Government's Rule 11 Memorandum

The United States and Tokai Carbon Co., Ltd. (Tokai Carbon) have entered into a plea agreement, pursuant to which Tokai Carbon will waive indictment and plead guilty to the captioned Information. The one-count Information charges Tokai Carbon with a violation of the Sherman Act, 15 U.S.C. § 1. The purpose of this memorandum is to provide the Court with sufficient information for acceptance of the plea by setting forth the violated statute, a description of the criminal Information, the terms of the plea agreement, and a preliminary statement of facts which support the agreement.

1. 15 U.S.C. Section 1

   Section One of Title 15, United States Code, provides:

   Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by a fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

2. The Information

   The Information charges Tokai Carbon with participating in a conspiracy to suppress and eliminate competition by fixing the price and allocating the volume of graphite electrodes sold in the United States and elsewhere in unreasonable restraint of trade and commerce from at least as early as July 1992 and continuing until at least June 1997.

3. Elements of the Offense

   The elements of a Sherman Act offense, each of which the United States must prove beyond a reasonable doubt, are:

   1. the conspiracy charged was formed, and it was in existence at or about the time alleged;
   2. the defendant knowingly formed or participated in that conspiracy; and
   3. the activity which was the object of the conspiracy was within the flow of, or substantially affected, interstate or foreign commerce.
4. Maximum Penalty

   The maximum penalty Tokai Carbon may receive upon its conviction in this case is a fine in an amount equal to the largest of: (a) $10 million; (b) twice the gross pecuniary gain derived from the crime; or (c) twice the gross pecuniary loss caused to the victims of the crime.

This statement of facts is intended to be used as a factual basis for Tokai Carbon's guilty plea. It is not intended to be exhaustive in terms of all details surrounding the charged conspiracy.

1. Background

   Graphite electrodes are large columns that generate intense heat. They are used primarily by "mini-mills" in the production of steel in electric arc furnaces (EAF), the steel-making technology used by all "mini-mills," and for refining steel in ladle furnaces. Graphite electrodes used in electric arc furnaces cost thousands of dollars, and because of the intense heat generated, they are consumed in the steel-making process. The instant conspiracy affected sales of graphite electrodes to steel mills in the United States and elsewhere.

2. The Conspiracy

   At all times relevant hereto, Tokai Carbon Co., Ltd., a Japanese corporation headquartered in Tokyo, Japan, manufactured graphite electrodes in Japan, and sold graphite electrodes in the United States and elsewhere. As alleged in the Information, beginning at least as early as July 1992 and continuing until at least July 1997, Tokai Carbon and certain competitor companies entered into and participated in a combination and conspiracy to suppress and eliminate competition by fixing the price and allocating the volume of graphite electrodes sold in the United States and elsewhere. The combination and conspiracy engaged in by the defendant and co-conspirators was in unreasonable restraint of interstate trade and commerce in violation of Section 1 of the Sherman Act (15 U.S.C. § 1).

   The conspiracy consisted of a continuing agreement, understanding, and concert of action among the conspirators, the substantial terms of which were:

   1. to agree to fix and maintain prices and to coordinate price increases for the sale of graphite electrodes in the United States and elsewhere; and
   2. to agree to allocate among the corporate conspirators the volume of sales of graphite electrodes in the United States and elsewhere.

   For the purpose of forming and carrying out the charged combination and conspiracy, Tokai Carbon and co-conspirators did those things that they combined and conspired to do, including, among other things:

   1. participating in meetings and conversations in the Far East, Europe, and the United States to discuss the prices and volume of graphite electrodes sold in the United States and elsewhere;
   2. agreeing, during those meetings and conversations, to charge prices at certain levels and otherwise to increase and maintain prices of graphite electrodes sold in the United States and elsewhere;
   3. agreeing, during those meetings and conversations, to eliminate discounts from the fixed price of graphite electrodes offered to customers in the United States and elsewhere;
   4. agreeing, during those meetings and conversations, to allocate among the corporate conspirators the approximate volume of graphite electrodes to be sold by each corporate conspirator in the United States and elsewhere;
   5. agreeing, during those meetings and conversations, to divide the world market among themselves, and to designate on a region-by-region basis, including the United States, the conspirator who would fix the price that others would follow in that region;
   6. agreeing, during those meetings and conversations, to restrict graphite electrode producing capacity among the corporate conspirators;
   7. agreeing, during those meetings and conversations, to restrict non-conspirator companies' access to certain graphite electrode manufacturing technology;
   8. discussing, during those meetings and conversations, methods to conceal the agreement, including the use of code names by the corporate conspirators;
   9. exchanging sales and customer information for the purpose of monitoring and enforcing adherence to the above-described agreement; and
   10. issuing price announcements and price quotations in accordance with the agreements reached.
3. Interstate and Foreign Commerce

   At all times during the conspiracy, Tokai Carbon, headquartered in Tokyo, Japan, or other conspirators from other locations, sold a substantial quantity of graphite electrodes in a continuous and uninterrupted flow of interstate and foreign commerce to customers located in states or countries other than the states or countries in which graphite electrodes were produced.