Africa 100% - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Carbon Mexicana, S.A. de C.V. Mexico 98.96%(e) - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR S.p.A. Italy 100% - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Carbon S.A. Brazil 97.58% - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Holding GmbH Austria 33%(f) - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by UCAR Holding GmbH - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Grafit OAO Russia 99% - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by UCAR Holdings S.A. - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR SNC France 99%(g) - ---------------------------------------- -------------------------------------- -------------------------------------- Carbone Savoie S.A.S. France 70% - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by UCAR S.p.A. - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Specialties S.r.L. Italy 100% - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by UCAR Carbon S.A. - ---------------------------------------- -------------------------------------- -------------------------------------- UCAR Produtos de Carbono S.A. Brazil 99.27 - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by Carbone Savoie S.A.S. - ---------------------------------------- -------------------------------------- -------------------------------------- Carbone Savoie Holdings Brasil S/A Brazil 97.58% - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Name of Subsidiary Jurisdiction of Incorporation Ownership by Carbone Savoie Holdings Brasil S/A - ---------------------------------------- -------------------------------------- -------------------------------------- Carbone Savoie Brasil S/A Brazil 99.27% - ---------------------------------------- -------------------------------------- -------------------------------------- (a) In process of dissolution. (b) Directors Qualifying Shares are considered UCAR owned. (c) 67% owned by UCAR Carbon Company Inc. UCAR S.A. owns the other shares of UCAR Holding GmbH. (d) One share held by UCAR Carbon Company Inc. (e) 16,775 shares are owned by unknown minority shareholders. (f) 33% owned by UCAR S.A. UCAR Carbon Company owns the other shares of UCAR Holding GmbH. (g) One share held by UCAR Holdings III Inc.
EX-23 19 ucar10kmar02ex231.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors UCAR International Inc. We consent to the incorporation by reference in each of the Registration Statements of UCAR International Inc. on Form S-3 (Nos. 333-26097 and 333-82417), and on Form S-8 (Nos. 33-95546, 33-95548, 33-95550, 333-02560, 333-82393, 333-82411, 333-46680 and 333-75774) of our report dated February 15, 2001, relating to the consolidated balance sheet of UCAR International Inc. and subsidiaries as of December 31, 2000, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 2000, which report appears in the December 31, 2001 Annual Report on Form 10-K of UCAR International Inc. /s/ KPMG LLP KPMG LLP Nashville, Tennessee March 22, 2002 EX-23 20 ucar10kmar02ex232.txt EXHIBIT 23.2 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 333-26097 and No. 333-82417 on Form S-3 and No. 33-95546, No. 33-95548, No. 33-95550, No. 333-02560, No. 333-82393, No. 333-82411, No. 333-46680 and No. 333-75774 on Form S-8 of UCAR International Inc. and Subsidiaries of our report dated February 20, 2002, appearing in this Annual Report on Form 10-K of UCAR International Inc. and Subsidiaries for the year ended December 31, 2001. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Nashville, Tennessee March 25, 2002 -----END PRIVACY-ENHANCED MESSAGE-----