LOAN AGREEMENT


         THIS LOAN AGREEMENT ("Agreement"), made and entered into as of the 21st
day of January, 1999, by and between BETHLEHEM ADVANCED MATERIALS CORPORATION, a
Pennsylvania   corporation  with  principal  offices  in  Knoxville,   Tennessee
("Borrower"), and NATIONSBANK, N.A., a national banking association with offices
in Knoxville, Tennessee ("Lender").

                              W I T N E S S E T H:

         WHEREAS,  Borrower has requested that Lender make available to Borrower
a loan in the original principal amount not exceeding $3,000,000 (the "Loan") on
the terms and conditions hereinafter set forth, and for the purposes hereinafter
set forth; and

         WHEREAS,  in  order to  induce  Lender  to make  the Loan to  Borrower,
Borrower has made certain representations to Lender; and

         WHEREAS,  Lender, in reliance upon the  representations and inducements
of  Borrower,  has  agreed  to make  the  Loan  upon the  terms  and  conditions
hereinafter set forth;

         NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements  hereinafter set forth, and other good
and  valuable  consideration,  the receipt and  sufficiency  of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:

                                    ARTICLE I

                                    THE LOAN

         1.1 Loan Advances.  So long as the Notes, as herein  defined,  have not
matured,  no Event of Default has  occurred  and is  continuing  hereunder,  and
Lender's   obligation  to  make  advances  has  not  otherwise  been  terminated
hereunder, Lender shall advance Loan proceeds to Borrower from time to time upon
request by Borrower in  compliance  with  Section 1.2 hereof,  up to the maximum
amount of the Loan, but not to exceed amounts permitted pursuant to Sections 1.2
and 5.14 hereof.

         1.2      Evidence of Indebtedness; Repayment.

                  (a) For the period  from the date  hereof  until July 31, 1999
(the  "Interest-Only  Period"),  the Loan shall be evidenced by a Master Secured
Promissory  Note of even date  herewith,  in the original  principal  amount not
exceeding Three Million and No/100 Dollars ($3,000,000.00), made and executed by
Borrower,  payable to the order of Lender,  in  substantially  the form attached
hereto as Exhibit A-1 (the "Initial Note"). During the Interest-Only Period, the
Loan shall be payable in accordance with the terms of the Initial Note.

<PAGE>

                  (b) On July 30, 1999 (the  "Conversion  Date"),  the  Borrower
shall execute and deliver to Lender (i) a Secured Promissory Note in a principal
amount  equal  to  the  total   disbursements   of  the  Loan  for  the  Furnace
Improvements,  as defined in Section  1.3 below,  through the  Conversion  Date,
payable to the order of Lender,  in  substantially  the form attached  hereto as
Exhibit  A-2  (together  with any  extensions,  modifications,  renewals  and/or
replacements thereof,  herein referred to as the "Term Note"); and (ii) a Master
Secured  Promissory  Note in a principal  amount equal to  $3,000,000  minus the
principal  amount of the Term Note but in any event no  greater  than  $500,000,
payable to the order of Lender,  in  substantially  the form attached  hereto as
Exhibit  A-3  (together  with any  extensions,  modifications,  renewals  and or
replacements thereof, herein referred to as the "Revolving Credit Line Note" the
Initial Note,  Term Note and Revolving  Credit Line Note are herein  referred to
collectively  as the  "Notes").  Upon  delivery  of the Term Note and  Revolving
Credit Line Note to the Lender,  the Lender  shall  deliver to the  Borrower the
Initial Note marked "paid." After the  Conversion  Date, the maximum amount that
Lender  shall be  required to advance in the  aggregate  to the  Borrower  under
Section 1.1 shall be the maximum amount of the Revolving Credit Line Note.

                  (c) The  indebtedness of Borrower to Lender in connection with
the Loan shall be payable in accordance with the terms of the Notes.

         1.3      Purposes of Loan and Requests for Advances on Loan.

                  (a) The  purposes  of the  Loan  shall be to (i)  finance  the
acquisition and installation of a high temperature  furnace  identified as Model
50 Bottom  Loading  Carbonization  Furnace  "Big Linda" (the  "Existing  Furnace
Project")  and the  acquisition  and  installation  of two new high  temperature
furnaces,  each identified as Dual Bottom Loading  Carbonization  Furnaces Model
HT66110BL (the "New Furnace Project");  the Existing Furnace Project and the New
Furnace Project are herein  referred to collectively as the "Furnace  Projects",
and (ii) provide  working  capital to Borrower on a revolving  basis,  provided,
however,  that (A)  after  the  Conversion  Date,  the  Borrower  shall  only be
permitted to use the proceeds of the Loan for working capital and (B) the amount
that the Borrower may borrow to finance  working  capital shall at all times not
exceed  $500,000.  The  proceeds  of the Loan  shall  not be used for any  other
purpose.

                  (b) If required by Lender, Borrower shall request all advances
under the Loan in writing, and in any event, Borrower shall request all advances
under the Loan prior to the Conversion Date in writing.  Prior to the Conversion
Date,  each  request for an advance  under the Initial  Note shall  identify the
amount  that is being  drawn to finance  working  capital and the amount that is
being drawn to finance the Furnace Projects. If any amount is being requested to
finance the New Furnace  Project,  Borrower must also certify at the time of the
advance  that one of the  benchmarks  toward the  completion  of the  particular
Furnace  Projects  has been met,  which  benchmarks  are set forth on  Exhibit C
attached hereto.  Lender shall be entitled to verify  independently  whether the
benchmark has been met, and Borrower shall pay all costs reasonably  incurred by
Lender in connection  with such  verification.  All advances shall be subject to
the limitations of Section 5.14.

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<PAGE>
                  (c) Draws against the Revolving  Credit Line Note shall not be
less than  $100,000  per draw unless  Borrower  participates  in  Lender's  cash
management  program  known as  AutoBorrow,  in  which  event  there  shall be no
required minimum for draws against the Revolving Credit Line Note.

         1.4 Closing  Fee. In  consideration  of Lender's  agreement to make the
Loan, the Borrower shall pay to the Lender a  non-refundable  closing fee in the
amount of $30,000. This fee shall be payable on the date hereof.

         1.5 Unused  Commitment Fee.  Beginning on July 30, 1999 and in addition
to the fee payable under Section 1.4 above, the Borrower shall pay to the Lender
a fee equal to, on an annualized  basis, .50% (calculated on the basis of a year
of 360 days and payable for the actual  number of days elapsed) of the principal
amount of the  Revolving  Credit Line Note less the average daily balance of the
amount actually drawn by Borrower thereunder, payable quarterly in arrears, with
the first  payment due on September  28, 1999 and  continuing  thereafter on the
twenty-eighth  day of the last month of each succeeding  calender quarter and on
the Termination Date.

         1.6 Automatic Payment.  Borrower hereby authorizes the Lender to effect
payment of sums due under this  Agreement and the Notes by means of debiting the
Borrower's  principal  checking  account or any other account which Borrower may
have with Lender  subsequent to the date hereof.  This  authorization  shall not
affect the obligation of the Borrower to pay such sums when due, without notice,
if there are insufficient funds in such account to make such payments in full in
the due date thereof, or if Lender fails to debit the account or accounts.

         1.7 Rate  Protection.  Borrower  will  mitigate  the risk of changes in
interest rates due to its variable interest rate debt by entering into, prior to
the  Conversion  Date,  an  interest  rate cap  agreement,  interest  rate  swap
agreement  or other  hedge  product  acceptable  to Lender (the  "Interest  Rate
Hedge") with a  counterparty  that is Lender or an affiliate  thereof or another
financial  institution with a long-term debt rating from a nationally recognized
rating  agency  that is equal to or greater  than the  long-term  debt rating of
Lender.  Such Interest  Rate Hedge shall be  applicable to at least  one-half of
Borrower's  funded debt that is bearing  interest at a variable rate of interest
including the Loan made hereunder and the  Subordinated  Note. The Interest Rate
Hedge  shall  remain in effect  until the  earlier of the payment of the Loan or
until the funded debt  coverage  ratio set forth in Section  5.22 hereof is less
than 2.00:1.00 for four consecutive fiscal quarters.

                                   ARTICLE II

                                    SECURITY

         2.1 Security. The Obligations (as hereinafter defined) shall be secured
by the following:

                  (a)  Security  Agreement.  A Security  Agreement  of even date
         herewith,  between the Borrower and the Lender whereby  Borrower grants
         the Lender a security interest in the collateral described therein (the
         "Security Agreement").


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<PAGE>
                  (b)  Pledge  Agreement.  The  Pledge  Agreement  of even  date
         herewith,   executed  by  The  Bethlehem  Corporation  (the  "Parent"),
         pledging to Lender all of the issued and outstanding  stock of Borrower
         (the "Pledge Agreement")

         This  Security  Agreement  and  the  Pledge  Agreement  and  any  other
         instruments,  documents or  agreements  now or  hereafter  securing the
         Obligations   are  herein  referred  to  individually  as  a  "Security
         Instrument"  and   individually   and  collectively  as  the  "Security
         Instruments".  The Security Instruments,  together with this Agreement,
         the Notes and any other  instruments  and  documents  now or  hereafter
         evidencing,  securing  or in any  way  related  to  the  indebtednesses
         evidenced by the Notes are herein  referred to  individually as a "Loan
         Document" and individually and collectively as the "Loan Documents".

         2.2 Obligations.  Without limiting any of the provisions  thereof,  the
Security Instruments shall secure:

                  (a)  The  full  and  timely  payment  of  the   indebtednesses
         evidenced  by the  Notes,  together  with  interest  thereon,  and  any
         extensions,  modifications  and/or renewals thereof and any notes given
         in payment thereof,

                  (b) The full and prompt  performance of all of the obligations
         of Borrower to Lender under the Loan  Documents to which  Borrower is a
         party,

                  (c) The full and prompt  payment of all court costs,  expenses
         and  costs  of  whatever  kind  incident  to  the   collection  of  the
         indebtednesses evidenced by the Notes, the enforcement or protection of
         the security interests of the Security  Instruments and/or the exercise
         by Lender of any  rights or  remedies  of Lender  with  respect  to the
         indebtednesses  evidenced  by the Notes,  including  but not limited to
         reasonable  attorney's  fees and  expenses  incurred by Lender,  all of
         which Borrower agrees to pay to Lender upon demand, and

                  (d) The full and prompt payment and performance of any and all
         other  indebtednesses  and other  obligations  of  Borrower  to Lender,
         direct or contingent (including but not limited to obligations incurred
         as  indorser,  guarantor  or surety),  or the  obligation  to reimburse
         Lender  with  respect to any draws on  letters of credit  issued by the
         Lender on Borrower's  behalf,  however  evidenced or  denominated,  and
         however  and   whenever   incurred,   including   but  not  limited  to
         indebtednesses incurred pursuant to any present or future commitment of
         Lender to Borrower.

All of the foregoing  indebtedness and other obligations are herein collectively
referred to as the "Obligations".


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<PAGE>
                                   ARTICLE III

                              CONDITIONS PRECEDENT

         3.1 Condition  Precedent to Loans.  The obligation of Lender to advance
the  proceeds  of the Loan to or for the  account of  Borrower is subject to the
condition  precedent that Lender shall have received each of the  following,  in
form and substance satisfactory to the Lender and its counsel:

                  (a) Notes. The Initial Note, duly executed by Borrower,  which
         Initial Note shall be deemed  delivered as of the date all of the other
         conditions precedent set forth in this Section 3.1 have been met;

                  (b)  Security  Instruments.  The  Security  Instruments,  duly
         executed by the parties  thereto,  together  with:  (1)  acknowledgment
         copies of financing  statements duly filed under the Uniform Commercial
         Code of all  jurisdictions  necessary  or, in the  opinion  of  Lender,
         desirable  to perfect the  security  interests  created by the Security
         Instruments or such other documents, such as certificates of title with
         Lender's lien noted  thereon,  that are  necessary to perfect  Lender's
         security  interest;  and (2) evidence of the public recording or filing
         of such of the  Security  Instruments  as Lender  deems it necessary or
         desirable to record or file  publicly,  in such offices as Lender shall
         require,  together with evidence satisfactory to Lender of the priority
         of the  liens,  security  titles  and/or  security  interests  of  such
         Security Instruments;

                  (c)  Title  to  Assets.   Evidence   satisfactory   to  Lender
         demonstrating  that  Borrower is the owner of the  collateral  security
         described  in the  Security  Instruments,  free and  clear  of  defects
         therein or claims thereto by persons other than Lender;

                  (d)  Comfort  Letter.  A letter  from  the  Parent  to  Lender
         acknowledging  the  Lender's  extension  of the  Loan to  Borrower  and
         containing  certain other  representations  and agreements which Lender
         may request.

                  (e) Subordination Agreement.  Execution and delivery by Parent
         to Lender of a  subordination  agreement  in form  satisfactory  to the
         Lender whereby the Parent subordinates all indebtedness of the Borrower
         to Parent to the Borrower's  repayment of the Loan (the  "Subordination
         Agreement"),  including  the  indebtedness  evidenced  by that  certain
         Promissory  Note from  Borrower  to Parent  dated as of the date hereof
         (the "Subordinated Note").

                  (f) Consent of PNC Bank.  Written consent from PNC Bank to the
         extension of the Loan to the Borrower and to the Parent's execution and
         delivery of the Pledge Agreement and the Subordination Agreement to the
         Lender.

                  (g)  Insurance.   Evidence   satisfactory  to  Lender  of  the
         existence of the policies of insurance  required by the  provisions  of
         Article V of this Agreement and by the Security Instruments;

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<PAGE>
                  (h)  Evidence  of  Corporate  Action by  Borrower  and Parent.
         Certified  (as of the date of this  Agreement)  copies of all corporate
         action taken by Borrower  and Parent,  including  resolutions  of their
         board of directors, authorizing the execution, delivery and performance
         of the Loan  Documents to which each is a party and each other document
         to be delivered by Borrower or Parent pursuant to this Agreement;

                  (i)  Incumbency  and  Signature  Certificates.  A  certificate
         (dated  as of the  date  of  this  Agreement)  of the  Secretary  or an
         Assistant  Secretary  of Borrower and Parent  certifying  the names and
         true  signatures  of the officers of Borrower and Parent  authorized to
         sign the Loan Documents to which it is a party and the other  documents
         to be delivered by Borrower or Parent under this Agreement;

                  (j) Organizational Documents.  Copies of the corporate charter
         and other  publicly  filed  organizational  documents  of Borrower  and
         Parent, certified by the Secretary of State or other appropriate public
         official  in  the   jurisdiction   in  which   Borrower  or  Parent  is
         incorporated and a copy of Borrower's and Parent's bylaws;

                  (k) Evidence of Legal  Existence/Good  Standing. A certificate
         as to the legal  existence  and good  standing of Borrower  and Parent,
         issued by the Secretary of State or other  appropriate  public official
         in the jurisdiction in which Borrower or Parent is incorporated;

                  (l) Evidence of Foreign  Qualifications.  Certificates  of the
         Secretaries  of State  or  other  appropriate  public  officials  as to
         Borrower's and Parent's  qualification to do business and good standing
         in each jurisdiction in which a failure to be so qualified would have a
         material adverse effect on Borrower's financial position or its ability
         to conduct its  business in the manner now  conducted  and as hereafter
         intended to be conducted;

                  (m) Closing Fee.  Borrower shall have paid to Lender a closing
         fee in the amount of $30,000 and the other expenses of Lender  relating
         to making the Loan; and

                  (n) Legal Opinion. An opinion of counsel to Borrower addressed
         to Lender as to the enforceability of the Loan Documents and such other
         matters as Lender may request.

         3.2  Additional  Condition(s)  Precedent to Loans.  The  obligation  of
Lender to make each  advance of Loan  proceeds to or for the account of Borrower
(including  the  initial   advance  or  advances)  is  subject  to  the  further
condition(s) precedent that on and as of the date of such advance:

                  (a)  Representations  and Warranties True; Absence of Default.
         The following statements shall be true, and Borrower's request for such
         advance shall constitute an affirmation by Borrower that:

                           (i) The representations  and warranties  contained in
                  Article IV of this Agreement are correct on and as of the date
                  of such advance as though made on and as of such date; and


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<PAGE>

                           (ii)  Neither  an Event of  Default  (as  hereinafter
                  defined),  nor any event that with the giving of notice or the
                  passage of time or both would  constitute an Event of Default,
                  has  occurred  and is  continuing,  or would  result from such
                  advance; and

                  (b) Additional Documentation.  Lender shall have received such
         other  approvals,  opinions  and  documents  as Lender  reasonably  may
         request.


                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

         Borrower hereby represents and warrants to Lender as follows:

         4.1 Corporate Status. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of  Pennsylvania;  and
has the  corporate  power to own and  operate  its  properties,  to carry on its
business as now conducted and to enter into and to perform its obligations under
this Agreement and the other Loan Documents to which it is a party.  Borrower is
duly  qualified to do business and is in good standing in the State of Tennessee
and in each  state in which a failure to be so  qualified  would have a material
adverse  effect on Borrower's  financial  position or its ability to conduct its
business in the manner now conducted.

         4.2  Authorization.  Borrower has full legal right, power and authority
to conduct  its  business  and  affairs in the manner  contemplated  by the Loan
Documents, and to enter into and perform its obligations thereunder, without the
consent or  approval of any other  person,  firm,  governmental  agency or other
legal entity. The execution and delivery of this Agreement,  the loan hereunder,
the execution  and delivery of each Loan Document to which  Borrower is a party,
and the  performance  by Borrower of its  obligations  thereunder are within the
corporate  powers of Borrower  and have been duly  authorized  by all  necessary
corporate  action  properly  taken,  have  received all  necessary  governmental
approvals,  if any were required, and do not and will not contravene or conflict
with any provision of law, any  applicable  judgment,  ordinance,  regulation or
order of any court or governmental agency, the charter or by-laws of Borrower or
any agreement binding upon Borrower or its properties.  The officer(s) executing
this Agreement,  the Notes and all of the other Loan Documents to which Borrower
is a party are duly authorized to act on behalf of Borrower.

         4.3  Validity and Binding  Effect.  This  Agreement  and the other Loan
Documents are the legal,  valid and binding  obligations of the parties thereto,
enforceable in accordance with their respective terms, subject to bankruptcy and
other creditor's rights laws and equitable principles.

         4.4 Other  Transactions.  There  are no prior  loans,  liens,  security
interests, agreements or other financings upon which Borrower is obligated or by
which  Borrower is bound that will in any way permit any third person to have or
obtain  priority  over Lender as to any of the  collateral  security  granted to
Lender pursuant to this Agreement and the Security Instruments.  Consummation of
the transactions  hereby  contemplated and the performance of the obligations of
Borrower under and by

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<PAGE>
virtue of the Loan Documents to which Borrower is a party will not result in any
breach  of, or  constitute  a default  under,  any  mortgage,  security  deed or
agreement,  deed of  trust,  lease,  bank loan or  credit  agreement,  corporate
charter or by-laws, agreement or certificate of limited partnership, partnership
agreement,  license,  franchise  or any other  instrument  or agreement to which
Borrower  is a party  or by which  Borrower  or its  properties  may be bound or
affected.

         4.5 Litigation. There are no actions, suits or proceedings pending, or,
to the  knowledge of  Borrower,  threatened,  against or  affecting  Borrower or
involving  the validity or  enforceability  of any of the Loan  Documents or the
priority of the liens thereof,  at law or in equity,  or before any governmental
or administrative  agency, except actions,  suits and proceedings that are fully
covered by insurance  and that,  if adversely  determined,  would not impair the
ability of Borrower to perform each and every one of its  obligations  under and
by virtue of the Loan Documents; and to Borrower's knowledge, Borrower is not in
default with  respect to any order,  writ,  injunction,  decree or demand of any
court or any governmental authority.

         4.6  Financial   Statements.   All  financial  statements  of  Borrower
heretofore  delivered to Lender are true and correct in all  material  respects,
have been prepared in accordance with generally accepted  accounting  principles
consistently  applied,  and  fairly  present  the  financial  conditions  of the
subjects  thereof  as of the dates  thereof.  No  material  adverse  change  has
occurred in the financial condition of Borrower since the dates thereof,  and no
additional borrowings have been made by Borrower since the date thereof.

         4.7 No  Defaults.  No default or event of  default by  Borrower  exists
under  this  Agreement  or any of the other Loan  Documents,  or under any other
instrument or agreement to which Borrower is a party or by which Borrower or its
properties may be bound or affected, and no event has occurred and is continuing
that with  notice or the passage of time or both would  constitute  a default or
event of default thereunder.

         4.8  Compliance  With Law. To the best of its  knowledge,  Borrower has
obtained  all  necessary  licenses,   permits  and  governmental  approvals  and
authorizations  necessary or proper in order to conduct its business and affairs
as heretofore  conducted and as hereafter intended to be conducted.  Borrower is
in compliance with all laws,  regulations,  decrees and orders  applicable to it
(including but not limited to laws, regulations,  decrees and orders relating to
environmental,  occupational  and  health  standards  and  controls,  antitrust,
monopoly,  restraint of trade or unfair competition),  except to the extent that
noncompliance,  in the  aggregate,  cannot  reasonably  be  expected  to  have a
material  adverse  effect on its  business,  operations,  property or  financial
condition and will not  materially  adversely  affect its ability to perform its
obligations  under the Loan  Documents to which it is a party.  Borrower has not
received,  and does not expect to receive,  any order or notice of any violation
or claim of violation of any law, regulation, decree, rule, judgment or order of
any governmental  authority or agency relating to the ownership and/or operation
of its  properties,  as to which the cost of  compliance is or might be material
and the  consequences of noncompliance  would or might be materially  adverse to
its business,  operations,  property or financial  condition,  or which would or
might impair its ability to perform its obligations  under the Loan Documents to
which it is a party.


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<PAGE>
         4.9      Environmental Matters.

                  (a) As used in this  Section 4.9 and in Section  5.11  hereof,
the following terms shall have the indicated meanings:

                  "Business"  means  all of  Borrower's  assets,  both  real and
                  personal,  tangible and intangible,  now existing or hereafter
                  acquired and wherever located,  and all of Borrower's  current
                  and future  business  operations  at all  locations and in all
                  jurisdictions.

                  "Environmental Authorities" means all federal, state and local
                  governmental  bodies,  authorities  or agencies and all public
                  corporations created and/or empowered to administer,  regulate
                  and/or   enforce   Environmental   Laws,   including   without
                  limitation the U.S. Environmental Protection Agency.

                  "Environmental  Laws"  means  any  and  all  federal,   state,
                  regional,  county or local laws, statutes,  rules, regulations
                  or  ordinances  relating to the  generation,  recycling,  use,
                  reuse,  sale,  storage,  handling,  transport,   treatment  or
                  disposal of Hazardous Materials,  including without limitation
                  the   Comprehensive    Environmental   Response   Compensation
                  Liability Act of 1980, as amended by the Superfund  Amendments
                  and  Reauthorization  Act of 1986,  42 U.S.C.  ss.9601 et seq.
                  ("CERCLA"),  the  Resource  Conservation  and  Recovery Act of
                  1976, as amended by the Solid and Hazardous  Waste  Amendments
                  of 1984,  42 U.S.C.  ss.6901 et seq.  ("RCRA"),  the Tennessee
                  Hazardous Waste  Management Act, T.C.A.  ss.68-46-101 et seq.,
                  and any rules,  regulations and guidance documents promulgated
                  or published thereunder,  and any state,  regional,  county or
                  local statute,  law, rule, regulation or ordinance relating to
                  public health,  safety or the discharge,  emission or disposal
                  of  Hazardous  Materials  or  Hazardous  Wastes  in or to air,
                  water,  land  or  groundwater,  to  the  withdrawal  or use of
                  groundwater,  to the use,  handling or  disposal or  asbestos,
                  polychlorinated biphenyls, petroleum, petroleum derivatives or
                  by-products,  other hydrocarbons or urea formaldehyde,  to the
                  treatment,   storage,  disposal  or  management  of  Hazardous
                  Materials,   to  exposure  to  Hazardous  Materials,   to  the
                  transportation,  storage,  disposal,  management or release of
                  gaseous  or  liquid  substances,  and any  regulation,  order,
                  injunction,  judgment,  declaration,  notice or demand  issued
                  thereunder.

                  "Hazardous Materials" means any hazardous,  toxic or dangerous
                  materials,  substances,  chemicals,  waste or pollutants  that
                  from  time  to  time  are  defined  by or  pursuant  to or are
                  regulated  under any  Environmental  Laws,  including  without
                  limitation  asbestos,  polychlorinated  biphenyls,  petroleum,
                  petroleum derivatives or by-products, other hydrocarbons, urea
                  formaldehyde and any material,  substance,  pollutant or waste
                  that is defined as a hazardous  waste under RCRA or defined as
                  a hazardous substance under CERCLA.

                  "Hazardous  Wastes"  means  Hazardous  Materials  that  are or
                  become  "wastes"  or "solid  wastes" as such terms are used in
                  RCRA.

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<PAGE>
                  "Property"   means  all  real   property   now  or   hereafter
                  constituting  a part of,  or  otherwise  used or  operated  by
                  Borrower in connection with, the Business.

                  (b) Borrower represents and warrants to Lender as follows:

                           (i) The  Property  is being  operated  by Borrower in
                  material  compliance with Environmental Laws, and Borrower has
                  obtained,  maintained  and  is  in  good  standing  under  all
                  approvals,  consents,   certificates,   licenses  and  permits
                  required by Environmental Laws with respect to the Property.

                           (ii) To Borrower's knowledge, the Property is free of
                  all Hazardous  Wastes and is free of all  Hazardous  materials
                  other  than  those  maintained  therein  or  thereon  in  full
                  compliance with Environmental Laws. Borrower has not caused or
                  permitted  the Property to be used to  generate,  manufacture,
                  refine,  transport,  treat, store, handle, dispose,  transfer,
                  produce  or  process   Hazardous   Materials  except  in  full
                  compliance with Environmental Laws.

                           (iii)  Borrower has not received  notice,  and has no
                  knowledge,  of any material noncompliance with or violation of
                  any  Environmental  Laws with  respect to the  Property or the
                  Business.

         4.10 No Burdensome Restrictions.  No instrument,  document or agreement
to which  Borrower is a party or by which it or its  properties  may be bound or
affected  materially  adversely  affects,  or may  reasonably  be expected so to
materially and adversely affect, the business, operations, property or financial
condition thereof.

         4.11  Taxes.  Borrower  has filed or caused to be filed all tax returns
that to its  knowledge  are  required to be filed  (except for returns that have
been appropriately extended), and has paid all taxes shown to be due and payable
on said returns and all other  taxes,  impositions,  assessments,  fees or other
charges imposed on it by any governmental authority,  agency or instrumentality,
prior to any delinquency  with respect  thereto (other than taxes,  impositions,
assessments,  fees  and  charges  currently  being  contested  in good  faith by
appropriate  proceedings,  for which appropriate amounts have been reserved). To
the best of Borrower's knowledge,  no tax liens have been filed against Borrower
or any of the property thereof.

         4.12     Year 2000 Representations and Warranties.

                  (a)  Borrower  has  (i)  begun  analyzing  the  operations  of
Borrower and its subsidiaries and affiliates that could be adversely affected by
failure to become  Year 2000  compliant  (that is, that  computer  applications,
imbedded  microchips  and other  systems will be able to perform  date-sensitive
functions  prior to and after  December 31, 1999) and; (ii) developed a plan for
becoming Year 2000 compliant in a timely manner,  the implementation of which is
on schedule in all material respects.  Borrower reasonably believes that it will
become Year 2000 compliant for its operations and those of its  subsidiaries and
affiliates on a timely basis except to the extent that a

                                       10

<PAGE>
failure to do so could not  reasonably  be expected  to have a material  adverse
effect upon the financial condition of Borrower.

                  (b) Borrower  reasonably  believes any  suppliers  and vendors
that  are  material  to the  operations  of  Borrower  or its  subsidiaries  and
affiliates  will be Year 2000  compliant  for their  own  computer  applications
except to the extent that a failure to do so could not reasonably be expected to
have a material adverse effect upon the financial condition of Borrower.

                  (c) Borrower will promptly  notify Bank in the event  Borrower
determines that any computer  application which is material to the operations of
Borrower,  its subsidiaries or any of its material vendors or suppliers will not
be fully Year 2000  compliant on a timely basis,  except to the extent that such
failure could not reasonably be expected to have a material  adverse effect upon
the financial condition of Borrower.

                                    ARTICLE V

                            COVENANTS AND AGREEMENTS

         Borrower covenants and agrees that during the term of this Agreement:

         5.1  Payment  of  Obligations.  Borrower  shall pay the  indebtednesses
evidenced by the Notes  according to the tenor thereof,  and shall timely pay or
perform, as the case may be, all of the other Obligations.

         5.2 Further  Assurances.  Borrower  will take all actions  requested by
Lender to create and  maintain  in Lender's  favor  valid  liens upon,  security
titles  to  and/or  perfected  security  interests  in the  collateral  security
described in the Security Instruments and all other security for the Obligations
now or hereafter held by or for Lender. Without limiting the foregoing, Borrower
agrees to execute such further instruments  (including  financing statements and
continuation  statements) as may be required or permitted by any law relating to
notices  of, or  affidavits  in  connection  with,  the  perfection  of Lender's
security interests,  and to cooperate with Lender in the filing or recording and
renewal thereof.

         5.3      Financial Statements.  Borrower shall furnish to Lender:

                  (a) as soon as practicable and in any event within the earlier
         of  one-hundred  twenty (120) days after the end of each fiscal year of
         Borrower  and  Parent or five (5) days  after such items are filed with
         the United States Securities  Exchange  Commission ("SEC") or delivered
         to the  Borrower's  or Parent's  shareholders  (i) a  consolidated  and
         consolidating  balance  sheet of Borrower and Parent as of the close of
         such fiscal  year,  the  related  statements  of income,  cash flow and
         shareholders'  equity  for  such  fiscal  year  and all  notes  to such
         financial statements,  all in reasonable detail, prepared in accordance
         with generally accepted  accounting  principles  consistently  applied,
         audited in accordance  with generally  accepted  auditing  standards by
         independent  certified public  accountants  satisfactory to Lender, and
         accompanied by the unqualified  favorable  opinion of such accountants,
         and (ii)

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<PAGE>

         a certificate of the chief financial officer of Borrower,  stating that
         Borrower has kept,  observed,  performed and fulfilled  each  covenant,
         term and  condition  of this  Agreement  and the other  Loan  Documents
         during the preceding fiscal year and that no Event of Default hereunder
         has occurred and is continuing  (or if an Event of Default has occurred
         and is  continuing,  specifying  the  nature  of same,  the  period  of
         existence  of  same  and  the  action  Borrower  proposes  to  take  in
         connection  therewith) together with a schedule in form satisfactory to
         Lender of the computations  used by Borrower in determining,  as of the
         end of such  fiscal  year,  compliance  with  all  financial  covenants
         contained herein;

                  (b) as soon as practicable and in any event within the earlier
         of  forty-five  (45)  days  after  the end of each  fiscal  quarter  of
         Borrower's  and Parent's  fiscal year or five (5) days after such items
         are  filed  with  the  SEC  or  delivered  to  Borrower's  or  Parent's
         shareholders,  (i) a consolidated  and  consolidating  balance sheet of
         Borrower  and Parent as of the close of such  fiscal  quarter,  and the
         related  statements of income,  cash flow and shareholders'  equity for
         such  fiscal  quarter,  all  in  reasonable  detail,  and  prepared  in
         accordance with generally accepted accounting  principles  consistently
         applied, certified by the chief financial officer of Borrower, and (ii)
         a  certificate  of the chief  executive or chief  financial  officer of
         Borrower,  stating that  Borrower  has kept,  observed,  performed  and
         fulfilled each  covenant,  term and condition of this Agreement and the
         other Loan  Documents  during the preceding  month and that no Event of
         Default  hereunder  has occurred and is  continuing  (or if an Event of
         Default has occurred and is continuing,  specifying the nature of same,
         the period of  existence  of same and the action  Borrower  proposes to
         take  in  connection  therewith)  together  with  a  schedule  in  form
         satisfactory  to  Lender  of  the  computations  used  by  Borrower  in
         determining,  as of the end of such fiscal quarter, compliance with all
         financial covenants contained herein;

                  (c) as soon as practicable and in any event within twenty (20)
         days  after the end of each  month,  (i) a  complete  listing,  in form
         acceptable to Lender, of all of Borrower's receivables (by obligor, age
         of receivable  and dollar value per obligor and age  category),  (ii) a
         contract  report and backlog  report,  (iii) a report setting forth the
         percentage  of  completion  of all Furnace  Projects  financed with the
         proceeds of the Loan, and (iv) a completed  Borrowing Base  Certificate
         in the form  attached  hereto  as  Exhibit  B; all as of the end of the
         immediately  preceding  month,  and,  where  applicable,  in sufficient
         detail  to allow  Lender to verify  the  calculations  set forth in the
         Borrowing Base Certificate;

                  (d) promptly upon receipt thereof,  copies of all accountants'
         reports and  accompanying  financial  reports  submitted to Borrower by
         independent  accountants in connection with each annual  examination of
         Borrower;

                   (e) to the extent not  delivered  pursuant  to the  foregoing
         subsections of this Section 5.3, within five (5) days of their delivery
         to the SEC or the Parent's or Borrower's shareholders,  all Form 10-Ks,
         Form 10-Qs and other  filings  made by  Borrower or Parent with the SEC
         and all annual reports and proxy statements with regard to Borrower and
         Parent;


                                       12

<PAGE>
                  (f) with reasonable  promptness,  such other financial data as
         Lender reasonably may request.

         5.4  Maintenance  of Books  and  Records;  Inspection.  Borrower  shall
maintain its books,  accounts and records in accordance with generally  accepted
accounting principles  consistently applied, and permit any person designated by
Lender in writing to visit and inspect any of its properties  (including but not
limited to the  collateral  security  described  in the  Security  Instruments),
corporate books and financial records, and to discuss its accounts,  affairs and
finances with Borrower or the principal  officers of Borrower during  reasonable
business hours, all at such times as Lender reasonably may request.

         5.5 Insurance.  Without  limiting any of the requirements of any of the
other Loan Documents,  Borrower will maintain, in amounts satisfactory to Lender
(a) commercial  general liability  insurance on an "occurrence"  basis,  against
claims for "personal injury" (including but not limited to bodily injury,  death
or property  damage),  (b)  worker's  compensation  insurance  (or  maintained a
legally  sufficient  amount  of self  insurance  against  workers'  compensation
liabilities,  with  adequate  reserves,  under a plan  approved by Lender),  (c)
"all-risk"  casualty  insurance  with  standard  exceptions  on  its  properties
(including but not limited to the collateral  security now or hereafter securing
payment and  performance  of the  Obligations),  against  such hazards and in at
least such amounts as is customary in Borrower's business,  (d) rent or business
interruption  insurance  against  loss  of  income  arising  out  of  damage  or
destruction  by such  hazards as presently  are included in so-called  "all-risk
coverage",  and (e) such other  insurance in such amounts as Lender from time to
time may reasonably  require against other  insurance  hazards that the time are
commonly insured against by persons engaged in enterprises or activities similar
to those of Borrower. At the request of Lender,  Borrower will deliver forthwith
a certificate executed by a duly authorized officer of Borrower,  specifying the
details of such insurance in effect.  All policies of casualty  insurance  shall
provide  that such  insurance  shall be payable to Borrower  and Lender as their
respective  interests  may  appear,  and that at least  thirty  (30) days' prior
written notice of  cancellation  or modification of the policy shall be given to
Lender by the insurer.  Borrower agrees that there shall be no recourse  against
Lender for the  payment of  premiums,  commissions,  assessments  or advances in
respect of any such policy, and at Lender's request will provide Lender with the
agreement of the insurer(s) to this effect.  At the request of Lender,  all such
policies  shall be  delivered  to and held by Lender.  Upon an Event of Default,
Lender may, at its option, act as attorney for Borrower in obtaining, adjusting,
settling and  canceling  such  insurance  and  endorsing any drafts with respect
thereto,  and this power,  being coupled with an interest,  shall be irrevocable
prior  to  payment  in full of the  Obligations  and  performance  of all of the
obligations of Borrower to Lender in connection therewith.

         5.6 Taxes and  Assessments;  Tax Indemnity.  Borrower will (a) file all
tax returns and  appropriate  schedules  thereto  that are  required to be filed
under  applicable law, prior to the date of  delinquency,  (b) pay and discharge
all taxes, assessments and governmental charges or levies imposed upon Borrower,
upon its income and profits or upon any properties belonging to it, prior to the
date on which penalties attach thereto,  and (c) pay all taxes,  assessments and
governmental  charges or levies that,  if unpaid,  might become a lien or charge
upon any of its properties;  provided,  however, that Borrower in good faith may
contest  any  such  tax,  assessment,  governmental  charge  or  levy so long as
appropriate  reserves are maintained with respect thereto.  If any tax is or may
be

                                       13

<PAGE>

imposed by any governmental  entity in respect of sales of Borrower's  inventory
or the  merchandise  that is the  subject of such  sales,  or as a result of any
other  transaction  of  Borrower,  which  tax  Lender is or may be  required  to
withhold or pay, Borrower agrees to indemnify Lender and hold Lender harmless in
connection with such taxes, and Borrower will  immediately  reimburse Lender for
any such taxes paid by Lender and added to the Obligations pursuant to the terms
hereof.

         5.7  Corporate   Existence.   Borrower  shall  maintain  its  corporate
existence  and  good  standing  in the  state  of  its  incorporation,  and  its
qualification  and good  standing as a foreign  corporation  in Tennessee and in
each other  jurisdiction in which such  qualification  is necessary  pursuant to
applicable law.

         5.8 Compliance with Law and Other  Agreements.  Borrower shall maintain
its business  operations and property  owned or used in connection  therewith in
compliance with (a) all applicable  federal,  state and local laws,  regulations
and ordinances  governing such business  operations and the use and ownership of
such property,  and (b) all  agreements,  licenses,  franchises,  indentures and
mortgages  to  which  Borrower  is a party or by  which  Borrower  or any of its
properties is bound.  Without  limiting the foregoing,  Borrower will pay all of
its indebtedness promptly in accordance with the terms thereof.

         5.9 Notice of Default.  Borrower shall give written notice to Lender of
the  occurrence of any default,  event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof.

         5.10 Notice of Litigation.  Borrower shall give notice, in writing,  to
Lender of (a) any actions,  suits or proceedings  wherein the amount at issue is
in excess of $100,000 and is not covered by insurance, instituted by any persons
whomsoever against Borrower, or affecting any of Borrower's assets in connection
with any applicable  federal,  state or local laws or  regulations,  and (b) any
dispute,  not  resolved  within  sixty  (60) days of the  commencement  thereof,
between  Borrower on the one hand and any  governmental  regulatory  body on the
other  hand,  which  dispute  might  interfere  with the  normal  operations  of
Borrower.

         5.11     Environmental Matters.

                  (a)  Borrower  will cause the  Property  to remain free of all
         Hazardous Wastes,  and to remain free of all Hazardous  Materials other
         than  those  maintained  therein or  thereon  in full  compliance  with
         Environmental  Laws.  Borrower will not cause or permit the Property to
         be used to generate,  manufacture,  refine,  transport,  treat,  store,
         handle,  dispose,  transfer,  produce  or process  Hazardous  Materials
         except in full compliance with Environmental Laws.

                  (b) Borrower will notify lender immediately if it receives any
         notice or obtains knowledge of any  noncompliance  with or violation of
         any Environmental Laws with respect to the Property or the Business.

                  (c) In the event that  Hazardous  Materials  unrelated  to the
         Business,  or Hazardous  Wastes,  are discovered on or are brought onto
         the Property, Borrower will cause such

                                       14

<PAGE>

         Hazardous  Materials or Hazardous  Wastes to be removed and disposed of
         promptly and in full compliance with Environmental  Laws. Borrower will
         provide  Lender  prior  written  notice of such  removal  and  disposal
         actions.

                  (d) Borrower  will comply with all  Environmental  Laws in all
         jurisdictions  in which Borrower  operates,  now or in the future,  and
         will  comply  with all  environmental  Laws that in the  future  become
         applicable to the Property or the Business.

         5.12 ERISA Plan.  If Borrower has in effect,  or  hereafter  institutes
(with Lender's consent, as hereinafter provided), a pension plan that is subject
to the requirements of Title IV of the Employee  Retirement  Income Security Act
of 1974, Pub. L. No. 93-406,  September 2, 1974, 88 Stat.  829, 29 U.S.C.A.  ss.
1001 et seq. (1975), as amended from time to time ("ERISA"),  then the following
warranty and covenants  shall be applicable  during such period as any such plan
(the "Plan") shall be in effect:  (a) Borrower hereby warrants that no fact that
might constitute grounds for the involuntary termination of the Plan, or for the
appointment  by the  appropriate  United States  District  Court of a trustee to
administer  the Plan,  exists at the time of  execution of this  Agreement,  (b)
Borrower hereby covenants that throughout the existence of the Plan,  Borrower's
contributions under the Plan will meet the minimum funding standards required by
ERISA and Borrower will not institute a distress  termination  of the Plan,  (c)
Borrower  hereby  covenants  that the  Plan's  annual  financial  and  actuarial
statements  and the Plan's  annual Form 5500  information  return will be timely
filed with the  Internal  Revenue  Service and a copy  delivered  to Lender upon
Lender's  request and (d) Borrower  covenants that it will send to Lender a copy
of any notice of a reportable  event (as defined in ERISA)  required by ERISA to
be filed with the Labor Department or the Pension Benefit Guaranty  Corporation,
at the time that such notice is so filed.

         No Plan shall be instituted by Borrower  unless Lender shall have given
its written consent thereto, which consent shall not be unreasonably withheld.

         5.13  Obligations  of  Borrower  With  Respect to  Receivables.  By the
execution of this Agreement,  Lender shall not be obligated to do or perform any
of the acts or things provided in any contracts subject to the security interest
granted by the Security  Instruments  to be done or  performed by Borrower,  but
upon the occurrence of an Event of Default, Lender may, at its election, perform
some or all of the  obligations  provided in said  contracts  to be performed by
Borrower, and if Lender incurs any liability or expenses by reason thereof, same
shall be payable by Borrower  upon demand and same shall also be secured by this
Agreement  and the other  Loan  Documents.  Upon the  occurrence  of an Event of
Default,  Borrower  will,  on request  from Lender,  submit to Lender  duplicate
copies of all invoices on outstanding  receivables  subject to Lender's security
interest. Lender shall have the right to notify the account debtors obligated on
any or all of Borrower's  receivables to make payment  thereof direct to Lender,
and to take control of all proceeds of any such receivables,  which right Lender
may exercise at any time whether or not Borrower is then in default hereunder or
was theretofore making collections thereon.  Until such time as Lender elects to
exercise  such right by giving  Borrower  written  notice  thereof,  Borrower is
authorized,  as agent of Lender,  to collect and enforce  said  receivables.  If
Lender requests,  Borrower will forthwith on receipt of all checks, drafts, cash
and other  remittances in payment of inventory sold, or in payment on account of
Borrower's  receivables,  deposit the same in a special bank account  maintained
with

                                       15

<PAGE>

Lender over which Lender alone has power of  withdrawal.  Said proceeds shall be
deposited in precisely the form received, except for the indorsement of Borrower
where necessary to permit collection of items, which indorsement Borrower agrees
to make,  and  which  Lender is also  hereby  authorized  to make on  Borrower's
behalf.  Pending such  deposit,  Borrower  agrees that it will not commingle any
such checks,  drafts,  cash or other  remittances  with any of Borrower's  other
funds or property,  but will hold them separate and apart therefrom and in trust
for Lender until deposit  thereof is made in the special  account.  The funds in
said account shall be held by Lender as additional security for the Obligations.
Lender will, at least once a week,  apply the whole or any part of the collected
funds on deposit in the special  account  against the  Obligations;  the amount,
order and method of such  application  to be in the  discretion  of Lender.  Any
portion of said funds on deposit in the special  account that Lender  elects not
to so apply or that exceed the amount  owed to Lender  hereunder  shall,  at the
election  of  Lender,  be paid over by Lender to  Borrower  or held by Lender as
security for the Obligations.

         5.14     Borrowing Base and Other Limitations on Advances.

         (a) As used in this Section 5.14,  the  following  terms shall have the
definitions set forth below:

                  "Approved  Eligible   Receivables"  shall  refer  to  Eligible
         Receivables  (as defined below) arising from contracts that are between
         Borrower and another  party of  sufficient  credit  strength  that such
         other party is approved in writing by Lender;

                  "Eligible  Inventory"  shall  refer  to  Borrower's  inventory
         computed on a "first in, first out" basis,  excluding inventory that in
         Lender's  judgment  is obsolete or  otherwise  unmarketable.  Inventory
         shall be valued at the lesser of cost or market,  with such adjustments
         thereto as Lender shall deem necessary or appropriate;

                  "Eligible  Receivables"  shall  refer to  Borrower's  accounts
         receivable  that are due and  payable  not more than  ninety  (90) days
         after the invoice date,  including  accounts  receivable that relate to
         payments  that the  obligor is legally  required  to make in advance of
         performance by Borrower but excluding accounts receivable that are more
         than  ninety  (30) days past due and  further  excluding  all  returns,
         allowances,  discounts,  credits  and  intra-company  items,  all items
         payable from any account obligor from whom twenty-five percent (25%) or
         more of such obligor's aggregate  outstanding balance on all items owed
         to  Borrowers  are more than ninety  (90) days past due,  the amount by
         which the aggregate  amount owing from any account  obligor exceeds ten
         percent  (10%) of  Borrowers'  total  receivables,  and all other items
         Lender reasonably determines to be ineligible;

                  "Loan"  shall  refer  to  the  aggregate  of  the  outstanding
         principal  balance of, and all past due  interest  on, the Initial Note
         for the  period  from the  date  hereof  through  July  31,  1999,  and
         thereafter the aggregate of the outstanding  principal  balance of, and
         all past due interest on, the Term Note and the Revolving Line Note;


                                       16

<PAGE>

                  "New  Equipment"  shall refer to  equipment  owned by Borrower
         that  has not been  placed  in  service  prior  to its  acquisition  by
         Borrower and has not been placed in service by Borrower  more than nine
         (9) months prior to the date hereof; and

                  "Used  Equipment"  shall refer to all  equipment  owned by the
         Borrower other than New Equipment.

         (b) At no time will the Loan, exceed the sum of (a) eighty-five percent
(85%) of  Approved  Eligible  Receivables,  plus  (b)  eighty  percent  (80%) of
Eligible  Receivables  (exclusive of Approved  Eligible  Receivables),  plus (c)
fifty  percent  (50%)  of  Eligible  Inventory,  plus  (d)  the  lesser  of  (i)
seventy-five  percent  (75%)  of the  fair  market  value  of New  Equipment  as
determined by an appraisal  satisfactory to Lender,  or (ii) one hundred percent
(100%) of the cost of New Equipment, plus (e) fifty percent (50%) of the orderly
liquidation value, as determined by an appraisal  satisfactory to Lender, of all
Used Equipment.

         (c)  Notwithstanding   any  other  provision  to  the  contrary,   upon
Borrower's  satisfaction of all conditions  precedent in this Agreement,  Lender
shall advance to Borrower one hundred  percent  (100%) of the costs  incurred by
Borrower for the Existing Furnace Project, including costs incurred prior to the
date hereof,  up to 75% of the appraised value of the Existing  Furnace Project.
Also notwithstanding any other provision hereof, the amount advanced relative to
each furnace constituting the New Furnace Project shall not exceed the lesser of
(i) 75% of the  percentage of completion for the benchmark for which the advance
relates as shown on Exhibit C multiplied by the  appraised  value of the furnace
or (ii) 100% of the costs  incurred by Borrower  relative to such furnace  since
the last advance (if any) to pay the costs of such furnace.

         5.15 Mergers, Consolidations, Acquisitions and Sales. Without the prior
written  consent  of  Lender,  Borrower  will not (a) be a party to any  merger,
consolidation or corporate reorganization, nor (b) purchase or otherwise acquire
all or substantially  all of the assets or stock of, or any partnership or joint
venture interest in, any other person,  firm or entity, nor (c) sell,  transfer,
convey, grant a security interest in or lease all or any substantial part of its
assets,  nor (d)  create  any  subsidiaries  nor convey any of its assets to any
subsidiary.

         5.16  Management;   Ownership.  The  ownership,   executive  staff  and
management of Borrower and Parent are material  factors in Lender's  willingness
to institute and maintain a lending  relationship  with Borrower.  Borrower will
not  permit  any  significant  change  in  the  ownership,  executive  staff  or
management of Borrower or Parent without the prior written consent of Lender.

         5.17 Guaranties;  Loans.  Borrower shall not guarantee nor be liable in
any manner, whether directly or indirectly,  or become contingently liable after
the date of this Agreement in connection with the obligations or indebtedness of
any  person or persons  whomsoever,  except for the  indorsement  of  negotiable
instruments payable to Borrower for deposit or collection in the ordinary course
of business. Borrower shall not make any loan, advance or extension of credit to
any person other than in the normal course of its business.


                                       17

<PAGE>

         5.18 Debt. Without the prior written consent of Lender,  Borrower shall
not create,  incur,  assume or suffer to exist  indebtedness  of any description
whatsoever,  excluding (a) the indebtednesses  evidenced by the Notes, (b) trade
accounts  payable  and  accrued  expenses  incurred  in the  ordinary  course of
business,  (c) the indorsement of negotiable instruments payable to Borrower for
deposit or  collection  in the ordinary  course of business,  (d) bonds or other
indebtedness  incurred in connection  with any  self-insurance  plans,  (e) debt
subordinated  to the Loan in payment  and  priority by writing  satisfactory  to
Lender, and (f) other indebtedness not to exceed the aggregate amount of $25,000
per year.

         5.19 Prepayment of  Indebtedness.  Borrower shall not pay or prepay any
long-term  indebtedness (other than the indebtedness evidenced hereby and by the
Notes)  prior to the time  that the  same is due and  payable  according  to its
stated terms. For purposes of this Section 5.19, "long-term  indebtedness" shall
mean debt obligations with a term of one year or more.

         5.20 Dividends and  Redemptions.  Without the prior written  consent of
Lender,  Borrower  shall not (a)  declare  or pay,  or set aside any sum for the
payment of, any dividends or make any other  distribution upon any shares of its
capital  stock of any class,  or (b) purchase,  redeem or otherwise  acquire for
value any shares of its capital stock of any class, or commit to do any of same,
or set aside any sum therefor,  or permit any  subsidiary to purchase or acquire
for value any shares of its capital  stock of any class,  or commit do to any of
the same, or set aside any sum therefor.

         5.21 Debt to Worth Ratio.  Borrower at all times will  maintain a ratio
of total  liabilities  less the  principal  amount of the  Subordinated  Note to
tangible net worth plus the  principal  amount of the  Subordinated  Note of not
more than 2.50 to 1.0 for the period from the date hereof  through May 31, 2000,
2.25 to 1.0 for the period  from June 1, 2000  through  May 31, 2001 and 2.00 to
1.0 for the  period  from  June 1, 2001 and  thereafter.  For  purposes  of this
Section 3.21, "tangible net worth" shall refer to the excess of Borrower's total
assets over the sum of its intangible  assets, all determined in accordance with
generally accepted accounting principles consistently applied.

         5.22 Fixed Charge Coverage Ratio. Borrower will maintain, as of the end
of each fiscal quarter,  for such fiscal quarter and the  immediately  preceding
three fiscal  quarters in the aggregate,  a ratio of net income before  interest
expense,  income  taxes,  depreciation  and  amortization  to  interest  expense
(including  interest expense on the Subordinated Note) plus scheduled  principal
payments  (including  principal  payments on the Subordinated Note) plus capital
lease expenses plus capital  expenditures  (but excluding  capital  expenditures
funded with the  proceeds  of the Loan) plus income  taxes,  all  determined  in
accordance with generally accepted accounting  principles  consistently applied,
of not less than (a) 1.15 to 1.0 for the period from the date hereof through May
31, 2001, and (b) 1.20 to 1.0 for the period from June 1, 2001 and thereafter.

         5.23 Funded Debt Coverage  Ratio.  Beginning on June 1, 1999,  Borrower
will maintain,  as of the end of each fiscal quarter for such fiscal quarter and
the immediately  preceding  three fiscal  quarters in the aggregate,  a ratio of
funded debt to net income before interest  expense,  income taxes,  depreciation
and  amortization,   all  determined  in  accordance  with  generally   accepted
accounting principles  consistently applied, of not greater than (a) 3.50 to 1.0
for the period from the date hereof  through May 31,  2000,  (b) 3.00 to 1.0 for
the period from June 1, 2000 through May 31, 2001, and

                                       18

<PAGE>

(c) 2.50 to 1.0 for the period from June 1, 2001 and thereafter. For purposes of
this covenant,  "funded debt" shall mean all indebtedness for which the Borrower
and its creditors have entered into a contractual  arrangement for repayment and
compensation for risk, including, but not limited to, the Loan.

         5.24  Current  Ratio.  Borrower  at all times will  maintain a ratio of
current  assets to current  liabilities of not less than (a) .30 to 1.00 for the
period from the date hereof  through  May 31,  2000,  and (b) .50 for the period
from  June 1, 2000 and  thereafter.  For  purposes  of this  covenant,  "current
assets" shall refer to cash, accounts  receivable and marketable  securities but
not inventory, and "current liabilities" shall refer to any indebtedness due and
payable  within  one year  from the date of  Borrower's  most  recent  quarterly
balance sheet, all determined in accordance with generally  accepted  accounting
principles consistently applied.

                                   ARTICLE VI

                              DEFAULT AND REMEDIES

         6.1 Events of Default.  The  occurrence of any of the  following  shall
constitute an Event of Default hereunder:

                  (a) Failure to make payment of any principal of or interest on
         the indebtedness evidenced by the Notes in accordance with the terms of
         the Notes;

                  (b) Any  representation  by Borrower as to any material matter
         hereunder  or under any of the other Loan  Documents,  or  delivery  by
         Borrower of any schedule, statement,  resolution,  report, certificate,
         notice or writing to Lender that is untrue in any  material  respect on
         the  date as of which  the  facts  set  forth  therein  are  stated  or
         certified;

                  (c) The  Borrower  shall  breach or fail to perform  any term,
         covenant  warranty or agreement  contained  in Section 5.7  ("Corporate
         Existence"), Section 5.15 ("Mergers,  Consolidations,  Acquisitions and
         Sales"),  Section  5.21 ("Debt to Worth  Ratio"),  Section 5.22 ("Fixed
         Charge Coverage  Ratio"),  Section 5.23 ("Funded Debt Coverage Ratio"),
         or Section 5.24 ("Current Ratio");

                  (d)  Failure of  Borrower  to perform  any of its  obligations
         under this Agreement, the Notes, any of the Security Instruments or any
         of the other Loan Documents  other than those  described in (a), (b) or
         (c) above, provided,  however, that such failure shall not constitute a
         default if such failure is remedied  within fifteen (15) days of notice
         of such default from Lender;

                  (e) Borrower (i) shall generally not pay or shall be unable to
         pay  its  debts  as such  debts  become  due;  or  (ii)  shall  make an
         assignment  for the  benefit of  creditors  or petition or apply to any
         tribunal for the appointment of a custodian, receiver or trustee for it
         or a  substantial  part of its  assets;  or (iii)  shall  commence  any
         proceeding   under   any   bankruptcy,   reorganization,   arrangement,
         readjustment of debt, dissolution or liquidation law or statute

                                       19

<PAGE>

         of any jurisdiction,  whether now or hereafter in effect; or (iv) shall
         have had any such petition or application  filed or any such proceeding
         commenced  against  it in which an order for  relief is  entered  or an
         adjudication or appointment is made; or (v) shall indicate,  by any act
         or omission,  its consent to,  approval of or  acquiescence in any such
         petition,   application,   proceeding   or  order  for  relief  or  the
         appointment of a custodian, receiver or trustee for it or a substantial
         part of its  assets;  or (vi)  shall  suffer  any  such  custodianship,
         receivership  or trusteeship to continue  undischarged  for a period of
         thirty (30) days or more;

                  (f) Borrower shall be liquidated,  dissolved or terminated, or
         the charter or  certificate  of  authority  thereof  shall expire or be
         revoked;

                  (g) A default or event of default shall occur under any of the
         other Loan Documents subject to any applicable cure periods;

                  (h)  Borrower   shall   default  in  the  timely   payment  or
         performance  of any  obligation  now or  hereafter  owed to  Lender  in
         connection  with any other  indebtedness  of Borrower  now or hereafter
         owed to Lender, subject to any applicable cure period;

                  (h) Parent shall default in any  obligation it may have to PNC
         Bank; or

                  (i) Lender shall  reasonably  suspect the occurrence of one or
         more of the aforesaid Events of Default and Borrower,  upon the request
         of Lender,  shall fail to provide evidence  reasonably  satisfactory to
         Lender that such event or Events of Default have not in fact occurred.

         6.2  Acceleration  of Maturity;  Remedies.  Upon the  occurrence of any
Event of  Default  described  in  subsection  6.1(e)  hereof  as it  relates  to
Borrower, the indebtednesses evidenced by the Notes as well as any and all other
indebtedness of Borrower to Lender shall be immediately due and payable in full;
and upon the occurrence of any other Event of Default described above, Lender at
any  time  thereafter  may  at  its  option   accelerate  the  maturity  of  the
indebtednesses  evidenced by the Notes as well as any and all other indebtedness
of Borrower to Lender;  all without  notice of any kind.  Upon the occurrence of
any  such  Event  of  Default  and  the  acceleration  of  the  maturity  of the
indebtednesses evidenced by the Notes:

                  (a) any  obligation  of  Lender  to  advance  any  theretofore
         undisbursed  proceeds of the Loan shall  immediately cease and be of no
         further force nor effect,  and Lender shall be immediately  entitled to
         exercise any and all rights and remedies  possessed by Lender  pursuant
         to the terms of the  Security  Instruments  and all of the  other  Loan
         Documents;

                  (b) Lender  shall have all of the  rights  and  remedies  of a
         secured party under the Uniform Commercial Code as adopted in the State
         of Tennessee; and

                  (c) Lender  shall have any and all other  rights and  remedies
         that  Lender  may now or  hereafter  possess  at law,  in  equity or by
         statute.


                                       20

<PAGE>

         6.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this  Agreement or any of the other Loan Documents
is intended to be exclusive of any other  right,  power or remedy,  but each and
every such right,  power and remedy shall be cumulative and concurrent and shall
be in addition to any other right,  power and remedy given hereunder,  under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute.  No delay or omission by Lender to exercise any right,  power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such  right,  power or remedy or shall be  construed  to be a waiver of any such
Event of Default or an acquiescence  therein,  and every right, power and remedy
given by this  Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed expedient by Lender.

         6.4  Proceeds  of  Remedies.  Any or all  proceeds  resulting  from the
exercise of any or all of the foregoing  remedies  shall be applied as set forth
in the Loan Document(s)  providing the remedy or remedies exercised;  if none is
specified, or if the remedy is provided by this Agreement, then as follows:

                  First,  to  the  costs  and  expenses,   including  reasonable
         attorney's fees,  incurred by Lender in connection with the exercise of
         its remedies;

                  Second,  to the  expenses  of  curing  the  default  that  has
         occurred,  in the event that Lender elects, in its sole discretion,  to
         cure the default that has occurred;

                  Third,  to the payment of the  Obligations,  including but not
         limited  to  the  payment  of the  principal  of  and  interest  on the
         indebtednesses  evidenced  by the Notes,  in such order of  priority as
         Lender shall determine in its sole discretion; and

                  Fourth,  the  remainder,  if any,  to Borrower or to any other
         person lawfully thereunto entitled.

                                   ARTICLE VII

                                  MISCELLANEOUS

         7.1      Performance By Lender.

                  (a)  Lender  may  file  one  or  more   financing   statements
         disclosing  Lender's  security  interests  under this Agreement and the
         other  Loan  Documents,  and  Borrower  shall  pay  the  costs  of,  or
         incidental  to, any  recording  or filing of any  financing  statements
         concerning   the   collateral   security   described  in  the  Security
         Instruments.  Borrower agrees that a carbon, photographic,  photostatic
         or  other   reproduction  of  this  Agreement  or  any  other  Security
         Instrument  or of a financing  statement is  sufficient  as a financing
         statement.

                  (b) If Borrower  shall default in the payment,  performance or
         observance of any covenant, term or condition of this Agreement, Lender
         may, at its option,  pay, perform or observe the same, and all payments
         made or costs or expenses incurred by Lender in

                                       21

<PAGE>

         connection   therewith   (including   but  not  limited  to  reasonable
         attorney's  fees),  with interest  thereon at the greatest default rate
         provided in the Notes (if none,  then at the maximum  rate from time to
         time allowed by applicable law), shall be immediately  repaid to Lender
         by Borrower and shall  constitute a part of the Obligations  secured by
         the Security  Instruments until fully repaid.  Lender shall be the sole
         judge of the  necessity  for any such  actions and of the amounts to be
         paid.

         7.2  Successors  and  Assigns  Included  in  Parties.  Whenever in this
Agreement  one of the parties  hereto is named or referred to, the heirs,  legal
representatives,  successors,  successors-in-title  and assigns of such  parties
shall be included,  and all covenants and agreements contained in this Agreement
by or on behalf of Borrower or by or on behalf of Lender shall bind and inure to
the    benefit   of   their    respective    heirs,    legal    representatives,
successors-in-title and assigns, whether so expressed or not.

         7.3 Independence of Covenants.  All covenants  hereunder shall be given
independent  effect so that if a particular action or condition is not permitted
by any of such  covenants,  the fact that it would be  permitted by an exception
to, or otherwise would be within the limitations of, another  covenant shall not
avoid the occurrence of an Event of Default if such action is taken or condition
exists.

         7.4  Integration.  This  Agreement and the Loan  Documents  contain the
entire  agreement  among the parties  relating to the subject  matter hereof and
supersede  all oral  statements  and prior  writings with respect  thereto.  The
execution  and  delivery  of this  Agreement  and the other  Loan  Documents  by
Borrower were not based upon any facts or materials  provided by Lender, nor was
Borrower  induced or  influenced  to execute and deliver  this  Agreement or any
other Loan Document by any representation,  statement,  analysis or promise made
by Lender.

         7.5 Amendments, Etc. No amendment, modification,  termination or waiver
of any provision of any Loan Document to which Borrower is a party,  nor consent
to any departure by Borrower from compliance with the terms of any Loan Document
to which it is a party,  shall be effective  unless the same shall be in writing
and signed on behalf of Lender by a duly authorized  officer of Lender, and then
such waiver or consent shall be effective only in the specific  instance and for
the specific purpose for which given.

         7.6  Costs and  Expenses.  Lender  shall not incur any cost or  expense
whatsoever  in  connection  with  the  making,   administration,   servicing  or
collection of the Loan. Borrower agrees to pay on demand all costs and expenses,
including but not limited to filing fees,  recording taxes,  insurance  premiums
and reasonable attorney's fees, promptly upon demand of Lender.

         7.7 Assignment.  The Notes, this Agreement and the other Loan Documents
may be endorsed,  assigned and/or transferred in whole or in part by Lender, and
any such holder and/or assignee of the same shall succeed to and be possessed of
the rights and powers of Lender under all of the same to the extent  transferred
and  assigned.  Lender  may grant  participations  in all or any  portion of its
interest in the indebtednesses evidenced by the Notes. Borrower shall not assign
any

                                       22

<PAGE>

of its rights nor delegate any of its duties hereunder or under any of the other
Loan Documents without the prior express written consent of Lender.

         7.8 Time of the  Essence.  Time is of the essence  with respect to each
and every covenant, agreement and obligation of Borrower hereunder and under all
of the other Loan Documents.

         7.9  Severability.  If  any  provision(s)  of  this  Agreement  or  the
application   thereof  to  any  person  or  circumstance  shall  be  invalid  or
unenforceable to any extent, the remainder of this Agreement and the application
of such  provisions  to other  persons or  circumstances  shall not be  affected
thereby and shall be enforced to the greatest extent permitted by law.

         7.10 Article and Section Headings;  Defined Terms.  Numbered and titled
article and section  headings  and defined  terms are for  convenience  only and
shall not be construed as  amplifying  or limited any of the  provisions of this
Agreement.

         7.11 Notices.  Any and all notices,  elections or demands  permitted or
required  to be made  under  this  Agreement  shall be in  writing  and shall be
delivered  personally,  telecopied  or sent  by  certified  mail  or  nationally
recognized  courier service (such as Federal  Express) to the other party at the
address set forth below,  or at such other address as may be supplied in writing
and of which  receipt has been  acknowledged  in  writing.  The date of personal
delivery  or  telecopy  or the date of  mailing  (or  delivery  to such  courier
service),  as the case may be,  shall be the date of such  notice,  election  or
demand. For the purposes of this Agreement:

                  The address of Lender is:

                           NationsBank, N.A.
                           550 Main Street
                           Knoxville, Tennessee 37902
                           Attention: Michael S. Brown
                           Telecopy Number: (423) 546-2865

                  The address of Borrower is:

                           Bethlehem Advanced Materials Corporation
                           25th and Lennox Streets
                           Easton, Pennsylvania 18045
                           Attention: Antoinette Martin
                           Telecopy Number: (610) 258-8154


                                       23

<PAGE>

                  with a copy to:

                           Bethlehem Advanced Materials Corporation
                           10536 Lexington Drive
                           Knoxville, Tennessee 37932
                           Attention: Daniel Hensley
                           Telecopy Number: (423) 671-2494

         7.12 Interest and Loan Charges Not to Exceed Maximum Amounts Allowed by
Law. Anything in this Agreement,  the Notes, the Security  Instruments or any of
the  other  Loan  Documents  to  the  contrary  notwithstanding,   in  no  event
whatsoever,   whether  by  reason  of  advancement  of  proceeds  of  the  Loan,
acceleration  of the  maturity of the unpaid  balance of the Loan or  otherwise,
shall the interest  and loan charges  agreed to be paid to Lender for the use of
the money  advanced  or to be  advanced  hereunder  exceed the  maximum  amounts
collectible  under applicable laws in effect from time to time. It is understood
and agreed by the parties  that,  if for any reason  whatsoever  the interest or
loan  charges paid or  contracted  to be paid by Borrower in respect of the Loan
shall exceed the maximum  amounts  collectible  under  applicable laws in effect
from time to time,  then ipso facto,  the obligation to pay such interest and/or
Loan  charges  shall  be  reduced  to  the  maximum  amounts  collectible  under
applicable laws in effect from time to time, and any amounts collected by Lender
that  exceed  such  maximum  amounts  shall be applied to the  reduction  of the
principal  balance of the Loan  and/or  refunded  to Borrower so that at no time
shall the  interest  or Loan  charges  paid or  payable  in respect of this Loan
exceed the maximum amounts permitted from time to time by applicable law.

         7.13  ARBITRATION.  ANY  CONTROVERSY  OR CLAIM  BETWEEN  OR  AMONG  THE
BORROWER AND THE LENDER,  INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS
INSTRUMENT,  AGREEMENT  OR DOCUMENT OR ANY RELATED  INSTRUMENTS,  AGREEMENTS  OR
DOCUMENTS,  INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT,  SHALL
BE DETERMINED BY BINDING  ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE,  THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR ARBITRATION OF COMMERCIAL DISPUTES OF THE JUDICIAL ARBITRATION AND
MEDIATION SERVICES,  INC. (J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF AN  INCONSISTENCY,  THE SPECIAL RULES SHALL CONTROL.  JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS  INSTRUMENT,  AGREEMENT  OR DOCUMENT  MAY BRING ANY ACTION,  INCLUDING A
SUMMARY OR EXPEDITED  PROCEEDING,  TO COMPEL  ARBITRATION OF ANY  CONTROVERSY OR
CLAIM TO WHICH  THIS  INSTRUMENT,  AGREEMENT  OR  DOCUMENT  RELATES IN ANY COURT
HAVING JURISDICTION OVER SUCH ACTION.

                  (A) SPECIAL RULES. THE ARBITRATION  SHALL BE CONDUCTED IN KNOX
COUNTY,  TENNESSEE, AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR.
IF J.A.M.S.  IS UNABLE OR LEGALLY PRECLUDED FROM  ADMINISTERING THE ARBITRATION,
THEN THE AMERICAN ARBITRATION

                                       24

<PAGE>

ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN NINETY
(90) DAYS OF THE DEMAND FOR  ARBITRATION;  FURTHER,  THE ARBITRATOR  SHALL ONLY,
UPON A SHOWING OR CAUSE,  BE PERMITTED TO EXTEND THE  COMMENCING OF SUCH HEARING
FOR AN ADDITIONAL SIXTY (60) DAYS.

                  (B)  RESERVATION  OF  RIGHTS.   NOTHING  IN  THIS  INSTRUMENT,
AGREEMENT  OR  DOCUMENT  SHALL BE DEEMED TO (I) LIMIT THE  APPLICABILITY  OF ANY
OTHERWISE  APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS INSTRUMENT,  AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY THE LENDER OF
THE PROTECTION AFFORDED TO IT BY 12 U.S.C.ss.91 OR ANY SUBSTANTIALLY  EQUIVALENT
STATE LAW;  OR (III) LIMIT THE RIGHT OF THE  LENDER:  (A) TO EXERCISE  SELF HELP
REMEDIES  SUCH AS (BUT NOT LIMITED TO) SETOFF,  OR (B) TO FORECLOSE  AGAINST ANY
REAL OR PERSONAL PROPERTY COLLATERAL,  OR (C) TO OBTAIN FROM A COURT PROVISIONAL
OR ANCILLARY  REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE  RELIEF,  WRIT OF
POSSESSION OR THE  APPOINTMENT OF A RECEIVER.  THE LENDER MAY EXERCISE SUCH SELF
HELP  RIGHTS,  FORECLOSE  UPON SUCH  PROPERTY,  OR OBTAIN  SUCH  PROVISIONAL  OR
ANCILLARY  REMEDIES  BEFORE,  DURING OR AFTER THE  PENDENCY  OF ANY  ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT,  AGREEMENT OR DOCUMENT.  NEITHER
THE EXERCISE OF SELF HELP REMEDIES NOR THE  INSTITUTION  OR  MAINTENANCE  OF ANY
ACTION FOR FORECLOSURE OR FOR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE
A WAIVER OF THE RIGHT OF ANY PARTY,  INCLUDING  THE CLAIMANT IN SUCH ACTION,  TO
ARBITRATE  THE MERITS OF THE  CONTROVERSY  OR CLAIM  OCCASIONING  RESORT TO SUCH
REMEDIES.

         7.14 FINAL  AGREEMENT.  THIS  WRITTEN  AGREEMENT  REPRESENTS  THE FINAL
AGREEMENT  BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY
NOT BE  CONTRADICTED  BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS  OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL  AGREEMENTS  BETWEEN THE
PARTIES.

         7.15  Miscellaneous.  This  Agreement  shall be construed  and enforced
under the laws of the State of Tennessee.  No amendment or  modification  hereof
shall be effective except in a writing executed by each of the parties hereto.



                                       25

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers,  as
of the day and year first above written.


                                     LENDER:

                                     NATIONSBANK, N.A.


                                     By:________________________________
                                     Title: ______________________________


                                     BORROWER:

                                     BETHLEHEM ADVANCED MATERIALS
                                     CORPORATION


                                     By:________________________________
                                     Title:_______________________________


ATTEST:


By:_______________________________
Title:______________________________






                                       26

<PAGE>
                                   EXHIBIT A-1


                         MASTER SECURED PROMISSORY NOTE


$3,000,000                       Knoxville, Tennessee          January 21, 1999

         FOR VALUE RECEIVED,  on or before July 30, 1999 (the "Maturity  Date"),
the  undersigned  BETHLEHEM  ADVANCED  MATERIALS  CORPORATION,   a  Pennsylvania
corporation  (referred  to herein as  "Maker"),  promises to pay to the order of
NATIONSBANK,  N.A., a national banking  association  organized under the laws of
the United States of America ("Payee"; Payee and any subsequent holder[s] hereof
are hereinafter  referred to  collectively  as "Holder"),  without grace, at the
office of Payee at 550 Main Street, Knoxville, Tennessee 37902, or at such other
place as  Holder  may  designate  to Maker in  writing  form  time to time,  the
principal sum of THREE MILLION AND NO/100THS DOLLARS ($3,000,000), or such other
amount as may hereafter be outstanding  hereunder  pursuant to that certain Loan
Agreement of even date herewith between Maker and Payee (the "Loan  Agreement"),
whichever is less,  together with interest on the outstanding  principal balance
hereof from date at an annual rate equal to the interest  rate  designated  from
time to time by Payee as its "Prime Rate",  plus one-half of one percent (.50%),
which rate shall be adjusted on each day that said Prime Rate changes;  provided
that  in no  event  shall  the  rate  of  interest  payable  in  respect  of the
indebtedness  evidenced  hereby exceed the maximum rate of interest from time to
time allowed to be charged by  applicable  law (the  "Maximum  Rate").  Interest
shall be  calculated at the basis of a 360-day year for each day that all or any
part of the indebtedness  evidenced  hereby shall be outstanding,  to the extent
permitted by applicable law.

         Interest only on the outstanding  principal balance hereof shall be due
and payable monthly,  in arrears,  with the first  installment  being payable on
February 1, 1999 and subsequent  installments  being payable on the first day of
each  succeeding  month  thereafter  until the Maturity  Date, at which time the
entire  outstanding  principal  balance  hereof,  together  with all accrued and
unpaid interest,  shall be due and payable in full; provided,  however,  that in
the event the Maker  executes  and  delivers  to the Payee the Term Note and the
Revolving  Credit Line Note (as defined in the Loan  Agreement) on or before the
Maturity Date, the  indebtedness  evidenced hereby shall thereafter be evidenced
by the Term Note and the Revolving Credit Line Note.

         All payments in respect to the  indebtedness  evidenced hereby shall be
made in collected funds, and shall be applied to principal, accrued interest and
charges and expenses  owing under or in connection  with this Note in such order
as Holder elects.

         The  indebtedness  evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without penalty or premium.

         Any  advance  by  Payee  to  Maker  that is not  evidenced  by  another
instrument or agreement  between the parties shall be  conclusively  presumed to
have been made  hereunder  when such advance is either (1) deposited or credited
to an account of Maker with Payee, notwithstanding that such

                                       A-1

<PAGE>

advance was requested, orally or in writing, by someone other than Maker or that
someone  other than Maker is  authorized to draw on such account and may or does
withdraw the whole or part of such advance,  or (2) made in accordance  with the
oral or  written  instructions  of Maker.  The entire  balance  of all  advances
hereunder  that may be outstanding  from time to time shall  constitute a single
indebtedness,  and no single advance  increasing the outstanding  balance hereof
shall  itself be  considered  a separate  loan,  but rather an  increase  in the
aggregate outstanding balance of the indebtedness evidenced hereby.

         Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any  default be made in the payment of  principal  or interest
when due as  stipulated  above;  or in the event that any Event of  Default,  as
defined in the Loan  Agreement,  shall occur;  or should any default or event of
default  occur  under  any  other   instrument  or  document  now  or  hereafter
evidencing,  securing or otherwise relating to the indebtedness evidenced hereby
subject to any  applicable  cure  periods;  then and in such  event,  the entire
outstanding principal balance of the indebtedness evidence hereby, together with
any other sums advanced  hereunder,  under the Loan Agreement or under any other
instrument, document or agreement now or hereafter evidencing securing or in any
way relating to the  indebtedness  evidenced  hereby,  together  with all unpaid
interest  accrued  thereon,  shall at the option of Holder and without notice to
Maker, at once become due and payable and may be collected forthwith, regardless
of the  stipulated  date of maturity.  Upon the occurrence of any default as set
forth herein,  at the option of Holder and without notice to Maker,  all accrued
and unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall bear
interest  thereafter  until  paid at a rate (the  "Default  Rate")  equal to the
lesser of (i) the rate that is four percentage  points (4%) in excess of Payee's
Prime Rate, as it varies from time to time, or (ii) the Maximum Rate, regardless
of whether  there has been an  acceleration  of the payment of  principal as set
forth herein.  All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default.

         To the extend  permitted by applicable law, Maker shall pay to Holder a
late charge  equal to four  percent  (4%) of any payment  hereunder  that is not
received by Holder  within  fifteen (15) days of the date on which it is due, in
order to cover the additional  expenses  incident to the handling and processing
of delinquent payments;  provided, however, that nothing in this provision shall
be deemed to waive any other  right or remedy of the Holder  hereof by reason of
Maker's failure to make payments when due hereunder.

         In the  event  this Note is  placed  in the  hands of an  attorney  for
collection or for enforcement or protection of the security, or if Holder incurs
any costs incident to the collection of the indebtedness evidenced hereby or the
enforcement or protection of the security,  Maker and any endorsers hereof agree
to pay a  reasonable  attorney's  fee,  all  court  and  other  costs,  and  the
reasonable costs of any collection efforts.

         Presentment  for payment,  demand,  protest and  nonpayment  are hereby
waive by Maker and all other  parties  hereto.  No  failure  to  accelerate  the
indebtedness  evidenced hereby by reason of default  hereunder,  acceptance of a
past-due  installment or other  indulgences  granted from time to time, shall be
construed  as a  novation  of  this  Note  or  as a  waiver  of  such  right  of
acceleration  or of the  right  of  Holder  thereafter  to  insist  upon  strict
compliance with the terms of this Note or to

                                       A-2

<PAGE>

prevent the exercise of such right of  acceleration  or any other right  granted
hereunder or by applicable laws. Unless otherwise  specifically agreed by Holder
in writing, the liability of Maker and all other persons now or hereafter liable
for payment of the indebtedness  evidenced hereby, or any portion thereof, shall
not be  affected by (1) any renewal  hereof or other  extension  of the time for
payment  of the  indebtedness  evidenced  hereby or any  amount  due in  respect
thereof,  (2) the release of all or any part of any  collateral now or hereafter
securing  the  payment  of the  indebtedness  evidenced  hereby  or any  portion
thereof,  or (3) the release of or resort to any person now or hereafter  liable
for payment of the indebtedness  evidenced  hereby or any portion thereof.  This
Note may not be changed  orally,  but only by an agreement in writing  signed by
the party  against  whom  enforcement  of any waiver,  change,  modification  or
discharge is sought.

         The  indebtedness  and  other  obligations  evidenced  by this Note are
further  evidenced  and/or secured by a (1) Pledge  Agreement from The Bethlehem
Corporation  for the  benefit  of Payee of even date  herewith,  (2) a  Security
Agreement  between  the Maker and Payee of even date  herewith,  and (3) certain
other  instruments  and  documents  as more  particularly  described in the Loan
Agreement.

         All  agreements  herein made are expressly  limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise,  shall the interest and loan
charges  agreed to be paid to Holder for the use of the money  advanced or to be
advanced hereunder exceed the maximum amounts  collectible under applicable laws
in effect from time to time. If for any reason  whatsoever  the interest or loan
charges paid or contracted to be paid in respect of the  indebtedness  evidenced
thereby shall exceed the maximum amounts  collectively  under applicable laws in
effect from time to time,  then, ipso facto, the obligation to pay such interest
and/or loan charges shall be reduced to the maximum  amounts  collectible  under
applicable laws in effect from time to time, and any amounts collected by Holder
that  exceed  such  maximum  amounts  shall be applied to the  reduction  of the
principal balance remaining unpaid hereunder and/or refunded to Maker so that at
no time shall the  interest  or loan  charges  paid or payable in respect of the
indebtedness  evidenced hereby exceed the maximum amounts permitted from time to
time by applicable  law. This provision  shall control every other  provision in
any and all other  agreements and instruments now existing or hereafter  arising
between Maker and Holder with respect to the indebtedness evidenced hereby.

         This Note has been  negotiated,  executed and delivered in the State of
Tennessee,  and is  intended  as a  contract  under and shall be  construed  and
enforceable in accordance with the laws of said state, except to the extent that
Federal law may be applicable to the determination of the Maximum Rate.

         As used  herein,  the terms  "Maker"  and  "Holder"  shall be deemed to
include their respective successors,  legal representatives and assigns, whether
by  voluntary  action of the parties or by  operation  of law. In the event that
more than one person,  firm or entity is a maker hereunder then all reference to
"Maker"  shall be deemed to refer  equally to each of said  persons,  firms,  or
entities,  all of whom  shall be  jointly  and  severally  liable for all of the
obligations of Maker hereunder.

         ANY  CONTROVERSY  OR CLAIM  BETWEEN OR AMONG THE MAKER AND THE  LENDER,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS

                                       A-3

<PAGE>

INSTRUMENT,  AGREEMENT  OR DOCUMENT OR ANY RELATED  INSTRUMENTS,  AGREEMENTS  OR
DOCUMENTS,  INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT,  SHALL
BE DETERMINED BY BINDING  ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE,  THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR ARBITRATION OF COMMERCIAL DISPUTES OF THE JUDICIAL ARBITRATION AND
MEDIATION SERVICES,  INC. (J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF AN  INCONSISTENCY,  THE SPECIAL RULES SHALL CONTROL.  JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS  INSTRUMENT,  AGREEMENT  OR DOCUMENT  MAY BRING ANY ACTION,  INCLUDING A
SUMMARY OR EXPEDITED  PROCEEDING,  TO COMPEL  ARBITRATION OF ANY  CONTROVERSY OR
CLAIM TO WHICH  THIS  INSTRUMENT,  AGREEMENT  OR  DOCUMENT  RELATES IN ANY COURT
HAVING JURISDICTION OVER SUCH ACTION.

                  THE ARBITRATION SHALL BE CONDUCTED IN KNOX COUNTY,  TENNESSEE,
AND  ADMINISTERED  BY J.A.M.S.  WHO WILL APPOINT AN ARBITRATOR.  IF J.A.M.S.  IS
UNABLE  OR  LEGALLY  PRECLUDED  FROM  ADMINISTERING  THE  ARBITRATION,  THEN THE
AMERICAN  ARBITRATION  ASSOCIATION WILL SERVE. ALL ARBITRATION  HEARINGS WILL BE
COMMENCED  WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION;  FURTHER,  THE
ARBITRATOR  SHALL  ONLY,  UPON A SHOWING OR CAUSE,  BE  PERMITTED  TO EXTEND THE
COMMENCING OF SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.

                  NOTHING IN THIS  INSTRUMENT,  AGREEMENT  OR DOCUMENT  SHALL BE
DEEMED TO (I) LIMIT THE  APPLICABILITY OF ANY OTHERWISE  APPLICABLE  STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,  AGREEMENT OR
DOCUMENT;  OR (II) BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY
12 U.S.C.ss.91  OR ANY  SUBSTANTIALLY  EQUIVALENT  STATE LAW; OR (III) LIMIT THE
RIGHT OF THE LENDER: (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO)  SETOFF,  OR  (B)  TO  FORECLOSE  AGAINST  ANY  REAL  OR  PERSONAL  PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER.  THE LENDER MAY EXERCISE  SUCH SELF HELP RIGHTS,  FORECLOSE  UPON
SUCH PROPERTY,  OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE,  DURING
OR AFTER THE PENDENCY OF ANY  ARBITRATION  PROCEEDING  BROUGHT  PURSUANT TO THIS
INSTRUMENT,  AGREEMENT OR DOCUMENT.  NEITHER THE EXERCISE OF SELF HELP  REMEDIES
NOR  THE  INSTITUTION  OR  MAINTENANCE  OF ANY  ACTION  FOR  FORECLOSURE  OR FOR
PROVISIONAL OR ANCILLARY  REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY,  INCLUDING  THE CLAIMANT IN SUCH ACTION,  TO ARBITRATE  THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.


                                       A-4

<PAGE>

         Maker  represents  to Lender  that the  proceeds of this Note are to be
used  primarily  for  business,   commercial  or  agricultural  purposes.  Maker
acknowledges  having read and  understood,  and agrees to be bound by, all terms
and conditions of this Note.

         THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE  CONTRADICTED BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS,  OR
SUBSEQUENT  ORAL  AGREEMENTS  OF  THE  PARTIES.  THERE  ARE  NO  UNWRITTEN  ORAL
AGREEMENTS BETWEEN THE PARTIES.

         IN WITNESS  WHEREOF,  the undersigned  Maker has caused this Note to be
executed by its duly authorized officer as of the date first above written.


                                       MAKER:

                                       BETHLEHEM ADVANCED MATERIALS
                                       CORPORATION



                                       By:______________________________
                                       Title:___________________________




                                       A-5

<PAGE>
                                   EXHIBIT A-2
                              TERM PROMISSORY NOTE


$____________                   Knoxville, Tennessee               July 30, 1999


         FOR VALUE  RECEIVED,  on or before the February 1, 2006 (the  "Maturity
Date"),   the  undersigned,   BETHLEHEM  ADVANCED   MATERIALS   CORPORATION,   a
Pennsylvania corporation (referred to herein as "Maker"), promises to pay to the
order of NATIONSBANK,  N.A., a national banking association  organized under the
laws of the United State of America ("Payee"; Payee and any subsequent holder[s]
hereof are hereinafter referred to collectively as "Holder"),  without grace, at
the office of Payee at 550 Main Street,  Knoxville,  Tennessee 37902, or at such
other place as Holder may  designate to Maker in writing from time to time,  the
principal    sum   of    _________________________    DOLLARS   AND    00/100THS
($_____________),  together with interest on the outstanding  principal  balance
hereof from the date hereof until the  Maturity  Date at an annual rate equal to
the interest  rate  designated  from time to time by Payee as its "Prime  Rate",
plus  one-half of one percent  (.50%),  which rate shall be adjusted on each day
that  said  Prime  Rate  changes;  provided  that in no event  shall the rate of
interest  payable in respect of the  indebtedness  evidenced  hereby  exceed the
maximum rate of interest  from time to time allowed to be charged by  applicable
law (the "Maximum Rate").  Notwithstanding the foregoing,  however, in the event
Maker and The Bethlehem  Corporation  maintain compliance with all financial and
reporting  covenants  set forth in the Loan  Agreement  between  Maker and Payee
dated January 21, 1999 (the "Loan  Agreement") and the other documents  relating
to the indebtedness  described  therein for a one year period  commencing on the
date of the Loan  Agreement,  the amount of "one-half of one percent  (.50%)" in
the  foregoing  sentence  shall be replaced with the amount of  "one-quarter  of
one-percent  (.25%)" beginning on the first day succeeding such one year period.
Interest  shall be  calculated  on the basis of a 360-day year for each day that
all or any part of the indebtedness  evidenced  hereby shall be outstanding,  to
the extent permitted by applicable law.

         The aforesaid  principal amount shall be payable in seventy-eight  (78)
monthly payments on the 1st day of each successive month commencing on September
1, 1999, the amount of which monthly payments shall be calculated so as to fully
amortize the principal balance of this Note in equal monthly principal  payments
over an  assumed  amortization  period  of  seven  (7)  years  commencing  as of
September 1, 1999, provided, however, that the full principal balance hereof and
all accrued  interest  thereon  shall be due and payable,  in any event,  on the
Maturity  Date.  Accrued  interest  shall  also be paid at the same time as each
monthly principal payment.

         Notwithstanding  the  foregoing,  commencing  on  October  1,  1999 and
continuing on each October 1st thereafter, Maker shall apply fifty percent (50%)
of its excess  cash flow (as  hereinafter  defined)  from the fiscal year ending
immediately prior to such date to prepayment of this Note. "Excess cash flow" as
used in the foregoing  sentence  shall mean earnings  before  interest  expense,
taxes,   depreciation  and  amortization  minus  scheduled  principal  payments,
interest expense and state and local income taxes. In addition to the foregoing,
Maker may prepay this Note at any time without  premium or penalty except in the
event the source of the funds of such prepayment is other

                                       A-6

<PAGE>

indebtedness  and such  prepayment  occurs on or before  July 1, 2000,  in which
event  Maker  shall  pay  Holder  a  penalty  equal to one  percent  (1%) of the
principal  balance of this Note at the time of such prepayment.  All prepayments
of principal shall be applied in the inverse order of maturity, or in such other
order as the Payee shall determine in its sole discretion.

         All payments in respect of the  indebtedness  evidenced hereby shall be
made in collected funds, and shall be applied to principal, accrued interest and
charges and expenses  owing under or in connection  with this Note in such order
as Holder elects.

         Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any  default be made in the payment of  principal  or interest
when due as  stipulated  above;  or in the event that any Event of  Default,  as
defined  the Loan  Agreement,  shall  occur;  or should any  default or event of
default  occur  under  any  other   instrument  or  document  now  or  hereafter
evidencing, securing or otherwise relating to the indebtedness evidenced hereby,
subject to any  applicable  cure periods;  then,  and in such event,  the entire
outstanding  principal balance of the indebtedness  evidenced  hereby,  together
with any other sums advanced  hereunder,  under the Loan  Agreement or under any
other instrument, document or agreement now or hereafter evidencing, securing or
in any way relating to the  indebtedness  evidenced  hereby,  together  with all
unpaid  interest  accrued  thereon,  shall,  at the option of Holder and without
notice to Maker, at once become due and payable and may be collected  forthwith,
regardless  of the  stipulated  date of  maturity.  Upon the  occurrence  of any
default  as set forth  herein,  at the option of Holder  and  without  notice to
Maker,  all  accrued  and  unpaid  interest,  if  any,  shall  be  added  to the
outstanding  principal  balance  hereof,  and the entire  outstanding  principal
balance,  as so adjusted,  shall bear interest  thereafter  until paid at a rate
(the "Default Rate") equal to the lesser of (i) the rate that is four percentage
points (4%) in excess of Payee's  Prime Rate, as it varies from time to time, or
(ii) the Maximum Rate,  regardless of whether there has been an  acceleration of
the payment of principal as set forth herein. All such interest shall be paid at
the time of and as a condition precedent to the curing of any such default.

         To the extent  permitted by applicable law, Maker shall pay to Holder a
late charge  equal to four  percent  (4%) of any payment  hereunder  that is not
received by Holder  within  fifteen (15) days of the date on which it is due, in
order to cover the additional expense incident to the handling and processing of
delinquent  payments;  provided  however that nothing in this provision shall be
deemed  to waive any other  right or  remedy of the  Holder  hereof by reason of
Maker's failure to make payments when due hereunder.

         In the  event  this Note is  placed  in the  hands of an  attorney  for
collection or for enforcement or protection of the security, or if Holder incurs
any costs incident to the collection of the indebtedness evidenced hereby or the
enforcement or protection of the security,  Maker and any indorsers hereof agree
to pay a reasonable attorney's fee, all court and other costs and the reasonable
costs of any other collection efforts.

         Presentment for payment,  demand, protest and notice of demand, protest
and  nonpayment  are hereby  waived by Maker and all other  parties  hereto.  No
failure to accelerate  the  indebtedness  evidenced  hereby by reason of default
hereunder,  acceptance of a past-due  installment or other  indulgences  granted
from time to time, shall be construed as a novation of this Note or as a waiver

                                       A-7

<PAGE>

of such right of  acceleration  or of the right of Holder  thereafter  to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. Unless otherwise  specifically agreed by Holder in writing,  the liability
of Maker and all other  persons  now or  hereafter  liable  for  payment  of the
indebtedness  evidenced hereby, or any portion thereof, shall not be affected by
(1) any  renewal  hereof  or other  extension  of the time  for  payment  of the
indebtedness  evidenced  hereby or any amount due in  respect  thereof,  (2) the
release  of all or any part of any  collateral  now or  hereafter  securing  the
payment of the indebtedness  evidenced hereby or any portion thereof, or (3) the
release of or resort to any person now or  hereafter  liable for  payment of the
indebtedness  evidenced  hereby  or any  portion  thereof.  This Note may not be
changed orally,  but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification or discharge is sought.

         The  indebtedness  and  other  obligations  evidenced  by this Note are
further  evidenced  and/or secured by a (1) Pledge  Agreement from The Bethlehem
Corporation  for the benefit of Payee dated  January  21,  1999,  (2) a Security
Agreement  between the Maker and Payee dated  January 21, 1999,  and (3) certain
other  instruments  and  documents  as more  particularly  described in the Loan
Agreement.

         All  agreements  herein made are expressly  limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise,  shall the interest and loan
charges  agreed to be paid to Holder for the use of the money  advanced or to be
advanced hereunder exceed the maximum amounts  collectible under applicable laws
in effect from time to time. If for any reason  whatsoever  the interest or loan
charges paid or contracted to be paid in respect of the  indebtedness  evidenced
hereby shall exceed the maximum  amounts  collectible  under  applicable laws in
effect from time to time,  then, ipso facto, the obligation to pay such interest
and/or loan charges shall be reduced to the maximum  amounts  collectible  under
applicable laws in effect from time to time, and any amounts collected by Holder
that  exceed  such  maximum  amounts  shall be applied to the  reduction  of the
principal balance remaining unpaid hereunder and/or refunded to Maker so that at
no time shall the  interest  or loan  charges  paid or payable in respect of the
indebtedness  evidenced hereby exceed the maximum amounts permitted from time to
time by applicable  law. This provision  shall control every other  provision in
any and all other  agreements and instruments now existing or hereafter  arising
between Maker and Holder with respect to the indebtedness evidenced hereby.

         This Note has been  negotiated,  executed and delivered in the State of
Tennessee,  and is  intended  as a  contract  under and shall be  construed  and
enforceable in accordance with the laws of said state, except to the extent that
Federal law may be applicable to the determination of the Maximum Rate.

         As used  herein,  the terms  "Maker"  and  "Holder"  shall be deemed to
include their respective successors,  legal representatives and assigns, whether
by  voluntary  action of the parties or by  operation  of law. In the event that
more than one person,  firm or entity is a maker hereunder,  then all references
to "Maker" shall be deemed to refer equally to each of said persons,  firms,  or
entities,  all of whom  shall be  jointly  and  severally  liable for all of the
obligations of Maker hereunder.


                                       A-8

<PAGE>

         ANY  CONTROVERSY  OR CLAIM  BETWEEN OR AMONG THE MAKER AND THE  LENDER,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS INSTRUMENT,  AGREEMENT OR
DOCUMENT OR ANY RELATED  INSTRUMENTS,  AGREEMENTS  OR  DOCUMENTS,  INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED  TORT,  SHALL BE DETERMINED BY BINDING
ARBITRATION  IN  ACCORDANCE  WITH  THE  FEDERAL   ARBITRATION  ACT  (OR  IF  NOT
APPLICABLE,  THE APPLICABLE  STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
ARBITRATION  OF COMMERCIAL  DISPUTES OF THE JUDICIAL  ARBITRATION  AND MEDIATION
SERVICES,  INC. (J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT
OF AN  INCONSISTENCY,  THE  SPECIAL  RULES  SHALL  CONTROL.  JUDGMENT  UPON  ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.  ANY PARTY TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY
OR EXPEDITED  PROCEEDING,  TO COMPEL  ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH  THIS  INSTRUMENT,  AGREEMENT  OR  DOCUMENT  RELATES  IN ANY COURT  HAVING
JURISDICTION OVER SUCH ACTION.

                  THE ARBITRATION SHALL BE CONDUCTED IN KNOX COUNTY,  TENNESSEE,
AND  ADMINISTERED  BY J.A.M.S.  WHO WILL APPOINT AN ARBITRATOR.  IF J.A.M.S.  IS
UNABLE  OR  LEGALLY  PRECLUDED  FROM  ADMINISTERING  THE  ARBITRATION,  THEN THE
AMERICAN  ARBITRATION  ASSOCIATION WILL SERVE. ALL ARBITRATION  HEARINGS WILL BE
COMMENCED  WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION;  FURTHER,  THE
ARBITRATOR  SHALL  ONLY,  UPON A SHOWING OR CAUSE,  BE  PERMITTED  TO EXTEND THE
COMMENCING OF SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.

                  NOTHING IN THIS  INSTRUMENT,  AGREEMENT  OR DOCUMENT  SHALL BE
DEEMED TO (I) LIMIT THE  APPLICABILITY OF ANY OTHERWISE  APPLICABLE  STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,  AGREEMENT OR
DOCUMENT;  OR (II) BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY
12 U.S.C.ss.91  OR ANY  SUBSTANTIALLY  EQUIVALENT  STATE LAW; OR (III) LIMIT THE
RIGHT OF THE LENDER: (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO)  SETOFF,  OR  (B)  TO  FORECLOSE  AGAINST  ANY  REAL  OR  PERSONAL  PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER.  THE LENDER MAY EXERCISE  SUCH SELF HELP RIGHTS,  FORECLOSE  UPON
SUCH PROPERTY,  OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE,  DURING
OR AFTER THE PENDENCY OF ANY  ARBITRATION  PROCEEDING  BROUGHT  PURSUANT TO THIS
INSTRUMENT,  AGREEMENT OR DOCUMENT.  NEITHER THE EXERCISE OF SELF HELP  REMEDIES
NOR  THE  INSTITUTION  OR  MAINTENANCE  OF ANY  ACTION  FOR  FORECLOSURE  OR FOR
PROVISIONAL OR ANCILLARY  REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY,  INCLUDING  THE CLAIMANT IN SUCH ACTION,  TO ARBITRATE  THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.

                                       A-9

<PAGE>

         Maker  represents  to Lender  that the  proceeds of this Note are to be
used  primarily  for  business,   commercial  or  agricultural  purposes.  Maker
acknowledges  having read and  understood,  and agrees to be bound by, all terms
and conditions of this Note.

         THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE  CONTRADICTED BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS,  OR
SUBSEQUENT  ORAL  AGREEMENTS  OF  THE  PARTIES.  THERE  ARE  NO  UNWRITTEN  ORAL
AGREEMENTS BETWEEN THE PARTIES.

         IN WITNESS  WHEREOF,  the undersigned  Maker has caused this Note to be
executed by its duly authorized officer as of the date first above written.

                                       MAKER:


                                       BETHLEHEM ADVANCED
                                       MATERIALS CORPORATION


                                       By:_____________________________
                                       Title:_______________________



                                      A-10

<PAGE>

                                   EXHIBIT A-3


                         MASTER SECURED PROMISSORY NOTE
                                (Revolving Note)


$__________                  Knoxville, Tennessee                  July 30, 1999

         FOR VALUE RECEIVED,  on or before July 31, 2001 (the "Maturity  Date"),
the  undersigned  BETHLEHEM  ADVANCED  MATERIALS  CORPORATION,   a  Pennsylvania
corporation  (referred  to herein as  "Maker"),  promises to pay to the order of
NATIONSBANK,  N.A., a national banking  association  organized under the laws of
the United States of America ("Payee"; Payee and any subsequent holder[s] hereof
are hereinafter  referred to  collectively  as "Holder"),  without grace, at the
office of Payee at 550 Main Street, Knoxville, Tennessee 37902, or at such other
place as  Holder  may  designate  to Maker in  writing  form  time to time,  the
principal sum of _________________________  DOLLARS ($_________),  or such other
amount as may hereafter be outstanding  hereunder  pursuant to that certain Loan
Agreement  of even date  herewith  between  Maker and Payee,  whichever is less,
together with interest on the outstanding  principal balance hereof from date at
an annual rate equal to the interest rate  designated from time to time by Payee
as its "Prime Rate", plus one-quarter of one percent (.25%), which rate shall be
adjusted  on each day that said Prime Rate  changes;  provided  that in no event
shall the rate of  interest  payable in respect  of the  indebtedness  evidenced
hereby  exceed the  maximum  rate of  interest  from time to time  allowed to be
charged by applicable law (the "Maximum Rate").  Interest shall be calculated at
the  basis  of a  360-day  year  for  each  day  that  all  or any  part  of the
indebtedness  evidenced hereby shall be outstanding,  to the extent permitted by
applicable law.

         Interest only on the outstanding  principal balance hereof shall be due
and payable monthly,  in arrears,  with the first  installment  being payable on
September 1, 1999 and subsequent  installments being payable on the first day of
each  succeeding  month  thereafter  until the Maturity  Date, at which time the
entire  outstanding  principal  balance  hereof,  together  with all accrued and
unpaid interest, shall be due and payable in full.

         All payments in respect to the  indebtedness  evidenced hereby shall be
made in collected funds, and shall be applied to principal, accrued interest and
charges and expenses  owing under or in connection  with this Note in such order
as Holder elects.

         Subject to the provisions of the Loan Agreement  regarding  prepayment,
the  indebtedness  evidenced  hereby may be prepaid in whole or in part,  at any
time and from time to time,  without  penalty or premium,  and in the absence of
default Maker may reborrow up to the maximum  amount  hereof in accordance  with
the Loan Agreement.

         Any  advance  by  Payee  to  Maker  that is not  evidenced  by  another
instrument or agreement  between the parties shall be  conclusively  presumed to
have been made  hereunder  when such advance is either (1) deposited or credited
to an amount of Maker with Payee, notwithstanding that such

                                      A-11

<PAGE>

advance was requested, orally or in writing, by someone other than Maker or that
someone  other than Maker is  authorized to draw on such account and may or does
withdraw the whole or part of such advance,  or (2) make in accordance  with the
oral or  written  instructions  of Maker.  The entire  balance  of all  advances
hereunder  that may be outstanding  from time to time shall  constitute a single
indebtedness,  and no single advance  increasing the outstanding  balance hereof
shall  itself be  considered  a separate  loan,  but rather an  increase  in the
aggregate outstanding balance of the indebtedness evidenced hereby.

         Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any  default be made in the payment of  principal  or interest
when due as  stipulated  above;  or in the event that any Event of  Default,  as
defined in that certain Loan  Agreement  dated  January 21, 1999, by and between
Maker and Payee (the "Loan  Agreement"),  shall occur;  or should any default or
event of default  occur under any other  instrument or document now or hereafter
evidencing, securing or otherwise relating to the indebtedness evidenced hereby,
subject to any  applicable  cure  periods;  then and in such  event,  the entire
outstanding principal balance of the indebtedness evidence hereby, together with
any other sums advanced  hereunder,  under the Loan Agreement or under any other
instrument, document or agreement now or hereafter evidencing securing or in any
way relating to the  indebtedness  evidenced  hereby,  together  with all unpaid
interest  accrued  thereon,  shall at the option of Holder and without notice to
Maker, at once become due and payable and may be collected forthwith, regardless
of the  stipulated  date of maturity.  Upon the occurrence of any default as set
forth herein,  at the option of Holder and without notice to Maker,  all accrued
and unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall bear
interest  thereafter  until  paid at a rate (the  "Default  Rate")  equal to the
lesser of (I) the rate that is four percentage  points (4%) in excess of Payee's
Prime Rate, as it varies from time to time, or (ii) the Maximum Rate, regardless
of whether  there has been an  acceleration  of the payment of  principal as set
forth herein.  All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default.

         To the extend  permitted by applicable law, Maker shall pay to Holder a
late charge  equal to four  percent  (4%) of any payment  hereunder  that is not
received by Holder  within  fifteen (15) days of the date on which it is due, in
order to cover the additional  expenses  incident to the handling and processing
of delinquent payments;  provided, however, that nothing in this provision shall
be deemed to waive any other  right or remedy of the Holder  hereof by reason of
Maker's failure to make payments when due hereunder.

         In the  event  this Note is  placed  in the  hands of an  attorney  for
collection or for enforcement or protection of the security, or if Holder incurs
any costs incident to the collection of the indebtedness evidenced hereby or the
enforcement or protection of the security,  Maker and any endorsers hereof agree
to pay a  reasonable  attorney's  fee,  all  court  and  other  costs,  and  the
reasonable costs of any collection efforts.

         Presentment  for payment,  demand,  protest and  nonpayment  are hereby
waive by Maker and all other  parties  hereto.  No  failure  to  accelerate  the
indebtedness  evidenced hereby by reason of default  hereunder,  acceptance of a
past-due  installment or other  indulgences  granted from time to time, shall be
construed  as a  novation  of  this  Note  or  as a  waiver  of  such  right  of
acceleration or of

                                      A-12

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the right of Holder  thereafter to insist upon strict  compliance with the terms
of this Note or to prevent  the  exercise of such right of  acceleration  or any
other  right  granted   hereunder  or  by  applicable  laws.   Unless  otherwise
specifically  agreed by Holder in writing,  the liability of Maker and all other
persons  now or  hereafter  liable  for  payment of the  indebtedness  evidenced
hereby, or any portion thereof,  shall not be affected by (1) any renewal hereof
or other extension of the time for payment of the indebtedness  evidenced hereby
or any amount due in respect thereof,  (2) the release of all or any part of any
collateral now or hereafter  securing the payment of the indebtedness  evidenced
hereby or any portion thereof, or (3) the release of or resort to any person now
or  hereafter  liable for payment of the  indebtedness  evidenced  hereby or any
portion thereof.  This Note may not be changed orally,  but only by an agreement
in writing signed by the party against whom  enforcement of any waiver,  change,
modification or discharge is sought.

         The  indebtedness  and  other  obligations  evidenced  by this Note are
further  evidenced  and/or secured by a (1) Pledge  Agreement from The Bethlehem
Corporation  for the benefit of Payee dated  January  21,  1999,  (2) a Security
Agreement  between the Maker and Payee dated  January 21, 1999,  and (3) certain
other  instruments  and  documents  as more  particularly  described in the Loan
Agreement.

         All  agreements  herein made are expressly  limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise,  shall the interest and loan
charges  agreed to be paid to Holder for the use of the money  advanced or to be
advanced hereunder exceed the maximum amounts  collectible under applicable laws
in effect from time to time. If for any reason  whatsoever  the interest or loan
charges paid or contracted to be paid in respect of the  indebtedness  evidenced
thereby shall exceed the maximum amounts  collectively  under applicable laws in
effect from time to time,  then, ipso facto, the obligation to pay such interest
and/or loan charges shall be reduced to the maximum  amounts  collectible  under
applicable laws in effect from time to time, and any amounts collected by Holder
that  exceed  such  maximum  amounts  shall be applied to the  reduction  of the
principal balance remaining unpaid hereunder and/or refunded to Maker so that at
no time shall the  interest  or loan  charges  paid or payable in respect of the
indebtedness  evidenced hereby exceed the maximum amounts permitted from time to
time by applicable  law. This provision  shall control every other  provision in
any and all other  agreements and instruments now existing or hereafter  arising
between Maker and Holder with respect to the indebtedness evidenced hereby.

         This Note has been  negotiated,  executed and delivered in the State of
Tennessee,  and is  intended  as a  contract  under and shall be  construed  and
enforceable in accordance with the laws of said state, except to the extent that
Federal law may be applicable to the determination of the Maximum Rate.

         As used  herein,  the terms  "Maker"  and  "Holder"  shall be deemed to
include their respective successors,  legal representatives and assigns, whether
by  voluntary  action of the parties or by  operation  of law. In the event that
more than one person,  firm or entity is a maker hereunder then all reference to
"Maker"  shall be deemed to refer  equally to each of said  persons,  firms,  or
entities,  all of whom  shall be  jointly  and  severally  liable for all of the
obligations of Maker hereunder.


                                      A-13

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         ANY  CONTROVERSY  OR CLAIM  BETWEEN OR AMONG THE MAKER AND THE  LENDER,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS INSTRUMENT,  AGREEMENT OR
DOCUMENT OR ANY RELATED  INSTRUMENTS,  AGREEMENTS  OR  DOCUMENTS,  INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED  TORT,  SHALL BE DETERMINED BY BINDING
ARBITRATION  IN  ACCORDANCE  WITH  THE  FEDERAL   ARBITRATION  ACT  (OR  IF  NOT
APPLICABLE,  THE APPLICABLE  STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
ARBITRATION  OF COMMERCIAL  DISPUTES OF THE JUDICIAL  ARBITRATION  AND MEDIATION
SERVICES,  INC. (J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT
OF AN  INCONSISTENCY,  THE  SPECIAL  RULES  SHALL  CONTROL.  JUDGMENT  UPON  ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.  ANY PARTY TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY
OR EXPEDITED  PROCEEDING,  TO COMPEL  ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH  THIS  INSTRUMENT,  AGREEMENT  OR  DOCUMENT  RELATES  IN ANY COURT  HAVING
JURISDICTION OVER SUCH ACTION.

                  THE ARBITRATION SHALL BE CONDUCTED IN KNOX COUNTY,  TENNESSEE,
AND  ADMINISTERED  BY J.A.M.S.  WHO WILL APPOINT AN ARBITRATOR.  IF J.A.M.S.  IS
UNABLE  OR  LEGALLY  PRECLUDED  FROM  ADMINISTERING  THE  ARBITRATION,  THEN THE
AMERICAN  ARBITRATION  ASSOCIATION WILL SERVE. ALL ARBITRATION  HEARINGS WILL BE
COMMENCED  WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION;  FURTHER,  THE
ARBITRATOR  SHALL  ONLY,  UPON A SHOWING OR CAUSE,  BE  PERMITTED  TO EXTEND THE
COMMENCING OF SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.

                  NOTHING IN THIS  INSTRUMENT,  AGREEMENT  OR DOCUMENT  SHALL BE
DEEMED TO (I) LIMIT THE  APPLICABILITY OF ANY OTHERWISE  APPLICABLE  STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,  AGREEMENT OR
DOCUMENT;  OR (II) BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY
12 U.S.C.ss.91  OR ANY  SUBSTANTIALLY  EQUIVALENT  STATE LAW; OR (III) LIMIT THE
RIGHT OF THE LENDER: (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO)  SETOFF,  OR  (B)  TO  FORECLOSE  AGAINST  ANY  REAL  OR  PERSONAL  PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER.  THE LENDER MAY EXERCISE  SUCH SELF HELP RIGHTS,  FORECLOSE  UPON
SUCH PROPERTY,  OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE,  DURING
OR AFTER THE PENDENCY OF ANY  ARBITRATION  PROCEEDING  BROUGHT  PURSUANT TO THIS
INSTRUMENT,  AGREEMENT OR DOCUMENT.  NEITHER THE EXERCISE OF SELF HELP  REMEDIES
NOR  THE  INSTITUTION  OR  MAINTENANCE  OF ANY  ACTION  FOR  FORECLOSURE  OR FOR
PROVISIONAL OR ANCILLARY  REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY,  INCLUDING  THE CLAIMANT IN SUCH ACTION,  TO ARBITRATE  THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.

                                      A-14

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         Maker  represents  to Lender  that the  proceeds of this Note are to be
used  primarily  for  business,   commercial  or  agricultural  purposes.  Maker
acknowledges  having read and  understood,  and agrees to be bound by, all terms
and conditions of this Note.

         THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE  CONTRADICTED BY EVIDENCE OF PRIOR,  CONTEMPORANEOUS,  OR
SUBSEQUENT  ORAL  AGREEMENTS  OF  THE  PARTIES.  THERE  ARE  NO  UNWRITTEN  ORAL
AGREEMENTS BETWEEN THE PARTIES.

         IN WITNESS  WHEREOF,  the undersigned  Maker has caused this Note to be
executed by its duly authorized officer as of the date first above written.


                                            MAKER:

                                            BETHLEHEM ADVANCED MATERIALS
                                            CORPORATION



                                            By:___________________________
                                            Title:________________________




                                      A-15

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                                    EXHIBIT B

                    BORROWING BASE AND COMPLIANCE CERTIFICATE

                         Dated as _____________, ______



To:      NationsBank, N.A.
         Commercial Loans
         550 Main Street
         Knoxville, Tennessee 37902
         Attn: Michael S. Brown

Re:      Loan  Agreement  dated January 21, 1999 (the "Loan  Agreement")  by and
         among  Bethlehem  Advanced  Materials   Corporation   ("Borrower")  and
         NationsBank, N.A. ("Lender").

1.       Computation of Borrowing Base and Availability under the Loan.

         (a)      Approved Eligible Receivables
                  as defined in Section 5.14 of the
                  Loan Agreement                          $_____________________
                                                           X85%

                  Total Borrowing Base from Approved
                  Eligible Receivables                    $_____________________

         (b)      Eligible    Receivables    (other   than   Approved   Eligible
                  Receivables) as defined in Section 5.14 of the
                  Loan Agreement                          $_____________________
                                                           X80%

                  Borrowing Base from Other
                  Eligible Receivables                    $_____________________

         (c)      Eligible Inventory as defined in
                  Section 5.14 of the Loan Agreement      $_____________________
                                                           X50%

                  Total Borrowing Base from
                  Eligible Inventory                      $_____________________



                                       B-1

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         (d)      The lesser of:

                  (i) the fair market value of New Equipment
                  as defined in Section 5.14 of the Loan
                  Agreement                               $_____________________
                                                           X75%; or

                  (ii) the cost of New Equipment          $_____________________
                                                           X100%

                  Total Borrowing Base from New Equipment $_____________________

         (e)       The fair market value of Used Equipment as defined in Section
                   5.14 of the
                  Loan Agreement                          $_____________________
                                                           X50%
                  Total Borrowing Base from
                  Used Equipment                          $_____________________

                  Total Borrowing Base from Section 1(a),  1(b),  1(c), 1(d) and
                  1(e) above (not to exceed total amount of
                  Loan).                                  $_____________________

                  Less Total Outstanding Under Loan       $_____________________

                  AVAILABILITY UNDER LOAN                 $_____________________

2.       Attached as Exhibit A hereto is a true and correct aging and listing of
         all of Borrower's accounts receivable.

3.       As of the date hereof,  all of the  representations  and warranties set
         forth in  Article  IV of the Loan  Agreement  are and  remain  true and
         correct  with  the same  effect  as  though  such  representations  and
         warranties had been made on and as of this date.

4.       As of the date hereof,  Borrower is in full  compliance with all of the
         terms and provisions set forth in the Loan Agreement, including without
         limitation  the covenants and  agreements set forth in Article V of the
         Loan Agreement,  and all of the  instruments and documents  executed in
         connective therewith, and no Event of Default, as defined in Article VI
         of the Loan Agreement,  or any event which, upon notice,  lapse of time
         or both,  would  constitute  an Event of  Default,  has  occurred or is
         continuing.

         The  undersigned  certifies that the information set out herein and the
Exhibit  attached hereto is true and correct in all material  respects as of the
date hereof. The undersigned further certifies that the figures set forth out of
Paragraph 1 hereof pertain only the Approved Eligible Receivables, Other

                                       B-2

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Eligible  Receivables,  Eligible Inventory,  New Equipment and Used Equipment as
those terms are defined in the Loan Agreement.

                                           BETHLEHEM ADVANCED MATERIALS
                                           CORPORATION

                                           By:_________________________________
                                           Title:______________________________




                                       B-3

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                                    EXHIBIT C

                         BENCHMARKS FOR FURNACE PROJECTS


Benchmarks for New Furnace Project

         First Benchmark                                Percentage of Completion

Completion of Facility modification                            20% of total
         oGround pits
         oConcrete work for floor & piers
         oElectrical upgrades
         oNatural gas system enhancement
         oNitrogen bulk system and distribution lines

         Second Benchmark                               Percentage of Completion

Completion of Furnace computer control system                  40% of total
         oMain vessel
         oInstrumentation, controls and safety
         oFurnace support structure

         Third Benchmark                                Percentage of Completion

Completion of Furnace internals                                20% of total
         oCarbon/Carbon liners
         oCarbon insulation
         oHeating elements & graphite internals
         oSpacer plates & hearth

         Fourth Benchmark                               Percentage of Completion

Completion of Furnace support systems                          20% of total
         oVacuum pumping systems
         oAfterburner
         oCooling water safety system
         oHeat exchanger



                                       C-1