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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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ADVANCED GLASSFIBER YARNS LLC
(Exact name of Registrant as specified in its charter)
Delaware 3229 58-2407014
(State of formation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
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AGY CAPITAL CORP.
(Exact name of Registrant as specified in its charter)
Delaware 3229 57-1072917
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
2556 Wagener Road
Aiken, South Carolina 29801
(803) 643-1377
(Address, including zip code, and telephone number, including area code, of
Registrants' principal executive offices)
With a copy to:
Robert B. Fisher, President Mark F. McElreath, Esq.
Advanced Glassfiber Yarns LLC Alston & Bird LLP
AGY Capital Corp. One Atlantic Center
2556 Wagener Road 1201 West Peachtree Street
Aiken, South Carolina 29801 Atlanta, Georgia 30309-3424
(803) 643-1377 (404) 881-7378
(Name, address, including zip code, and telephone number, including area code,
of Registrants' agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to be Offering Price per Aggregate Offering Amount of
Securities to be Registered Registered Note(1) Price Registration Fee
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9 7/8% Series B Senior
Subordinated Notes due
2009.................. $150,000,000 100% $150,000,000 $41,700
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f), based upon the book value of such securities.
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The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the SEC +
+is effective. This prospectus is not an offer to sell these securities and we +
+are not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999
PROSPECTUS
ADVANCED GLASSFIBER YARNS LLC
AGY CAPITAL CORP.
Offer to Exchange their 9 7/8% Series B Senior Subordinated Notes due 2009
which have been registered under the Securities Act
for up to $150,000,000 aggregate principal amount
of their outstanding 9 7/8% Senior Subordinated Notes due 2009
The Exchange Notes:
. The terms of the exchange notes we issue will be substantially identical to
the outstanding notes that we issued on January 21, 1999, except for the
elimination of certain transfer restrictions, registration rights and
liquidated damages provisions relating to the old notes.
. We will pay interest on the exchange notes twice a year, beginning July 15,
1999.
. We cannot redeem the exchange notes before January 15, 2004. After that date,
we may redeem them at certain specified prices. However, before January 15,
2002, we can redeem up to 35% of the exchange notes at 110.125% of their face
amount, plus interest, with money we raise in certain public equity
offerings.
. If we experience certain changes of control, we must offer to purchase the
exchange notes at 101% of their face amount, plus interest.
Guarantees:
. Certain of our future subsidiaries will guarantee the exchange notes on an
unsecured, senior subordinated basis.
The Exchange Offer:
. The exchange offer will expire at 5:00 p.m., New York City time, on ,
1999, unless extended.
. Our completion of the exchange offer is subject to customary conditions,
which we may waive.
. Upon our completion of the exchange offer, all old notes that are validly
tendered and not withdrawn will be exchanged for an equal principal amount of
exchange notes that are registered under the Securities Act.
. Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
. The exchange of notes will not be a taxable exchange for federal income tax
purposes.
. We do not intend to list the exchange notes on any national securities
exchange or Nasdaq.
. We will not receive any cash proceeds from the exchange offer.
Notice to Investors:
. You should consider carefully the risk factors beginning on page 14 of this
prospectus before tendering your old notes in the exchange offer.
. Neither the SEC nor any state securities commission has approved or
disapproved of the exchange notes, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is , 1999.
We have not authorized any person to make a statement that differs from what
is in this prospectus. If any person makes a statement that differs from what
is in this prospectus, you should not rely on it. This prospectus is not an
offer to sell, nor is it seeking an offer to buy, the exchange notes in any
state where such offer or sale is not permitted. The information in this
prospectus is complete and accurate as of its date, but the information may
change after that date.
This exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of old notes in any jurisdiction in which this exchange
offer or the acceptance thereof would not be in compliance with the securities
or blue sky laws of such jurisdiction.
TABLE OF CONTENTS
Prospectus Summary......................................................... 1
Risk Factors............................................................... 14
Old Notes Outstanding After the Exchange Offer Will Not Have Registration
Rights and We Expect the Market for the Old Notes To Be Illiquid........ 14
Our Indebtedness Results in Significant Debt Service Obligations and
Limitations............................................................. 14
Your Exchange Notes Will Be Subordinate to Our Senior Debt............... 15
Our Indebtedness May Prevent Us from Engaging in Certain Beneficial
Activities.............................................................. 15
We May Not Have Sufficient Funds to Repay the Exchange Notes Upon a
Change of Control....................................................... 16
The Exercise of Put Rights May Adversely Affect Our Operating
Performance............................................................. 16
We Have Only Operated Independently of Owens Corning Since September 30,
1998 and Remain Dependent Upon Owens Corning to Provide Certain
Materials and Services.................................................. 17
We May Have Conflicts of Interest With Our Equityholders................. 17
A Downturn in the Electronics Industry or the Movement of Electronics
Industry Production Outside of North America Could Reduce Demand for Our
Products................................................................ 18
Our Operating Performance is Dependent Upon a Limited Number Of
Customers............................................................... 18
We Depend on a Stable Supply of Borates.................................. 19
Our Customers Could Switch to Other Suppliers of Glass Yarns............. 19
A Disruption at One of Our Facilities Would Significantly Decrease
Production.............................................................. 19
Our Foreign Sales Are Exposed to Risk of Currency Fluctuations........... 20
Changes In Government Regulations Could Reduce Demand for Our Products... 20
Issuance of the Old Notes and Any Note Guarantee May Be Subject to
Fraudulent Conveyance Laws.............................................. 20
We May Suffer Significant Costs to Make Our Systems "Year 2000"
Compliant............................................................... 21
Our Operating Performance is Dependent Upon Good Relations with Our
Employees............................................................... 22
We May Be Responsible for Environmental and Safety and Health Costs...... 22
You Cannot Be Sure That an Active Trading Market Will Develop for the
Exchange Notes.......................................................... 22
Use of Proceeds............................................................ 24
Capitalization............................................................. 24
Unaudited Condensed Pro Forma Financial Information........................ 25
Selected Historical Financial Information.................................. 32
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 34
Business................................................................... 43
Management................................................................. 51
Operating Agreement........................................................ 53
Certain Relationships and Related Transactions............................. 56
Security Ownership......................................................... 63
Description of Other Indebtedness.......................................... 64
Description of Exchange Notes.............................................. 66
Certain Federal Income Tax Considerations.................................. 104
The Exchange Offer......................................................... 105
Plan of Distribution....................................................... 116
Legal Matters.............................................................. 118
Experts.................................................................... 118
Index to Financial Statements.............................................. F-1
i
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-4 that we have
filed with the SEC. This prospectus does not contain all of the information set
forth in the registration statement. For further information about us and the
exchange notes, you should refer to the registration statement. This prospectus
summarizes material provisions of contracts and other documents to which we
refer you. Since these summaries may not contain all of the information that
you may find important, you should review the full text of these documents. We
have filed certain of these documents as exhibits to our registration
statement.
In addition, we have agreed that, even though the SEC does not require us to
do so, for so long as any notes remain outstanding, we will furnish to you and
the trustee and file with the SEC all such information, documents and reports
specified in Section 13 or 15(d) of the Exchange Act.
You should direct any request for information to our Chief Financial Officer
at least 10 business days before you tender your exchange notes in the exchange
offer. Our mailing address and telephone number are:
Advanced Glassfiber Yarns LLC
2556 Wagener Road
Aiken, South Carolina 29801
(803) 643-1377
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Some of the information in this prospectus may contain forward looking
statements. Such statements include, in particular, statements about our plans,
strategies and prospects under the headings "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." You can identify forward looking statements by our use of forward
looking terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward looking
statements are reasonable, we cannot assure you that our plans, intentions or
expectations will be achieved. Important factors that could cause our actual
results to differ materially from the forward looking statements we make in
this prospectus are set forth in the "Risk Factors" section and elsewhere in
this prospectus. All forward looking statements attributable to us or persons
acting for us are expressly qualified in their entirety by our cautionary
statements.
CERTAIN MARKET AND INDUSTRY DATA
Unless we indicate otherwise, we derived the glass yarns industry data, our
market share and the percentage of our sales attributable to various end-use
markets in this prospectus from our internal surveys and estimates. We believe
that there are no industry-wide publications or trade associations that report
industry, market and end-use data. No independent sources have verified our
internal surveys or estimates. While this data is shown with numerical
specificity, these estimates are based on sources that are not complete and on
collection methodologies that are not systematic, including:
. routine discussions with customers to estimate existing and projected
global glass yarn sales;
. negotiations with customers in which pricing information was discussed;
ii
. development of a business model with independent consultants to estimate
glass yarns consumption in the electronics industry;
. our understanding, based on ordinary course discussions with our
customers, of the end-use markets served directly and indirectly by our
customers, which we have used to estimate the percentage of our glass
yarn sales to the electronics, industrial, construction and specialty
markets;
. review of fabric production quantities with major weavers; and
. public statements by competitors, independent financial analysts and a
regional trade association.
These estimates represent our management's good faith assessments and are
believed to be based on methodologies similar to those used by our major
competitors, but nevertheless are inherently subject to inaccuracy.
In this prospectus, we express our capacity utilization as a percentage of
installed bushings in use. Bushings are heat-resistant platinum and rhodium
trays through which molten glass is passed to form glass filaments. The fact
that a bushing is in use does not necessarily indicate that we are obtaining
the highest volumes or margins possible with that bushing. Volume and margin
depend on numerous factors including the production process in use and the
product mix.
USE OF CERTAIN TERMS AND FINANCIAL INFORMATION
Unless the context otherwise requires, as used in this prospectus, the terms
(1) "AGY," "Issuers" or "we" collectively refer to Advanced Glassfiber Yarns
LLC and AGY Capital Corp. and, where the context requires, to the historical
operations of Owens Corning's business of manufacturing and selling glass fiber
yarns prior to September 30, 1998, (2) "old notes" refer to the 9 7/8% Senior
Subordinated Notes due 2009 that we issued on January 21, 1999, (3) "exchange
notes" refer to the 9 7/8% Series B Senior Subordinated Notes due 2009 that
have been registered under the Securities Act of 1933 and that we are offering
in exchange for the old notes and (4) "notes" collectively refer to the old
notes and the exchange notes. All of our historical financial information
contained in this prospectus for the periods prior to and ending September 30,
1998 is based upon the historical financial information of the business prior
to that date.
iii
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It may not
contain all of the information that is important to you. To understand the
exchange offer fully, you should read this entire prospectus carefully,
including the risk factors and the financial statements.
Advanced Glassfiber Yarns LLC
Advanced Glassfiber Yarns LLC is the second largest global supplier of glass
yarns. In 1997, our net sales accounted for approximately 49% of the North
American market and approximately 24% of the global market. We are one of only
two major glass yarns producers with manufacturing facilities in North America
and one of only five major glass yarns producers that supply glass yarns
globally. We produce our glass yarns by converting molten glass into thin glass
filaments which we then twist into yarn. Our products fall into two categories
based on filament diameter:
. heavy yarns, which accounted for 76% of our 1997 net sales; and
. fine yarns, which accounted for 24% of our 1997 net sales.
We are the world's largest producer of fine yarns, and the world's second
largest producer of heavy yarns.
Glass yarns, because of their unique physical properties, are a critical
material used in a variety of electronic, industrial, construction and
specialty applications. Heavy yarns are used in a wide range of applications,
such as printed circuit boards, roofing materials, filtration equipment,
building reinforcements, window screening, aerospace materials and reinforced
tapes. Fine yarns are used primarily to construct laminates for multi-layer
printed circuit boards, which are integral to virtually all advanced electronic
products, including computers, telecommunications equipment, television
equipment, automotive equipment and home appliances. We also produce a
subcategory of heavy yarns known as specialty materials, such as S-2 Glass(R),
a proprietary high-strength glass yarn. Specialty materials, which accounted
for 9% of our 1997 net sales, are used for aircraft laminates, oxygen tanks,
sporting goods and vehicle armor. Fine yarns and specialty materials generally
command higher prices and profit margins than non-specialty heavy yarns,
primarily due to their value-added characteristics.
For the twelve months ended September 30, 1998, our net sales and EBITDA, on
a pro forma basis, were $273.0 million and $80.9 million, respectively. We
attribute our strong results and profitability primarily to the following
factors:
Attractive Industry Fundamentals. The glass yarns industry has historically
been characterized by a limited number of suppliers, high barriers to entry, a
limited number of cost-effective substitutes and high capacity utilization.
There are only five major glass yarns producers that supply glass yarns
globally, with combined sales comprising approximately 80% of total industry
sales. Historically, new entry into the market has been limited due to high
barriers of entry, which include technological know-how and significant capital
expenditure requirements. In addition, we believe that the industry's capacity
utilization generally has been high, which has allowed manufacturers to more
efficiently operate their facilities. Our capacity utilization, as measured by
use of installed bushings, averaged approximately 94% between 1995 and 1997 and
for the first nine months of 1998.
1
Stable Customer Base. We sell our products to over 300 customers worldwide,
including every major North American and European weaver and a diverse group of
other domestic and international commercial and industrial users of yarns. We
maintain long-standing relationships with our major customers by collaborating
with them to meet their specific manufacturing requirements and by providing
high quality products and strong customer service. In addition, our customer
relationships generally are stable due to the limited number of global
suppliers of glass yarns and the costs to customers associated with
"qualifying" new suppliers. In order to qualify a new supplier, a customer may
need to modify its own loom set-ups and fabric specifications and also qualify
the new glass yarn supplier with certain downstream manufacturers and weavers.
Furthermore, although glass yarns generally represent a small fraction of an
end product's overall manufacturing cost, product defects can be costly for
customers. Consequently, customers demand high-quality, reliable yarns from
their suppliers and we have established a reputation with our customers for
meeting these demands. As a result of these factors, we have maintained
relationships with each of our top five customers for over 25 years.
Unique Properties of Glass Yarns. The characteristics of glass yarns include:
. high strength-to-weight ratio;
. dimensional stability;
. heat resistance;
. moisture resistance;
. chemical resistance;
. electrical resistance; and
. thermal insulation.
Although carbon and aramid fibers are stronger than glass yarns, they are
significantly more expensive. Other materials, such as steel and wood, are less
expensive but lack the physical characteristics of glass yarns. Given the
unique combination of physical attributes and relative low cost of glass yarns,
we believe few cost-effective substitute products exist.
Diversified End-Use Markets. The characteristics of glass yarn make it the
material of choice for a variety of products manufactured in the electronics,
industrial, construction and specialty markets. Our net sales to these markets
represented 36%, 28%, 27% and 9% of our 1997 net sales, respectively. We
believe that this diversity in end-use applications reduces volatility in
overall demand for our products.
Superior Production Technology and Product Innovation. We believe that we are
the technological leader in the production of glass yarns due to our strong
process engineering and product development capabilities. We pioneered the
glass yarns industry with the introduction of "glass cotton" in the 1930s and
the introduction of fine yarns in the 1940s, and have continued our innovation
with the development of S-2 Glass(R), Zentron(R) and zero twist yarn. We employ
41 technical professionals dedicated to the development of new products,
process improvements and product innovations.
2
Business Strategy
Our business strategy includes the following key elements:
Emphasize Fine Yarns and Specialty Materials. We will continue our focus on
increasing the proportion of our net sales attributable to fine yarns and
specialty materials. Sales of fine yarns and specialty materials increased as a
proportion of our net sales from 26% in 1994 to 33% in 1997. We believe our
global leadership in producing fine yarns and specialty materials is a
competitive advantage when targeting manufacturers of sophisticated electronics
and specialty composites.
Develop New Products and Product Innovations. To maintain our technological
leadership position in the glass yarns industry, we conduct an active internal
research and development program aimed at developing new and improved products.
In addition, we have formed several joint product development programs with our
customers such as BGF Industries, Inc., a wholly owned subsidiary of Porcher
Industries, S.A., and certain downstream manufacturers. We also have a
continuing relationship with Owens Corning pursuant to which we and Owens
Corning conduct joint development programs and we share in certain of Owens
Corning's technology and research and development. We will continue our focus
on research and development and our commitment to collaborate with customers to
improve and develop products.
Focus on Operating Efficiency. We continually seek to improve the quality of
our production facilities and our operating systems by utilizing modern
production technology. These new technologies have enabled us to increase
throughput, product quality and operational flexibility. As a result of these
operating improvements, our EBITDA margins increased from 22% in 1993 to 32%
for the last twelve months ended September 30, 1998.
Selective Geographic Expansion. We believe that we have opportunities to
expand our business outside of North America. Approximately 27% of our 1997 net
sales were outside of North America, with approximately 24% in Europe and
approximately 3% in Asia. We believe Asia represents an attractive long-term
opportunity for sales of our fine yarns, despite the region's current economic
turmoil. Certain of our customers are expanding their production capabilities
in Asia to meet the region's demand for glass fabrics used to manufacture
electronic laminates. We anticipate that glass yarns needed for such increased
production will be sourced locally. According to the U.S. Department of
Commerce, the Asian and Australian region represented approximately 50% of the
global supply of printed circuit boards in 1997. Our strategy is to continue to
expand outside North America by co-locating or sharing production facilities
with our customers. This would reduce the risks and capital expenditures
associated with geographic expansion while strengthening our relationships with
these customers.
3
The Formation Transactions
Porcher Industries and Owens Corning beneficially own 51% and 49% interests
in AGY, respectively. On July 1, 1998, Owens Corning formed AGY to own and
operate Owens Corning's glass fiber yarns and specialty materials business. On
September 30, 1998, Owens Corning sold a 51% interest in AGY to our largest
customer, Porcher Industries. The total consideration paid by Porcher
Industries was approximately $338.9 million, excluding $3.2 million of
transaction fees. Porcher Industries is a leading global manufacturer of
industrial fabrics and operates in North America primarily through its wholly
owned subsidiary, BGF Industries. In connection with Porcher Industries'
majority purchase, Owens Corning entered into a number of agreements to provide
various raw materials, capital equipment and services to us.
Concurrently with Porcher Industries' majority purchase, we recapitalized AGY
by borrowing a total of $404.0 million through a combination of $254.0 million
under a senior credit facility and $150.0 million under a senior subordinated
credit facility. We used the proceeds of these borrowings to pay (1) cash
distributions of $203.6 million to Porcher Industries and $193.4 million to
Owens Corning and (2) approximately $7.0 million in transaction fees and
expenses.
In connection with the above-described "formation transactions," Porcher
Industries' net cash outlay was $138.5 million, represented by the $338.9
million paid for the 51% interest in AGY, plus $3.2 million in fees paid in
connection with the majority purchase, less the $203.6 million cash
distribution Porcher Industries received from us. Owens Corning received $532.3
million in total consideration, comprised of the $338.9 million paid to it by
Porcher Industries and the $193.4 million cash distribution Owens Corning
received from us.
The net proceeds from the offering of the old notes, together with additional
borrowings under our senior credit facility, were used to repay all amounts
outstanding under our senior subordinated credit facility incurred in
connection with the formation transactions.
4
Summary of the Exchange Offer
The Exchange Offer...... We are offering to exchange $1,000 principal amount
of our exchange notes for each $1,000 principal
amount of old notes. As of the date of this
prospectus, $150,000,000 in aggregate principal
amount of old notes are outstanding.
We have registered the exchange notes under the
Securities Act and they are substantially identical
to the old notes, except for the elimination of
certain transfer restrictions, registration rights
and liquidated damages provisions relating to the old
notes.
Resale of the
Exchange Notes......... Based on interpretations by the SEC set forth in
certain no-action letters issued to third parties, we
believe that the exchange notes may be offered for
resale, resold and otherwise transferred by you
without compliance with the registration and
prospectus delivery provisions of the Securities Act;
provided that:
. you are acquiring the exchange notes in the
ordinary course of business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the exchange notes issued to
you in the exchange offer; and
. you are not an "affiliate" of ours.
If our belief is inaccurate and you transfer any
exchange notes without delivering a prospectus
meeting the requirements of the Securities Act or
without an exemption from registration of your
exchange notes from such requirements, you may incur
liability under the Securities Act. We do not assume
or indemnify you against such liability.
Each broker-dealer that is issued exchange notes for
its own account in exchange for old notes which were
acquired by such broker-dealer as a result of market-
making or other trading activities, must acknowledge
that it will deliver a prospectus meeting the
requirements of the Securities Act, in connection
with any resale of the exchange notes. The
accompanying letter of transmittal states that by so
acknowledging and by delivering a prospectus, such
broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities
Act. A broker-dealer may use this prospectus for an
offer to resell, resale or other retransfer of the
exchange notes. We have agreed that, for a period of
180 days after the date of this prospectus, we will
make this prospectus and any amendment or supplement
to this prospectus available to any such broker-
dealer for use in
5
connection with any such resales. We believe that no
registered holder of the old notes is an affiliate
(as such term is defined in Rule 405 of the
Securities Act) of AGY.
The exchange offer is not being made to, nor will we
accept surrenders for exchange from, holders of old
notes in any jurisdiction in which this exchange
offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws of
such jurisdiction.
Accrued Interest on the
Exchange Notes and the
Old Notes..............
Interest on the exchange notes will accrue from the
last interest payment date on which interest was paid
on the old notes, or, if no interest was paid on the
old notes, from the date of issuance of the old notes
(January 21, 1999). Holders whose old notes are
accepted for exchange will be deemed to have waived
the right to receive any interest accrued on the old
notes.
No Minimum Condition.... We are not conditioning the exchange offer on the
tender of any minimum aggregate principal amount of
old notes.
Expiration Date......... The exchange offer will expire at 5:00 p.m., New York
City time, on , 1999, unless we decide to extend
the exchange offer.
Withdrawal Rights....... You may withdraw your tender at any time prior to
5:00 p.m., New York City time, on the expiration
date.
Conditions to the
Exchange Offer......... The exchange offer is subject to customary
conditions, which we may waive. We currently
anticipate that each of the conditions will be
satisfied and that we will not need to waive any
conditions. We reserve the right to terminate or
amend the exchange offer at any time before the
expiration date if any such condition occurs. See
"The Exchange Offer--Conditions."
Procedures for
Tendering Old Notes.... If you are a holder of old notes who wishes to accept
the exchange offer, you must:
. complete, sign and date the accompanying letter
of transmittal, or a facsimile thereof, and mail
or otherwise deliver such documentation, together
with your old notes to the exchange agent at the
address set forth under "The Exchange Offer--
Exchange Agent;" or
. arrange for The Depository Trust Company to
transmit certain required information, including
an agent's message forming part of a book-entry
transfer in which you agree to be bound by the
terms of the letter of transmittal, to the
exchange agent in connection with a book-entry
transfer.
6
By tendering your old notes in either manner, you
will be representing, among other things, that:
. you are acquiring the exchange notes in the
ordinary course of business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the exchange notes issued to
you in the exchange offer; and
. you are not an "affiliate" of ours.
Special Procedures for
Beneficial Owners...... If you beneficially own old notes registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee and you wish to tender your
old notes in the exchange offer, you should contact
such registered holder promptly and instruct it to
tender on your behalf. If you wish to tender on your
own behalf, you must, prior to completing and
executing the letter of transmittal and delivering
your old notes, either arrange to have your old notes
registered in your name or obtain a properly
completed bond power from the registered holder. The
transfer of registered ownership may take
considerable time.
Guaranteed Delivery
Procedures............. If you wish to tender your old notes and time will
not permit your required documents to reach the
exchange agent by the expiration date, or the
procedures for book-entry transfer cannot be
completed on time, you may tender your old notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery
Procedures."
Use of Proceeds......... We will not receive any proceeds from the issuance of
the exchange notes in the exchange offer. We will pay
all our expenses incurred in connection with the
exchange offer.
Federal Income Tax
Consequences........... We anticipate that the exchange of notes in the
exchange offer will not be a taxable event for
federal income tax purposes. See "Certain Federal
Income Tax Considerations."
Effect on Holders of
Old Notes.............. As a result of this exchange offer, we will have
fulfilled an obligation under the registration rights
agreement dated as of January 21, 1999 among AGY,
First Union Capital Markets and Warburg Dillon Read
LLC and, accordingly, there will be no increase in
the interest rate on the old notes. If you do not
tender your old notes in the exchange offer:
7
. you will continue to hold the old notes and will
be entitled to all the rights and limitations
applicable to the old notes under the indenture
governing the notes, except for any rights under
the registration rights agreement that terminate
as a result of the completion of the exchange
offer; and
. you will not have any further registration or
exchange rights and your old notes will be
subject to certain restrictions on transfer.
Accordingly, the trading market for untendered
old notes could be adversely affected.
Shelf Registration Under certain circumstances, certain holders of old
Statement.............. notes may require us to file, and cause to become
effective, a shelf registration statement under the
Securities Act, which would cover resales of old
notes by such holders.
Exchange Agent.......... The Bank of New York is serving as exchange agent in
connection with the exchange offer. See "The Exchange
Offer--Exchange Agent."
Summary of the Exchange Notes
Issuers................. The exchange notes will be the obligations of
Advanced Glassfiber Yarns LLC and AGY Capital Corp.
AGY Capital Corp. is a wholly owned subsidiary of
Advanced Glassfiber Yarns LLC.
Securities Offered...... Up to $150,000,000 in principal amount of 9 7/8%
Series B Senior Subordinated Notes due 2009.
Maturity Date........... January 15, 2009.
Interest Payment January 15 and July 15, beginning on July 15, 1999.
Dates..................
Optional Redemption..... We may redeem:
. all or part of the exchange notes beginning on
January 15, 2004, at the redemption prices
described in "Description of Exchange Notes--
Redemption;" and
. up to 35% of the exchange notes originally issued
at any time prior to January 15, 2002 at the
price of 110.125% of their face amount, plus
accrued and unpaid interest, with money we raise
in certain public equity offerings.
Ranking................. The exchange notes are, and any note guarantees will
be, senior subordinated debt. They rank behind all of
our current and future indebtedness (other than trade
payables), except indebtedness that expressly
provides that it is not senior to the exchange notes.
The exchange notes will effectively rank behind any
of our future indebtedness that is secured by any of
our assets to the extent of
8
the value of such assets, even if such indebtedness
expressly provides that it is not senior to the
exchange notes.
Note Guarantees.........
Certain of our future subsidiaries will guarantee the
exchange notes on an unsecured basis. The note
guarantees will be senior subordinated debts. They
will rank behind (1) all of the indebtedness of the
note guarantors (other than trade payables), except
indebtedness that expressly provides that it is not
senior to the note guarantees and (2) any
indebtedness of the note guarantors that is secured
by any assets to the extent of the value of such
assets.
Mandatory Offer to If we sell certain assets or experience certain
Purchase............... changes of control, we must offer to purchase the
exchange notes at the prices listed in "Description
of Exchange Notes."
Basic Covenants
of Indenture........... We will issue the exchange notes under an indenture
that will contain covenants for your benefit. Such
covenants, among other things, could limit or
restrict our ability and the ability of certain of
our subsidiaries to:
. incur additional debt;
. pay dividends and make distributions;
. repurchase securities;
. make certain investments;
. create liens;
. transfer or sell assets;
. enter into transactions with affiliates;
. issue or sell stock of subsidiaries; or
. merge or consolidate.
However, these restrictions will be subject to a
number of important qualifications and exceptions.
For more details, see "Description of Exchange
Notes--Certain Covenants."
Risk Factors
You should read the "Risk Factors" section, beginning on page 14, as well as
the other cautionary statements throughout this prospectus, to ensure you
understand the risks associated with tendering your old notes in the exchange
offer.
9
Summary Unaudited Pro Forma Financial Information
We have based the following summary unaudited pro forma financial information
upon the historical financial statements of Owens Corning's glass yarns and
specialty materials business. We have adjusted the information based on certain
assumptions that we believe accurately represent the effects of the formation
transactions.
The summary unaudited pro forma statement of operations data for the year
ended December 31, 1997 and for the nine months ended September 30, 1997 and
September 30, 1998 each gives effect to the formation transactions and the
offering of the old notes as if they had occurred on January 1, 1997. We have
prepared the unaudited summary pro forma balance sheet data as of September 30,
1998 as if the formation transactions and the offering of the old notes had
occurred on that date.
The following summary unaudited pro forma financial information does not
include a provision for income taxes because AGY is a limited liability company
and is therefore not subject to income tax.
The summary unaudited pro forma financial statement data does not purport to
be indicative of what our financial position or results of operations would
actually have been had the formation transactions and the offering of the old
notes been completed on such dates, or to project our financial position or
results of operations for any future period. You should read this information
in conjunction with our historical financial statements and the other financial
information included elsewhere in this prospectus.
Year Ended
December 31, Nine Months Ended
1997 September 30,
------------ -----------------------
(unaudited) (unaudited) (unaudited)
(dollars in thousands)
Statement of Operations Data:
Net sales................................ $277,357 $209,580 $205,248
Cost of goods sold....................... 191,256 144,630 142,436
-------- -------- --------
Gross profit............................. 86,101 64,950 62,812
Selling, general and administrative
expense................................. 24,027 18,020 18,397
Restructuring costs(/1/)................. -- -- 2,034
-------- -------- --------
Income from operations................... 62,074 46,930 42,381
Interest expense......................... 39,230 29,422 29,422
Other income, net........................ (3,240) (2,440) (2,467)
-------- -------- --------
Income before extraordinary item......... 26,084 19,948 15,426
Extraordinary item(/2/).................. 3,750 3,750 --
-------- -------- --------
Net income............................... $ 22,334 $ 16,198 $ 15,426
======== ======== ========
Other Data:
Depreciation and amortization............ $ 19,799 $ 14,748 $ 15,014
Cash interest expense.................... 37,409 28,057 28,057
Capital expenditures..................... 8,324 5,744 13,509
EBITDA(/3/).............................. 85,113 64,118 59,862
EBITDA margin(/3/)....................... 30.7% 30.6% 29.2%
Ratio of total debt to EBITDA............ -- 5.1x
Ratio of EBITDA to cash interest
expense................................. -- 2.2x
Ratio of earnings to fixed charges(/4/).. 7.8x 1.5x
10
As of
September 30, 1998
----------------------
(unaudited)
(dollars in thousands)
Balance Sheet Data:
Working capital.......................................... $ 35,734
Total assets............................................. 449,532
Total debt............................................... 409,125
Members' interest........................................ 14,863
- --------
(1) During the first quarter of 1998, we recorded a $2.0 million restructuring
charge related to personnel reductions at our Aiken and Huntingdon
facilities.
(2) Reflects the write-off of fees of $3.8 million paid in connection with the
senior subordinated credit facility which was originally capitalized as a
deferred financing cost.
(3) We define EBITDA as income (loss) before income taxes, interest expense,
depreciation and amortization expense and cumulative effect of accounting
change. We present EBITDA because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness;
however, you should not consider EBITDA as an alternative to net income
(loss), as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles.
EBITDA margin represents EBITDA as a percentage of net sales.
(4) In calculating the ratio of earnings to fixed charges, earnings consist of
income before extraordinary item plus fixed charges. Fixed charges consist
of interest expense, whether expensed or capitalized, and that portion of
rental expense estimated to be attributable to interest.
11
Summary Historical Financial Information
We present below summary historical financial information of Owens Corning's
glass yarns and specialty materials business. We derived the information for
each of the fiscal years in the three-year period ended December 31, 1997 from
our audited financial statements, which appear elsewhere in this prospectus. We
derived the information for each of the two fiscal years in the period ended
December 31, 1994 and for the nine months ended September 30, 1997 and
September 30, 1998 from unaudited financial statements that we prepared. We
derived our historical financial statements from the historical financial
statements of Owens Corning. We have not adjusted our historical statements of
operations to reflect the effect of supply agreements that we entered into with
Owens Corning in connection with the formation transactions. In our opinion,
the unaudited financial information includes all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation of
the data. Operating results for the nine months ended September 30, 1998 do not
necessarily indicate the results that may be expected for the entire fiscal
year. You should read this information and the accompanying notes in
conjunction with our historical financial statements and the other financial
information included elsewhere in this prospectus.
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- -------- -------- -------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
(dollars in thousands)
Statement of Operations
Data:
Net sales............... $246,832 $251,922 $272,395 $274,979 $277,357 $209,580 $205,248
Cost of goods sold...... 189,796 175,047 187,153 180,343 182,366 138,045 134,820
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 57,036 76,875 85,242 94,636 94,991 71,535 70,428
Selling, general and
administrative
expenses............... 12,565 13,157 13,748 14,345 14,813 11,110 11,487
Restructuring
costs(/1/)............. -- -- -- -- -- -- 2,034
-------- -------- -------- -------- -------- -------- --------
Income from operations.. 44,471 63,718 71,494 80,291 80,178 60,425 56,907
Other income, net....... (1,326) (1,354) (3,041) (3,003) (2,688) (2,026) (2,328)
-------- -------- -------- -------- -------- -------- --------
Income before taxes..... 45,797 65,072 74,535 83,294 82,866 62,451 59,235
Provision for income
taxes(/2/)............. 17,535 25,834 29,594 33,051 32,540 24,481 16,226
-------- -------- -------- -------- -------- -------- --------
Income before cumulative
effect of change in
accounting for post-
employment benefits.... 28,262 39,238 44,941 50,243 50,326 37,970 43,009
Cumulative effect of
change in accounting
for post-employment
benefits(/3/).......... -- 5,600 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 28,262 $ 33,638 $ 44,941 $ 50,243 $ 50,326 $ 37,970 $ 43,009
======== ======== ======== ======== ======== ======== ========
Other Data:
Depreciation and
amortization........... $ 7,864 $ 8,167 $ 8,604 $ 8,233 $ 8,305 $ 6,128 $ 6,394
Capital expenditures.... 12,811 13,963 8,458 15,314 8,324 5,744 13,509
EBITDA(/4/)............. 53,661 73,239 83,139 91,527 91,171 68,579 65,629
EBITDA margin(/4/)...... 21.7% 29.1% 30.5% 33.3% 32.9% 32.7% 32.0%
Ratio of earnings to
fixed charges(/5/)..... 128x 155x 164x 136x 78x 78x 67x
Balance Sheet Data(/6/)
(at period end):
Working capital......... $ 11,052 $ (1,137) $ (1,493) $ (4,944) $(11,872) $ 19,542 $ 35,734
Total assets............ 147,198 157,185 159,414 163,839 153,961 172,744 445,476
Total debt.............. -- -- -- -- -- -- 404,000
Net assets.............. 33,703 25,439 31,899 36,850 30,940 59,820 15,932
12
- --------
(1) During the first quarter of 1998, we recorded a $2.0 million restructuring
charge related to personnel reductions at our Aiken and Huntingdon
facilities.
(2) AGY was established as a limited liability company on July 1, 1998, and is
not subject to income tax, and therefore the data presented above does not
reflect income tax expense for any period subsequent to July 1, 1998.
Income tax expense reflected in the statement of operations for the nine
months ended September 30, 1998 represents the estimated income tax expense
attributable to the results of operations of Owens Corning's glass yarns
and specialty materials business through June 30, 1998.
(3) Effective January 1, 1994, we adopted Statement of Accounting Standards No.
112, "Employers Accounting for Postemployment Benefits." The cumulative
effect of this change in accounting policy was an undiscounted charge of
$5.6 million net of related income taxes of $3.6 million.
(4) We define EBITDA as income (loss) before income taxes, interest expense,
depreciation and amortization expense and cumulative effect of accounting
change. We present EBITDA because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness;
however, you should not consider EBITDA as an alternative to net income
(loss), as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles.
EBITDA margin represents EBITDA as a percentage of net sales.
(5) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income taxes plus fixed charges. Fixed charges consist
of interest expense, whether expensed or capitalized, and that portion of
rental expense estimated to be attributable to interest.
(6) The historical balance sheet data for 1993 through September 30, 1997 have
not been adjusted to reflect the fact that Owens Corning did not contribute
deferred tax assets to us and that Owens Corning retained the following
liabilities: income taxes payable, trade accounts payable and post-
retirement health care benefits for certain of our employees. The September
30, 1998 balance sheet data reflect the elimination of assets not
contributed to us and liabilities not assumed by us, the accounting for the
purchase by Porcher Industries of a 51% interest in AGY and the borrowings
used to effect our recapitalization.
13
RISK FACTORS
Before you tender your old notes, you should be aware that there are various
risks involved in such an investment, including those we describe below. You
should consider carefully these risk factors together with all of the other
information included in this prospectus before you decide to tender your old
notes in the exchange offer.
Old Notes Outstanding After the Exchange Offer Will Not Have Registration
Rights and We Expect the Market for the Old Notes To Be Illiquid
If you do not exchange your old notes for exchange notes pursuant to the
exchange offer, your old notes will continue to be subject to the restrictions
on transfer of old notes. In general, you may not offer or sell old notes
unless they are registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws. We do
not currently intend to register the old notes under the Securities Act. Based
on interpretations by the SEC, we believe that you may offer for resale, resell
or otherwise transfer the exchange notes issued pursuant to the exchange offer
(unless you are an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, so long as you acquired the
exchange notes in the ordinary course of your business and you will not, and
have no arrangement with any person to, participate in the distribution of the
exchange notes. Each broker-dealer that receives exchange notes for its own
account in exchange for old notes, where such old notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution." To the
extent that old notes are tendered and accepted in the exchange offer, the
trading market for untendered and tendered but unaccepted old notes will be
adversely affected.
Our Indebtedness Results in Significant Debt Service Obligations and
Limitations
We incurred significant debt in connection with the financings described in
the prospectus summary under "The Formation Transactions" and, as a result, we
have significant debt service obligations. As of September 30, 1998, as
adjusted for the offering of the old notes, we would have had approximately
$409.1 million of indebtedness. We also would have had the ability to incur
$52.9 million of additional debt under our senior credit facility. See
"Capitalization." In addition, the indenture governing the notes allows us to
incur additional indebtedness under certain circumstances. If we add new debt
to our current debt levels, the related risks that we now face could intensify.
See "Capitalization," "Selected Historical Financial Information," "Description
of Other Indebtedness" and "Description of Exchange Notes--Certain Covenants--
Limitation on Incurrence of Additional Indebtedness."
Our substantial indebtedness poses important consequences to you, including
the risks that:
. we will use a substantial portion of our cash flow from operations to pay
principal and interest on our debt, thereby reducing the funds available
for working capital, capital expenditures, acquisitions, research and
development and other general corporate purposes;
. our indebtedness may limit our ability to obtain additional financing on
satisfactory terms and to otherwise fund working capital, capital
expenditures, acquisitions, research and development, and other general
corporate requirements;
14
. our level of indebtedness may make us more vulnerable to economic
downturns and may limit our ability to withstand competitive pressures;
. our debt may bear interest at variable rates which could create higher
debt service requirements if market interest rates increase; and
. our failure to comply with the financial and other covenants applicable
to our debt could result in an event of default, which, if not cured or
waived, could have a material adverse effect on us.
If we successfully implement our business and operating strategies, we
believe we will have enough capital to carry on our business and service our
debt requirements for the foreseeable future. However, if we cannot generate
sufficient cash flow from operations to meet our obligations, we may be forced
to reduce or delay capital expenditures, sell assets, restructure or refinance
our debt, or seek additional equity capital. We cannot assure you that any of
these remedies would be satisfactory or could be effected on satisfactory
terms, if at all. Our ability to pay principal and interest on the exchange
notes and to satisfy our other debt obligations will depend on our future
operating performance. Our operating performance will be affected by prevailing
economic conditions and financial, business and other factors which may be
beyond our control. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Description of Other Indebtedness" and "Description of Exchange Notes."
Your Exchange Notes Will Be Subordinate to Our Senior Debt
Before paying principal and interest on the exchange notes, we must first
make payments on any of our existing and future senior debt that is in default,
including all outstanding amounts under our senior credit facility. As of
September 30, 1998, as adjusted for the offering of the old notes, we would
have had approximately $262.1 million of senior indebtedness. In addition, we
would have had approximately $52.9 million of additional borrowing availability
under our senior credit facility.
Substantially all of our real and personal property we use in our business
operations secures our obligations under our senior credit facility. If we
default on any payments required under any of our secured debt, the secured
lenders could declare all amounts outstanding, together with accrued and unpaid
interest, immediately due and payable. If we are unable to repay amounts due,
the lenders could proceed against the collateral securing the debt. If the
lenders proceed against any of the collateral, we may not have enough assets
left to pay you or other noteholders. Moreover, if we become bankrupt or
similarly reorganize, we may not be able to use our assets to pay you or other
noteholders until after we pay all of our senior debt. In addition, the senior
credit facility may prohibit us from paying amounts due on the exchange notes,
or from purchasing, redeeming or otherwise acquiring the exchange notes if a
default exists under our senior debt. None of our non-United States
subsidiaries will guarantee the exchange notes and the exchange notes will be
effectively subordinated in right of payment to all debt and other liabilities
(including trade payables) of these subsidiaries. See "Description of Exchange
Notes--Subordination of the Exchange Notes and Note Guarantees."
Our Indebtedness May Prevent Us from Engaging in Certain Beneficial Activities
Our senior credit facility and the indenture governing the notes each contain
a number of significant covenants. These covenants could limit or restrict our
ability to:
. incur additional debt;
15
. pay dividends and make distributions;
. repurchase securities;
. make certain investments;
. create liens;
. transfer or sell assets;
. enter into transactions with affiliates;
. issue or sell stock of subsidiaries; or
. merge or consolidate.
These limitations and restrictions may adversely affect our ability to
finance our future operations or capital needs or engage in other business
activities that may be in our best interests. In addition, our senior credit
facility also requires us to comply with certain financial ratios. Our ability
to comply with these ratios may be affected by events beyond our control. If we
breach any of the covenants in the senior credit facility or the indenture, or
if we are unable to comply with the required financial ratios, we may be in
default under the senior credit facility and the indenture. If we default under
the senior credit facility, the lenders can declare all borrowings outstanding,
including accrued interest and other fees, due and payable. If we use all of
our available cash to repay borrowings under the senior credit facility, we may
not be able to make payments on the exchange notes. See "Description of Other
Indebtedness" and "Description of Exchange Notes."
We May Not Have Sufficient Funds to Repay the Exchange Notes Upon a Change of
Control
If we experience certain changes of control, you will have the right to
require us to purchase your exchange notes at a purchase price equal to 101% of
the principal amount of your exchange notes plus accrued and unpaid interest.
In such circumstances, we may also be required to (1) repay our outstanding
senior debt or (2) obtain our lenders' consent to our purchase of the exchange
notes. If we cannot repay our debt or cannot obtain the needed consents, we may
be unable to purchase the exchange notes. This would be an event of default
under the indenture. Upon a change of control, we cannot guarantee that we will
have sufficient funds to make any debt payment (including purchases of the
exchange notes) as described above. To avoid default, we would try to refinance
our debt. We cannot guarantee, however, that such refinancing, if available,
would be on favorable terms. See "Description of Exchange Notes--Change of
Control."
The events that qualify as a change of control under the indenture may also
be events of default under the senior credit facility or other indebtedness. An
event of default under the senior credit facility would permit our lenders to
accelerate our indebtedness. If we cannot repay such borrowings when due, the
lenders could proceed against the collateral securing the debt.
The Exercise of Put Rights May Adversely Affect Our Operating Performance
Our affairs and the relationship between Owens Corning and Porcher
Industries, our owners, are governed by an operating agreement. Under this
operating agreement, Owens Corning and Porcher Industries each have the right
to "put" their respective ownership interests to us at any time beginning on
September 30, 2003. Funding the put rights would require us to borrow funds.
The operating agreement and the indenture impose certain financial tests and
restrictions on our ability to borrow to fund the put rights. If we satisfy
those financial tests, we would be obligated to purchase
16
the ownership interest that has been tendered. Even if we satisfy the financial
tests, funding a put right may have a material adverse effect on our financial
condition, results of operations and cash flows. See "Operating Agreement."
We Have Only Operated Independently of Owens Corning Since September 30, 1998
and Remain Dependent Upon Owens Corning to Provide Certain Materials and
Services
Prior to September 30, 1998, we operated as a business unit of Owens Corning
and, therefore, we have a limited independent financial or operating history.
We have historically been dependent upon Owens Corning to provide us with
certain raw materials and capital equipment, in addition to various services,
including research and development, legal, accounting, financial, data
processing, auditing, treasury, cash management, human resource and
administrative services. In connection with the formation transactions, we
entered into supply agreements with Owens Corning under which Owens Corning
continues to provide certain raw materials, capital equipment and various
services to us for limited periods of time. During the terms of these
agreements, our operating success and viability are dependent in part upon the
performance by Owens Corning of its obligations under the agreements. We do not
expect to extend these agreements. Prior to their expiration, we will need to
arrange for sources of raw materials and other equipment and establish
independent operational, management, financial and information systems and
controls. We cannot assure you that we will be able to successfully transition
these services or operate our business independently of Owens Corning. See
"Certain Relationships and Related Transactions."
In addition, some of the capital equipment used in the production process of
glass yarns are not widely manufactured, particularly bushings. Bushings are
heat-resistant platinum and rhodium trays through which molten glass is passed
to form glass filaments. Our bushings are currently manufactured and
periodically reconditioned by Owens Corning. Owens Corning has agreed to
continue to provide bushings and reconditioning services to us for seven years.
See "Certain Relationships and Related Transactions." Only a limited number of
companies are qualified to manufacture and recondition bushings. We would incur
significant costs and a transition period of several months if we switched to
another supplier of bushings. In addition, platinum and rhodium, which are the
primary elements used in the manufacturing and reconditioning of bushings, are
subject to shortages in supply. Any failure of Owens Corning to provide us
bushings or reconditioning services for the bushings or a supply shortage of
platinum or rhodium could have a material adverse effect on our business,
financial condition and results of operations.
We May Have Conflicts of Interest With Our Equityholders
Porcher Industries, through wholly owned subsidiaries, owns a 51% ownership
interest in AGY. A wholly owned subsidiary of Owens Corning owns the remaining
49% ownership interest. As a result of its controlling interest, Porcher
Industries elects a majority of our directors and appoints new management.
Consequently, Porcher Industries has the ability to control our policies and
operations. Circumstances may occur in which the interests of Porcher
Industries and Owens Corning, as our principal equityholders, could conflict
with your interests as debtholders. See "--The Exercise of Put Rights May
Adversely Affect Our Operating Performance," "Management--Executive Officers,
Directors and Other Key Employees," "Security Ownership" and "Certain
Relationships and Related Transactions."
Porcher Industries (including its affiliates, such as BGF Industries) is also
our largest customer. Although we believe that Porcher Industries intends to
operate AGY independently from its other
17
operations, this relationship may give rise to potential conflicts of interest.
The potential conflicts could include the perception by our other customers
that we may provide favorable pricing terms or disclose confidential customer
information to Porcher Industries, which could adversely affect our
relationships with our other customers. If these potential conflicts of
interest adversely affect such relationships, any loss of business resulting
from such conflicts could have a material adverse effect on our business,
financial condition and results of operations.
A Downturn in the Electronics Industry or the Movement of Electronics Industry
Production Outside of North America Could Reduce Demand for Our Products
We sell our products for use in a wide range of applications in the
electronic, industrial and construction markets. The electronics industry
represents the glass yarn industry's largest market. Any downturn in the
electronics industry, which is susceptible to cyclical and general economic
downturns, would reduce demand for glass yarns industry-wide. A reduction in
overall demand would likely result in increased competition between us and
other producers of glass yarns for customers in other end-use markets and may
cause us to reduce the price of our products which would adversely affect our
profitability.
Primarily as a result of economic turmoil in Asia, demand for electronic
products began to decrease in late 1997 and early 1998. We began to experience
decreased demand for fine yarns in the second quarter of 1998 as both weavers
and laminators reduced their inventory to match reduced demand for electronic
products. This trend continued through the end of 1998. If the demand for fine
yarns does not stabilize or improve, our sales and profitability could be
adversely affected.
In addition, due to the recent economic turmoil in Asia and the resulting
fall in currency exchange rates, imports of goods such as rigid laminates and
printed circuit boards from Asia have increased. This has negatively affected
demand for heavyweight glass fiber fabrics used in the manufacture of
electronic products and produced domestically by many of our customers. The
result was a decrease in demand for our heavy yarns in North America. To the
extent the increased competition from Asian laminators and printed circuit
board manufacturers continues to negatively affect demand for glass fiber
fabrics in North America, our sales and profitability could be adversely
affected.
Our Operating Performance is Dependent Upon a Limited Number of Customers
We depend upon a limited number of large customers for a majority of our
sales. Sales to our top ten customers accounted for approximately 64% of our
net sales in 1997 and approximately 63% of our net sales during the first nine
months of 1998. Sales to our largest customer, Porcher Industries (including
its affiliates, such as BGF Industries), totaled approximately 21% in 1997 and
approximately 19% during the first nine months of 1998. A decrease in business
from, or the loss of, any of our major customers could have a material adverse
effect on our business, financial condition and results of operations.
In addition, our future business, financial condition and results of
operations will depend to a significant extent upon the commercial success of
our major customers and their continued willingness to purchase our products.
Any significant downturn in the business of our major customers could cause
them to reduce or discontinue their purchases from us. This could have a
material adverse effect on our business, financial condition and results of
operations. See "--A Downturn in the Electronics Industry or the Movement of
Electronics Industry Production Outside of
18
North America Could Reduce Demand For Our Products," "--We May Have Conflicts
of Interest With Our Equityholders" and "Business--Marketing and Sales."
We Depend on a Stable Supply of Borates
Borates are one of the primary raw materials used in the production of glass
yarns. We use borates in the production processes at our Aiken facility, which
are sourced from a supplier in Turkey that is owned by the Turkish government.
This supply of borates could be interrupted for a number of reasons, including
political instability in Turkey. Our supply of borates from Turkey is sourced
through Owens Corning under a supply agreement which provides that, if there is
a limited or reduced supply of borates, Owens Corning will allocate a portion
of such supply to us. Any failure of Owens Corning to perform under the supply
agreement or any dispute relating to the allocation of a limited borates supply
could interrupt our supply of borates. Boric acid is considered by some to be a
cost-effective substitute for borates. In order to use boric acid as a
substitute, we would have to alter our production processes. This could take
several months to accomplish, and would require moderate capital expenditures.
Our Customers Could Switch to Other Suppliers of Glass Yarns
Our industry is highly competitive. We believe that the principal competitive
factors affecting the glass yarns industry include:
. quality, performance, pricing and consistency of products;
. responsiveness to customer requirements; and
. ability to maintain stable customer relationships.
Our primary competitors are PPG Industries Inc., Vetrotex, a division of
Compagnie de Saint Gobain, Nitto Boseki Co. and Nippon Electric Glass Co., Ltd.
Some of our competitors may have greater financial and other resources than we
do. We cannot assure you that we will be able to continue to compete
effectively in the future or that other competitors will not enter the glass
yarns industry.
We and PPG are the only major producers of glass yarns with production
facilities in North America. The establishment by one of our competitors of
production facilities in North America or the increase in production capacity
in North America by PPG could materially adversely affect our North American
market share. In this regard, Vetrotex has announced that it intends to build a
plant in Mexico for the production of glass yarns, primarily for use in the
electronics market. Vetrotex has publicly stated that it expects this new plant
to begin operations in the second half of 1999.
A Disruption at One of Our Facilities Would Significantly Decrease Production
A significant portion of our net sales are currently derived from our
production facilities located in Aiken, South Carolina and Huntingdon,
Pennsylvania. The Aiken plant accounted for 61% of our total net sales in 1997
and the Huntingdon plant accounted for 26% of our total net sales in 1997. The
remaining 13% of our total net sales in 1997 was sourced from Owens Corning's
Battice, Belgium and Guelph, Canada facilities. We opened a co-location
facility with BGF Industries in South Hill, Virginia in June 1998. We expect it
to become fully operational in the first quarter of 1999. If there is a
significant delay in this timing or in the qualification of yarns produced at
this facility, our business, financial condition and results of operations
could be adversely affected.
19
Our facilities are designed to produce specific products. Consequently, some
products produced at one facility may not be produced at another facility. A
temporary or extended interruption in operations at any one of our facilities,
for any reason, including from labor strikes or a natural disaster, whether or
not covered by insurance, could have a material adverse effect on our business,
financial condition and results of operations. See "Business--Manufacturing
Facilities," "Business--Employees" and "Certain Relationships and Related
Transactions."
Our Foreign Sales Are Exposed to Risk of Currency Fluctuations
In 1997, we derived approximately 35% of our net sales from products sold
outside the United States. The United States dollar value of these sales
sometimes varies with currency exchange rate fluctuations. We may therefore be
exposed to exchange losses as a result of such fluctuations that could have a
material adverse effect on our business, financial condition, results of
operations and our ability to pay interest and principal on our debt. Although
we do not currently have a formal policy regarding hedging our currency risks,
we continually evaluate the necessity for entering into currency hedging
agreements to protect us from such risks; however, any such hedging agreements
may not be sufficient to eliminate risks relating to currency fluctuation.
In addition, on January 1, 1999, eleven of the fifteen member countries of
the European Union adopted the Euro as their common legal currency and
established fixed conversion rates between their existing sovereign currencies
and the Euro. We cannot assure you that this conversion will not have a
material adverse effect on our business, operations and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Changes in Government Regulations Could Reduce Demand for Our Products
Currently, the importation of glass yarns into the United States is not
subject to import regulations. However, the importation of glass fabrics
containing glass yarn is subject to import quotas, restrictions, duties and
tariffs. To the extent that these import regulations protect domestic producers
of glass fabrics, who are our primary customers, reductions in the level of
restrictions could adversely affect these customers and, consequently, our
business, financial condition and results of operations.
Issuance of the Old Notes and Any Note Guarantee May Be Subject to Fraudulent
Conveyance Laws
Under applicable provisions of the U.S. Bankruptcy Code or comparable
provisions of state fraudulent transfer or conveyance laws, if we, at the time
we issued the old notes:
(1) incurred such indebtedness with the intent to hinder, delay or
defraud creditors; or
(2) received less than reasonably equivalent value or fair consideration
for incurring such indebtedness, and
. were insolvent at the time of incurrence;
. were rendered insolvent by reason of such incurrence (and the
application of the proceeds thereof);
. were engaged or were about to engage in a business or transaction for
which our remaining assets constituted unreasonably small capital to
carry on our businesses; or
20
. intended to incur, or believed that we would incur, debts beyond our
ability to pay such debts as they matured,
then, in each case, a court of competent jurisdiction could (1) void, in whole
or in part, the notes, and direct the repayment of any amounts paid thereunder
to our creditors, (2) subordinate the notes to our obligations to our existing
and future creditors, or (3) take other actions detrimental to the holders of
the notes. The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, we would be
considered insolvent if the sum of our debts, including contingent liabilities,
was greater than all of our assets at fair valuation or if the present fair
saleable value of our assets was less than the amount that would be required to
pay the probable liability on our existing debts, including contingent
liabilities, as they become absolute and matured. A note guarantee, at the time
it is issued by one of our subsidiaries, would be subject to the same
fraudulent transfer or conveyance laws as the notes.
We May Suffer Significant Costs to Make Our Systems "Year 2000" Compliant
The term "year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and process control equipment as the year
2000 is approached and reached. These problems generally arise from the fact
that most of the world's computer hardware and software have historically used
only two digits to identify the year in a date, often meaning that the computer
will fail to distinguish dates in the "2000s" from dates in the "1900s." These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field.
At the beginning of 1998, the management of our information systems and
research and development groups began to assess the year 2000 issue. These
persons have developed and are currently implementing a comprehensive program
to make our information technology assets and non-information technology assets
year 2000 compliant.
We have identified several key systems which need to be replaced because of
year 2000 problems. The systems to be replaced include all financial and order
entry/planning systems and certain process control systems. Replacement of our
financial and order entry/planning systems is necessary to complete the
separation from Owens Corning's computer systems. We expect to begin
implementation and internal testing of these replacement systems between March
1 and September 30, 1999. The systems that will not be replaced will be
upgraded to become year 2000 compliant on the same schedule as the system
replacements.
In addition to internal systems, we are dependent on external suppliers,
including Owens Corning, for the delivery of raw materials and energy. We are
contacting these external suppliers to evaluate their year 2000 compliance
plans and state of readiness and determine whether a year 2000-related event
will impede the ability of such suppliers to continue to provide goods and
services to us. We have not received responses from all of our suppliers as to
the status of their year 2000 programs. We cannot assure you that our key
suppliers will not suffer a year 2000 business disruption. If any of our key
suppliers suffers a year 2000 business disruption, our business, financial
condition and results of operations may be materially adversely affected.
We estimate that we have spent approximately $0.4 million in software and
external consulting costs to address the year 2000 issue. We estimate that our
total year 2000 compliance program will
21
cost approximately $3.0 million (excluding the cost of internal personnel). We
believe we can fund these costs from cash flow from operations. These costs
also include the cost to establish and test the independent replacement
computer systems discussed above. We cannot assure you that our year 2000
compliance program will not cost significantly more than we currently estimate.
Failure to complete remediation and replacement programs as scheduled could
impact our ability to properly manufacture our products and conduct normal
business operations. If this were to occur, we could experience a material
adverse impact on our financial condition and results of operation. Likewise,
failure of key suppliers to achieve compliance could adversely impact our
ability to manufacture products.
Risks to completing the year 2000 compliance program include the availability
of resources, our ability to discover and correct the potential year 2000
specific problems that could have a serious impact on specific systems,
equipment or facilities and the ability of suppliers and vendors and other
third parties to make their systems year 2000 compliant.
Our Operating Performance is Dependent Upon Good Relations with Our Employees
Labor unions represent employees at both the Aiken facility and the
Huntingdon facility. The collective bargaining agreement covering workers at
the Aiken facility expires on May 2, 1999 and the agreement covering workers at
the Huntingdon facility expires on October 31, 1999. We cannot assure you that
we will be able to maintain good relationships with these labor unions or that
we will be able to successfully negotiate new collective bargaining agreements
on satisfactory terms in the future. If we fail to maintain good relationships
with the labor unions or fail to negotiate satisfactory collective bargaining
agreements, we could face labor strikes or stoppages that would adversely
affect our business, financial condition and results of operations. See
"Business--Employees."
We May Be Responsible for Environmental and Safety and Health Costs
Various federal, state and local environmental laws and requirements govern
the use of our facilities. Such laws and requirements govern: (1) discharges to
air and water, (2) the handling and disposal of solid and hazardous substances
and wastes and (3) the clean-up of contamination from releases of hazardous
substances at our facilities and off-site disposal locations. Laws and
requirements relating to workplace safety and worker health also govern our
operations. These laws and requirements establish formaldehyde, asbestos and
noise standards and regulate the use of hazardous chemicals in the workplace.
We have taken, and will continue to take, steps to comply with these laws and
requirements. We believe, based upon currently available information, that
complying with environmental and health and safety laws and requirements will
not require material capital expenditures in the foreseeable future. However,
we cannot assure you that complying with the foregoing environmental or health
and safety laws and requirements will not adversely affect our business,
financial condition and results of operations. Moreover, we cannot assure you
that future laws, ordinances or regulations will not give rise to additional
compliance or remediation costs which could have a material adverse effect on
our business, financial condition or results of operations.
You Cannot Be Sure That an Active Trading Market Will Develop for the Exchange
Notes
The old notes were offered to a small number of institutional buyers and are
eligible for trading in the PORTAL Market. The exchange notes will be a new
issue of securities for which there is no
22
existing trading market. We cannot assure you as to the liquidity of markets
that may develop for the exchange notes, your ability to sell the exchange
notes or the price at which you would be able to sell the exchange notes. If
such markets were to exist, the exchange notes could trade at prices that may
be lower than their principal amount or purchase price depending on many
factors, including prevailing interest rates and the markets for similar
securities. First Union Capital Markets and Warburg Dillon Read LLC have
advised us that they currently intend to make a market with respect to the
exchange notes. However, they are not obligated to do so, and any market making
with respect to the exchange notes may be discontinued at any time without
notice. In addition, such market making activity may be limited during the
pendency of the exchange offer or the effectiveness of a shelf registration
statement in lieu thereof. We do not intend to apply for listing of the
exchange notes on any national securities exchange or on Nasdaq. The liquidity
of, and trading market for, the exchange notes also may be adversely affected
by changes in the market for high yield securities and by changes in our
financial performance or prospects or in the prospects for companies in our
industry generally. As a result, you cannot be sure that an active trading
market will develop for the exchange notes.
23
USE OF PROCEEDS
AGY will not receive any cash proceeds from the exchange of old notes
pursuant to the exchange offer. The net proceeds to AGY from the sale of the
old notes were approximately $141.9 million, after deducting the initial
purchasers' discount and expenses of the offering. AGY used the net proceeds
from the offering, together with additional borrowings under AGY's $315.0
million senior credit facility, to repay all debt outstanding under AGY's
$150.0 million senior subordinated credit facility, which was incurred in
connection with the formation transactions. For a description of certain terms
of the senior credit facility, see "Description of Other Indebtedness--Senior
Credit Facility."
CAPITALIZATION
The following table sets forth the capitalization of AGY as of September 30,
1998 and as adjusted to give effect to the issuance and sale of the old notes
and the application of the net proceeds therefrom as described in "Use of
Proceeds."
The following table should be read in conjunction with the historical
financial statements of Owens Corning's glass yarns and specialty materials
business (the "Business"), the unaudited pro forma condensed financial
information, the related notes and the other information contained elsewhere in
this prospectus. See "Where You Can Find More Information," "Unaudited
Condensed Pro Forma Financial Information," "Selected Historical Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
September 30, 1998
-------------------------
Actual As Adjusted
----------- -------------
(dollars in thousands)
Long-term debt (including current portion):
Senior Credit Facility(/1/)......................... $ 254,000 $ 262,125
Senior Subordinated Credit Facility................. 150,000 --
9 7/8% Senior Subordinated Notes due 2009(/2/)...... -- 147,000
----------- -----------
Total long-term debt.............................. 404,000 409,125
Members' interest(/3/).............................. 15,932 14,863
----------- -----------
Total capitalization.............................. $ 419,932 $ 423,988
=========== ===========
- --------
(1) As of September 30, 1998, after giving effect to the offering of the old
notes, AGY would have had approximately $52.9 million of borrowing
availability under the senior credit facility. See "Description of Other
Indebtedness--Senior Credit Facility."
(2) Net of original issue discount of $3.0 million.
(3) Reflects (i) the write-off of fees of $3.8 million paid by AGY in
connection with the senior subordinated credit facility which was
originally capitalized as deferred financing costs and (ii) the $2.7
million paid to Owens Corning by Porcher Industries subsequent to September
30, 1998 as a purchase price adjustment in connection with the purchase by
Porcher Industries of a 51% interest in AGY.
24
UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed pro forma financial statements are based
upon the historical financial statements of the Business. The unaudited pro
forma adjustments are based upon available information and certain assumptions
that management of AGY believes are reasonable. These pro forma financial
statements have been prepared to illustrate the effects of the formation
transactions and the offering of the old notes.
The unaudited pro forma condensed balance sheet as of September 30, 1998 has
been prepared as if the formation transactions and the offering of the old
notes had occurred on that date. The unaudited pro forma condensed statement of
operations for the year ended December 31, 1997 and for the nine months ended
September 30, 1997 and September 30, 1998 give effect to the formation
transactions and the offering of the old notes as if they had occurred on
January 1, 1997.
The unaudited pro forma condensed financial statements do not purport to be
indicative of what AGY's financial position or results of operations would
actually have been had the formation transactions and the offering of the old
notes been completed on such dates, or to project AGY's financial position or
results of operations for any future period. The pro forma financial
information and the notes thereto should be read in conjunction with the
historical financial statements of the Business and the other financial
information included elsewhere in this prospectus.
The accompanying pro forma financial statements do not include a provision
for income taxes because AGY is a limited liability company and is therefore
not subject to income tax.
The acquisition of the 51% interest in AGY by Porcher Industries was
accounted for as a partial purchase business combination in accordance with the
provisions of APB No. 16 "Business Combinations" and EITF Issue No. 88-16,
"Basis in Leveraged Buyout Transactions" and is reflected as such in the
historical September 30, 1998 financial statements. The final allocation of the
purchase price is subject to further review by management and is therefore
subject to change. However, that allocation is not expected to differ
materially from the initial allocation.
25
ADVANCED GLASSFIBER YARNS LLC
PRO FORMA BALANCE SHEET
at September 30, 1998
Historical Pro Forma
---------- ----------------------------------------
Post Closing
AGY Adjustment The Offering AGY
---------- ------------ ------------ --------
(dollars in thousands)
Current assets:
Cash and cash
equivalents............. $ -- $147,000 (/1/) $ --
3,000 (/2/)
(150,000)(/3/)
Accounts receivables,
net..................... 33,393 33,393
Inventories.............. 24,378 24,378
Other current assets..... 1,457 1,457
-------- --------
Total current assets... 59,228 59,228
-------- --------
Net property, plant and
equipment................. 114,098 114,098
Alloy metals............... 35,360 35,360
-------- --------
Total net property,
plant and equipment... 149,458 149,458
Intangible assets.......... 227,678 $2,681(/9/) 230,359
Other assets............... 9,112 (3,750)(/3/) 10,487
5,125 (/1/)
-------- --------
Total assets........... $445,476 $449,532
======== ========
Current liabilities:
Current portion of long-
term debt............... $ 12,750 $ 12,750
Accrued liabilities...... 7,732 7,732
Due to affiliates........ 3,012 3,012
-------- --------
Total current
liabilities........... 23,494 23,494
Pension and other employee
benefit plans............. 14,800 14,800
Long term debt, less
current portion........... 391,250 147,000 (/1/) 396,375
3,000 (/2/)
(150,000)(/3/)
5,125 (/1/)
Total liabilities...... 429,544 434,669
-------- --------
Members' interest.......... 15,932 2,681(/9/) (3,750)(/3/) 14,863
-------- --------
Total liabilities and
members' interest..... $445,476 $449,532
======== ========
26
ADVANCED GLASSFIBER YARNS LLC
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
Historical Pro Forma
---------- ---------------------------------------
Formation
AGY Transactions The Offering AGY
---------- ------------ ------------ --------
(dollars in thousands)
Net sales................. $277,357 $277,357
Cost of sales............. 182,366 $3,766 (/4/) 191,256
-------- --------
2,844 (/5/)
2,280 (/8/)
-------- --------
Gross margin.............. 94,991 86,101
Selling, general and
administrative........... 14,813 9,214 (/7/) 24,027
-------- --------
Income from operations.. 80,178 62,074
Interest expense.......... -- 37,890 (/6/) $1,340(/6/) 39,230
Other income.............. (2,688) (552)(/4/) (3,240)
-------- --------
Income before
extraordinary item..... $ 82,866 $ 26,084
======== ========
27
ADVANCED GLASSFIBER YARNS LLC
PRO FORMA STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1997
Historical Pro Forma
---------- ---------------------------------------
Formation
AGY Transactions The Offering AGY
---------- ------------ ------------ --------
(dollars in thousands)
Net sales................. $209,580 $209,580
Cost of sales............. 138,045 $2,742 (/4/) 144,630
-------- --------
2,133 (/5/)
1,710 (/8/)
-------- --------
Gross margin.............. 71,535 64,950
Selling, general and
administrative expenses.. 11,110 6,910 (/7/) 18,020
-------- --------
Income from operations.. 60,425 46,930
Interest expense.......... -- 28,278 (/6/) $1,144(/6/) 29,422
Other income.............. (2,026) (414)(/4/) (2,440)
-------- --------
Income before
extraordinary item..... $ 62,451 $ 19,948
======== ========
28
ADVANCED GLASSFIBER YARNS LLC
PRO FORMA STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998
Historical Pro Forma
---------- --------------------------------------
Formation
AGY Transactions The Offering AGY
---------- ------------ ------------ --------
(dollars in thousands)
Net sales.................. $205,248 $205,248
Cost of sales.............. 134,820 $4,631 (/4/) 142,436
-------- --------
1,275 (/5/)
1,710 (/8/)
-------- --------
Gross margin............... 70,428 62,812
Selling, general and
administrative............ 11,487 6,910 (/7/) 18,397
Restructuring costs........ 2,034 2,034
-------- --------
Income from operations... 56,907 42,381
Interest expense........... -- 29,402 (/6/) $20(/6/) 29,422
Other income............... (2,328) (139)(/4/) (2,467)
-------- --------
Net income............... $ 59,235 $ 15,426
======== ========
29
ADVANCED GLASSFIBER YARNS LLC
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(1) Reflects (i) the receipt of $147.0 million of gross proceeds from the
sale of the old notes and (ii) the estimated fees and expenses payable in
connection therewith.
(2) Reflects the receipt of $3.0 million of gross proceeds from borrowings
under the senior credit facility.
(3) Reflects (i) the repayment of $150.0 million of borrowings under the
senior subordinated credit facility and (ii) the write-off of fees of $3.8
million paid by AGY in connection with the senior subordinated credit facility
which was originally capitalized as deferred financing costs.
(4) Reflects the effects of a number of agreements to provide certain raw
materials, capital equipment and services to AGY between AGY and Owens Corning
as described in "Certain Relationships and Related Transactions":
Nine Months Ended
Year Ended ------------------------------------
December 31, September 30, September 30,
1997 1997 1998
------------ ---------------------- -------------
(dollars in thousands)
Glass marbles supply
agreement(a)............ $2,273 $1,610 $1,881
Borates supply
agreement(b)............ 150 113 113
Alloy and bushing
fabrication(c).......... 2,136 1,711 1,534
Battice facility supply
agreements(d)........... (793) (692) 1,103
------ ------ ------
Pro forma effect on
cost of sales......... $3,766 $2,742 $4,631
====== ====== ======
Sliver supply
agreement(e)............ $ (552) $ (414) $ (139)
====== ====== ======
Pro forma effect on
other income(f)....... $ (552) $ (414) $ (139)
====== ====== ======
--------
(a) Owens Corning has historically provided glass marbles to AGY at cost.
Pursuant to an agreement with Owens Corning, prices are set to earn a
pre-determined margin for Owens Corning.
(b) Owens Corning buys borates from a third party and has historically
supplied borates to AGY at cost. Pursuant to an agreement with Owens
Corning, prices are set at cost plus transport, process and terminal
fees plus an annual administrative charge of $150,000.
(c) Owens Corning has historically provided alloy and bushing fabrication
services to AGY at cost. Pursuant to an agreement with Owens Corning,
these services are provided to AGY at contractually agreed upon prices.
(d) Owens Corning's Battice, Belgium manufacturing facility produces
certain glass yarn products for AGY's customers. AGY has entered into
an agreement with Owens Corning to purchase glass yarns from the
Battice facility at prices equal to AGY's net sales prices less a fixed
margin.
(e) AGY has historically charged Owens Corning the actual manufacturing
cost of sliver. Pursuant to an agreement with Owens Corning, AGY
supplies sliver to Owens Corning at market prices.
(f) Owens Corning produces Low Tex Type 30 for certain customers of AGY.
AGY intends to enter into agreements with Owens Corning to purchase
these products at AGY's net sales price less a fixed margin, but the
financial impact has not been included in these pro formas.
(5) Reflects the excess of the net pension expense and net post retirement
expense over the amounts recorded historically.
(6) Reflects the interest expense and amortization of the deferred financing
costs associated with the borrowings under the senior credit facility and the
senior subordinated credit facility and the application of the net proceeds
therefrom (the "Financings") and the old notes, as if the Financings and the
offering of the old notes had been consummated as of January 1, 1997.
30
ADVANCED GLASSFIBER YARNS LLC
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS--(Continued)
(7) Reflects amortization of the intangible assets arising from the
acquisition by Porcher Industries of a 51% interest in AGY, based upon a 25-
year life.
(8) Reflects additional depreciation and amortization arising from the
partial step-up in basis of plant and equipment to its estimated fair value.
(9) Reflects the additional amount paid to Owens Corning by Porcher
Industries pursuant to a purchase price adjustment agreed to by Owens Corning
and Porcher Industries subsequent to September 30, 1998 in connection with the
sale of a 51% interest in AGY.
31
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected historical financial information of
the Business which, prior to the contribution of the Business to AGY by Owens
Corning (the "contribution"), was operated as a business unit of Owens Corning.
The selected historical financial information for each of the three fiscal
years in the period ended December 31, 1997 is derived from the audited
financial statements of the Business, which appear elsewhere herein. The
selected historical financial information for each of the fiscal years in the
two-year period ended December 31, 1994 and for the nine months ended September
30, 1997 and September 30, 1998 is derived from unaudited financial statements
of the Business. The historical financial statements (from which the selected
historical financial information has been derived) have been derived from the
historical financial statements of Owens Corning. The historical statements of
operations have not been adjusted to reflect the effect of the supply
agreements and other transactions to be entered into between AGY and Owens
Corning in connection with the formation transactions. In the opinion of
management, the unaudited financial information includes all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation of such data. Operating results for the nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the entire fiscal year. The data presented below should be read in
conjunction with the financial statements of the Business, including the
related notes thereto, included elsewhere in this prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Index to Financial Statements."
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- -------- -------- -------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
(dollars in thousands)
Statement of Operations
Data:
Net sales................ $246,832 $251,922 $272,395 $274,979 $277,357 $209,580 $205,248
Cost of goods sold....... 189,796 175,047 187,153 180,343 182,366 138,045 134,820
-------- -------- -------- -------- -------- -------- --------
Gross profit............. 57,036 76,875 85,242 94,636 94,991 71,535 70,428
Selling, general and
administrative expense.. 12,565 13,157 13,748 14,345 14,813 11,110 11,487
Restructuring costs(1)... -- -- -- -- -- -- 2,034
-------- -------- -------- -------- -------- -------- --------
Operating income......... 44,471 63,718 71,494 80,291 80,178 60,425 56,907
Other income, net........ (1,326) (1,354) (3,041) (3,003) (2,688) (2,026) (2,328)
-------- -------- -------- -------- -------- -------- --------
Income before taxes...... 45,797 65,072 74,535 83,294 82,866 62,451 59,235
Provision for income
taxes(2)................ 17,535 25,834 29,594 33,051 32,540 24,481 16,226
-------- -------- -------- -------- -------- -------- --------
Income before cumulative
effect of accounting
change.................. 28,262 39,238 44,941 50,243 50,326 37,970 43,009
Cumulative effect of
change in accounting for
post-employment
benefits(3)............. -- 5,600 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income............... $ 28,262 $ 33,638 $ 44,941 $ 50,243 $ 50,326 $ 37,970 $ 43,009
======== ======== ======== ======== ======== ======== ========
Other Data:
Depreciation and
amortization............ $ 7,864 $ 8,167 $ 8,604 $ 8,233 $ 8,305 $ 6,128 $ 6,394
Capital expenditures..... 12,811 13,963 8,458 15,314 8,324 5,744 13,509
EBITDA(4)................ 53,661 73,239 83,139 91,527 91,171 68,579 65,629
EBITDA margin(4)......... 21.7% 29.1% 30.5% 33.3% 32.9% 32.7% 32.0%
Ratio of earnings to
fixed charges(5)........ 128x 155x 164x 136x 78x 78x 67x
Balance Sheet Data(6) (at
period end):
Working capital.......... $ 11,052 $ (1,137) $ (1,493) $ (4,944) $(11,872) $ 19,542 $ 35,734
Total assets............. 147,198 157,185 159,414 163,839 153,961 172,744 445,476
Total debt............... -- -- -- -- -- -- 404,000
Net assets............... 33,703 25,439 31,899 36,850 30,940 59,820 15,932
32
- --------
(1) During the first quarter of 1998, AGY recorded a $2.0 million restructuring
charge related to personnel reductions at the Aiken and Huntingdon
facilities.
(2) AGY was established as a limited liability company on July 1, 1998, and is
not subject to income tax, and therefore the data presented above does not
reflect income tax expense for any period subsequent to July 1, 1998.
Income tax expense reflected in the statement of operations for the nine
months ended September 30, 1998 reflected in the statement of operations
for the nine months ended September 30, 1998 represents the estimated
income tax expense attributable to the results of operations of the
Business through June 30, 1998.
(3) Effective January 1, 1994, AGY adopted Statement of Accounting Standards
No. 112, "Employers Accounting for Postemployment Benefits." The cumulative
effect of this change in accounting policy was an undiscounted charge of
$5.6 million net of related income taxes of $3.6 million.
(4) EBITDA is defined as income (loss) before income taxes, interest expense,
depreciation and amortization expense and cumulative effect of accounting
change. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness;
however, EBITDA should not be considered as an alternative to net income
(loss) as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles.
EBITDA margin represents EBITDA as a percentage of net sales.
(5) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income taxes plus fixed charges. Fixed charges consist
of interest expense, whether expensed or capitalized and that portion of
rental expense estimated to be attributable to interest.
(6) The historical balance sheet data for the periods 1993 through September
30, 1997 have not been adjusted to reflect the fact that Owens Corning did
not contribute deferred tax assets to AGY and that Owens Corning retained
the following liabilities: income taxes payable, trade accounts payable and
post-retirement health care benefits for certain employees of AGY. The
September 30, 1998 balance sheet data reflect the following: the
elimination of assets not contributed and liabilities not assumed by AGY,
the accounting for the purchase by Porcher Industries of the 51% interest
in AGY and the Financings.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
AGY is a Delaware limited liability company formed by Owens Corning to own
and operate its glass yarns and specialty materials business. On July 1, 1998,
Owens Corning contributed substantially all of the assets and certain
liabilities of the Business to AGY. On September 30, 1998, Owens Corning sold a
51% interest in AGY to a wholly owned subsidiary of Porcher Industries. Owens
Corning retained a 49% interest in AGY.
Prior to September 30, 1998, the Business was operated as a business unit of
Owens Corning. Consequently, the historical financial statements contained in
this prospectus have been derived from the historical financial statements of
Owens Corning and have not been adjusted to reflect that certain assets of the
Business were not contributed to, and that certain liabilities of the Business
were not assumed by, AGY. In addition, these historical financial statements
have not been adjusted to reflect the effect of the supply agreements entered
into between AGY and Owens Corning in connection with the formation
transactions. See "Certain Relationships and Related Transactions." The supply
agreements generally require Owens Corning to provide certain raw materials,
capital equipment and services to AGY at Owens Corning's cost plus certain
margins. For a presentation of the adjustments to the Business' historical
financial statements to reflect the foregoing transactions, see "Unaudited
Condensed Pro Forma Financial Information" and the accompanying notes thereto.
Net Sales. AGY recognizes sales upon the shipment of products. Net sales
consist of sales to customers, including discounts and negotiated rebates.
Prices for AGY's products depend upon the terms of its customer agreements and
the category of product being sold. For 1997, prices for heavy yarns, excluding
specialty materials, ranged from approximately $2.00 to $4.00 per kilogram and
prices for fine yarns ranged from $4.00 to $10.00 per kilogram. For 1997,
prices for specialty materials ranged from $12.00 to $29.00 per kilogram. AGY's
net sales increased from $272.4 million for 1995 to $277.4 million for 1997.
This increase in net sales was primarily driven by increases in sales of fine
yarns to the electronics market.
In late 1997 and early 1998, the demand for electronic products began to
decrease primarily as a result of economic turmoil in Asia. However, AGY only
began to experience a decline in demand for both fine yarns and heavy yarns in
the second quarter of 1998. Generally, the effect of a change in demand for
electronic products on AGY's net sales lags behind such changes by several
months. The demand for fine yarns for electronic applications also declined as
both weavers and laminators corrected their inventory to better match the
reduced demand for electronic products. This correction continued through the
third quarter. Management believes that the volume of fine yarn sales has
recently stabilized and will improve modestly in 1999. The demand for heavy
yarns in North America for electronic applications declined due to decreased
demand for electronic products which caused a global decline in demand for
rigid laminates and printed circuit boards. Demand for heavy yarns in North
America has also decreased due, in part, to an increase in imports of rigid
laminates and printed circuit boards into North America. To offset the lower
demand for heavy yarns, over the last eight months, AGY has shifted some of its
capacity to supply industrial and construction markets that have not been
affected by the turmoil in Asia. Management expects the volume of heavy yarn
sales for electronic applications to stabilize in early 1999, though pricing
pressures are expected to continue.
34
Cost of Sales. Cost of sales consists of raw materials, energy, labor and
manufacturing overhead. These components of cost of sales as a percentage of
total cost of sales averaged 26.6% (raw materials), 8.2% (energy), 23.0%
(labor) and 42.2% (manufacturing overhead), from 1995 to 1997, respectively. On
a pro forma basis, cost of sales would have increased by $8.9 million and $7.6
million, or 4.9% and 5.7%, for 1997 and for the first nine months of 1998,
respectively, primarily as a result of increases in the costs of raw materials,
pension expense and depreciation related to the formation transactions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of the cost of the Business' employees,
including certain technology personnel, and the estimated costs of corporate
services provided by Owens Corning.
Other Income, Net. Other income, net consists of royalties and technical
service fees earned from a non-exclusive license granted by AGY to Taiwan Glass
Industrial Corporation. The historical financial statements only include the
portion of the royalties and fees attributable to the manufacture and sale of
glass yarn products by Taiwan Glass. Other income, net also includes the net
profit arising from sales by AGY of certain scrap materials generated in the
manufacturing process.
Results of Operations
The following table summarizes the Business' historical results of operations
and historical results of operations as a percentage of sales for 1995, 1996
and 1997 and for the nine months ended September 30, 1997 and 1998.
Nine Months Ended
Years Ended December 31, September 30,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited)
(dollars in millions)
Net sales............... $272.4 100.0% $275.0 100.0% $277.4 100.0% $209.6 100.0% $205.2 100.0%
Cost of sales........... 187.2 68.7 180.4 65.6 182.4 65.8 138.1 65.9 134.8 65.7
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit............ 85.2 31.3 94.6 34.4 95.0 34.2 71.5 34.1 70.4 34.3
Selling, general and
administrative
expenses............... 13.7 5.0 14.3 5.2 14.8 5.3 11.1 5.3 11.5 5.6
Restructuring costs..... -- -- -- -- -- -- -- -- 2.0 1.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Income from operations.. 71.5 26.1 80.3 29.2 80.2 28.9 60.4 28.8 56.9 27.7
Depreciation............ 8.6 3.2 8.2 3.0 8.3 3.0 6.1 2.9 6.4 3.1
EBITDA.................. $ 83.1 30.5% $ 91.5 33.3% $ 91.2 32.9% $ 68.6 32.7% $ 65.6 32.0%
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Net Sales. Net sales decreased by $4.4 million, or 2.1%, from $209.6 million
for the first nine months of 1997 to $205.2 million for the first nine months
of 1998. This decrease was due primarily to decreased demand for electronic
products which began in the fourth quarter of 1997 and the effects of a
stronger United States dollar on sales in Europe. This decrease was partially
offset by slight increases in overall pricing and increased sales for
construction and industrial applications. See "--Introduction."
Gross Profit. Gross profit decreased by $1.1 million, or 1.5%, from $71.5
million for the first nine months of 1997 to $70.4 million for the first nine
months of 1998. Gross profit increased as a percentage of net sales from 34.1%
for the first nine months of 1997 to 34.3% for the first nine months of 1998.
The decrease in gross profit was primarily due to the decline in net sales.
This decrease was partially offset by a more favorable, higher margin product
mix and decreased labor
35
costs resulting from personnel reductions at AGY's Huntingdon and Aiken
facilities, which were part of a restructuring plan that was implemented in the
first quarter of 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $0.4 million, or 3.6%, from $11.1 million
for the first nine months of 1997 to $11.5 million for the first nine months of
1998. Selling, general and administrative expenses increased as a percentage of
net sales from 5.3% for the first nine months of 1997 to 5.6% for the first
nine months of 1998. The increase was due to normal increases in compensation
expenses.
Restructuring Costs. In the first quarter of 1998, the Business decided to
reduce personnel at its Aiken and Huntingdon facilities by approximately 100
employees during 1998. In connection with the planned personnel reduction, the
Business recorded a $2.0 million charge representing severance costs associated
with the positions to be eliminated. The Business realized cost savings as a
result of its restructuring plan during the first nine months of 1998 and
expects to realize further cost savings for the foreseeable future.
Income from Operations. Income from operations decreased by $3.5 million, or
5.8%, from $60.4 million for the first nine months of 1997 to $56.9 million for
the first nine months of 1998. Excluding the impact of the restructuring costs
described above, income from operations decreased by $1.5 million, or 2.5%,
from $60.4 million for the first nine months of 1997 to $58.9 million for the
first nine months of 1998. This decrease was primarily related to declines in
net sales and gross profit.
EBITDA. EBITDA decreased by $3.0 million, or 4.4%, from $68.6 million for the
first nine months of 1997 to $65.6 million for the first nine months of 1998.
EBITDA margin decreased from 32.7% in the first nine months of 1997 to 32.0% in
the first nine months of 1998. The decrease in EBITDA and EBITDA margin was
primarily due to increased costs related to the restructuring plan and
decreased gross profit.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net Sales. Net sales increased by $2.4 million, or 0.9%, from $275.0 million
for 1996 to $277.4 million for 1997. This increase was due primarily to
increased sales volumes of fine yarn products partially offset by lower overall
pricing.
Gross Profit. Gross profit increased by $0.4 million, or 0.4%, from $94.6
million for 1996 to $95.0 million for 1997. Gross profit decreased as a
percentage of net sales from 34.4% for 1996 to 34.2% for 1997. The increase in
the gross profit amount was primarily due to increased sales volumes of higher
margin fine glass yarns. The decrease in gross profit as a percentage of net
sales was primarily due to lower overall pricing.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $0.5 million, or 3.5%, from $14.3 million
for 1996 to $14.8 million for 1997. Selling, general and administrative
expenses increased as a percentage of net sales from 5.2% for 1996 to 5.3% for
1997. The increase was due to normal increases in compensation expenses.
Income from Operations. Income from operations decreased by $0.1 million, or
0.1%, from $80.3 million for 1996 to $80.2 million for 1997. The decrease was
primarily related to overall pricing decreases.
36
EBITDA. EBITDA decreased by $0.3 million, or 0.3%, from $91.5 million for
1996 to $91.2 million for 1997. EBITDA margin decreased from 33.3% for 1996 to
32.9% for 1997. The decreases in EBITDA and EBITDA margin reflect the decrease
in gross profit and the increase in selling, general and administrative
expenses.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales increased by $2.6 million, or 1.0%, in 1996 from $272.4
million for 1995 to $275.0 million for 1996. This increase was due primarily
to improved overall pricing and to a slightly more favorable product mix as
the Business sold a higher volume of fine yarns. This increase was offset by a
decrease in sales volumes of heavy yarns and specialty materials.
Gross Profit. Gross profit increased by $9.4 million, or 11.0%, from $85.2
million for 1995 to $94.6 million for 1996. Gross profit increased as a
percentage of net sales from 31.3% for 1995 to 34.4% for 1996. The increases
in the gross profit amount and gross profit as a percentage of net sales were
primarily due to increased production efficiencies relating to furnace
rebuilds during 1995 and 1996, as well as a slightly higher margin product
mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $0.6 million, or 4.4%, from $13.7 million
for 1995 to $14.3 million for 1996. Selling, general and administrative
expenses increased as a percentage of net sales from 5.0% for 1995 to 5.2% for
1996. The increase was due to normal increases in compensation expenses.
Income from Operations. Income from operations increased by $8.8 million, or
12.3%, from $71.5 million for 1995 to $80.3 million for 1996. This increase
was primarily related to the increase in production efficiencies described
above.
EBITDA. EBITDA increased by $8.4 million, or 10.1%, from $83.1 million for
1995 to $91.5 million for 1996. EBITDA margin increased from 30.5% for 1995 to
33.3% for 1996. The increases in EBITDA and EBITDA margin primarily reflected
improved production efficiencies.
Liquidity and Capital Resources
Historically, the Business' primary sources of liquidity were cash flows
from operations. Since the consummation of the formation transactions on
September 30, 1998, AGY's primary sources of liquidity have been cash flows
from operations and borrowings under the senior credit facility. AGY's
principal uses of liquidity are to fund operations, meet debt service
requirements and finance AGY's planned capital expenditures, including the
purchase of new management information systems for AGY's headquarters at the
Aiken facility.
Net cash provided by operating activities increased from $29.9 million for
the first nine months of 1997 to $31.0 million for the first nine months of
1998. The increase was primarily attributable to higher net income for the
first nine months of 1998, as compared to the first nine months of 1997, due
to a change in the tax status of AGY on July 1, 1998. The benefit of the
change in tax status was partially offset by an increase in receivables and
inventory for the first nine months of 1998. Net cash used in investing
activities increased from $5.7 million for the first nine months of 1997 to
$13.5 million for the first nine months of 1998. The increase in cash used in
investing activities was due to capital expenditures associated with the South
Hill facility.
37
Net cash provided by operating activities increased from $59.3 million for
1996 to $69.2 million for 1997. This increase was primarily the result of a
$2.1 million decrease in inventory levels, a $4.0 million reduction in accounts
receivable and a $3.4 million increase in accounts payable which were partially
offset by a $1.1 million decrease in accrued liabilities relating primarily to
incentive compensation. Net cash used in investing activities decreased from
$15.3 million for 1996 to $8.3 million for 1997. This decrease was due to the
reduction in expenditures for refurbishing capital equipment, particularly
rebuilding glass melting furnaces.
Net cash provided by operating activities increased from $56.6 million for
1995 to $59.3 million for 1996. This increase was primarily the result of a
$5.3 million increase in net income and a $2.8 million reduction in accounts
receivable which was partially offset by a $3.1 million increase in inventories
and a $1.4 million decrease in accounts payable. Net cash used in investing
activities increased from $8.5 million for 1995 to $15.3 million for 1996. This
increase was primarily due to an increase in expenditures for upgrading and
refurbishing capital equipment, particularly rebuilding glass melting furnaces.
In connection with the formation transactions, AGY entered into the senior
credit facility, which provides for:
. a six-year revolver in an aggregate principal amount of up to $75.0
million, which includes a $10.0 million swing line sub-facility and a
$30.0 million letter of credit sub-facility;
.a six-year term loan in an aggregate principal amount of $125.0 million;
and
.a seven-year term loan in an aggregate principal amount of $115.0 million.
First Union National Bank serves as agent under the senior credit facility. The
senior credit facility is secured by a first priority lien on substantially all
of the properties and assets of AGY and by a pledge of Porcher Industries'
interest in AGY. As of September 30, 1998, $254.0 million was outstanding under
the senior credit facility and AGY had availability thereunder equal to
approximately $61.0 million. See "Description of Other Indebtedness--Senior
Credit Facility."
AGY also entered into the senior subordinated credit facility with certain
lenders. First Union Investors, Inc. and Warburg Dillon Read LLC served as co-
agents under the senior subordinated credit facility. The senior subordinated
credit facility provided for aggregate borrowings of up to $150.0 million and
was fully drawn by AGY at the closing of the formation transactions. The senior
subordinated credit facility was an unsecured senior subordinated obligation of
AGY. The net proceeds of the offering of the old notes, together with
additional borrowings under the senior credit facility, were used to repay all
amounts outstanding under the senior subordinated credit facility. See "Use of
Proceeds."
The Business has historically financed its capital expenditures through cash
flow from operations. Capital expenditures were $8.5 million, $15.3 million,
$8.3 million and $13.5 million for 1995, 1996, 1997 and the first nine months
of 1998, respectively. AGY expects to make annual capital expenditures
aggregating approximately $23.7 million and $23.5 million in 1998 and 1999,
respectively. The increase in capital expenditures in 1998 was primarily as a
result of approximately $9.0 million of expense incurred in connection with the
start-up of the South Hill facility and increased expenses incurred to finance
furnace rebuilds. AGY anticipates that capital expenditures incurred in 1999
will be made for routine maintenance and rebuilds of glass melting furnaces and
other equipment used in its operations. AGY also intends to spend approximately
$3.0 million for new management information systems in 1999. In addition,
management has planned for the
38
construction of a new melter at its Aiken facility in 2000. Management
estimates that the cost to construct this melter will be approximately $49.0
million; however, in connection with the construction of the melter, AGY plans
to reduce expenses associated with the rebuild of furnaces by approximately
$12.0 million. The cost of the management information system and the
construction costs for the melter are expected to be funded by cash flows from
AGY's operations. In addition, AGY has minimum future rental commitments
associated with operating leases of $9.1 million through 2003. See Note 5 to
the Financial Statements.
In connection with Porcher Industries' purchase of a 51% interest in AGY, AGY
intends to make a partnership election to step up the basis of certain of AGY's
intangible assets. The resulting increase in amortization expense will allow
the consolidated U.S. tax group of Porcher Industries (which includes BGF
Industries, hereinafter "Porcher U.S.") to significantly reduce its tax
liability, and as a result, Porcher U.S. has agreed to defer the receipt of
annual distributions which AGY was otherwise required to make in order to fund
those taxes, to the extent that such taxes relate to income earned by AGY (the
"Deferred Distributions"). The amortization deductions may be challenged by the
IRS; however, AGY believes the amortization deductions are valid and that AGY
is likely ultimately to prevail in any challenge. If, however, the amortization
deductions are disallowed, AGY will be required to distribute all accumulated
annual Deferred Distributions to the extent that both before and after such
distribution there is not a default under the senior credit facility or the
notes. Moreover, all Deferred Distributions would cease, and AGY would have to
pay in full all future distributions for taxes to Porcher U.S. Based on the
purchase price paid by Porcher U.S. for the 51% interest in AGY, and a 15 year
amortization period, the maximum annual Deferred Distribution will be $6.8
million. The actual amounts of Deferred Distributions may be less if Porcher
U.S.'s share of taxes due with respect to income earned by AGY is less than
$6.8 million. AGY believes adequate funds will be available from net cash flows
and borrowings under the senior credit facility to fund the Deferred
Distributions.
AGY's ability to make scheduled payments of principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance, its indebtedness
(including the notes), or to fund planned capital expenditures will depend on
its future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
that are beyond its control. Based upon the current level of operations,
management believes that cash flows from operations and available cash,
together with availability under the senior credit facility, will be adequate
to meet AGY's future liquidity needs for at least the next two years. However,
there can be no assurance that AGY's business will generate sufficient cash
flows from operations or that future borrowings will be available under the
senior credit facility in an amount sufficient to enable AGY to service its
indebtedness, including the notes, or to fund its other liquidity needs,
including the construction of a new melter at its Aiken facility. In addition,
AGY may need to refinance all or a portion of the principal of the notes on or
prior to maturity. There can be no assurance that AGY will be able to effect
any such refinancing on commercially reasonable terms or at all. See "Risk
Factors--Our Indebtedness Results in Significant Debt Service Obligations and
Limitations."
Inflation and Seasonality
AGY believes that neither inflation nor seasonality had a material impact on
its results of operations for 1995, 1996, 1997 or the first nine months of
1998. AGY does, however, experience a comparative reduction in net sales during
the months of August and December due to vacation and holiday schedules.
39
Year 2000
Introduction. The term "year 2000 issue" is a general term used to describe
the various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and process control equipment as the
year 2000 is approached and reached. These problems generally arise from the
fact that most of the world's computer hardware and software have historically
used only two digits to identify the year in a date, often meaning that the
computer will fail to distinguish dates in the "2000s" from dates in the
"1900s." These problems may also arise from other sources as well, such as the
use of special codes and conventions in software that make use of the date
field.
State of Readiness. At the beginning of 1998, the management of AGY's
information systems and research and development groups began to assess the
year 2000 issue. These persons have developed and are currently implementing a
comprehensive year 2000 compliance program to make AGY's information technology
assets and non-information technology assets year 2000 compliant. AGY's
information technology assets are primarily used in the delivery of AGY's
products and services, and are also used in AGY's internal operations, such as
billing and accounting. AGY's non-information technology assets are primarily
micro-processor based process control systems used in the manufacture of AGY's
products.
AGY's year 2000 compliance program consists of several phases. In the first
phase, all systems were evaluated to determine their ability to operate
properly when post-1999 dates are introduced. Certain forward looking systems,
e.g. scheduling systems, need to use post-1999 dates in mid-1999. In the second
phase, internal technical personnel identified appropriate remedial action or
system replacement for each system that was not year 2000 compliant. These two
phases were substantially completed by November 30, 1998. During the third
phase, AGY will develop implementation plans for remedial actions or system
replacement. During the fourth phase, AGY will undertake remedial actions or
system replacements. AGY expects to complete all phases of the year 2000
compliance program by September 1999.
During the second phase of the year 2000 compliance program, AGY identified
several key information technology systems and non-information technology
systems that need to be replaced in order to become year 2000 compliant. The
systems to be replaced include all financial and order entry/planning systems
and certain process control systems. Replacement of AGY's financial and order
entry/planning systems is necessary to complete the separation from Owens
Corning's computer systems. Of the 17 process control systems that were
evaluated, two were identified as having compliance issues sufficient to
warrant total system replacement. AGY expects to begin implementation and
internal testing of these replacement systems between March 1 and September 30,
1999. The systems that will not be replaced will be upgraded to become year
2000 compliant on the same schedule as the system replacements. Upgrading these
systems generally requires less resources than total system replacement.
In addition to internal systems, AGY is dependent on external suppliers,
including Owens Corning, for the delivery of raw materials and energy. AGY is
contacting these external suppliers to evaluate their year 2000 compliance
plans and state of readiness and determine whether a year 2000-related event
will impede the ability of such suppliers to continue to provide goods and
services to AGY. Although AGY has not received responses from all of its
suppliers as to the status of their year 2000 program, AGY believes that its
key suppliers are sufficiently aware of year 2000 issues
40
and are taking actions to remediate any problems. There is no assurance that
AGY's key suppliers will not suffer a year 2000 business disruption.
Costs to Address the Year 2000 Issue. AGY estimates that it has spent
approximately $0.4 million in software and external consulting costs to address
the year 2000 issue. AGY estimates that its year 2000 compliance program will
cost approximately $3.0 million including the cost to establish and test the
independent replacement computer systems discussed above (excluding the cost of
internal personnel). Such amounts will be charged to operations when incurred.
AGY intends to fund these costs from cash flow from operations.
Risks Presented by the Year 2000 Issue. Management believes that AGY has
identified all material year 2000 issues and implemented a plan to address
these issues prior to any impact on business operations. However, failure to
complete remediation and replacement programs as scheduled could impact AGY's
ability to properly manufacture goods and conduct normal business operations.
If this were to occur, AGY could experience a material adverse impact on its
financial condition and results of operation. Likewise, failure of key
suppliers to achieve compliance could adversely impact AGY's ability to
manufacture, distribute and sell, products.
Contingency Plans. In the event that certain systems are not made compliant
prior to the need to handle year 2000 dates, AGY has considered alternatives to
continue normal business operations. AGY anticipates that process control
systems that do not handle year 2000 dates properly can continue to operate
with some limitation in functions. These systems will be tested to demonstrate
this capability. With regard to information technology systems that are
critical to business operations, management believes that its remediation and
replacement program will sufficiently address year 2000 issues. However, AGY
will continue to evaluate its progress and create additional contingency plans
as necessary.
The estimates and conclusions related to AGY's year 2000 compliance program
contain forward-looking statements and are based on management's best estimates
of future events. Risks to completing the year 2000 compliance program include
the availability of resources, AGY's ability to discover and correct the
potential year 2000 specific problems that could have a serious impact on
specific systems, equipment or facilities and the ability of suppliers and
vendors and other third parties to make their systems year 2000 compliant.
Euro Conversion
AGY may be exposed to certain risks as a result of the conversion by certain
European Union member states of their respective currencies to the Euro as
legal currency on January 1, 1999. The conversion rates between such European
Union member states' currencies and the Euro have been fixed by the European
Union's council. Risks related to the conversion to the Euro could include,
among other things, effects on pricing due to increased cross-border price
transparency, costs of modifying information systems, including both software
and hardware, costs of relying on third parties whose systems also require
modification, changes in the conduct of business and in the principal markets
for AGY's products and services and changes in currency exchange rate risk. AGY
has analyzed whether the conversion to the Euro will materially affect its
business operations. While AGY is uncertain as to the precise impact of the
conversion, AGY does not expect anticipated costs in connection with the Euro
conversion to be material. However, there can be no assurance that the actual
effects of the conversion could not have a material adverse effect on AGY's
business, results of operations and financial condition.
41
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131 requires
public business enterprises to adopt its provisions for fiscal years beginning
after December 15, 1997, and to report certain information about operating
segments in complete sets of financial statements of the enterprise issued to
shareholders. Segment disclosures will also be required in interim financial
statements beginning in the second year of application. AGY is evaluating the
provisions of SFAS No. 131, but has not determined if additional disclosure
will be required.
SFAS No. 132 "Employers' Disclosure about Pensions and Other Postretirement
Benefits," will become effective in 1998. SFAS No. 132 standardizes the
disclosure requirements for pensions and postretirement benefits and will
require changes in disclosures of benefit obligations and fair values of plan
assets. Comparative disclosures which include prior period information will be
restated to conform with the provisions of SFAS No. 132. AGY will adopt the
provisions of SFAS No. 132 effective December 31, 1998.
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
a derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. AGY anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a
significant effect on AGY's results of operations or its financial position.
42
BUSINESS
Advanced Glassfiber Yarns LLC
AGY is the second largest global supplier of glass yarns. In 1997, AGY's net
sales accounted for approximately 49% of the North American market and
approximately 24% of the global market. AGY is one of only two major glass
yarns producers with manufacturing facilities in North America and one of only
five major glass yarns producers that supply glass yarns globally. AGY's glass
yarns are produced by converting molten glass into thin glass filaments which
are then twisted into yarn. AGY's products fall into two categories based on
filament diameter: (i) heavy yarns, which accounted for 76% of AGY's 1997 net
sales; and (ii) fine yarns, which accounted for 24% of AGY's 1997 net sales.
AGY is the world's largest producer of fine yarns, and the world's second
largest producer of heavy yarns.
Glass yarns, because of their unique physical properties, are a critical
material used in a variety of electronic, industrial, construction and
specialty applications. Heavy yarns are used in a wide range of applications,
such as printed circuit boards, roofing materials, filtration equipment,
building reinforcements, window screening, aerospace materials and reinforced
tapes. Fine yarns are used primarily to construct laminates for multi-layer
printed circuit boards, which are integral to virtually all advanced electronic
products, including computers, telecommunications equipment, television
equipment, automotive equipment and home appliances. AGY also produces a
subcategory of heavy yarns known as specialty materials, such as S-2 Glass(R),
a proprietary high-strength glass yarn. Specialty materials, which accounted
for 9% of AGY's 1997 net sales, are used for aircraft laminates, oxygen tanks,
sporting goods and vehicle armor. Fine yarns and specialty materials generally
command higher prices and profit margins than non-specialty heavy yarns,
primarily due to their value-added characteristics.
For the twelve months ended September 30, 1998, AGY's net sales and EBITDA,
on a pro forma basis, were $273.0 and $80.9 million, respectively. AGY
attributes its strong results and profitability primarily to the following
factors:
Attractive Industry Fundamentals. The glass yarns industry has historically
been characterized by a limited number of suppliers, high barriers to entry, a
limited number of cost-effective substitutes and high capacity utilization.
There are only five major glass yarns producers that supply glass yarns
globally, with combined sales comprising approximately 80% of total industry
sales. Historically, new entry into the market has been limited due to high
barriers of entry, which include technological know-how and significant capital
expenditure requirements. In addition, AGY believes that the industry's
capacity utilization generally has been high, which has allowed manufacturers
to more efficiently operate their facilities. AGY's capacity utilization, as
measured by use of installed bushings, averaged approximately 94% between 1995
and 1997 and for the first nine months of 1998.
Stable Customer Base. AGY sells its products to over 300 customers worldwide,
including every major North American and European weaver and a diverse group of
other domestic and international commercial and industrial users of yarns. AGY
maintains long-standing relationships with its major customers by collaborating
with them to meet their specific manufacturing requirements and by providing
high quality products and strong customer service. In addition, AGY's customer
relationships generally are stable due to the limited number of global
suppliers of glass yarns and the costs to customers associated with
"qualifying" new suppliers. In order to qualify a new supplier, a customer may
need to modify its own loom set-ups and fabric specifications and also
43
qualify the new glass yarn supplier with certain downstream manufacturers and
weavers. Furthermore, although glass yarns generally represent a small fraction
of an end product's overall manufacturing cost, product defects can be costly
for customers. Consequently, customers demand high-quality, reliable yarns from
their suppliers and AGY has established a reputation with its customers for
meeting these demands. As a result of these factors, AGY has maintained
relationships with each of its top five customers for over 25 years.
Unique Properties of Glass Yarns. The characteristics of glass yarns include:
. high strength-to-weight ratio;
. dimensional stability;
. heat resistance;
. moisture resistance;
. chemical resistance;
. electrical resistance; and
. thermal insulation.
Although carbon and aramid fibers are stronger than glass yarns, they are
significantly more expensive. Other materials, such as steel and wood, are less
expensive but lack the physical characteristics of glass yarns. Given the
unique combination of physical attributes and relative low cost of glass yarns,
AGY believes few cost-effective substitute products exist.
Diversified End-Use Markets. The characteristics of glass yarn make it the
material of choice for a variety of products manufactured in the electronics,
industrial, construction and specialty markets. AGY's net sales to these
markets represented 36%, 28%, 27% and 9% of AGY's 1997 net sales, respectively.
AGY believes that this diversity in end-use applications reduces volatility in
overall demand for AGY's products.
Superior Production Technology and Product Innovation. AGY believes that it
is the technological leader in the production of glass yarns due to its strong
process engineering and product development capabilities. AGY pioneered the
glass yarns industry with the introduction of "glass cotton" in the 1930s and
the introduction of fine yarns in the 1940s, and has continued its innovation
with the development of S-2 Glass(R), Zentron(R) and zero twist yarn. AGY
employs 41 technical professionals dedicated to the development of new
products, process improvements and product innovations.
Business Strategy
AGY's business strategy includes the following key elements:
Emphasize Fine Yarns and Specialty Materials. AGY will continue its focus on
increasing the proportion of its net sales attributable to fine yarns and
specialty materials. Sales of fine yarns and specialty materials increased as a
proportion of net sales from 26% in 1994 to 33% in 1997. AGY believes its
global leadership in producing fine yarns and specialty materials is a
competitive advantage when targeting manufacturers of sophisticated electronics
and specialty composites.
44
Develop New Products and Product Innovations. To maintain its technological
leadership position in the glass yarns industry, AGY conducts an active
internal research and development program aimed at developing new and improved
products. In addition, AGY has formed several joint product development
programs with its customers such as BGF Industries, a wholly-owned subsidiary
of Porcher Industries, and certain downstream manufacturers. AGY also has a
continuing relationship with Owens Corning pursuant to which they conduct joint
development programs and AGY shares in certain of Owens Corning's technology
and research and development. AGY will continue its focus on research and
development and its commitment to collaborate with its customers to improve and
develop products.
Focus on Operating Efficiency. AGY continually seeks to improve the quality
of its production facilities and its operating systems by utilizing modern
production technology. These new technologies have enabled AGY to increase
throughout, product quality and operational flexibility. As a result of these
operating improvements, AGY's EBITDA margins increased from 22% in 1993 to 32%
for the last twelve months ended September 30, 1998.
Selective Geographic Expansion. AGY believes it has opportunities to expand
its business outside of North America. Approximately 27% of AGY's 1997 net
sales were outside of North America, with approximately 24% in Europe and
approximately 3% in Asia. AGY believes that Asia represents an attractive long-
term opportunity for sales of its fine yarns, despite the region's current
economic turmoil. Certain of AGY's customers are expanding their production
capabilities in Asia to meet the region's demand for glass fabrics used to
manufacture electronic laminates. AGY anticipates that glass yarns needed for
such increased production will be sourced locally. According to the U.S.
Department of Commerce, the Asian and Australian regions represented
approximately 50% of the global supply of printed circuit boards in 1997. AGY's
strategy is to continue to expand outside North America by co-locating or
sharing production facilities with its customers. This would reduce the risks
and capital expenditures associated with geographic expansion while
strengthening AGY's relationships with these customers.
Advanced Glassfiber Yarns LLC is a Delaware limited liability company with
headquarters located at 2556 Wagener Road, Aiken, South Carolina 29801, and its
telephone number is (803) 643-1377.
Products
AGY's products are produced based on weight and strength specifications
developed in close cooperation with customers. AGY's products fall into two
categories based on filament diameter: (i) heavy yarns, with a filament
diameter between 7 and 14 microns, which accounted for 76% of AGY's 1997 net
sales; and (ii) fine yarns, with a filament diameter generally up to 7 microns,
which accounted for 24% of AGY's 1997 net sales. Products with finer diameters
generally command higher prices and profit margins.
Heavy Yarns. Heavy yarns are used for a wide range of applications, such as
printed circuit boards, roofing materials, filtration equipment, building
reinforcements, window screening, aerospace materials and reinforced tapes.
Currently, prices for heavy yarns, excluding specialty materials, range from
approximately $2.00 to $4.00 per kilogram. AGY also produces a subcategory of
heavy yarns known as specialty materials, such as S-2 Glass(R), a proprietary
high strength glass yarn. Specialty materials, which accounted for 9% of AGY's
1997 net sales, are used for aircraft laminates, oxygen
45
tanks, sporting goods and vehicle armor. Currently, prices for specialty
materials range from approximately $12.00 to $29.00 per kilogram.
Fine Yarns. Fine yarns, which require a significant level of technical
engineering expertise, generally command higher prices and profit margins than
non-specialty heavy yarns, and are primarily used to construct laminates in
multi-layer printed circuit boards. Printed circuit board customers require a
material that yields a highly uniform, flat surface. AGY is the world's largest
producer of fine yarns and believes that its technological leadership
differentiates AGY from its competitors. Currently, prices for fine yarns range
from approximately $4.00 to $10.00 per kilogram.
The following table sets forth the percentage of AGY's net sales attributable
to its major product categories for the years 1994 to 1997:
Years Ended December 31,
------------------------------
1994 1995 1996 1997
------ ------ ------ ------
Heavy yarns..................................... 83.6% 80.9% 80.5% 76.0%
Fine yarns...................................... 16.4 19.1 19.5 24.0
------ ------ ------ ------
Total net sales............................... 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
The following table sets forth an overview of the different markets into
which AGY's glass yarns are sold, the percentage of AGY's 1997 net sales
attributable to each market and some of the end-use applications in each
market:
Percentage
Markets of Net Sales Product Applications
------- ------------ --------------------
Electronics............. 36% printed circuit boards for personal computers, cellular
phones, pagers, portable computing devices, home
appliances, automobiles, medical equipment, electronic
games, robotics and military and aircraft systems
Industrial.............. 28% filtration bags, thermal insulation, welding curtains,
filament tape, wire insulation, gaskets, conveyor
belts, movie screens, electrical insulation products,
aircraft interior panels, aircraft cargo liners,
battery retainers and separators, reinforced tapes,
skis and grinding wheels
Construction............ 27% reinforced concrete, roofing materials, stucco
reinforcement, insect screening, wall covering,
vertical window blinds, wallboard tape, tile backing
board and draperies
Specialty............... 9% aircraft laminates, vehicle armor, oxygen bottles,
helicopter blades, aircraft flooring, ignition cables,
skis and snowboards
Marketing and Sales
AGY primarily sells to glass yarn weavers who weave glass yarn into fabric
ultimately used in a wide variety of end-use applications. AGY's customers
include, among others, every major glass weaver in North America and Europe. In
1997, AGY had a customer base of approximately 300 customers with AGY's top
five and top ten customers accounting for 50% and 64% of AGY's 1997 sales,
respectively. AGY's top five customers for 1997 were Porcher Industries,
including its affiliates, such as BGF Industries, Clark-Schwebel, Inc., Bay
Mills Limited, Hexcel Corporation and JPS Converter and Industrial Corp. Among
the different markets in the glass yarns industry, the electronic market is
characterized by a few major customers, each with a strong relationship with
46
AGY but that generally qualify more than one supplier; the industrial and
construction markets are characterized by many customers that generally qualify
only one supplier; and the specialty market is characterized by customers that
require highly specialized yarns produced in a cooperative effort with the
supplier and, consequently, generally qualify only one supplier.
AGY markets its products primarily through a direct sales force with offices
located in the United States, Europe and Asia. AGY's North American customers
are serviced by four sales personnel and one sales manager; Europe is serviced
by three sales personnel and Asian customers by one sales representative. The
marketing and business planning organization consists of four persons,
including two marketing managers (industrial/construction and electronic) and
two product segment leaders (Europe/Asia and North America).
The following table sets forth the percentage of AGY's net sales by
geographic region from 1995 to 1997:
Years Ended December 31,
----------------------------
1995 1996 1997
-------- -------- --------
North America..................................... 68.4% 71.4% 73.1%
Europe............................................ 31.2 27.4 24.2
Asia.............................................. 0.4 1.2 2.7
-------- -------- --------
Total net sales................................. 100.0% 100.0% 100.0%
======== ======== ========
Manufacturing Facilities
AGY operates three manufacturing facilities in the United States. The
following table sets forth a description of AGY's manufacturing facilities:
1997
Approximate Production Owned
Facility Products Square Feet (in metric tons) or Leased
- -------- -------- ----------- ---------------- ---------
Aiken, South Carolina... Heavy and Fine 1,540,000 53,100 Owned
Huntingdon,
Pennsylvania........... Fine and Specialty 405,000 6,600 Owned
South Hill,
Virginia(/1/).......... Heavy and Fine 27,200 680 Leased(/2/)
- --------
(1) The South Hill facility is a co-location facility shared with BGF
Industries, at which AGY and BGF Industries work together closely to
coordinate the production of glass yarns for use solely by BGF Industries'
operations at that facility. AGY opened the facility in June 1998 and
expects it to become fully operational in the first quarter of 1999. See
"Certain Relationships and Related Transactions."
(2) AGY owns all of the equipment located in the South Hill facility, but
leases the building from BGF Industries.
In addition to the facilities that AGY owns or leases, certain subsidiaries
of Owens Corning that operate facilities in Battice, Belgium and Guelph,
Ontario have historically provided AGY with specific products, primarily heavy
yarns, to serve segments of the European and North American markets. Although
these facilities have been retained by Owens Corning, AGY entered into
contracts to purchase specific glass yarns manufactured at these facilities.
See "Certain Relationships and Related Transactions."
Manufacturing Process
Glass yarns are manufactured by mixing raw material at high temperatures to
create molten glass which flows through a bushing to create continuous glass
strands. These strands are spooled,
47
and then twisted to create glass fiber yarns. AGY employs two types of
manufacturing processes for glass yarns, "direct melt" and "indirect melt."
The "direct melt" glass fiber manufacturing process, which is employed at
the Aiken facility, begins when finely ground raw materials, including sand,
limestone, clay, borates and certain specialty chemicals, are blended together
in a bulk quantity called the "batch." The batch is then fed into a furnace
where it is melted at 2,600 degrees Fahrenheit in refractory-lined furnaces.
The molten glass flows to numerous heat-resistant platinum and rhodium trays
called bushings. These bushings have thousands of small, precisely drilled
tubular openings through which glass flows and becomes filaments. The hair-
like filaments are coated with an aqueous chemical mixture called "sizing,"
which protects the filaments during processing and handling, including weaving
or braiding, and ensures good adhesion of the glass fiber to the resin when
manufacturing polymer reinforcements.
After sizing is applied, filaments are gathered together into strands that
go through further processing steps depending on the market into which the
fiber will be sold. The filaments are wound onto intermediate packages by high
speed winders. In most cases, the strands are unwound from the intermediate
packages and are twisted together to form glass fiber yarns that are rewound
onto bobbins for sale to customers.
The Huntingdon facility and the South Hill facility employ a "marble melt
process" (also known as "indirect melt") to manufacture fine glass fiber yarns
using glass marbles as the principal raw material. The glass marbles are
melted in individual furnaces and pulled through bushings to form filaments.
The filaments are sized, wound onto intermediate packages, and twisted in the
same manner as in the direct melt process. The advantage of the indirect
method is that each bushing has its own melting device. This process, which
AGY pioneered, allows AGY to add incremental production capacity with more
reasonable capital expense and construction time and results in a more
consistent product.
Competition
AGY believes that the principal competitive factors affecting the glass
yarns industry include the quality, performance, product pricing and
consistency of products, response to customer requirements and stability of
business relationships with customers.
AGY is one of only five major producers of glass yarns that supply their
products globally. The other global suppliers are PPG, Vetrotex, Nitto and
Nippon Electric. Sales by the five global suppliers accounted for
approximately 80% of total 1997 industry sales. In addition to the five global
suppliers of glass yarns, there are two significant regional manufacturers,
Taiwan Glass, a licensee of AGY's technology, and Nan Ya Plastics Corp., a
licensee of PPG's technology, each of which operates and has significant sales
in Asia. AGY and PPG are the only major producers of glass yarns with
production facilities in North America. However, Vetrotex has announced that
it intends to build a plant for the production of glass yarns, primarily for
the electronics market, in Mexico. Vetrotex has publicly stated that it
expects this new plant to begin operations in the second half of 1999.
Research and Development
To maintain its leadership position in the glass yarns industry, AGY
conducts an active research and development program aimed at improving its
manufacturing processes and developing new and improved products. The research
and development program is managed by AGY's science and
48
technology group. AGY spent $5.6 million, $5.7 million and $5.9 million to fund
the science and technology group in 1995, 1996, 1997, respectively. A portion
of the science and technology group dedicate their efforts to the technical
services organization ("TSO"). The Aiken and Huntingdon facilities each have a
TSO which is organized into technical teams around each major customer
category. The TSO teams in Aiken and Huntingdon are staffed by 19 and 12
people, respectively. The TSO carries out ongoing process and product
improvements and each technical team is led by a product engineer, who is
supported by one or more process experts responsible for troubleshooting
manufacturing problems. TSO teams also have a project engineering group which
is responsible for capital projects. The remaining persons in AGY's science and
technology group are experts in chemistry, chemical applications and process
development. A total of seven employees perform the science and technology
function at the Aiken facility.
AGY has numerous United States patents, patent applications and trademarks.
While AGY considers its patents to be valuable assets, AGY does not believe
that its competitive position is dependent on patent protection or that its
operations are dependent on any individual patent or group of related patents.
However, in some instances, patents and patent protection may deter entry by
new competitors with respect to certain product lines. AGY's policy is to
obtain patents on its new products and enforce its patent rights. In connection
with the formation transactions, Owens Corning assigned and licensed to AGY
certain patents, know-how, marks and business information relating to or used
in AGY's business. In addition, Owens Corning and AGY entered into a support
services agreement pursuant to which they will cooperate with respect to
research and development in certain areas. See "Certain Relationships and
Related Transactions."
Raw Materials and Other Supplies and Sources
The major raw materials used by AGY in the production of glass yarns are
glass marbles at the Huntingdon facility, and silica and borates at the Aiken
facility. AGY purchases glass marbles from Owens Corning pursuant to an
exclusive seven year supply agreement. Silica is readily available and is
currently provided to AGY by a number of local suppliers. AGY primarily uses
borates in its production processes at its Aiken facility, which are sourced
from a supplier in Turkey that is owned by the Turkish government. AGY's supply
of borates from Turkey is sourced through Owens Corning under a supply
agreement which provides that, if there is a limited or reduced supply of
borates, Owens Corning will allocate a portion of such supply to AGY.
In addition to the raw materials involved in the production of glass yarns,
AGY uses specialized capital equipment, such as bushings. Bushings are heat-
resistant platinum and rhodium trays through which molten glass is filtered to
produce glass filaments. AGY's bushings are currently manufactured and
periodically reconditioned by Owens Corning. Owens Corning has agreed to
continue to provide bushings to AGY and reconditioning service for the bushings
for a period of seven years. See "Risk Factors--We Have Only Operated
Independently of Owens Corning Since September 30, 1998 and Remain Dependent
Upon Owens Corning to Provide Certain Materials and Services" and "Certain
Relationships and Related Transactions."
Employees
As of January 31, 1999, AGY had approximately 1,492 full-time employees. As
of such date, approximately 1,408 of the employees were engaged in
manufacturing and related services. Production, maintenance, warehouse and
shipping employees at AGY's Aiken facility are represented
49
by Teamsters Local Union Number 86, an affiliate of the International
Brotherhood of Teamsters. The collective bargaining agreement with this union
covering such employees at Aiken expires May 2, 1999. Production, maintenance,
warehouse and shipping employees at AGY's Huntingdon facility are represented
by the Union of Needletrades, Industrial and Textile Employees and its local
1034T. The collective bargaining agreement with this union covering such
employees at Huntingdon expires October 31, 1999. Management considers AGY's
labor relations to be generally good.
Environmental Matters
The past and present operations of AGY, including its ownership and operation
of real properties, are subject to extensive and changing federal, state, local
and foreign environmental laws and requirements, including, among others, those
governing discharges to air and water, the handling and disposal of soils and
hazardous substances and wastes, and the remediation of contamination
associated with releases of hazardous substances at AGY facilities and off-site
disposal locations. The operations of AGY are also governed by laws and
requirements relating to workplace safety and health. Management believes that
AGY is generally in material compliance with such laws and requirements.
AGY cannot assure that it will not in the future incur costs or liabilities
relating to environmental or health and safety matters, including those
relating to compliance with laws and requirements, remediation of
contamination, or claims by third parties.
AGY, like all manufacturers of glass yarns, is subject, in certain
jurisdictions, to laws and regulations designed to reduce solid wastes by
requiring, among other things, certain wastes to be degradable in landfills,
minimum levels of recycled content, various recycling requirements, disposal
fees and limits on the use of certain products. In addition, various consumer
and special interest groups have lobbied from time to time for the
implementation of additional environmental protection measures. AGY does not
believe that either the legislation promulgated to date or currently pending
initiatives will have a material adverse effect on its business. There can be
no assurance that any future legislation or regulatory efforts will not have a
material adverse effect on AGY's business, financial condition or results of
operations.
The amended and restated asset contribution agreement, dated as of July 31,
1998, between Owens Corning and AGY, provides that, with respect to
environmental liabilities, Owens Corning will retain all liabilities resulting
from the presence of hazardous substances at or migrating from the sites
contributed by Owens Corning to AGY, as well as all liabilities resulting from
the transportation or arrangements made by Owens Corning for the treatment,
storage or disposal of hazardous substances to any off-site location prior to
September 30, 1998. AGY has not assumed any such liabilities. In addition,
Owens Corning has agreed to indemnify AGY against any losses and damages
arising out of the environmental liabilities retained by Owens Corning;
however, with respect to environmental remedial action, Owens Corning's
indemnification obligations are limited to compliance with the standards set
under applicable environmental laws and such obligations shall be satisfied
upon and to the extent of final approval of such remedial action by the
governing environmental authority.
Legal Proceedings
From time to time, AGY is involved in various legal proceedings arising in
the ordinary course of business. None of the legal matters in which AGY is
currently involved, either individually or in the aggregate, is expected to
have a material adverse effect on AGY's business or financial condition.
50
MANAGEMENT
Executive Officers, Directors and Other Key Employees
The following table sets forth certain information with respect to the
executive officers, directors and other key employees of AGY:
Name Age Position
---- --- --------
Robert Porcher........................ 70 Chairman of the Board and Director
Robert B. Fisher...................... 44 President
Catherine Cuisson..................... 33 Chief Financial Officer
Scott R. Northrup..................... 39 Chief Technical Officer
Heinz J. Otto......................... 49 Director
Serge Piolat.......................... 48 Director
Philippe Porcher...................... 45 Director
J. Thurston Roach..................... 57 Director
Jerry G. Hawkins...................... 54 Plant Manager--Aiken
Joseph A. Masciangelo................. 52 Plant Manager--Huntingdon
Robert Porcher is the Chairman of the Board and a Director of AGY. Mr. Robert
Porcher has been Chairman of the Board of Directors and Chief Executive Officer
of Porcher Industries since 1952. Porcher Industries owns 51% of AGY. Mr.
Robert Porcher beneficially owns 54% of the outstanding capital stock of
Porcher Industries. Since December 9, 1998, Mr. Porcher has served as the
Chairman of the Supervisory Board of Porcher Industries.
Robert B. Fisher is President of AGY. Prior to AGY's formation, Mr. Fisher
was General Manager of the Business since March 1997. Prior to joining Owens
Corning, Mr. Fisher served as Business Manager of DuPont's industrial and
electrical films division from 1994 to 1997. Mr. Fisher served in DuPont's
corporate planning department from 1992 to 1994 and as Marketing and Sales
Manager for the European operations of Philips DuPont Optical from 1989 to
1992.
Catherine Cuisson is Chief Financial Officer of AGY. Prior to AGY's
formation, Ms. Cuisson served as Controller of Porcher Industries since
November 1994. Prior to joining Porcher Industries, Ms. Cuisson served as an
accountant with Coopers & Lybrand L.L.P. Ms. Cuisson obtained the equivalent of
a certified public accountancy degree upon graduating from the Institut
Commercial de Nancy in Nancy, France.
Scott R. Northrup is Chief Technical Officer of AGY. Prior to AGY's
formation, Mr. Northrup served as Technical Services Organization Manager of
the Business' facility in Huntingdon since May 1995. Mr. Northrup joined Owens
Corning in September 1984 as research and development engineer at the Granville
Science & Technology Center.
Heinz J. Otto is a Director of AGY. Mr. Otto has been President of Owens
Corning's Composites Division since 1996. Mr. Otto previously managed the
European operations of Landis & Gyr Corp., a Swiss corporation, and served on
its Executive Board. Prior to joining Landis & Gyr, Mr. Otto held various
management positions with General Electric Company.
Serge Piolat is a Director of AGY. Mr. Piolat has served as a Director of
Porcher Industries' textile division since 1989. Mr. Piolat previously served
as General Manager of Chavanoz Industries, a wholly owned subsidiary of Porcher
Industries. Since December 9, 1998, Mr. Piolat has served as a member of the
Executive Board and Vice President of Porcher Industries.
51
Philippe Porcher is a Director of AGY. Mr. Philippe Porcher has been Vice
President of Porcher Industries since March 1993. Before becoming Vice
President, Mr. Philippe Porcher served as Director of Porcher Industries'
industrial division. Mr. Philippe Porcher is the son of Robert Porcher,
Chairman of the Board and a Director of AGY. Since December 9, 1998, Mr.
Porcher has served as Chairman of the Executive Board of Porcher Industries.
J. Thurston Roach is a Director of AGY. Mr. Roach has been Senior Vice
President and Chief Financial Officer of Owens Corning since January 1, 1999.
Mr. Roach had previously served as President of Owens Corning's North American
Building Materials Systems Business since February 1998. Before joining Owens
Corning, Mr. Roach had been Vice Chairman of Simpson Investment Company since
July 1997. Before July 1997, Mr. Roach had served in various capacities with
Simpson Timber Company since 1984. Mr. Roach has been a director of The Liberty
Corporation since 1994.
Jerry G. Hawkins is Plant Manager--Aiken of AGY. Before AGY's formation, Mr.
Hawkins served as Plant Manager of the Business' Aiken facility since 1994. Mr.
Hawkins previously served in various management positions with Owens Corning
since 1969.
Joseph A. Masciangelo is Plant Manager--Huntingdon of AGY. Before AGY's
formation, Mr. Masciangelo served as Plant Manager of the Business' Huntingdon
facility since 1987. Mr. Masciangelo previously served in various management
positions with Owens Corning since 1969.
Executive Compensation
The following table sets forth the salary and other compensation paid to
AGY's President during the period commencing September 30, 1998 through
December 31, 1998:
Name Principal Position Salary Bonus Other(/1/)
---- ------------------ ------- ------- ----------
Robert B. Fisher.................. President $42,500 $15,750 $7,214
- --------
(/1/AGY)reimbursed Mr. Fisher for certain relocation expenses.
Director Compensation
AGY does not pay any compensation to members of its Board of Directors.
52
OPERATING AGREEMENT
The following is a summary of certain material terms of the Amended and
Restated Limited Liability Company Operating Agreement of AGY dated September
30, 1998. The summary is qualified in its entirety by reference to the full
text of the operating agreement, which is filed as an exhibit to the
registration statement of which this prospectus is a part.
Organization
AGY is a limited liability company formed under the Delaware Limited
Liability Company Act and is governed by the operating agreement. As a result
of the formation transactions, a wholly owned subsidiary of Porcher Industries
owns a 51% membership interest in AGY and a wholly owned subsidiary of Owens
Corning owns a 49% membership interest in AGY. The purpose of AGY is to
manufacture and sell glass fiber yarns and related specialty materials.
Duration
Under the operating agreement, AGY will be dissolved upon the first to occur
of the following: (i) September 30, 2097; (ii) upon agreement of the members;
(iii) at the election of one member, upon a material breach of the operating
agreement by the other member which is not cured within 90 days following
notice thereof; and (iv) automatically upon the bankruptcy or liquidation of a
member, unless the other member elects to continue AGY.
Governance
The operating agreement provides that the Board of Directors manages the
business and affairs of AGY, subject to the terms and provisions of the
operating agreement. The Board of Directors is comprised of two directors
designated by Owens Corning and three directors designated by Porcher
Industries. Owens Corning's right to designate two directors would terminate at
such time as it no longer holds at least a 10% ownership interest in AGY.
Actions of the Board of Directors require a quorum of at least a majority of
the Board, including at least one director representing each member.
Robert Fisher, formerly Owens Corning's manager of the Business prior to its
contribution to AGY, has been designated in the operating agreement as the
initial general manager of AGY. Porcher Industries has the exclusive right
under the operating agreement to appoint the chief executive officer and the
chairman of the Board of Directors of AGY. All other executive officers of AGY
are to be designated by the Board of Directors.
The following actions require the approval of 75% of a specified quorum of
the Board of Directors:
. the termination of Mr. Fisher during the first year of his employment as
the initial general manager of AGY;
. the issuance of additional ownership interests of AGY;
. materially changing AGY's business plan or the types of businesses
conducted by AGY or engaging in a new business not currently conducted or
contemplated by AGY;
. effecting any merger, consolidation, plan of exchange or similar
transaction to which AGY is a party;
53
. selling all or a substantial portion of the assets of AGY other than in
the ordinary course of business;
. mortgaging or otherwise encumbering the assets of AGY other than in
connection with AGY's financing facilities;
. except for certain distributions and in connection with the exercise of
the Put Right (as defined herein), effecting a distribution of any assets
of AGY, including cash, to any member;
. effecting the liquidation or dissolution of AGY;
. the redemption of any ownership interest in AGY other than in connection
with the Put Right;
. entering into any contract with any affiliate of AGY or with any member
(except as set forth in "Certain Relationships and Related Transactions")
other than in connection with the Put Right;
. making any tax election which is materially detrimental to AGY or any
member;
. the sale, license or other disposition by AGY to a third party,
including, but not limited to any affiliate of a member, of Owens Corning
technology that Owens Corning assigned or licensed to AGY;
. incurring indebtedness other than (i) indebtedness necessary in
connection with the Put Right, (ii) as required to effect certain
distributions, and (iii) borrowings under the Revolver (as defined
herein) which do not exceed $75 million in the aggregate; or
. materially amending any of the business, health, safety and environmental
policies adopted by AGY.
All actions of the members require the presence and the affirmative vote of
members holding at least 75% of the outstanding ownership interests in AGY.
Owens Corning's right to require supermajority board approval of any of the
actions listed above, except for (i) the issuance of additional ownership
interests in AGY, and (ii) the sale, license or other disposition by AGY to a
third party, including, but not limited to, any affiliate of a member, of Owens
Corning technology that Owens Corning assigned or licensed to AGY, would
terminate at such time as it no longer holds at least a 10% ownership interest
in AGY.
Transfers of Ownership Interests; Registration Rights
Under the operating agreement, no member may transfer its ownership interest
in AGY prior to September 30, 2003 without the prior written consent of the
other member. In the event a member thereafter decides to sell its ownership
interest, the non-selling member has a 30-day right to make an offer for such
ownership interest. If, within the 30-day period, the non-selling member fails
to make an offer, or the selling member rejects the non-selling member's offer,
the selling member is free to sell its ownership interest to any third party.
At any time beginning on September 30, 2003, each member has the right to
sell all of its ownership interest to AGY (a "Put Right") in the event certain
conditions described below are satisfied. If a member exercises its Put Right,
the value of such ownership interest will be determined by a third party or
parties according to the procedures and criteria set forth in the operating
agreement. AGY's obligation to purchase a member's ownership interest is
conditioned on AGY financing the purchase of the ownership interest from a
third party lender while maintaining or
54
obtaining not less than a B rating by either Standard & Poor's or Moody's on
its then-outstanding unsecured debt after giving effect to the purchase. Any
member that exercises its Put Right must reimburse AGY for 25% of certain
expenses incurred by AGY in connection with purchasing such member's ownership
interest. In addition, AGY's ability to fund the Put Right will be subject to
the covenants under the senior credit facility and the indenture for the notes.
In the event AGY is unable to purchase all of a member's ownership interest
upon the exercise of its Put Right, the member may request in writing that AGY
file and use its reasonable best efforts to cause to become effective a
registration statement under the Securities Act, covering the registration of
its ownership interest (or the portion thereof designated by the member).
Certain Distributions
Pursuant to the terms of the operating agreement, AGY will make an annual
distribution (the "Tax Distribution") from its net cash flow and permitted
borrowings under the senior credit facility to each of Owens Corning and
Porcher U.S. in order to fund the taxes payable by each owner on their
proportionate share of AGY's net ordinary income and net capital gain. In
connection with Porcher Industries' purchase of a 51% interest in AGY, AGY
intends to make a partnership election to step up the basis of certain of AGY's
intangible assets. The resulting increase in amortization expense will allow
Porcher U.S. to significantly reduce its tax liability. As a result, the Tax
Distributions will not be made on a pro rata basis and Porcher U.S. will have
an unrecovered distribution amount (the "Deferred Distribution"). The Deferred
Distribution will earn interest at the same rate of interest as the senior
credit facility. If the amortization deductions are disallowed AGY will be
required to distribute all accumulated annual Deferred Distributions to the
extent that (i) both before and after such distribution there is not a default
under the senior credit facility and the notes, and (ii) there are funds to
make such distribution from available cash or borrowings under the senior
credit facility. Thereafter, all Deferred Distributions will cease and AGY will
pay in full all future Tax Distributions to Porcher U.S.
Indemnification
Pursuant to the operating agreement, AGY will indemnify and hold each member
and its affiliates and their respective officers, directors, members,
stockholders, managers, agents and representatives, and members of the Board of
Directors and each officer of AGY, harmless from any and all losses, claims,
damages, costs, liabilities and expenses suffered or incurred by any of such
persons arising out of, resulting from, based upon or in connection with the
management or conduct of the business or affairs of AGY.
The Board of Directors has been advised that, in the opinion of the SEC,
indemnification for liabilities arising under the Securities Act or the
Exchange Act is contrary to public policy and is therefore unenforceable,
absent a decision to the contrary by a court of appropriate jurisdiction.
Other Provisions
The operating agreement, subject to certain exceptions, prohibits members
from disclosing confidential information provided by another member in
connection with the business of AGY. The operating agreement also requires the
members to enter a non-competition agreement with each other and AGY with
respect to the business of AGY. See "Certain Relationships and Related
Transactions--Non-Competition."
55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the contribution, many of the components of the Business necessary
for its operation were owned, leased or otherwise controlled by Owens Corning.
Such components include, among others, manufacturing facilities and equipment,
employees trained in the use and repair of the equipment, access to raw
materials, intellectual property rights and know-how and agreements with sales
representatives worldwide.
In connection with the formation transactions, AGY entered into certain
agreements with Owens Corning and Porcher Industries and their respective
affiliates to facilitate the continuing operation of the Business after it was
transferred by Owens Corning to AGY. These agreements are intended to benefit
AGY and the other parties thereto; however, they may result in conflicts of
interest between AGY and such parties.
The following are summaries of such agreements and, as such, are qualified in
their entirety by reference to the full text of the related agreements. Unless
otherwise indicated, all agreements between AGY and related parties referred to
herein were dated September 30, 1998.
LLC Purchase Agreement
Pursuant to a purchase agreement between Owens Corning, AGY and Porcher
Industries dated as of July 31, 1998, as amended, Porcher Industries purchased
a 51% interest in AGY. See "Prospectus Summary--The Formation Transactions."
The LLC purchase agreement required AGY to enter into the supply agreements
described below relating to the conduct of its business with Owens Corning,
Porcher Industries and certain of their respective affiliates. The LLC purchase
agreement also requires each of Owens Corning and Porcher Industries, subject
to certain conditions and limitations, to indemnify the other from any and all
losses incurred by such party which arise out of the breach by the other party
of any of its representations and warranties or any of its covenants contained
in the LLC purchase agreement.
Non-Competition
Pursuant to a non-compete agreement, Owens Corning and Porcher Industries and
their respective affiliates agreed not to compete with AGY in the manufacture
and sale of certain glass yarns and specialty materials currently produced by
AGY. Subject to certain exceptions, Owens Corning and Porcher Industries and
their respective affiliates may not manufacture or sell, among other things,
such business products, for the later of a five-year period beginning on
September 30, 1998 or such date on which either Owens Corning or Porcher
Industries owns less than a 5% ownership interest in AGY. Owens Corning and
certain of its affiliates have retained the right to manufacture certain
limited types of glass yarns.
Employee Benefits
Owens Corning permits current employees of AGY who were employed by Owens
Corning before September 30, 1998 ("Transferred Employees") to remain as
participants in, be covered by, or accrue benefits under, certain Owens Corning
employee benefit plans. AGY reimburses Owens Corning for the cost of such
coverage. These arrangements will terminate as of December 31, 1999, or earlier
if AGY requests. Although AGY does not currently sponsor a defined benefit
pension plan,
56
AGY has agreed to pay certain amounts associated with early retirement benefits
under the Owens Corning Merged Retirement Plan (the "OC Plan"). Specifically,
Transferred Employees who, as of September 30, 1998, did not qualify for an
early retirement benefit under the OC Plan will continue to receive credit
toward eligibility for the early retirement benefit for service with AGY. If a
Transferred Employee remains employed by AGY until he qualifies for early
retirement, the OC Plan will treat the Transferred Employee as having elected
early retirement upon retirement from AGY. AGY is obligated to pay Owens
Corning the difference between the lump sum benefit payable to the Transferred
Employee as an early retiree and the lump sum benefit payable to the
Transferred Employee as a deferred vested benefit on the date of retirement
from AGY under the applicable provisions of the OC Plan. These liabilities were
estimated to be $4.4 million as of September 30, 1998. It has not yet been
determined what pension arrangements will be made after December 31, 1999 and
whether or not AGY will assume assets and liabilities attributed to benefits
accrued as of September 30, 1998 relating to Transferred Employees under the OC
Plan.
In connection with the formation transactions, AGY assumed liabilities for
postretirement medical and life insurance benefits with respect to Transferred
Employees, which were estimated to be $10.4 million as of September 30, 1998.
Facilities Arrangements at Aiken
Prior to the contribution, Owens Corning's glass yarn and glass mat
factories, located in adjacent plants in Aiken, South Carolina, shared certain
facilities and services. As part of the contribution, Owens Corning transferred
to AGY its glass yarn plant in Aiken, while retaining ownership of the glass
mat plant. In order to preserve the efficiencies and cost savings created by
the sharing arrangements in existence before the contribution, AGY and Owens
Corning have entered into the agreements described below.
Aiken Sewer Agreement. AGY and Owens Corning entered into a sanitary sewer
agreement pursuant to which AGY permits Owens Corning to use AGY's sanitary
system in Aiken for sanitary wastewater discharges in exchange for the payment
by Owens Corning of 50% of the actual costs of maintaining AGY's sanitary
system. The sanitary sewer agreement will terminate after a period of ten
years, unless extended or otherwise terminated as set forth therein.
Aiken Wastewater Treatment Agreement. AGY and Owens Corning entered into a
wastewater treatment agreement pursuant to which AGY treats at AGY's wastewater
treatment facility in Aiken aqueous industrial and laboratory waste discharged
by Owens Corning. In exchange for such services, Owens Corning pays 22% of
AGY's actual costs of operating the wastewater treatment facility. The
wastewater treatment agreement will terminate after a period of ten years,
unless extended or otherwise terminated as set forth therein.
Aiken Stormwater Agreements. AGY and Owens Corning entered into various
stormwater agreements pursuant to which (i) AGY permits Owens Corning to
discharge stormwater into AGY's two stormwater ponds and (ii) Owens Corning
permits AGY to discharge stormwater into Owens Corning's landfill sedimentation
basin in Aiken. Each party is individually responsible for any sampling and for
complying with their respective stormwater permits. The stormwater agreements
will terminate after a period of ten years, unless extended or otherwise
terminated as set forth therein.
Aiken Landfill Agreement. AGY and Owens Corning entered into a landfill
agreement pursuant to which Owens Corning permits AGY to use Owens Corning's
landfill in Aiken for the
57
disposal of waste in exchange for the payment by AGY of 50% of the actual costs
of operating the landfill. The landfill agreement is effective for the
operating life of the landfill, unless earlier terminated as set forth therein.
Facilities Arrangements at Huntingdon
Huntingdon Lease. Owens Corning leases from AGY approximately 9,000 square
feet of AGY's facility in Huntingdon, Pennsylvania for use as a glass mat
manufacturing and distribution facility. The lease will expire on September 30,
2003, unless extended or terminated as provided in the lease agreement. Owens
Corning pays a nominal fixed fee for the term of the lease plus its allocated
share of all building operating expenses, as calculated in the lease agreement.
Huntingdon Air Modeling Agreement. Prior to the contribution, Owens Corning
treated its glass yarn and glass mat manufacturing operations in Huntingdon as
a single facility for environmental compliance purposes. As part of the
contribution, Owens Corning transferred to AGY the entire facility in
Huntingdon, a portion of which it leases back from AGY. In order to maintain
continuity in complying with air emission modeling requirements under
applicable environmental laws, AGY and Owens Corning entered into an air
modeling agreement pursuant to which the parties will treat their respective
facilities in Huntingdon, including the portion leased to Owens Corning, as a
single facility for modeling current and/or projected air emissions. Although
AGY and Owens Corning have agreed to share the costs of such modeling, each
party remains solely responsible for its own environmental liabilities, if any.
The air modeling agreement will terminate after a period of five years, unless
extended or otherwise terminated as set forth therein.
Subleases Relating to Equipment at Aiken and Huntingdon
Prior to the contribution, Owens Corning leased certain equipment used in the
manufacturing of glass yarns at its Aiken and Huntingdon facilities. Owens
Corning agreed to sublease such equipment to AGY on substantially the same
economic terms as provided to Owens Corning in the original leases.
At the Aiken facility, AGY subleases from Owens Corning, pursuant to Owens
Corning's master leases, certain manufacturing equipment owned by Carly 1995
Leasing Trust and a vacuum treatment oven owned by Pitney Bowes Credit
Corporation. AGY subleases other manufacturing equipment from Owens Corning at
its Aiken and Huntingdon facilities pursuant to Owens Corning's master lease
with John Hancock Mutual Life Insurance Company. Specific terms of these
subleases are described below. If any of the master leases are terminated, all
rights of AGY under the related subleases will also terminate.
AGY's sublease with Owens Corning relating to the Carly lease expires on
December 28, 2000. AGY, under certain circumstances, may purchase the equipment
at the termination of the sublease. AGY paid Owens Corning $114,483 pursuant to
such sublease during the fourth quarter of 1998.
The initial term of AGY's sublease with Owens Corning relating to the Pitney
Bowes lease ends on March 31, 2001, but may be extended by AGY for up to two
additional years unless Owens Corning exercises its right to terminate the
sublease. The sublease provides that, under certain circumstances, AGY will be
able to purchase the vacuum treatment oven at the termination of the sublease.
AGY paid Owens Corning $24,480 pursuant to such sublease during the fourth
quarter of 1998.
58
The initial term of AGY's sublease with Owens Corning relating to the John
Hancock lease ends on March 31, 2000, but may be extended by AGY for up to two
additional years unless Owens Corning exercises its right to terminate the
sublease. The sublease provides that, under certain circumstances, AGY will be
able to purchase the equipment at the termination of the sublease. AGY paid
Owens Corning $417,988 pursuant to such sublease during the fourth quarter of
1998.
Services Agreements
AGY and Owens Corning have entered into several agreements pursuant to which
Owens Corning performs certain services for AGY that are important to the
success of AGY's operations. Some of these services agreements will only
continue for a short time until AGY hires and trains its own personnel, while
others are intended to continue for a longer duration. These service
agreements, which are described more fully below, provide for the fabrication
and repair of certain equipment, engineering and technical services, sales
agency agreements in Europe and certain administrative and information systems
services. In addition to the services provided for AGY by Owens Corning, AGY
performs certain manufacturing and distribution services for Owens Corning at
the Huntingdon facility, where Owens Corning continues to have operations.
Alloy Services Agreement. AGY and Owens Corning entered into an alloy
services agreement pursuant to which Owens Corning provides, at prices to be
determined annually, certain services relating to the alloying, fabrication and
repair of bushings, thermocouples and glass melter parts constructed from metal
alloys. AGY has agreed to use Owens Corning exclusively for such services
subject to certain exceptions. Owens Corning has also agreed to manage AGY's
inventory of industrial precious metals and metal alloys and, under certain
conditions, to lease to AGY metal alloys for use in bushings, thermocouples and
glass melter parts at prices determined according to the formula set forth in
the alloy services agreement. Such agreement will terminate on December 31,
2005, unless extended or otherwise terminated. AGY paid Owens Corning $740,377
for the refurbishing of bushings during the fourth quarter of 1998.
Support Services Agreement. AGY and Owens Corning entered into a support
services agreement pursuant to which Owens Corning provides certain
engineering, design and technical services to AGY at previously agreed upon
prices for a five-year period. The support services agreement will be
automatically extended each year for an additional one-year term until
termination as set forth therein.
Transitional Services Agreement. AGY and Owens Corning entered into a
transitional services agreement pursuant to which Owens Corning provides
certain corporate administrative and information systems services to AGY and
AGY provides certain services to Owens Corning at mutually agreed upon prices.
The provision of certain benefits administration and information system
services will expire on December 31, 1999. The provision of all other services
provided for in the transitional services agreement will expire on March 31,
1999, unless extended for an additional three months upon the written request
of the party receiving such services.
Manufacturing Services Agreement. AGY and Owens Corning entered into a
manufacturing services agreement pursuant to which AGY provides certain
manufacturing services to Owens Corning to support Owens Corning's glass mat
manufacturing and distribution business in
59
Huntingdon. Owens Corning pays an annual fee (to be mutually agreed upon and
periodically reviewed by Owens Corning and AGY) for the provision by AGY of
certain manufacturing, management and ancillary services and pays additional
fees in exchange for AGY's provision of other services that may be requested by
Owens Corning. The manufacturing services agreement will expire on such date
that Owens Corning or any of its affiliates no longer owns a 49% ownership
interest in AGY, unless earlier terminated as set forth therein.
Supply Agreements
Prior to the contribution, Owens Corning obtained the raw materials needed
for the Business from its affiliates or through third party suppliers. Owens
Corning and AGY have entered into supply agreements, more fully described
below, which provide AGY with access to the necessary raw materials through
Owens Corning's affiliated and non-affiliated suppliers. In addition, pursuant
to the agreements described below, AGY purchased certain assets of the glass
yarns business of several of Owens Corning's non-U.S. affiliates. AGY has also
agreed to sell byproducts of one of its manufacturing processes to Owens
Corning.
Byproducts Supply Agreement. AGY and Owens Corning entered into a supply
agreement pursuant to which Owens Corning will purchase the first 10 million
pounds of certain byproducts of AGY's manufacturing processes called dry
chopped yarn and slit hanks that are produced each year by AGY. Each year,
Owens Corning will pay a fixed price per pound for the first 10 million pounds
of byproducts and a higher fixed price for any additional amounts shipped by
AGY. AGY is under no obligation to manufacture any specified quantity of the
byproducts to supply to Owens Corning. The byproducts supply agreement will
expire on December 31, 2003, after which it may be renewed for additional five-
year terms, unless canceled by either party.
Borates Supply Agreement. Prior to the contribution, Owens Corning entered
into an agreement with Etibank, a supplier of borates in Turkey that is owned
by the Turkish government, pursuant to which Etibank mines, processes, sells
and delivers borates to Owens Corning for use in manufacturing glass yarns. AGY
and Owens Corning entered into a borates supply agreement pursuant to which AGY
purchases a certain quantity of borates from Owens Corning at a price equal to
Owens Corning's cost to purchase, transport and process such products plus a
$150,000 annual administrative charge. The borates supply agreement will
terminate on December 31, 2005, after which it will automatically renew for a
period equal to any renewal period in Owens Corning's supply agreement with
Etibank, unless canceled by either party upon 90 days' advance notice.
OC Belgium Agreements. AGY and N.V. Owens Corning S.A., a wholly owned
subsidiary of Owens Corning ("OC Belgium"), entered into a supply agreement
pursuant to which AGY purchases at previously determined prices minimum
quantities of certain fiberglass yarns to be manufactured by OC Belgium at its
facility in Battice, Belgium. AGY also has the option to acquire the Battice
plant's fiberglass yarns manufacturing equipment upon the termination of the
agreement or at the time Owens Corning no longer uses such equipment to produce
fiberglass yarns. The supply agreement with OC Belgium will terminate on
December 31, 2003, after which it may be renewed for additional one-year terms,
unless canceled by either party. In addition, AGY has an exclusive right to
terminate such agreement effective December 31, 2001 upon one year's prior
notice.
AGY and OC Belgium also entered into a purchase agreement pursuant to which
AGY purchased OC Belgium's list of customers that purchase heavy glass yarns
from OC Belgium,
60
transferable contracts between OC Belgium and its customers, the finished
products inventory of heavy glass yarns owned by OC Belgium that were located
in its public warehouse in Antwerp, Belgium, and all of OC Belgium's accounts
receivable arising exclusively out of the sale of heavy glass yarns by OC
Belgium.
OC Canada Agreements. The Canadian subsidiary of AGY and Owens-Corning
Canada, Inc., a wholly owned subsidiary of Owens Corning ("OC Canada"), entered
into a supply agreement pursuant to which AGY purchases at previously
determined prices minimum and maximum quantities of certain fiberglass yarns to
be manufactured by OC Canada at its facility in Guelph, Canada. AGY and Owens
Corning intend to append to this agreement an arrangement pursuant to which AGY
will purchase for distribution certain quantities of Low Tex Type 30 yarns at
agreed upon prices. AGY has the option to acquire the Guelph plant fiberglass
yarns manufacturing equipment upon the termination of the agreement or at the
time Owens Corning no longer uses such equipment to produce fiberglass yarns.
The supply agreement with OC Canada will terminate on December 31, 2001, after
which it may be renewed for additional one-year terms, unless canceled by
either party. In addition, AGY has the exclusive right to terminate such
agreement at any time upon 90 days' prior notice.
A wholly owned subsidiary of AGY and OC Canada entered into a purchase
agreement pursuant to which such subsidiary of AGY purchased OC Canada's list
of customers which purchase heavy glass yarns from OC Canada, transferable
contracts between OC Canada and its customers, and all of OC Canada's accounts
receivable arising exclusively out of the sale of heavy glass yarns by OC
Canada.
OC Japan Agreement. AGY and Owens Corning (Japan) Ltd., a wholly owned
subsidiary of Owens Corning ("OC Japan"), entered into a purchase agreement
pursuant to which AGY purchased OC Japan's list of customers which purchase
glass yarns from OC Japan, transferable contracts between OC Japan and certain
of its customers, all of OC Japan's accounts receivable arising exclusively out
of the sale of glass yarns by OC Japan, and the finished products inventory of
glass yarns owned by OC Japan that were located in its warehouses in Tokyo and
Osaka, Japan.
Rio Claro Low Tex Type 30 Agreements. AGY and Owens Corning do Brazil Ltda
("OC Brazil"), a wholly owned subsidiary of Owens Corning, intend to enter into
supply agreements pursuant to which AGY will purchase for distribution certain
minimum and maximum quantities of fiberglass yarns with a bare glass linear
density of 300 at agreed upon prices. These yarns are to be manufactured by OC
Brazil at its plant in Rio Claro, Brazil.
Glass Marbles Supply Agreement. AGY and Owens Corning entered into a glass
marbles supply agreement pursuant to which AGY purchases exclusively from Owens
Corning at mutually determined prices all of AGY's requirements for glass
marbles for use in its glass yarns business. Owens Corning has agreed not to
supply glass marbles to any third party for use in the manufacturing of glass
yarns. AGY has the option to acquire Owens Corning's glass marbles
manufacturing equipment upon the termination of the agreement or at the time
Owens Corning no longer uses such equipment to produce glass marbles. The glass
marbles supply agreement will expire on December 31, 2005, after which it may
be renewed for additional five-year terms by either party, unless terminated by
AGY upon two years' prior notice. AGY paid Owens Corning $1.12 million for
glass marbles during the fourth quarter of 1998.
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Co-location Arrangement with BGF Industries in South Hill, Virginia
Prior to the contribution, Owens Corning entered into a co-location
arrangement with BGF Industries in South Hill, Virginia. As a result of the
formation transactions, AGY has succeeded to Owens Corning's rights and
obligations under the co-location arrangement. As part of the arrangement, AGY
leases approximately 27,200 square feet of segregated space within BGF
Industries' recently built multi-layer plant for the purpose of manufacturing
fiberglass yarn for sale to BGF Industries pursuant to a 10-year renewable
supply contract. AGY paid BGF Industries approximately $900,000 pursuant to
such co-location arrangement in 1998. Also as part of the co-location
arrangement, AGY leases from BGF Industries manpower at an hourly job rate per
employee and BGF Industries provides technical, quality control and improvement
and other non-managerial services to AGY at previously determined rates. The
employee leasing and services contracts end upon the termination of either the
premises lease or the supply contract. The parties also have agreed to certain
confidentiality and disclosure obligations in connection with the co-location
arrangement.
Intellectual Property
In connection with the contribution, Owens-Corning Fiberglas Technology,
Inc., a wholly owned subsidiary of Owens Corning ("OCFT"), assigned to AGY
certain patents, know-how, trademarks and business information, relating to or
used in AGY's business. Owens Corning has also licensed to AGY certain
additional intellectual property assets and rights, mainly patents and know-
how, pursuant to a patent and know-how license agreement and certain related
agreements (collectively, the "Master License") among it, OCFT and AGY. The
Master License grants to AGY a worldwide, paid-up and royalty-free license to
make, have made, use, sell, import and offer to sell glass fiber specialty
products. The license is exclusive for the duration of the non-compete
agreement between Owens Corning and AGY with respect to certain products and
non-exclusive with respect to others, and AGY has sublicensing rights subject
to certain exceptions, restrictions and limitations. The patent license
included in the Master License is for the life of the patent, while the know-
how license is perpetual. The patent and know-how licenses are terminable only
upon the occurrence of certain events. The Master License also includes a
grant-back license by AGY to Owens Corning, under the patents owned by AGY, for
the manufacture, import and sale of certain yarn products. This grant-back
license does not include those products which Owens Corning is prohibited from
selling for the duration of the non-compete agreement. The Master License
further provides that Owens Corning has agreed to render to AGY, upon request
and on terms to be agreed upon, certain services relating to AGY's manufacture
of glass yarn products.
62
SECURITY OWNERSHIP
The following table sets forth certain information regarding each person or
entity that beneficially owns more than a 5% ownership interest in AGY. Each
indicated entity has sole voting and investment power with respect to its
respective ownership interest.
Name of Beneficial Owner Ownership Interest
- ------------------------ ------------------
Porcher Industries, S.A.(/1/)................................ 51%
Owens Corning(/2/)........................................... 49
- --------
(1) Address is c/o BGF Industries, Inc., 3802 Robert Porcher Way, Greensboro,
North Carolina 27510. Porcher Industries owns 100% of the outstanding
capital stock of Glass Holdings Corp., which owns 100% of the outstanding
capital stock of AGY Holdings, Inc., which is the record holder of a 51%
ownership interest in AGY.
(2) Address is One Owens Corning Parkway, Toledo, Ohio 43659-0001. Owens
Corning owns 100% of the outstanding capital stock of Jefferson Holdings,
Inc., which is the record holder of a 49% ownership interest in AGY.
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DESCRIPTION OF OTHER INDEBTEDNESS
Senior Credit Facility
In connection with the formation transactions, AGY entered into the senior
credit facility with certain lenders pursuant to which the lenders committed to
lend to AGY up to $315.0 million, such amount to be allocated among:
. a six-year revolving credit facility in an aggregate principal amount of
up to $75.0 million (the "Revolver");
. a six-year term loan in an aggregate principal amount of $115.0 million
("Term Loan A"); and
. a seven-year term loan in an aggregate principal amount of $125.0 million
("Term Loan B," and together with Term Loan A, the "Term Loans").
First Union National Bank serves as agent under the senior credit facility.
Repayment. Commitments under the Revolver will be reduced prior to maturity
on September 30, 2004, if, subject to certain limitations, (i) certain non-
ordinary course asset dispositions occur, (ii) AGY or any Credit Facility
Guarantor (as defined below) issues certain debt or equity securities or (iii)
AGY or any Credit Facility Guarantor receives certain insurance proceeds. The
Term Loans will be amortized on a quarterly basis commencing December 31, 1998
based on the following schedule:
Twelve Months
Ending
September 30, Term Loan A Term Loan B
------------- ------------ ------------
1999........................................... $ 11,500,000 $ 1,250,000
2000........................................... 17,250,000 1,250,000
2001........................................... 17,250,000 1,250,000
2002........................................... 23,000,000 1,250,000
2003........................................... 23,000,000 1,250,000
2004........................................... 23,000,000 1,250,000
2005........................................... 0 117,500,000
------------ ------------
$115,000,000 $125,000,000
============ ============
The Term Loans will also, in certain circumstances, be prepaid with an
amount, subject to certain restrictions, equal to the excess cash flow of AGY.
Security; Guaranty. The senior credit facility is secured by a first priority
lien on substantially all of the properties and assets of AGY and its
respective domestic subsidiaries, now owned or acquired thereafter and a pledge
of Porcher Industries' membership interest in AGY. The senior credit facility
is guaranteed by AGY Capital Corp. and will be guaranteed by all of AGY's
future domestic subsidiaries (the "Credit Facility Guarantors").
Interest. At AGY's option, the interest rates per annum applicable to the
Revolver, Term Loan A and Term Loan B are fluctuating rates of interest
measured by reference either to: (i) LIBOR plus a borrowing margin or (ii)
First Union National Bank's base rate, which is the greater of the published
prime rate of First Union National Bank or the overnight federal funds rate
plus 0.5% (the "ABR") plus a borrowing margin. The applicable borrowing margin
for the Revolver and Term Loan A ranges from 1.75% to 3.0% for LIBOR based
borrowings and 0.5% to 1.75% for ABR based
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borrowings. The applicable borrowing margin for Term Loan B ranges from 3.50%
to 3.75% for LIBOR based borrowings and 2.25% to 2.5% for ABR based borrowings.
AGY has entered into interest rate hedging agreements which effectively fix the
rates of interest on Term Loan A and Term Loan B at 4.92% and 5.04% per annum,
respectively, plus the applicable borrowing margin.
Covenants. The senior credit facility contains covenants restricting AGY and
its subsidiaries with respect to the following:
. the incurrence of debt (including guarantees);
. the creation of liens;
. substantially changing the nature of AGY's or its subsidiaries'
businesses;
. the consummation of certain transactions such as dispositions of
substantial assets, mergers, acquisitions, reorganizations and
recapitalizations;
. the making of certain investments and loans, non-ordinary course asset
sales and capital expenditures;
. the making of dividends and other distributions; transactions with
affiliates; and
. AGY's ability to prepay certain debt.
The senior credit facility also requires AGY to comply with certain financial
tests and maintain certain financial ratios. Certain of these financial tests
and ratios include:
. maintaining a maximum leverage ratio;
. maintaining a minimum consolidated net worth;
. maintaining a minimum interest coverage ratio; and
. maintaining a minimum fixed charge coverage ratio.
The senior credit facility also contains customary events of default. An
event of default under the senior credit facility will allow the lenders
thereunder to accelerate or, in certain cases, will automatically cause the
acceleration of, the maturity of the debt under the senior credit facility and
will restrict the ability of AGY and the Note Guarantors (as defined herein) to
meet their obligations to the holders of the notes.
Keep-Well Agreement
In connection with the formation transactions, on September 30, 1998, Owens
Corning agreed to enter into a keep-well agreement with AGY. Until January 14,
2002, if AGY does not have the liquidity necessary to pay interest on the notes
or on the senior credit facility when due, Owens Corning will loan AGY an
amount equal to the aggregate deficiency. The proceeds of any loan shall first
be applied to interest due on the notes and then, subject to certain
limitations, to interest due on the senior credit facility. As of September 30,
1998, the obligation of Owens Corning to make loans to AGY under the keep-well
agreement was limited to a maximum aggregate amount of $65.0 million, and a
maximum annual amount of $20.0 million; provided, however, that the annual
amount will be reduced by $10.0 million after each interest payment date with
respect to the notes. Any loans made to AGY pursuant to the keep-well agreement
will be subordinate to the notes and any amounts outstanding under the senior
credit facility. If AGY were to file for bankruptcy protection, the keep-well
agreement would probably cease to be enforceable.
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DESCRIPTION OF EXCHANGE NOTES
The exchange notes will be issued under the indenture, dated as of the Issue
Date, between the Issuers, as joint and several obligors, and The Bank of New
York, as trustee. The following summary of certain provisions of the indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"TIA"), and to all of the provisions of the indenture, including the
definitions of certain terms therein and those terms made a part of the
indenture by reference to the TIA as in effect on the date of the indenture.
The definitions of certain capitalized terms used in the following summary are
set forth below under "--Certain Definitions." References in this "Description
of Exchange Notes" section to "AGY" mean only Advanced Glassfiber Yarns LLC (or
any successor or assign thereof that has become such in accordance with the
terms of the indenture) and not any existing or future Subsidiaries that
Advanced Glassfiber Yarns LLC may have in the future; references to the
"Issuers" mean Advanced Glassfiber Yarns LLC and Capital, but not any existing
or future Subsidiaries that either Advanced Glassfiber Yarns LLC or Capital may
have in the future and references to "Capital" mean AGY Capital Corp.
The exchange notes will be issued solely in exchange for an equal principal
amount of old notes pursuant to the exchange offer. The form and terms of the
exchange notes will be identical in all material respects to the form and terms
of the old notes except that: (i) the exchange notes will have been registered
under the Securities Act and (ii) the registration rights and contingent
liquidated damages provisions applicable to the old notes are not applicable to
the exchange notes.
The exchange notes will be unsecured senior subordinated obligations of the
Issuers. The exchange notes will be unconditionally guaranteed, jointly and
severally, on an unsecured senior subordinated basis by all future direct and
indirect Restricted Subsidiaries other than Capital and Foreign Subsidiaries of
AGY (each such guarantee is referred to as a "Note Guarantee" and such
guarantees are collectively referred to as the "Note Guarantees;" each
Subsidiary that provides a Note Guarantee is referred to as a "Note Guarantor"
and such Subsidiaries are collectively referred to as the "Note Guarantors").
As of the date hereof, AGY has one Foreign Subsidiary, which will be a
Restricted Subsidiary. Capital will also be a Restricted Subsidiary.
Initially, the trustee will act as paying agent and registrar for the
exchange notes. AGY may change any paying agent and registrar without notice to
holders of the exchange notes. Holders must surrender exchange notes to a
paying agent to collect principal payments and premium, if any. Principal,
premium, if any, and interest on the exchange notes will be paid by check
mailed to the registered holders at their registered addresses; provided,
however, that all payments with respect to exchange notes the holders of which
have given wire transfer instructions to the Issuers will be made by wire
transfer of immediately available funds to the accounts specified by the
holders thereof.
Principal, Maturity and Interest
The exchange notes will mature on January 15, 2009. Interest on the exchange
notes will accrue at the rate of 9 7/8% per annum and will be payable semi-
annually in arrears on each January 15 and July 15, commencing on July 15,
1999, to the persons who are registered holders at the close of business on the
January 1 and July 1, respectively, immediately preceding the applicable
interest payment date. Interest on the exchange notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from and including the date of issuance. The exchange notes will not be
entitled to the benefit of any mandatory sinking fund.
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Additional Notes
Subject to the limitations set forth under "--Certain Covenants--Limitation
on Incurrence of Additional Indebtedness," the Issuers may Incur additional
Indebtedness which, at their option, may consist of additional notes, in one or
more series, having identical terms as old notes or exchange notes (the
"Additional Notes"). Holders of such Additional Notes will have the right to
vote together with holders of the old notes and the exchange notes as one
class. No offering of any such Additional Notes is being or shall be deemed to
be made by this prospectus. In addition, there can be no assurance as to when
or whether the Issuers will issue any such Additional Notes or as to the
aggregate principal amount of such Additional Notes.
Ranking
The exchange notes will rank junior to, and be subordinated in right of
payment to, all existing and future Senior Indebtedness of the Issuers, pari
passu in right of payment with all Senior Subordinated Indebtedness of the
Issuers and senior in right of payment to all Subordinated Indebtedness of the
Issuers. At September 30, 1998, after giving effect to the offering of the old
notes, the Issuers would have had approximately $262.1 million of Senior
Indebtedness outstanding (exclusive of unused commitments). All debt Incurred
under the senior credit facility is Senior Indebtedness of AGY, is guaranteed
by all Note Guarantors on a senior basis and is secured by substantially all of
the assets of AGY.
Note Guarantees
In the event that any Person shall become a Restricted Subsidiary (other than
Foreign Subsidiaries but including, without limitation, upon a Revocation of
the Designation of a Subsidiary as an Unrestricted Subsidiary), AGY will cause
such Restricted Subsidiary to execute and deliver to the trustee a supplemental
indenture in form reasonably satisfactory to the trustee pursuant to which such
Restricted Subsidiary shall become a party to the indenture and thereby
unconditionally guarantee all of the Issuers' Obligations under the exchange
notes and the indenture on the terms set forth therein. Thereafter, such
Restricted Subsidiary shall (unless released in accordance with the terms of
the indenture) be a Note Guarantor for all purposes of the indenture.
Each Note Guarantor will irrevocably and unconditionally guarantee, jointly
and severally, on an unsecured senior subordinated basis, the punctual payment
when due, whether at Stated Maturity, by acceleration or otherwise, of all
obligations of the Issuers under the indenture and the exchange notes, whether
for principal of, premium, if any, or interest on the exchange notes, expenses,
indemnification or otherwise (all such obligations guaranteed by a Note
Guarantor being herein called the "Guaranteed Obligations"). Each Note
Guarantor will agree to pay, on a senior subordinated basis and in addition to
the amounts stated above, any and all expenses (including reasonable counsel
fees and expenses) incurred by the trustee or the holders in enforcing any
rights under such Note Guarantor's Note Guarantee.
The Guaranteed Obligations will rank junior to, and be subordinated in right
of payment to, all existing and future Senior Indebtedness of the Note
Guarantors, pari passu in right of payment with all Senior Subordinated
Indebtedness of the Note Guarantors and senior in right of payment to all
Subordinated Indebtedness of the Note Guarantors. All debt Incurred under the
senior credit facility will be guaranteed by each Note Guarantor on a senior
basis and will be secured by substantially all of the assets of each Note
Guarantor.
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The Guaranteed Obligations of each Note Guarantor will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Note Guarantor (including, without limitation, any
guarantees under the senior credit facility and any Senior Indebtedness
Incurred after the Issue Date) and after giving effect to any collections from
or payments made by or on behalf of any other Note Guarantor in respect of the
Guaranteed Obligations of such other Note Guarantor under its Note Guarantee or
pursuant to its contribution obligations under the indenture, result in the
Guaranteed Obligations of such Note Guarantor not constituting a fraudulent
conveyance or fraudulent transfer under federal, state or other applicable law.
Each Note Guarantor that makes a payment or distribution under a Note Guarantee
will be entitled to a contribution from each other Note Guarantor in a pro rata
amount, based on the net assets of each Note Guarantor determined in accordance
with GAAP. For further information, you should review the section "Risk
Factors" under the heading "Issuance of the Old Notes and any Note Guarantee
May be Subject to Fraudulent Conveyance Laws."
In the event (i) there is a Legal Defeasance of the exchange notes as
described under "--Legal Defeasance and Covenant Defeasance," (ii) there is a
sale or other disposition of all or substantially all of the assets of any Note
Guarantor, (iii) there is a sale or other disposition of all of the Capital
Stock of any Note Guarantor or (iv) a Note Guarantor is designated as an
Unrestricted Subsidiary as described under "--Certain Covenants--Designation of
Unrestricted Subsidiaries," such Note Guarantor will be released and relieved
of its obligations under its Note Guarantee; provided, however, in the case of
clauses (ii) or (iii), that such transaction is carried out pursuant to and in
accordance with "--Certain Covenants--Limitation on Asset Sales" and, if
applicable, "--Certain Covenants--Merger, Consolidation and Sale of Assets."
Subordination of the Exchange Notes and the Note Guarantees
The payment of the principal of, premium, if any, and interest on the
exchange notes is subordinated in right of payment, as set forth in the
indenture, to the prior payment in full in cash of all existing and future
Obligations of the Issuers in respect of Senior Indebtedness of the Issuers,
whether outstanding on the Issue Date or thereafter Incurred. In addition, the
payment of the Guaranteed Obligations of each future Note Guarantor, if any,
under its Note Guarantee will be subordinated and junior in right of payment to
the prior payment in full of all Senior Indebtedness of such Note Guarantor to
substantially the same extent as the exchange notes are subordinated to all
existing and future Obligations of the Issuers in respect of Senior
Indebtedness of the Issuers. As a result, the exchange notes will be
effectively subordinated to all Senior Indebtedness of any Note Guarantor and
to all debt of any other Subsidiaries that AGY may have in the future.
Notwithstanding anything to the contrary contained herein, any payment made by
Owens Corning under the Keep-Well Agreement shall not be subject to the
provisions of this paragraph.
Upon any payment or distribution of the assets of the Issuers or a Note
Guarantor upon a total or partial liquidation, dissolution or reorganization
of, or similar proceeding relating to, the Issuers or their property or a Note
Guarantor or its property, the holders of Senior Indebtedness of the Issuers or
such Note Guarantor will be entitled to receive payment in full of all
Obligations due in respect of such Senior Indebtedness before the holders are
entitled to receive any payment, and until all Obligations due in respect of
the Senior Indebtedness is paid in full in cash, any payment or distribution to
which holders would be entitled but for the subordination provisions of the
indenture will be made to holders of such Senior Indebtedness of the Issuers or
such Note Guarantor as their
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interests may appear. If a distribution is made to holders that, due to the
subordination provisions, should not have been made to them, such holders are
required to hold it in trust for the holders of Senior Indebtedness of the
Issuers or such Note Guarantor and pay it over to them as their interests may
appear.
Notwithstanding anything herein to the contrary, neither the Issuers nor any
Note Guarantor may pay principal of, premium, if any, or interest on the
exchange notes or make any deposit pursuant to the provisions described under
"--Legal Defeasance and Covenant Defeasance" below or repurchase, redeem or
otherwise retire any exchange notes (collectively, "pay the exchange notes") if
(i) any Designated Senior Indebtedness is not paid when due or (ii) any other
default on Designated Senior Indebtedness occurs and the maturity of such
Designated Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full in cash. However, the Issuers and any Note Guarantor may pay the
exchange notes without regard to the foregoing if the Issuers and such Note
Guarantor and the trustee receive written notice approving such payment from
the Representative of the Designated Senior Indebtedness with respect to which
either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of
any default (other than a default described in clause (i) or (ii) of the second
preceding sentence) with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, neither AGY nor any Note
Guarantors may pay the exchange notes for a period (a "Payment Blockage
Period") commencing upon the receipt by the trustee (with a copy to the Issuers
and each Note Guarantor) of written notice (a "Blockage Notice") of such
default from the Representative of the holders of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the trustee, the Note Guarantors and the
Issuers from the Person or Persons who gave such Blockage Notice, (ii) because
the Representative of the holders of such Designated Senior Indebtedness has
notified the trustee that the default giving rise to such Blockage Notice is no
longer continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full in cash). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the first sentence of this
paragraph), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, the Issuers and any Note Guarantors may resume payments on
the exchange notes after the end of such Payment Blockage Period. The exchange
notes and any Note Guarantees shall not be subject to more than one Payment
Blockage Period in any consecutive 360-day period, irrespective of the number
of defaults with respect to Designated Senior Indebtedness during such period.
If payment of the exchange notes is accelerated because of an Event of
Default, the Issuers or the trustee shall promptly notify the holders of
Designated Senior Indebtedness or the Representative of such holders of the
acceleration.
By reason of the subordination provisions contained in the indenture, in the
event of an insolvency, bankruptcy, reorganization, or liquidation of the
Issuers, or upon the occurrence of a Change of Control or an Asset Sale
requiring repurchase by AGY of any exchange notes or in the event that any Note
Guarantors are required to make payments under their Note Guarantees, there may
not be sufficient assets remaining to satisfy the claims of the holders after
satisfying the claims
69
of creditors of the Issuers and such Note Guarantors who are holders of Senior
Indebtedness and claims of creditors of the Issuers' other Subsidiaries. For
more information, you should review the section "Risk Factors" under the
heading "Your Exchange Notes Will Be Subordinate to Our Senior Debt."
The terms of the subordination provisions described above will not apply to
any payment or distribution of Permitted Junior Securities or to payment from
money or the proceeds of U.S. government obligations held in trust by the
trustee for the payment of principal of, premium, if any, and interest on the
exchange notes pursuant to the provisions described under "--Legal Defeasance
and Covenant Defeasance."
Redemption
Optional Redemption. The exchange notes will be redeemable, at the Issuers'
option, in whole at any time or in part from time to time, on and after January
15, 2004, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on January 15 of the year
set forth below, plus, in each case, accrued interest to the date of redemption
(subject to the right of holders of record on a record date to receive interest
due on the related interest payment date that is on or prior to such date of
redemption):
Year Percentage
---- ----------
2004........................................................... 105.063%
2005........................................................... 103.375%
2006........................................................... 101.688%
2007 and thereafter............................................ 100.000%
Optional Redemption upon Public Equity Offerings. In addition, at any time,
or from time to time, on or prior to January 15, 2002 the Issuers may, at their
option, use the net cash proceeds of one or more Public Equity Offerings (as
defined below) to redeem in the aggregate up to 35% of the aggregate principal
amount of the exchange notes originally issued at a redemption price equal to
110.125% of the principal amount thereof, plus accrued and unpaid interest
thereon to the date of redemption (subject to the right of holders of record on
a record date to receive interest due on the related interest payment date that
is on or prior to such date of redemption); provided, however, that after
giving effect to any such redemption at least 65% of the aggregate principal
amount of the exchange notes originally issued remains outstanding. In order to
effect the foregoing redemption with the proceeds of any Public Equity
Offering, the Issuers shall make such redemption not more than 60 days after
the consummation of such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of AGY or Capital
pursuant to a registration statement filed with the Commission in accordance
with the Securities Act, or any successor statute.
In the event that less than all of the exchange notes are to be redeemed at
any time, selection of such exchange notes for redemption will be made by the
trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such exchange notes are listed or, if
such exchange notes are not then listed on a national securities exchange, on a
pro rata basis, by lot or by such method as the trustee shall deem fair and
appropriate; provided, however, that no exchange notes of a principal amount of
$1,000 or less shall be redeemed in part and exchange notes of a principal
amount in excess of $1,000 may be redeemed in part in multiples of $1,000 only;
and
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provided, further, that if a partial redemption is made with the proceeds of a
Public Equity Offering, selection of the exchange notes or portions thereof for
redemption shall, subject to the preceding proviso, be made by the trustee only
on a pro rata basis or on as nearly a pro rata basis as is practicable (subject
to the procedures of DTC or a successor depositary), unless such method is
otherwise prohibited. Notice of redemption shall be mailed by first-class mail
at least 30 but not more than 60 days before the redemption date to each holder
of exchange notes to be redeemed at its registered address. If any exchange
note is to be redeemed in part only, the notice of redemption that relates to
such exchange note shall state the portion of the principal amount thereof to
be redeemed. A new exchange note in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original exchange note. On and after the redemption date,
interest will cease to accrue on exchange notes or portions thereof called for
redemption as long as the Issuers have deposited with the paying agent funds in
satisfaction of the applicable redemption price pursuant to the indenture.
Change of Control
The indenture provides that, upon the occurrence of a Change of Control, each
holder will have the right to require that the Issuers purchase all or a
portion (in integral multiples of $1,000) of such holder's notes pursuant to
the offer described below (the "Change of Control Offer"), at a purchase price
equal to 101% of the principal amount thereof plus accrued and unpaid interest
thereon to the date of purchase (subject to the right of holders of record on a
record date to receive interest due on the related interest payment date that
is on or prior to such date of purchase). Within 30 days following the date
upon which the Change of Control occurred, AGY must send, by first-class mail,
a notice to each holder, with a copy to the trustee, which notice shall govern
the terms of the Change of Control Offer. Such notice shall state, among other
things, the purchase date, which must be no earlier than 30 days nor later than
60 days from the date such notice is mailed, other than as may be required by
law (the "Change of Control Payment Date"). Holders electing to have a note
purchased pursuant to a Change of Control Offer will be required to surrender
the note, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the note completed, to the paying agent at the address specified in
the notice prior to the close of business on the third business day prior to
the Change of Control Payment Date.
The senior credit facility contains, and future Senior Indebtedness of the
Issuers may contain, prohibitions on the occurrence of certain events that
would constitute a Change of Control or require such Senior Indebtedness to be
repaid or repurchased upon a Change of Control. Moreover, the exercise by the
holders of their right to require the Issuers to repurchase the notes would
cause a default under the senior credit facility and could cause a default
under such other Senior Indebtedness even if the Change of Control itself does
not, due to the financial effect of such repurchase on the Issuers. If a Change
of Control Offer is made, there can be no assurance that the Issuers will have
available funds sufficient to pay the Change of Control purchase price for all
the notes that might be delivered by holders seeking to accept the Change of
Control Offer. In the event the Issuers are required to purchase outstanding
notes pursuant to a Change of Control Offer, the Issuers expect that they would
seek third-party financing to the extent they do not have available funds to
meet their purchase obligations and any other obligations in respect of Senior
Indebtedness. However, there can be no assurance that the Issuers would be able
to obtain such financing.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable
71
in connection with the purchase of notes pursuant to a Change of Control Offer.
To the extent that the provisions of any securities laws or regulations
conflict with the "Change of Control" provisions of the indenture, the Issuers
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the "Change of Control"
provisions of the indenture by virtue thereof.
Certain Covenants
The indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. (a) AGY will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, Incur any Indebtedness (including Acquired Indebtedness) other than
Permitted Indebtedness; provided, however, that AGY and any Note Guarantor may
Incur Indebtedness if, at the time of and immediately after giving pro forma
effect to the Incurrence thereof and the application of the proceeds therefrom,
the Consolidated Fixed Charge Coverage Ratio is greater than 2.0 to 1.0.
(b) For purposes of determining compliance with, and the outstanding
principal amount of any particular Indebtedness Incurred pursuant to and in
compliance with, this covenant, the amount of Indebtedness issued at a price
that is less than the principal amount thereof will be equal to the amount of
the liability in respect thereof determined in accordance with GAAP.
Limitation on Restricted Payments. AGY will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or
pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of AGY or in warrants, rights
or options to purchase or acquire shares of Qualified Capital Stock of AGY or
dividends or distributions payable to AGY or a Restricted Subsidiary and pro
rata dividends or distributions to AGY and/or its Restricted Subsidiaries and
to minority holders of Capital Stock of Restricted Subsidiaries) on or in
respect of shares of Capital Stock of AGY or any Restricted Subsidiary to
holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or
retire for value (other than any such purchase, redemption, acquisition or
retirement that constitutes a Permitted Investment) any Capital Stock of AGY or
any Restricted Subsidiary or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock (other than any such Capital
Stock, warrants, rights or options owned by AGY or any Restricted Subsidiary),
(c) make any principal payment on, purchase, defease, redeem, prepay, decrease
or otherwise acquire or retire for value, prior to any scheduled final
maturity, scheduled repayment or scheduled sinking fund payment, as the case
may be, any Subordinated Indebtedness, or (d) make any Investment (other than
Permitted Investments) (each of the foregoing actions set forth in (but not
excluded from) clauses (a), (b), (c) and (d) being referred to as a "Restricted
Payment"), if at the time of such Restricted Payment or immediately after
giving effect thereto, (i) a Default or an Event of Default shall have occurred
and be continuing or (ii) AGY is not able to Incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
covenant described under "--Limitation on Incurrence of Additional
Indebtedness" or (iii) the aggregate amount of Restricted Payments (including
such proposed Restricted Payment) made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash, being the Fair Market Value
of such property) shall exceed the sum of: (A) 50% of cumulative Consolidated
Net Income (or if cumulative Consolidated Net Income shall be a loss, minus
100% of such loss) accrued during the period (treated as one accounting period)
beginning on the first day of the fiscal quarter beginning on
72
January 1, 1999 to the end of the most recent fiscal quarter for which
consolidated financial information of AGY is available; plus (B) 100% of the
aggregate net cash proceeds received by AGY from any Person (other than a
Restricted Subsidiary of AGY) from any capital contribution to AGY or issuance
and sale (other than to a Restricted Subsidiary) of Qualified Capital Stock of
AGY subsequent to the Issue Date or any warrants, rights or options to
purchase or acquire shares of Capital Stock of AGY or from the issuance and
sale (other than to a Restricted Subsidiary) subsequent to the Issue Date of
any Indebtedness of AGY or any Restricted Subsidiary that has been converted
into or exchanged for Qualified Capital Stock of AGY (excluding any net cash
proceeds applied in accordance with the following paragraph); plus (C) without
duplication of any amounts included in clause (A) above or clause (D) below),
in the case of the disposition or repayment of, or the receipt by AGY or any
Restricted Subsidiary of any dividends or distributions from, any Investment
constituting a Restricted Payment made after the Issue Date, an amount equal
to the lesser of the amount of such Investment and the amount received by AGY
or any Restricted Subsidiary upon such disposition, repayment, dividend or
distribution; plus (D) without duplication of any amounts included in clause
(C) above, in the event AGY or any Restricted Subsidiary makes any Investment
in a Person that, as a result of or in connection with such Investment,
becomes a Restricted Subsidiary, an amount equal to AGY's or any Restricted
Subsidiary's existing Investment in such Person that was previously treated as
a Restricted Payment; plus (E) so long as the Designation thereof was treated
as a Restricted Payment made after the Issue Date, with respect to any
Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary
after the Issue Date in accordance with "--Designation of Unrestricted
Subsidiaries," an amount equal to AGY's Investment in such Unrestricted
Subsidiary (provided that such amount shall not in any case exceed the
Designation Amount with respect to such Restricted Subsidiary upon its
Designation; plus (F) $5.0 million; provided; that the amount of Restricted
Payments permitted by this clause (F) will not be reduced by any negative
amount that occurs under clause (A) or clause (H); minus (G) the Designation
Amount (measured as of the date of Designation) with respect to any Subsidiary
of AGY which has been designated as an Unrestricted Subsidiary after the Issue
Date in accordance with "--Designation of Unrestricted Subsidiaries"; and
minus (H) 50% of the distributions made pursuant to clause (5) of the
succeeding paragraph.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of
Default shall have occurred and be continuing, the acquisition of any shares
of Capital Stock of AGY or any warrants, rights or options to purchase or
acquire shares of Capital Stock of AGY, (i) in exchange for shares of
Qualified Capital Stock of AGY or any warrants, rights or options to purchase
or acquire shares of Qualified Capital Stock of AGY or (ii) through the
application of the net proceeds of a substantially concurrent sale for cash
(other than to a Restricted Subsidiary of AGY) of shares of Qualified Capital
Stock of AGY or any warrants, rights or options to purchase or acquire shares
of Qualified Capital Stock of AGY; provided, however, that the value of any
such Qualified Capital Stock or warrants, rights and options issued in
exchange for such acquired capital stock, warrants, rights or options and any
such net cash proceeds shall be excluded from clause (iii)(B) of the preceding
paragraph (and were not included therein at any time); (3) if no Default or
Event of Default shall have occurred and be continuing, the voluntary
prepayment, purchase, defeasance, redemption or other acquisition or
retirement for value of any Subordinated Indebtedness (i) in exchange for
shares of Capital Stock of AGY or any warrants, rights or options to purchase
or acquire shares of Capital Stock of AGY; provided, however, that if such
Capital Stock is, or such
73
warrants, rights or options to purchase such Capital Stock are convertible into
or exchangeable at the option of the holder thereof for, Disqualified Capital
Stock, then such Disqualified Capital Stock shall not (A) by its terms, or upon
the happening of any event, mature or be mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, or be redeemable at the option of the
holder thereof, in any case, on or prior to the final maturity of the
Indebtedness permitted to be prepaid, purchased, defeased, redeemed or acquired
pursuant to this clause (3) and (B) have a Weighted Average Life to Maturity
less than the Indebtedness permitted to be prepaid, purchased, defeased,
redeemed or acquired pursuant to this clause (3) or (ii) in exchange for
Refinancing Indebtedness or through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Restricted Subsidiary
of AGY) of (A) shares of Qualified Capital Stock of AGY or any warrants, rights
or options to purchase or acquire shares of Qualified Capital Stock of AGY or
(B) Refinancing Indebtedness; and provided, further, that the value of such
Capital Stock or warrants, rights or options issued in exchange for such
Subordinated Indebtedness and any such net cash proceeds shall be excluded from
clause (iii)(B) of the preceding paragraph (and were not included therein at
any time); (4) the making of loans or advances to officers and directors of AGY
or any Restricted Subsidiary entered into in the ordinary course of business in
an amount not to exceed $1.0 million at any one time outstanding; (5) (a) the
making of distributions in cash to JH and AGY Holdings within 75 days after the
end of each taxable year of AGY in an amount equal to the greater of (i) the
product of (A) the sum of (x) the maximum federal corporate income tax rate in
effect during such taxable year and (y) six percent and (B) the sum of the
items of ordinary income and expense and net capital gain allocated to JH or
AGY Holdings, as the case may be, for such taxable year (taking into account
any special allocations resulting from adjustments under section 743 of the
Code) and (ii) actual income taxes then being assessed against JH or AGY
Holdings on items of ordinary income and expense and net capital gain allocated
to JH or AGY Holdings so long as, in each case, immediately both before and
after giving effect to such payments no Event of Default shall then exist; (b)
the making of distributions to JH with respect to the purchase price under the
LLC Sale and Purchase Agreement for net asset value not to exceed $2.5 million
and (6) the repurchase, redemption or other acquisition or retirement for value
of (i) any Capital Stock of AGY held by any member of AGY's management pursuant
to any management equity subscription agreement or stock option agreement in
effect as of the date of the indenture or entered into thereafter with members
of the management of any Person acquired after the Issue Date in connection
with the acquisition of such Person or (ii) Capital Stock of AGY held by
employees, former employees, directors or former directors pursuant to the
terms of agreements (including employment agreements) approved by the Board of
Directors; provided, however, that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Capital Stock set forth in clauses
(i) and (ii) shall not exceed $750,000 in any twelve-month period and no
Default or Event of Default shall have occurred and be continuing immediately
after any such transaction. In determining the aggregate amount of Restricted
Payments made subsequent to the Issue Date in accordance with clause (iii) of
the immediately preceding paragraph, amounts expended pursuant to clauses (1)
(without duplication for the declaration of the relevant dividend) and (4)
shall be included in such calculation and amounts expended pursuant to clauses
(2), (3), (5) and (6) shall not be included in such calculation.
Limitation on Asset Sales. AGY will not, and will not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) AGY or the
applicable Restricted Subsidiary, as the case may be, receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
assets sold or otherwise disposed of and (ii) at least 75% of the consideration
received for the assets sold by AGY or the Restricted Subsidiary, as the case
may be, in such Asset
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Sale shall be in the form of (A) cash or Cash Equivalents or (B) (1) long-term
assets (including intellectual property associated with the use of such long-
term assets) to be used by AGY or any Restricted Subsidiary in a Permitted
Business or (2) Capital Stock of a Restricted Subsidiary or a Person engaged
primarily in a Permitted Business that will become, upon such purchase, a
Restricted Subsidiary (collectively, "Replacement Assets"), provided that any
securities, notes or other obligations received by AGY or a Restricted
Subsidiary from such transfers that are converted within 90 days of receipt
thereof by AGY or such Restricted Subsidiary into cash or Cash Equivalents (to
the extent so received), shall be deemed to be cash or Cash Equivalents for
purposes of this provision. The amount of any Indebtedness of AGY or such
Restricted Subsidiary (other than Subordinated Indebtedness) that is actually
assumed by the transferee in such Asset Sale and from which AGY or such
Restricted Subsidiary is fully and unconditionally released shall be deemed to
be cash for purposes of determining the percentage of cash consideration
received by AGY or such Restricted Subsidiary. AGY or such Restricted
Subsidiary, as the case may be, may apply the Net Cash Proceeds of any such
Asset Sale within 270 days of such Asset Sale to (x) repay any Senior
Indebtedness and permanently reduce the commitments, if any, with respect
thereto, (y) to purchase from a Person other than AGY and its Restricted
Subsidiaries Replacement Assets or (z) any combination of (x) and (y);
provided, however, that if AGY or a Restricted Subsidiary makes an investment
in Replacement Assets not earlier than 90 days prior to such Asset Sale (or the
execution by AGY or a Restricted Subsidiary of a binding commitment to
consummate such Asset Sale, which commitment is not subject to any conditions
precedent other than obtaining necessary financing and the closing in respect
of the Asset Sale that is the subject of such binding commitment occurs within
90 days of the date such commitment is executed), then such investment shall
satisfy, to the extent of the amount of such investment, the requirements of
clause (y) above.
To the extent all or a portion of the Net Cash Proceeds of any Asset Sale are
not applied within 270 days of such Asset Sale as described in clause (x), (y)
or (z) of the immediately preceding paragraph (the "Net Proceeds Offer Trigger
Date"), the Issuers will make an offer to purchase (the "Net Proceeds Offer")
on a date (the "Net Proceeds Offer Payment Date") not less than 20 business
days following the date on which such offer is made (or such longer period as
may be required by law) nor more than 60 days following such Net Proceeds Offer
Trigger Date, from all holders on a pro rata basis (and on a pro rata basis
with the holders of any other Senior Subordinated Indebtedness with similar
provisions requiring the Issuers to offer to purchase such Senior Subordinated
Indebtedness with the proceeds of Asset Sales), that principal amount of notes
and such other Indebtedness equal to such unapplied Net Cash Proceeds at a
price, in the case of the notes, equal to 100% of the principal amount of the
notes to be purchased, plus accrued and unpaid interest thereon, to the date of
purchase (subject to the right of holders of record on a record date to receive
interest due on an interest payment date that is on or prior to such date of
purchase). Notwithstanding the forgoing, the Issuers may defer the Net Proceeds
Offer until there is an aggregate amount of unapplied Net Cash Proceeds equal
to or in excess of $5.0 million resulting from one or more Asset Sales (at
which time, the entire amount of unapplied Net Cash Proceeds, and not just the
amount in excess of $5.0 million, shall be applied as required pursuant to this
paragraph).
Each Net Proceeds Offer will be mailed to the record holders as shown on the
register of holders within 30 days following the Net Proceeds Offer Trigger
Date, with a copy to the trustee, and shall comply with the procedures set
forth in the indenture. Upon receiving notice of the Net Proceeds Offer,
holders may elect to tender their notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent holders of notes and
holders of other Senior Subordinated
75
Indebtedness, if any, which are or is the subject of a Net Proceeds Offer
properly tender notes or such other Senior Subordinated Indebtedness in an
aggregate amount exceeding the amount of unapplied Net Cash Proceeds, notes of
tendering holders and such other Senior Subordinated Indebtedness of tendering
holders will be purchased on a pro rata basis (based on amounts tendered).
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of notes pursuant to a Net Proceeds Offer. To the extent that the provisions of
any securities laws or regulations conflict with the "Asset Sale" provisions of
the indenture, the Issuers shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached their obligations under
the "Asset Sale" provisions of the indenture by virtue thereof.
Upon completion of a Net Proceeds Offer, the amount of Net Cash Proceeds will
be reset at zero. Accordingly, to the extent that the aggregate amount of notes
and other Senior Subordinated Indebtedness tendered pursuant to a Net Proceeds
Offer is less than the aggregate amount of unapplied Net Cash Proceeds, the
Issuers may use any remaining Net Cash Proceeds for general corporate purposes.
In the event of the transfer of substantially all (but not all) of the
property and assets of AGY and its Restricted Subsidiaries as an entirety to a
Person in a transaction permitted under "--Merger, Consolidation and Sale of
Assets," the Surviving Entity shall be deemed to have sold the properties and
assets of AGY and its Restricted Subsidiaries not so transferred for purposes
of this covenant, and shall comply with the provisions of this covenant with
respect to such deemed sale as if it were an Asset Sale. In addition, the Fair
Market Value of such properties and assets of AGY or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant. If at any time any non-cash consideration received
by AGY or any Restricted Subsidiary, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration), then
such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. AGY will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on
or in respect of its Capital Stock to AGY or any other Restricted Subsidiary or
pay any Indebtedness owed to AGY or any other Restricted Subsidiary; (b) make
loans or advances to, or guarantee any Indebtedness or other obligations of, or
make any Investment in, AGY or any other Restricted Subsidiary; or (c) transfer
any of its property or assets to AGY or any other Restricted Subsidiary, except
for such encumbrances or restrictions existing under or by reason of: (1)
applicable law; (2) the indenture; (3) the senior credit facility as in effect
on the Issue Date, and any amendments or restatements thereof; provided,
however, that any such amendment or restatement is not materially more
restrictive with respect to such encumbrances or restrictions than those in
existence on the Issue Date; (4) customary non-assignment provisions of any
contract and customary provisions restricting assignment or subletting in any
lease governing a leasehold interest of any Restricted Subsidiary, or any
customary restriction on the ability of a Restricted Subsidiary to
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dividend, distribute or otherwise transfer any asset which secures Purchase
Money Indebtedness of such Restricted Subsidiary; (5) any instrument governing
Acquired Indebtedness, which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person or
the properties or assets of the Person so acquired; (6) restrictions with
respect to a Restricted Subsidiary of AGY imposed pursuant to a binding
agreement which has been entered into for the sale or disposition of Capital
Stock or assets of such Subsidiary; provided however, that such restrictions
apply solely to the Capital Stock or assets of such Restricted Subsidiary which
are being sold; (7) customary restrictions imposed on the transfer of
copyrighted or patented materials; (8) secured Indebtedness otherwise permitted
to be Incurred pursuant to the covenants described under "--Limitation on the
Incurrence of Additional Indebtedness" and "--Limitation on Liens," which
encumbrance or restriction is not applicable to any property or assets other
than the property or assets subject to the Lien securing such Indebtedness; (9)
restrictions with respect to a Restricted Subsidiary that is a Foreign
Subsidiary contained in any instrument governing Indebtedness of any such
Restricted Subsidiary permitted pursuant to clause (xiv) of the definition of
Permitted Indebtedness; or (10) an agreement governing Indebtedness Incurred to
Refinance the Indebtedness issued, assumed or Incurred pursuant to an agreement
referred to in clause (3), (5) or (8) above; provided, however, that such
refinancing agreement is not materially more restrictive with respect to such
encumbrances or restrictions than those contained in the agreement referred to
in such clause (3), (5) or (8), as determined by the Board of Directors in
their reasonable good faith judgment.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. AGY will not sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary, and will not cause or permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of
any shares of its Capital Stock, except (i) to AGY or a Wholly Owned Restricted
Subsidiary; (ii) the sale of 100% of the shares of the Capital Stock of any
Restricted Subsidiary owned by AGY or any Restricted Subsidiary effected in
accordance with the covenants described under "--Limitation on Asset Sales" and
"--Merger, Consolidation and Sale of Assets;" (iii) in the case of Restricted
Subsidiaries other than Wholly Owned Restricted Subsidiaries, issuance of
Capital Stock on a pro rata basis to AGY and its Restricted Subsidiaries and
minority shareholders of such Restricted Subsidiary (or on less than a pro rata
basis to any such minority holder if such minority holder does not acquire its
pro rata amount); (iv) the sale of Capital Stock of a Restricted Subsidiary or
issuance by a Restricted Subsidiary of Capital Stock if following such sale or
issuance, (x) such Restricted Subsidiary is no longer a Subsidiary, (y) AGY's
continuing Investment in such former Restricted Subsidiary is in compliance
with "--Limitation on Restricted Payments" and (z) any sale of Capital Stock by
AGY or such Restricted Subsidiary is made in compliance with the covenant
described under "--Limitation on Asset Sales;" provided, that, notwithstanding
the foregoing, Capital shall, at all times prior to the reorganization of AGY
as a corporation, remain a Wholly Owned Restricted Subsidiary of AGY.
Designation of Unrestricted Subsidiaries. AGY may designate any Subsidiary of
AGY (other than Capital) as an "Unrestricted Subsidiary" under the indenture (a
"Designation") only if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation:
(ii) at the time of and after giving effect to such Designation, the
Issuers could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described under "--Limitation on
Incurrence of Additional Indebtedness;" and
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(iii) the Issuers would be permitted to make an Investment at the time of
Designation (assuming the effectiveness of such Designation and treating
such Designation as an Investment at such time) pursuant to the first
paragraph of "--Limitation on Restricted Payments" in an amount (the
"Designation Amount") equal to the amount of AGY's Investment in such
Subsidiary on such date.
Neither AGY nor any Restricted Subsidiary shall at any time (x) provide
credit support for, subject any of its property or assets (other than the
Capital Stock of any Unrestricted Subsidiary) to the satisfaction of, or
guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness) unless such
credit support or guarantee constitutes an Investment permitted pursuant to the
covenant described under "--Limitation on Restricted Payments," (y) be directly
or indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z)
be directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary, except for any non-recourse
guarantee given solely to support the pledge by AGY or any Restricted
Subsidiary of the Capital Stock of any Unrestricted Subsidiary. For purposes of
the foregoing, the Designation of a Subsidiary of AGY as an Unrestricted
Subsidiary shall be deemed to include the Designation of all of the
Subsidiaries of such Subsidiary.
AGY may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary
(a "Revocation") only if:
(i) No Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of the
indenture.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of AGY, delivered to the trustee certifying compliance with
the foregoing provisions.
Limitation on Layered Indebtedness. AGY shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur any Indebtedness that
is subordinate in right of payment to any other Indebtedness, unless such
Indebtedness is subordinate in right of payment to, or ranks pari passu with,
the notes or, in the case of Restricted Subsidiaries that are Note Guarantors,
such Indebtedness is subordinate in right of payment to, or ranks pari passu
with, the Note Guarantees of such Note Guarantors.
No Note Guarantor will, directly or indirectly, Guarantee any Indebtedness of
the Issuers that is subordinate in right of payment to any other Indebtedness
of the Issuers unless such Guarantee is subordinate in right of payment to, or
ranks pari passu with, the Note Guarantee of such Note Guarantor.
Limitation on Liens. AGY will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, Incur any Liens of any kind
against or upon any of their respective properties or assets, whether owned on
the Issue Date or acquired after the Issue Date, or
78
any proceeds therefrom, to secure any Indebtedness unless contemporaneously
therewith effective provision is made, (i) in the case of the Issuers to secure
the notes and all other amounts due under the indenture, and (ii) in the case
of a Note Guarantor, to secure such Note Guarantor's Note Guarantee and all
other amounts due under the indenture, in each case, equally and ratably with
such Indebtedness (or, in the event that such Indebtedness is subordinated in
right of payment to the notes or such Note Guarantee, prior to such
Indebtedness) with a Lien on the same properties and assets securing such
Indebtedness for so long as such Indebtedness is secured by such Lien, except
for (A) Liens securing Senior Indebtedness (including, without limitation,
Indebtedness Incurred under the senior credit facility) and (B) Permitted
Liens.
Merger, Consolidation and Sale of Assets. Neither of the Issuers will, in a
single transaction or series of related transactions, consolidate or merge with
or into any Person (whether or not AGY is the surviving Person), or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of AGY's and its Restricted Subsidiaries'
properties and assets (determined on a consolidated basis for AGY and its
Restricted Subsidiaries) to any Person unless:
(i) either (1) AGY shall be the surviving or continuing entity or (2) the
Person (if other than AGY) formed by such consolidation or into which AGY
is merged or the Person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition the properties and assets of AGY and
of AGY's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly
existing under the laws of the United States or any State thereof and (y)
shall expressly assume, by supplemental indenture (in form and substance
satisfactory to the trustee), executed and delivered to the trustee, the
due and punctual payment of the principal of, and premium, if any, and
interest on all of the notes and the performance and observance of every
covenant of the notes and the indenture and the Registration Rights
Agreement (defined herein) on the part of AGY to be performed or observed;
(ii) immediately after giving effect to such transaction and the
assumption contemplated by clause (i)(2)(y) above (including giving effect
on a pro forma basis to any Indebtedness, including any Acquired
Indebtedness, Incurred in connection with or in respect of such
transaction), (A) AGY or such Surviving Entity, as the case may be, shall
be able to Incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the covenant described under "--
Limitation on Incurrence of Additional Indebtedness" or (B) the
Consolidated Fixed Charge Coverage Ratio for AGY or such Surviving Entity,
as the case may be, would be greater than the Consolidated Fixed Charge
Coverage Ratio for AGY immediately prior to such transaction;
(iii) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect on a pro forma basis to any
Indebtedness, including any Acquired Indebtedness, Incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing;
(iv) each Note Guarantor (including Persons which become Note Guarantors
as a result of the transaction) shall have confirmed by supplemental
indenture that its Note Guarantee shall apply for such Person's Obligations
in respect of the indenture and the notes; and
79
(v) AGY or the Surviving Entity shall have delivered to the trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or
other disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture, comply with
the applicable provisions of the indenture and that all conditions
precedent in the indenture relating to such transaction have been
satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of AGY, the Capital Stock of which constitutes all or
substantially all of the properties and assets of AGY, shall be deemed to be
the transfer of all or substantially all of the properties and assets of AGY.
The provisions of clause (ii) above shall not apply to (x) any transfer of
the properties or assets of a Restricted Subsidiary of AGY to AGY or to a
Restricted Subsidiary, (y) any merger of a Restricted Subsidiary into AGY or
(z) any merger of AGY into a Restricted Subsidiary.
The indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the properties and assets of AGY
and its Restricted Subsidiaries in accordance with the foregoing, in which AGY
is not the continuing corporation, the successor Person formed by such
consolidation or into which AGY is merged or to which such conveyance, lease or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, AGY under the indenture and the notes with the same
effect as if such surviving entity had been named as such.
Each Note Guarantor (other than any Note Guarantor whose Note Guarantee is to
be released in accordance with the terms described under "Note Guarantees" will
not, and AGY will not cause or permit any Note Guarantor to, consolidate with
or merge into any Person that is not a Note Guarantor unless such Person (if
such Person is the surviving entity) assumes by supplemental indenture all of
the obligations of such Note Guarantor in respect of its Note Guarantee.
Limitations on Transactions with Affiliates. (a) AGY will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "Affiliate Transaction"), unless: (i) the terms of such Affiliate
Transaction are no less favorable than those that could reasonably be expected
to be obtained in a comparable transaction at such time on an arm's-length
basis from a Person that is not an Affiliate of AGY; (ii) in the event that
such Affiliate Transaction (other than a JV Contract) involves aggregate
payments, or transfers of property or services with a Fair Market Value in
excess of $5.0 million during any twelve-month period, the terms of such
Affiliate Transaction shall be approved by a majority of the members of the
Board of Directors of AGY (including a majority of the disinterested members
thereof), such approval to be evidenced by a Board Resolution stating that such
Board of Directors has determined that such transaction complies with the
foregoing provisions, (iii) in the event that such Affiliate Transaction
constitutes a JV Contract which involves aggregate payments or transfers of
property or services with a Fair Market Value in excess of $5.0 million during
any twelve month period, the terms of which shall be approved by a majority of
the disinterested members of the Board of Directors of AGY, such approval to be
evidenced by a Board Resolution stating that such members of the Board of
Directors
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have determined that such transaction complies with the foregoing provisions
and (iv) in the event that such Affiliate Transaction (other than a JV
Contract) involves aggregate payments, or transfer of property or services with
a Fair Market Value, in excess of $10.0 million during any twelve month period,
AGY shall, prior to the consummation thereof, obtain a favorable opinion as to
the fairness of such transaction or series of related transactions to AGY and
the relevant Restricted Subsidiary (if any) from a financial point of view from
an Independent Financial Advisor and file the same with the trustee. For
purposes hereof, the members of the Board of Directors representing the LLC
Member which is not a party to such Affiliate Transaction shall be deemed to be
disinterested directors.
(b) Notwithstanding the foregoing, the restrictions set forth in paragraph
(a) shall not apply to (i) transactions with or among AGY and any Restricted
Subsidiary or between or among Restricted Subsidiaries; (ii) reasonable fees
and compensation paid to, and any indemnity provided on behalf of, officers,
directors, employees, consultants or agents of AGY or any Restricted Subsidiary
as determined in good faith by AGY's Board of Directors; (iii) any transactions
undertaken pursuant to any contractual obligations or rights in existence on
the Issue Date (as in effect on the Issue Date), including any JV Contracts;
(iv) any Restricted Payments made in compliance with "--Limitation on
Restricted Payments;" (v) loans and advances to officers, directors and
employees of AGY or any Restricted Subsidiary for travel, entertainment, moving
and other relocation expenses, in each case made in the ordinary course of
business; (vi) the entering into by AGY and any of its consolidated Restricted
Subsidiaries of a tax sharing or similar arrangement.
Conduct of Business; Limitation on Activities of Capital. AGY and its
Restricted Subsidiaries will not engage in any businesses other than a
Permitted Business; provided, that, notwithstanding the foregoing, AGY shall
not permit Capital to acquire or hold any significant assets or other
properties or engage in any business activities.
Reports to Holders. Notwithstanding that AGY or Capital may not be subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, so long
as any notes remain outstanding, the Issuers shall (i) provide the trustee, the
holders and the Initial Purchasers with such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a U.S. corporation subject to such
Sections within 15 days after the times specified for the filing of such
information, documents and reports under such Sections and (ii) beginning on
the earlier of (x) the effective date of the Exchange Offer Registration
Statement and (y) 150 days following the Issue Date, file with the Commission,
to the extent permitted, the information, documents and reports referred to in
clause (i) within the periods specified under such Sections. In addition, at
any time when either AGY or Capital is subject to or is not current in its
reporting obligations under clause (ii) of the preceding sentence, the Issuers
will make available, upon request, to any holder and any prospective purchaser
of notes the information required pursuant to Rule 144A(d)(4) under the
Securities Act.
Payments for Consent. Neither AGY nor any of its Subsidiaries shall, directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any notes for or as an inducement
to any consent, waiver or amendment of any terms or provisions of the notes,
unless such consideration is offered to be paid or agreed to be paid to all
holders of the notes that so consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
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Events of Default
The following events are defined in the indenture as "Events of Default":
(i) the failure to pay the principal of (or premium, if any, on) any note
when due, at Stated Maturity, upon redemption or otherwise (including the
failure to make a required payment to purchase notes tendered pursuant to a
Change of Control Offer or a Net Proceeds Offer) and whether or not
prohibited by the provisions of the indenture described under
"Subordination of the Notes and the Note Guarantees");
(ii) the failure to pay any interest on any notes when due, continued for
30 days or more (whether or not prohibited by the provisions of the
indenture described under "Subordination of the Notes and the Note
Guarantees");
(iii) the failure to perform or comply with any of the provisions
described under "--Certain Covenants--Merger, Consolidation and Sales of
Assets;"
(iv) the failure to perform or comply with any other covenant or
agreement contained in the indenture or in the notes continued for 30 days
or more after written notice to the Issuers from the trustee or the holders
of at least 25% in aggregate principal amount of the outstanding notes;
(v) the failure to pay at final maturity (giving effect to any applicable
grace periods and any extensions thereof) the principal amount of any
Indebtedness of AGY or any Restricted Subsidiary, or the acceleration of
the final stated maturity of any such Indebtedness by reason of a default
or event of default in respect of such Indebtedness, in any case if the
aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to
pay principal at final maturity or which has been so accelerated,
aggregates $7.5 million or more at any time;
(vi) one or more judgments in an aggregate amount in excess of $7.5
million (to the extent not covered by third-party insurance as to which a
financially sound insurer has not disclaimed coverage) shall have been
rendered against AGY or any of its Restricted Subsidiaries and such
judgment or judgments remain undischarged, unpaid or unstayed for a period
of 60 days after such judgment or judgments become final and non-
appealable;
(vii) certain events of bankruptcy affecting either of the Issuers or any
of AGY's Significant Subsidiaries or group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary; or
(viii) the Note Guarantee of any Note Guarantor is held or declared to be
unenforceable or invalid in a judicial proceeding or ceases for any reason
to be in full force and effect (other than by reason of a release of such
Note Guarantor from its Note Guarantee in accordance with the terms of the
indenture) or any Note Guarantor or any Person acting on behalf of any Note
Guarantor denies or disaffirms such Note Guarantor's obligations under its
Note Guarantee (other than by reason of a release of such Note Guarantor
from its Note Guarantee in accordance with the terms of the indenture).
If an Event of Default (other than an Event of Default relating to either
Issuer specified in clause (vii) above) shall occur and be continuing, the
trustee or the holders of at least 25% in principal amount of outstanding notes
may declare the principal of (and premium, if any) and accrued and unpaid
interest on all the notes to be due and payable by notice in writing to the
Issuers and the trustee specifying the respective Event of Default and that it
is a "notice of acceleration" (the
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"Acceleration Notice"), and the same shall become immediately due and payable.
If an Event of Default specified in clause (vii) relating to either Issuer
above occurs and is continuing, then all unpaid principal of, and premium, if
any, and accrued and unpaid interest on all of the outstanding notes shall ipso
facto become and be immediately due and payable without any declaration or
other act on the part of the trustee or any holder.
The indenture provides that, at any time after a declaration of acceleration
with respect to the notes as described in the preceding paragraph, the holders
of a majority in principal amount of the notes may rescind and cancel such
declaration and its consequences (i) if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration, (ii) to the extent the payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid and (iii) if the Issuers have paid the trustee its
reasonable compensation and reimbursed the trustee for its reasonable expenses,
disbursements and advances. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
The holders of a majority in principal amount of the notes may waive any
existing Default or Event of Default under the indenture, and its consequences,
except a default in the payment of the principal of, premium, if any, or
interest on any notes.
Subject to the provisions of the indenture relating to the duties of the
trustee, the trustee is under no obligation to exercise any of its rights or
powers under the indenture at the request, order or direction of any of the
holders, unless such holders have offered to the trustee reasonable indemnity.
Subject to all provisions of the indenture and applicable law, the holders of a
majority in aggregate principal amount of the then outstanding notes have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee or exercising any trust or power conferred on
the trustee.
No holder of any notes will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless (i) such holder
gives to the trustee written notice of a continuing Event of Default, (ii)
holders of at least 25% in principal amount of the then outstanding notes make
a written request to pursue the remedy, (iii) such holders of the notes provide
to the trustee satisfactory indemnity, (iv) the trustee does not comply within
60 days and (v) during such 60 day period the holders of a majority in
principal amount of the outstanding notes do not give the trustee a written
direction which, in the opinion of the trustee, is inconsistent with the
request. Otherwise, no holder of any note will have any right to institute any
proceeding with respect to the indenture or for any remedy thereunder, except
(i) a holder of a note may institute suit for enforcement of payment of the
principal of and premium, if any, or interest on such note on or after the
respective due dates expressed in such note or (ii) the institution of any
proceeding with respect to the indenture or any remedy thereunder, including,
without limitation, acceleration, by the holders of a majority in principal
amount of the outstanding notes; provided, however, that upon institution of
any proceeding or exercise of any remedy, such holder or holders provide the
trustee with prompt notice thereof.
The Issuers are required to deliver to the trustee written notice of any
event which would constitute certain Defaults, their status and what action the
Issuers are taking or propose to take in respect thereof. In addition, the
Issuers are required to deliver to the trustee, within 120 days after the end
of each fiscal year, a certificate indicating whether the signers thereof know
of any Default that occurred during the previous fiscal year. The indenture
provides that if a Default occurs, is
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continuing and is known to the trustee, the trustee must mail to each holder
notice of the Default within five days after it is known to a trust officer or
written notice of it is received by the trustee. Except in the case of a
Default in the payment of principal of, premium, if any, or interest on any
note, the trustee may withhold notice if and so long as a committee of its
trust officers in good faith determines that withholding notice is not opposed
to the interest of the holders.
Legal Defeasance and Covenant Defeasance
The Issuers may, at their option and at any time, elect to have their
obligations discharged with respect to the outstanding notes ("Legal
Defeasance"). Such Legal Defeasance means that the Issuers shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
notes, except for (i) the rights of holders to receive payments in respect of
the principal of, premium, if any, and interest on the notes when such payments
are due, (ii) the Issuers' obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payments, (iii) the
rights, powers, trust, duties and immunities of the trustee and the Issuers'
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the indenture. In addition, the Issuers may, at their option and at any time,
elect to have the obligations of the Issuers released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuers must irrevocably deposit with the trustee, in trust, for the benefit of
the holders cash in U.S. dollars, certain direct non-callable obligations of,
or guaranteed by, the United States, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the notes on the stated date for payment thereof or on the
applicable redemption date, as the case may be; (ii) in the case of Legal
Defeasance, the Issuers shall have delivered to the trustee an Opinion of
Counsel in the United States reasonably acceptable to the trustee to the effect
that (A) the Issuers have received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the Issue Date, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such Opinion of Counsel shall state that, the holders
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Issuers shall have delivered to the trustee an Opinion
of Counsel in the United States reasonably acceptable to the trustee to the
effect that the holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) the trustee shall have received an Officers' Certificate stating that no
Default or Event of Default shall have occurred and be continuing on the date
of such deposit or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) the trustee shall have received an Officers'
Certificate stating that such Legal Defeasance or Covenant
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Defeasance shall not result in a breach or violation of, or constitute a
default under the indenture or any other material agreement or instrument to
which AGY or any of its Subsidiaries is a party or by which AGY or any of its
Subsidiaries is bound (and in that connection, the trustee shall have received
a certificate from the agent under the senior credit facility to that effect
with respect to the senior credit facility then in effect); (vi) the Issuers
shall have delivered to the trustee an Officers' Certificate stating that the
deposit was not made by the Issuers with the intent of preferring the holders
over any other creditors of the Issuers or any Subsidiary of AGY or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Issuers or others; (vii) the Issuers shall have delivered to the trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with; (viii) the Issuers shall have
delivered to the trustee an Opinion of Counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
notes, as expressly provided for in the indenture) as to all outstanding notes
when (i) either (a) all the notes theretofore authenticated and delivered
(except lost, stolen or destroyed notes which have been replaced or paid and
notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuers and thereafter repaid to the
Issuers or discharged from such trust) have been delivered to the trustee for
cancellation or (b) all notes not theretofore delivered to the trustee for
cancellation have become due and payable, or will be due and payable within one
year or are to be called for redemption within one year under arrangements
satisfactory to the trustee for the giving of notice of redemption, and the
Issuers have irrevocably deposited or caused to be deposited with the trustee
funds or certain direct, non-callable obligations of, or guaranteed by, the
United States sufficient to pay and discharge the entire Indebtedness on the
notes not theretofore delivered to the trustee for cancellation, for principal
of, premium, if any, and interest on the notes to the earlier of the Stated
Maturity or the redemption date together with irrevocable instructions from the
Issuers directing the trustee to apply such funds and/or the proceeds of such
direct, non-callable obligations to the payment thereof at maturity or
redemption, as the case may be; (ii) the Issuers have paid all other sums
payable under the indenture by the Issuers; and (iii) the Issuers have
delivered to the trustee an Officers' Certificate stating that all conditions
precedent under the indenture relating to the satisfaction and discharge of the
indenture have been complied with.
Modification of the Indenture
From time to time, the Issuers and the trustee, without the consent of the
holders, may amend the indenture or the notes for certain specified purposes,
including curing ambiguities, defects or inconsistencies, providing for Note
Guarantors and making other changes which do not, in the opinion of the
trustee, adversely affect the rights of any of the holders in any material
respect. In formulating its opinion on such matters, the trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an Opinion of Counsel. Other modifications and amendments
of the indenture or the notes may be made with the consent of the holders of a
majority in principal amount of the then outstanding notes issued under the
indenture,
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except that, without the consent of each holder affected thereby, no amendment
may: (i) reduce the amount of notes whose holders must consent to an amendment
or waiver; (ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any notes; (iii)
reduce the principal of or change or have the effect of changing the fixed
maturity of any notes, or change the date on which any notes may be subject to
redemption, or reduce the redemption price therefor; (iv) make any notes
payable in money other than that stated in the notes; (v) make any change in
provisions of the indenture entitling each holder to receive payment of
principal of, premium, if any, and interest on such note on or after the due
date thereof or to bring suit to enforce such payment, or permitting holders of
a majority in principal amount of notes to waive Defaults or Events of Default;
(vi) amend, change or modify in any material respect the obligation of AGY to
make and consummate a Change of Control Offer in respect of a Change of Control
that has occurred or make and consummate a Net Proceeds Offer with respect to
any Asset Sale that has been consummated; (vii) modify the subordination
provisions of the indenture with respect to AGY or any Note Guarantor in a
manner that adversely affects the rights of any holder; or (viii) eliminate or
modify in any manner a Note Guarantor's obligations with respect to its Note
Guarantee which adversely affects holders in any material respect. However, no
amendment may be made to the subordination provisions of the indenture that
adversely affects the rights of any holder of Senior Indebtedness of AGY or a
Note Guarantor then outstanding unless the holders of such Senior Indebtedness
(or their representative) consent to such change.
Governing Law
The indenture provides that the indenture and the notes will be governed by,
and construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
The Trustee
The indenture provides that, except during the continuance of an Event of
Default, the trustee will perform only such duties as are specifically set
forth in the indenture. During the existence of an Event of Default, the
trustee will exercise such rights and powers vested in it by the indenture, and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
The indenture and the provisions of the TIA contain certain limitations on
the rights of the trustee, should it become a creditor of the Issuers, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the trustee will be permitted to engage in other transactions; provided,
however, that if the trustee acquires any conflicting interest as described in
the TIA, it must eliminate such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
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"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
or at the time it merges or consolidates with AGY or any of its Restricted
Subsidiaries or is assumed in connection with the acquisition of assets from
such Person and in each case not Incurred in connection with, or in
anticipation or contemplation of, such acquisition, merger or consolidation.
Such Indebtedness shall be deemed to have been Incurred at the time such Person
becomes a Restricted Subsidiary or at the time it merges or consolidates with
AGY or a Restricted Subsidiary or at the time such Indebtedness is assumed in
connection with the acquisition of assets from such Person.
"Affiliate" means, with respect to any specified Person, any other Person who
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling", "controlled by" and "under common control with" have
meanings correlative of the foregoing; provided, however, that beneficial
ownership of 10% or more of the Voting Stock of a Person shall be deemed to be
control.
"AGY Holdings" means AGY Holdings, Inc., a Delaware corporation.
"Asset Acquisition" means (a) an Investment by AGY or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary, or shall be merged with or into AGY or any Restricted
Subsidiary, or (b) the acquisition by AGY or any Restricted Subsidiary of the
assets of any Person (other than a Subsidiary of AGY) which constitute all or
substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, assignment or other transfer for value by AGY or any of its
Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any
Person other than AGY or a Restricted Subsidiary (including a Person that is or
will become a Restricted Subsidiary immediately after such sale, issuance,
conveyance, transfer, assignment or other transfer for value) of (a) any
Capital Stock of any Restricted Subsidiary; or (b) any other property or assets
(other than cash, Cash Equivalents or Capital Stock) of AGY or any Restricted
Subsidiary other than in the ordinary course of business; provided, however,
that Asset Sale shall not include, (i) the sale, conveyance, disposition or
other transfer of all or substantially all of the assets of AGY and its
Restricted Subsidiaries as permitted under "--Certain Covenants--Merger,
Consolidation and Sale of Assets," (ii) any sale of Capital Stock in, or
Indebtedness or other securities of an Unrestricted Subsidiary, (iii) a
disposition of inventory or leases in the ordinary course of business, (iv)
dispositions of assets in any fiscal year with a Fair Market Value not to
exceed $2.0 million in the aggregate, (v) for purposes of "--Certain
Covenants--Limitation on Asset Sales" only, the making of a Permitted
Investment or Restricted Payment, and (vi) a disposition in the ordinary course
of business of obsolete or worn-out equipment.
"Asset Sale Transaction" means Asset Sales and, whether or not constituting
an Asset Sale, (i) any sale or other disposition of Capital Stock and (ii) any
sale or other disposition excluded from the definition of Asset Sale by clause
(b)(i) or (v) of such definition.
"Blockage Notice" has the meaning set forth under "--Subordination of the
Exchange Notes and the Note Guarantees."
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"Board of Directors" means (i) in the case of a Person that is a corporation,
the board of directors of such Person or any committee authorized to act
therefor and (ii) in the case of any other Person, the board of directors,
management committee or similar governing body or any authorized committee
thereof responsible for the management of the business and affairs of such
Person.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person (or person
performing a similar function) to have been duly adopted by the Board of
Directors of such Person and to be in full force and effect on the date of such
certification, and delivered to the trustee.
"Capitalized Lease Obligations" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all membership, partnership or other
equity or ownership interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date of
acquisition thereof combined capital and surplus of not less than $500.0
million; (v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications specified in clause (iv) above; and
(vi) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events:
(i) Prior to the first Public Equity Offering, (A) the Permitted Holders
cease to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, in the aggregate at least
of 51% of the total voting power of the Voting Stock of AGY, (B) any
Permitted Holder ceases to be the "beneficial owner", directly or
indirectly, of at least 10% of the total voting power of the Voting Stock
of AGY or (C) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is or
becomes the "beneficial owner" (except that for purposes of this clause (C)
such
88
person shall be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
a percentage of the total voting power of the Voting Stock of AGY that is
equal to or greater than the percentage of the total voting power of the
Voting Stock of AGY beneficially owned, directly or indirectly, by any one
Permitted Holder, whether, in the case of each of clause (A), (B), or (C),
as a result of the issuance of securities of AGY or any parent company of
AGY, any merger, consolidation, liquidation or dissolution of AGY, any
direct or indirect transfer of securities by AGY or otherwise (for purposes
of this clause (i) and clause (ii) below, the Permitted Holders shall be
deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate at least 51% of the
voting power of the Voting Stock of the parent corporation);
(ii) subsequent to the first Public Equity Offering, (A) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other
than one or more Permitted Holders, is or becomes the beneficial owner (as
defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that for
purposes of this clause (ii) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total
voting power of the Voting Stock of AGY and (B) the Permitted Holders
"beneficially own" (as defined in this clause (ii)), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of AGY than such other person (for the purposes of this
clause (ii)), such other person shall be deemed to beneficially own any
Voting Stock of a specified corporation held by a parent corporation, if
such other person is the beneficial owner (as defined in this clause (ii)),
directly or indirectly, of more than 35% of the voting power of the Voting
Stock of such parent corporation and the Permitted Holders "beneficially
own" (as defined in this clause (ii)), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock of
such parent corporation);
(iii) during any period of two consecutive years (or, in the case this
event occurs within the first two years after the Issue Date, such shorter
period as shall have begun on the Issue Date), individuals who at the
beginning of such period constituted the Board of Directors of AGY
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of AGY was approved by
a vote of a majority of the directors of AGY then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of AGY then in office;
(iv) AGY consolidates with, or merges with or into, another Person (other
than AGY or a Wholly Owned Restricted Subsidiary) or AGY or any of its
Restricted Subsidiaries sell, conveys, assigns, transfers, leases or
otherwise disposes of all or substantially all of the assets of AGY and its
Restricted Subsidiaries (determined on a consolidated basis for AGY and its
Restricted Subsidiaries) to any Person (other than AGY or any Wholly Owned
Restricted Subsidiary), other than any such transaction where immediately
after such transaction the Person or Persons that "beneficially owned" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all securities
that such Person has the right to acquire, whether such right is
exercisable immediately or only after
89
the passage of time) immediately prior to such transaction, directly or
indirectly, a majority of the total voting power of the then outstanding
Voting Stock of AGY "beneficially own" (as so determined), directly or
indirectly, a majority of the total voting power of the then outstanding
Voting Stock of the surviving or transferee Person;
(v) CSG becomes an Affiliate of GHC if such affiliation results in the
termination of the various intellectual property agreements between Owens
Corning and AGY; or
(vi) the Non-Compete Agreement ceases to be in full force and effect at
any time prior to September 30, 2003.
"Change of Control Offer" has the meaning set forth under "Change of
Control."
"Change of Control Payment Date" has the meaning set forth under "Change of
Control."
"Commission" means the Securities and Exchange Commission, or any successor
agency thereto with respect to the regulation or registration of securities.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for such
period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Income Tax Expense for such period;
(ii) Consolidated Interest Expense for such period; and (iii) Consolidated Non-
cash Charges for such period; less (A) all non-cash items increasing
Consolidated Net Income for such period and (B) all cash payments during such
period relating to non-cash charges that were added back in determining
Consolidated EBITDA in any prior period.
"Consolidated Fixed Charge Coverage Ratio" means, as of any date of
determination, the ratio of the aggregate amount of Consolidated EBITDA for the
four most recent full fiscal quarters for which financial statements are
available ending prior to the date of such determination (the "Four Quarter
Period") to Consolidated Fixed Charges for such Four Quarter Period. In
addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to (i) the Incurrence or repayment of any Indebtedness of AGY or
any of its Restricted Subsidiaries (and the application of the proceeds
thereof), including the Incurrence of any Indebtedness (and the application of
the proceeds thereof) giving rise to the need to make such determination,
occurring during or after such Four Quarter Period and on or prior to such date
of determination, as if such Incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of such
Four Quarter Period and (ii) any Asset Sale Transactions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need
to make such determination as a result of AGY or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) Incurring Acquired Indebtedness and including,
without limitation, by giving pro forma effect to any Consolidated EBITDA
(provided that such pro forma Consolidated EBITDA shall be calculated in a
manner consistent with the exclusions in the definition of "Consolidated Net
Income" but without giving effect to clause (c) of the definition of
Consolidated Net Income) attributable to the assets
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which are the subject of the Asset Sale Transaction or Asset Acquisition during
the Four Quarter Period) occurring during the Four Quarter Period or at any
time subsequent to the last day of the Four Quarter Period and on or prior to
such date of determination, as if such Asset Sale Transaction or Asset
Acquisition (including the Incurrence of any such Acquired Indebtedness)
occurred on the first day of the Four Quarter Period. If AGY or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the Incurrence of
such guaranteed Indebtedness as if AGY or any of its Restricted Subsidiaries
had directly Incurred such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of
the date of determination and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on such date of
determination; (2) if interest on any Indebtedness actually Incurred on such
date of determination may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on such date of
determination will be deemed to have been in effect during the Four Quarter
Period; and (3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
Hedging Obligations, shall be deemed to accrue at the rate per annum resulting
after giving effect to the operation of such agreements. For purposes of
determining the Consolidated Fixed Charges Coverage Ratio at any time prior to
October 1, 1999, Consolidated EBITDA and Consolidated Fixed Charges shall be
calculated as follows: for the fiscal quarter ending December 31, 1998,
Consolidated EBITDA and Consolidated Fixed Charges shall equal Consolidated
EBITDA and Consolidated Fixed Charges, respectively, for such fiscal quarter;
for the fiscal quarter ending March 31, 1999, Consolidated EBITDA and
Consolidated Fixed Charges shall equal Consolidated EBITDA and Consolidated
Fixed Charges, respectively, for the two fiscal quarters then ending; and for
the fiscal quarter ending June 30, 1999, Consolidated EBITDA and Consolidated
Fixed Charges shall equal Consolidated EBITDA and Consolidated Fixed Charges,
respectively, for the three fiscal quarters then ending.
"Consolidated Fixed Charges" means, for any period, the sum, without
duplication, of (i) Consolidated Interest Expense, plus (ii) the product of (x)
the amount of all dividend payments on any series of Preferred Stock of AGY
(other than dividends paid in Qualified Capital Stock) paid, accrued or
scheduled to be paid or accrued during such period times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the sum of
(A) the maximum federal corporate income tax rate in effect during such taxable
year and (B) six percent.
"Consolidated Income Tax Expense" means, with respect to AGY for any period,
the product of (i) the net income of AGY and its Restricted Subsidiaries for
such period as determined on a consolidated basis in accordance with GAAP and
(ii) the sum of (x) the maximum federal corporate income tax rate in effect
during such period and (y) six percent.
"Consolidated Interest Expense" means, for any period, the sum of, without
duplication: (i) the aggregate of cash and non-cash interest expense of AGY and
its Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP, and in any event shall include, without limitation
(whether or not interest expense in accordance with GAAP), (a) any amortization
of debt discount and any amortization or write off of deferred financing costs,
(b) the net costs under Hedging Obligations related to Indebtedness (including
amortization of fees), (c) all capitalized
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interest, (d) the interest portion of any deferred payment obligation, (e)
commissions, discounts and other fees and charges Incurred in respect of
letters of credit or bankers' acceptances and (f) any interest expense on
Indebtedness of another Person that is guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on the assets of such Person or
one of its Restricted Subsidiaries (whether or not such guarantee or Lien is
called upon); and (ii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by AGY and its Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the aggregate net income (or
loss) of AGY and its Restricted Subsidiaries for such period on a consolidated
basis, determined in accordance with GAAP; provided, however, that there shall
be excluded therefrom (a) net after-tax gains and losses (assuming for tax
purposes that no special allocations are made to any member of AGY under
Section 743 of the Code) from Asset Sale Transactions or abandonments of
reserves relating thereto, (b) net after-tax items (assuming for tax purposes
that no special allocations are made to any member of AGY under Section 743 of
the Code) classified as extraordinary or non-recurring gains or losses, (c) the
net income of any Person acquired in a "pooling of interests" transaction
accrued prior to the date it becomes a Restricted Subsidiary or is merged or
consolidated with AGY or any Restricted Subsidiary, (d) the net income (but not
loss) of any Restricted Subsidiary to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is restricted by contract, operation of law or otherwise, (e) the net income of
any Person, other than a Restricted Subsidiary, except to the extent of cash
dividends or distributions paid to AGY or to a Restricted Subsidiary by such
Person, (f) any restoration to income of any contingency reserve, except to the
extent that provision for such reserve was made out of Consolidated Net Income
accrued at any time following the Issue Date and (g) all gains and losses from
the cumulative effect of any change in accounting principles.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of AGY and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charge which requires an accrual of or
a reserve for cash charges for any future period).
"Covenant Defeasance" has the meaning set forth under "Legal Defeasance and
Covenant Defeasance."
"CSG" means Compagnie Saint-Gobain, a corporation organized under the laws of
France.
"Currency Agreement" means, in respect of any Person, any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party.
"Default" means an event or condition the occurrence of which, with the lapse
of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means, (a) in respect of AGY, the senior
credit facility and any other Senior Indebtedness of AGY which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to lend
up to, at least $25.0 million and is specifically designated by AGY in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" and (b) in respect of any Note Guarantor, the senior
credit facility and any guarantee by such Note
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Guarantor of Indebtedness of AGY referred to in clause (a) and (c) any other
Senior Indebtedness of such Note Guarantor which, at the date of determination,
has an aggregate principal amount outstanding of, or under which, at the date
of determination, the holders thereof are committed to lend up to, at least
$25.0 million and is specifically designated by such Note Guarantor in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness."
"Designation" has the meaning set forth under "--Certain Covenants--
Designation of Unrestricted Subsidiaries" above.
"Designation Amount" has the meaning set forth under "--Certain Covenants--
Designation of Unrestricted Subsidiaries" above.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of
the holder thereof, in any case, on or prior to the 91st day after the final
maturity date of the notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"Fair Market Value" means, with respect to any asset, the price (after taking
into account any liabilities relating to such assets) which could be negotiated
in an arm's-length free market transaction, for cash, between a willing seller
and a willing and able buyer, neither of which is under any compulsion to
complete the transaction; provided, however, that the Fair Market Value of any
such asset or assets may be determined conclusively by the Board of Directors
of AGY acting in good faith, and shall be evidenced by a Board Resolution.
"Foreign Subsidiary" means, with respect to any Person, any direct or
indirect Subsidiary of such Person that is organized under the laws of any
jurisdiction outside the United States, any state thereof or the District of
Columbia.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio" above.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"GHC" means Glass Holdings Corp., a Delaware corporation.
"GPI" means Groupe Porcher Industries, a corporation organized under the laws
of France.
"Guaranteed Obligations" has the meaning set forth under "Note Guarantees."
"Hedging Obligations" means the obligations of any Person pursuant to any
Interest Rate Agreement or Currency Agreement.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise
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become liable in respect of such Indebtedness or other obligation on the
balance sheet of such Person (and "Incurrence," "Incurred" and "Incurring"
shall have meanings correlative to the foregoing). Indebtedness of any Person
or any of its Subsidiaries existing at the time such Person becomes a
Restricted Subsidiary (or is merged into or consolidated with AGY or any
Restricted Subsidiary), whether or not such Indebtedness was Incurred in
connection with, as a result of, or in contemplation of, such Person becoming a
Restricted Subsidiary (or being merged into or consolidated with AGY or any
Restricted Subsidiary), shall be deemed Incurred at the time any such Person
becomes a Restricted Subsidiary or merges into or consolidates with AGY or any
Restricted Subsidiary. Accrual of interest, the accretion of accreted value and
the payment of regularly scheduled interest in the form of additional
Indebtedness of the same instrument will not be deemed to be an Incurrence of
Indebtedness for purposes of the covenant described under "--Certain
Covenants--Limitation on Incurrence of Additional Indebtedness."
"Indebtedness" means with respect to any Person, without duplication, (i) the
principal amount (or, if less, the accreted value) of all obligations of such
Person for borrowed money, (ii) the principal amount (or, if less, the accreted
value) of all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (iii) all Capitalized Lease Obligations of such
Person, (iv) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
obligations under any title retention agreement (but excluding trade accounts
payable and other accrued liabilities arising in the ordinary course of
business that are not overdue by 90 days or more or are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted),
(v) all obligations of such Person for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (vi)
guarantees and other contingent obligations of such Person in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Indebtedness of any other Person of the type referred to in
clauses (i) through (vi) which is secured by any Lien on any property or asset
of such Person, the amount of such Indebtedness being deemed to be the lesser
of the Fair Market Value of such property or asset or the amount of the
Indebtedness so secured, (viii) all obligations under Hedging Obligations of
such Person and (ix) all Disqualified Capital Stock issued by such Person with
the amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if any.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be the Fair Market Value thereof.
"Independent Financial Advisor" means an accounting firm, appraisal firm,
investment banking firm or consultant to Persons engaged in a Permitted
Business, in each case, of nationally recognized standing that is, in the
judgment of AGY's Board of Directors, qualified to perform the task for which
it has been engaged and which is independent in connection with the relevant
transaction.
"Interest Rate Agreement" of any Person means any interest rate protection
agreement (including, without limitation, interest rate swaps, caps, floors,
collars, derivative instruments and similar agreements) and/or other types of
interest hedging agreements.
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"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude accounts receivable or
deposits arising in the ordinary course of business. For purposes of the "--
Certain Covenants--Limitation on Restricted Payments" covenant, "Investment"
shall include and be valued at the Fair Market Value of the net assets of any
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of
such Subsidiary as a Restricted Subsidiary, AGY will be deemed to continue to
have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the total amount of AGY's "Investments" in such
Subsidiary made prior to or at the time of such redesignation less (y) that
portion of the Fair Market Value of the net assets of such Subsidiary at the
time that such Subsidiary is so re-designated a Restricted Subsidiary that is
proportionate to AGY's share of the equity interest in such Subsidiary; and
(ii) any property transferred to or from an Unrestricted Subsidiary will be
valued at its Fair Market Value at the time of such transfer. If AGY or any
Restricted Subsidiary sells or otherwise disposes of any Common Stock of a
Restricted Subsidiary (including any issuance and sale of Capital Stock by a
Restricted Subsidiary) such that, after giving effect to any such sale or
disposition, such Restricted Subsidiary would cease to be a Subsidiary of AGY,
AGY shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the Fair Market Value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the first date of issuance of old notes under the
indenture.
"JH" means Jefferson Holdings, Inc., a Delaware corporation.
"JV Contract" means all supply, purchase, service and management agreements,
real property and equipment leases, co-location and space-sharing and
allocation agreements and requirements and off-take contracts and agreements
and other like agreements between or among AGY and the LLC Members and their
Affiliates existing on the Issue Date, together with all renewals, extensions
and amendments thereof, provided, that such renewals, extensions or amendments
do not materially change the rights and obligations of AGY or any of its
Restricted Subsidiaries, and all other such agreements entered into after the
Issue Date between or among AGY, any Subsidiary thereof, the LLC Members and
their Affiliates.
"Keep-Well Agreement" means the Keep-Well Agreement dated as of September 30,
1998, between Owens Corning and AGY, as in effect on the Issue Date.
"Legal Defeasance" has the meaning set forth under "Legal Defeasance and
Covenant Defeasance."
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement to
give any security interest).
"LLC Members" means collectively, JH and AGY Holdings and, individually,
either of them.
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"LLC Interest Sale and Purchase Agreement" means the LLC Interest Sale and
Purchase Agreement dated as of July 31, 1998 among Owens Corning, AGY and GHC,
as in effect on the Issue Date.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
received by AGY or any of its Restricted Subsidiaries from such Asset Sale, net
of (a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) the amount of tax distributions reasonably
estimated to be required to be made to JH and AGY Holdings as a result of such
Asset Sale within two years of the date of such Asset Sale, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale,
(d) appropriate amounts to be provided by AGY or any Restricted Subsidiary, as
the case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by AGY or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Net Proceeds Offer" has the meaning set forth under "--Certain Covenants--
Limitation on Asset Sales."
"Net Proceeds Offer Payment Date" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"Net Proceeds Offer Trigger Date" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"Non-Compete Agreement" means the Non-Compete Agreement dated as of September
30, 1998, by and among GPI, GHC, Owens Corning and AGY, as in effect on the
Issue Date.
"Note Guarantee" has the meaning set forth in the third paragraph of the
introduction to this "Description of Exchange Notes."
"Note Guarantor" has the meaning set forth in the third paragraph of the
introduction to this "Description of Exchange Notes."
"Obligations" means, with respect to any Indebtedness, any principal,
interest (including, without limitation, Post-Petition Interest), penalties,
fees, indemnifications, reimbursements, including, in the case of the notes and
the Note Guarantees in respect thereof, damages, and other liabilities payable
under the documentation governing such Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the chief executive officer, the president or any vice president of
such Person and the chief financial officer or any treasurer of such Person,
that shall comply with applicable provisions of the indenture.
"Operating Agreement" means the Amended and Restated Limited Liability
Company Operating Agreement for AGY dated as of September 30, 1998, by and
between JH and AGY Holdings, as amended and in effect on the Issue Date.
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"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the trustee. The counsel may be an employee of or
counsel to AGY or the trustee.
"Payment Blockage Period" has the meaning set forth under "Subordination of
the Notes and the Note Guarantees."
"Permitted Business" means the business or businesses conducted by AGY and
its Restricted Subsidiaries as of the Issue Date and any business ancillary or
complementary or reasonably related thereto.
"Permitted Holders" means any of Owens Corning and its Affiliates and GHC and
GPI and their Affiliates.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness in respect of the old notes and exchange notes and any
replacement notes therefor issued pursuant to the indenture, and the Note
Guarantees in respect thereof;
(ii) guarantees by any Note Guarantor of Indebtedness of AGY other than
the notes; provided, however, that if any such guarantee is of Subordinated
Indebtedness, then the Note Guarantee of such Note Guarantor shall be
senior to such Note Guarantor's guarantee of such Subordinated
Indebtedness;
(iii) Indebtedness Incurred pursuant to the senior credit facility in an
aggregate principal amount at any time outstanding not to exceed $315.0
million (including any amounts Incurred pursuant to clause (xiv) of this
definition) less the amount of any permanent prepayments of Indebtedness
made with the Net Cash Proceeds of an Asset Sale pursuant to the third
sentence under "--Certain Covenants--Limitation on Asset Sales;"
(iv) other Indebtedness of AGY and its Restricted Subsidiaries
outstanding on the Issue Date, reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(v) Hedging Obligations entered into in the ordinary course of business
and not for speculative purposes;
(vi) Indebtedness of any Restricted Subsidiary owed to and held by AGY or
any Note Guarantor for so long as such Indebtedness is held by AGY or such
Note Guarantor, in each case subject to no Lien securing Indebtedness other
than Permitted Liens; provided, however, that if as of any date any Person
other than AGY or any Note Guarantor holds any such Indebtedness or holds a
Lien in respect of such Indebtedness securing Indebtedness other than
Permitted Liens, such date shall be deemed the Incurrence of Indebtedness
not constituting Permitted Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of AGY owed to and held by any Note Guarantor that is
unsecured and subordinated in right of payment to the payment and
performance of AGY's obligations under any Senior Indebtedness, the
indenture, the notes and the Note Guarantees and subject to no Lien
securing Indebtedness other than Permitted Liens; provided, however, that
if as of any date any Person other than any Note Guarantor owns or holds
any such Indebtedness or any Person other than any Note Guarantor holds a
Lien in respect of such Indebtedness securing Indebtedness other than
Permitted Liens, such date shall be deemed the Incurrence of Indebtedness
not constituting Permitted Indebtedness by AGY;
97
(viii) Indebtedness of AGY or any of its Restricted Subsidiaries arising
from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business; provided, however, that such Indebtedness is extinguished within
two business days of Incurrence;
(ix) Indebtedness of AGY or any of its Restricted Subsidiaries
represented by letters of credit for the account of AGY or any Restricted
Subsidiary, as the case may be, in order to provide security for workers'
compensation claims, payment obligations in connection with self-insurance
or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness in respect of Indebtedness (other than
Permitted Indebtedness) Incurred pursuant to the covenant described under
"--Certain Covenants--Limitation on Incurrence of Additional Indebtedness"
or Indebtedness Incurred pursuant to clause (i) or (iv) of this definition
of Permitted Indebtedness;
(xi) Capitalized Lease Obligations and Purchase Money Indebtedness of AGY
and its Restricted Subsidiaries that do not exceed $10.0 million in the
aggregate at any one time outstanding;
(xii) Indebtedness arising from agreements of AGY or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred in connection with the
disposition of any business, assets, or Restricted Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose
of financing such acquisition; provided, that the maximum aggregate
liability in respect of all such Indebtedness shall at no time exceed the
gross proceeds actually received by AGY and the Restricted Subsidiary in
connection with such disposition;
(xiii) Additional Indebtedness of AGY or any Restricted Subsidiary in an
aggregate principal amount not to exceed $10.0 million at any one time
outstanding (which amount may, but need not, be Incurred in whole or in
part under the senior credit facility); provided, that no more than $5.0
million of Indebtedness permitted pursuant to this clause (xiii) may be
Incurred by Restricted Subsidiaries that are not Note Guarantors;
(xiv) Indebtedness of Foreign Subsidiaries which are Restricted
Subsidiaries may Incur Indebtedness in the form of local lines of credit
not to exceed $25.0 million in the aggregate at any one time outstanding so
long as such Indebtedness is secured by a letter of credit issued pursuant
to the senior credit facility; and
(xv) Indebtedness of AGY Incurred pursuant to the Keep-Well Agreement.
"Permitted Investments" means (i) Investments by AGY or any Restricted
Subsidiary in any Person that is, or that result in any Person becoming,
immediately after such Investment, a Restricted Subsidiary or constituting a
merger or consolidation of such Person into AGY or with or into a Restricted
Subsidiary; (ii) Investments by any Restricted Subsidiary in AGY; (iii)
Investments in cash and Cash Equivalents; (iv) any extension, modification or
renewal of any Investments existing as of the Issue Date (but not Investments
involving additional advances, contributions or other investments of cash or
property or other increases thereof, other than as a result of the accrual or
accretion of interest or original issue discount or payment-in-kind pursuant to
the terms of such Investment as of the Issue Date); (v) transactions or
arrangements with officers, directors or
98
employees of AGY or any Subsidiary of AGY entered into in the ordinary course
of business (including compensation or employee benefit arrangements with any
officer or director of AGY or any Subsidiary of AGY permitted under the
covenant described under "--Certain Covenants--Transactions with Affiliates");
(vi) Investments received as a result of the bankruptcy or reorganization of
any Person or taken in settlement of or other resolution of claims or disputes,
and, in each case, extensions, modifications and renewals thereof; (vii)
Investments in the form of intercompany Indebtedness permitted to be issued
under the covenant entitled "--Limitation on Incurrence of Additional
Indebtedness"; (viii) Investments made by AGY or its Restricted Subsidiaries as
a result of non-cash consideration permitted to be received in connection with
an Asset Sale made in compliance with the covenant described under "--Certain
Covenants--Limitation on Asset Sales"; and (ix) other Investments not to exceed
$5.0 million at any one time outstanding.
"Permitted Junior Securities" means any securities of AGY or any other Person
that are (i) equity securities without special covenants or (ii) debt
securities expressly subordinated in right of payment to all Senior
Indebtedness that may at the time be outstanding, to substantially the same
extent as, or to a greater extent than, the notes are subordinated as provided
in the indenture, in any event pursuant to a court order so providing and as to
which (a) the rate of interest on such securities shall not exceed the
effective rate of interest on the notes on the Issue Date, (b) such securities
shall not be entitled to the benefits of covenants or defaults materially more
beneficial to the holders of such securities than those in effect with respect
to the notes on the Issue Date and (c) such securities shall not provide for
amortization (including sinking fund and mandatory prepayment provisions)
commencing prior to the date six months following the final scheduled maturity
date of the Senior Indebtedness (as modified by the plan of reorganization
pursuant to which such securities are issued).
"Permitted Liens" means any of the following:
(i) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(ii) Liens Incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government performance
and return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(iii) any interest or title of a lessor under any Capitalized Lease
Obligation; provided, however, that such Liens do not extend to any
property which is not leased property subject to such Capitalized Lease
Obligation;
(iv) purchase money Liens to finance property of AGY or a Restricted
Subsidiary acquired in the ordinary course of business; provided, however,
that (A) the related purchase money Indebtedness shall not exceed the cost
of such property and shall not be secured by any property of AGY or any
Restricted Subsidiary other than the property so acquired and (B) the Lien
securing such Indebtedness shall be created within 90 days of such
acquisition;
99
(v) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(vi) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(vii) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of AGY or a
Restricted Subsidiary, including rights of offset and set-off;
(viii) Liens securing Hedging Obligations that relate to Indebtedness
that is Incurred in accordance with the covenant described under "--Certain
Covenants--Limitation on Incurrence of Additional Indebtedness" and that
are secured by the same assets as secure such Hedging Obligations;
(ix) Liens existing on the Issue Date and Liens to secure any Refinancing
Indebtedness which is Incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under the covenant described under "--Certain
Covenants--Limitation on Liens" and which Indebtedness has been Incurred in
accordance with the covenant described under "--Certain Covenants--
Limitation on Incurrence of Additional Indebtedness"; provided, however,
that such new Liens (A) are not materially less favorable to the holders of
notes and are not materially more favorable to the lienholders with respect
to such Liens than the Liens in respect of the Indebtedness being
Refinanced and (B) do not extend to any property or assets other than the
property or assets securing the Indebtedness Refinanced by such Refinancing
Indebtedness;
(x) Liens securing Acquired Indebtedness Incurred in accordance with the
covenant described under "--Certain Covenants--Limitation on Incurrence of
Additional Indebtedness;" provided, however, that (A) such Liens secured
such Acquired Indebtedness at the time of and prior to the Incurrence of
such Acquired Indebtedness by AGY or a Restricted Subsidiary and were not
granted in connection with, or in anticipation of the Incurrence of such
Acquired Indebtedness by AGY or a Restricted Subsidiary and (B) such Liens
do not extend to or cover any property of AGY or any Restricted Subsidiary
other than the property that secured the Acquired Indebtedness prior to the
time such Indebtedness became Acquired Indebtedness of AGY or a Restricted
Subsidiary and are no more favorable to the lienholders than the Liens
securing the Acquired Indebtedness prior to the Incurrence of such Acquired
Indebtedness by AGY or a Restricted Subsidiary; and
(xi) Liens securing other Indebtedness not in excess of $5.0 million at
any one time outstanding.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Post-Petition Interest" means all interest accrued or accruing after the
commencement of any insolvency or liquidation proceeding (and interest that
would accrue but for the commencement of any insolvency or liquidation
proceeding) in accordance with and at the contract rate (including,
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without limitation, any rate applicable upon default) specified in the
agreement or instrument creating, evidencing or governing any Indebtedness,
whether or not, pursuant to applicable law or otherwise, the claim for such
interest is allowed as a claim in such insolvency or liquidation proceeding.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights over any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Public Equity Offering" has the meaning set forth under "Redemption."
"Purchase Money Indebtedness" means Indebtedness of AGY or any Restricted
Subsidiary Incurred for the purpose of financing all or any part of the
purchase price, or other cost of construction or improvement of any property;
provided, however, that the aggregate principal amount of such Indebtedness
does not exceed the lesser of the Fair Market Value of such property or such
purchase price or cost, including any Refinancing of such Indebtedness that
does not increase the aggregate principal amount (or accreted amount, if less)
thereof as of the date of Refinancing.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by AGY or any Restricted
Subsidiary, to the extent that such Refinancing does not (i) result in an
increase in the aggregate principal amount of the Indebtedness of such Person
as of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by AGY in
connection with such Refinancing) or (ii) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life
to Maturity of the Indebtedness being Refinanced or (B) a final maturity
earlier than the final maturity of the Indebtedness being Refinanced; provided,
however, that (x) if such Indebtedness being Refinanced is Indebtedness of AGY,
then such Refinancing Indebtedness shall be Indebtedness of AGY, (y) if such
Indebtedness being Refinanced is Indebtedness of a Note Guarantor, then such
Indebtedness shall be Indebtedness of AGY and/or such Note Guarantor and (z) if
such Indebtedness being Refinanced is subordinate or junior to the notes or any
Note Guarantee, then such Refinancing Indebtedness shall be subordinate to the
notes or such Note Guarantee at least to the same extent and in the same manner
as the Indebtedness being Refinanced.
"Replacement Assets" has the meaning set forth under "--Certain Covenants--
Limitation on Asset Sales."
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of AGY.
"Restricted Payment" has the meaning set forth under "--Certain Covenants--
Limitation on Restricted Payments."
"Restricted Subsidiary" of AGY means any Subsidiary of AGY which at the time
of determination is not an Unrestricted Subsidiary.
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"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party providing for the
leasing to AGY or a Restricted Subsidiary of any property, whether owned by AGY
or any Restricted Subsidiary at the Issue Date or later acquired, which has
been or is to be sold or transferred by AGY or such Restricted Subsidiary to
such Person or to any other Person by whom funds have been or are to be
advanced on the security of such Property.
"Senior credit facility" means that certain Credit Agreement dated as of
September 30, 1998, by and between AGY, the guarantors from time to time a
party thereto, the lenders from time to time a party thereto and First Union
National Bank, as agent, pursuant to which AGY may, as of the Issue Date,
borrow up to $315.0 million in the aggregate at any one time outstanding
together with the documents related thereto (including, without limitation, any
guarantee agreements and security documents), as such agreements may be amended
(including any amendment and restatement thereof), supplemented or otherwise
modified from time to time, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring (including adding
Subsidiaries of AGY as additional borrowers or guarantors thereunder or
increasing the principal amount available thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Senior Indebtedness" means, at any date, with respect to any Person (a) all
Obligations of such Person under the senior credit facility; (b) all Hedging
Obligations of such Person; (c) all Obligations of such Person under letters of
credit; and (d) all other Indebtedness of such Person permitted under the
indenture, including principal, premium, if any, and interest (including Post-
Petition Interest) on such Indebtedness, unless the instrument under which such
Indebtedness is Incurred expressly provides that such Indebtedness is not
senior or superior in right of payment to the notes in the case of AGY or a
Note Guarantee in the case of a Note Guarantor, and all renewals, extensions,
modifications, amendments or refinancings thereof in whole or in part.
Notwithstanding the foregoing, Senior Indebtedness shall not include (a) to the
extent that it may constitute Indebtedness, any Obligation for Federal, state,
local or other taxes; (b) any Indebtedness among or between AGY and any
Subsidiary of AGY or any Affiliate of AGY or any of such Affiliate's
Subsidiaries (other than Indebtedness created by AGY in connection with the
guarantee of Indebtedness of a Subsidiary); unless and for so long as such
Indebtedness has been pledged to secure obligations under or in respect of
Senior Indebtedness; (c) to the extent that it may constitute Indebtedness, any
Obligation in respect of any trade payable Incurred for the purchase of goods
or materials, or for services obtained, in the ordinary course of business; (d)
that portion of any Indebtedness that is Incurred in violation of the
indenture; (e) Indebtedness evidenced by the notes or the Note Guarantees; (f)
Indebtedness of AGY or a Note Guarantor that is expressly subordinate or junior
in right of payment to any other Indebtedness of AGY or a Note Guarantor; (g)
to the extent that it may constitute Indebtedness, any obligation owing under
leases (other than Capitalized Lease Obligations) or management agreements; (h)
any obligation that by operation of law is subordinate to any general unsecured
obligations of such Person; and (i) Indebtedness of AGY to the extent such
Indebtedness is owed to and held by any Federal, state, local or other
governmental authority (excluding Indebtedness owing to state or local
governmental authorities in the form of industrial revenue bonds or other state
or local bond financings).
"Senior Subordinated Indebtedness" means, with respect to AGY, the notes and,
with respect to any Note Guarantor, such Note Guarantor's Note Guarantee and
any other Indebtedness of AGY
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or such Note Guarantor that specifically provides that such Indebtedness is to
rank pari passu in right of payment with the notes or such Note Guarantee, as
the case may be, and is not subordinated by its terms in right of payment to
any Indebtedness or other obligation of AGY or such Note Guarantor which is not
Senior Indebtedness.
"Significant Subsidiary" shall have the meaning set forth in Rule 1-02(w) of
Regulation S-X under the Securities Act.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Indebtedness" means, with respect to AGY or any Note Guarantor,
any Indebtedness of AGY or such Note Guarantor, as the case may be, which is
expressly subordinated in right of payment to the notes or such Note
Guarantor's Note Guarantee, as the case may be.
"Subsidiary," with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person; or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth under "--Certain Covenants--
Merger, Consolidation and Sale of Assets."
"Unrestricted Subsidiary" means any Subsidiary of AGY (other than Capital)
designated as such pursuant to "--Certain Covenants--Designation of
Unrestricted Subsidiaries." Any such designation may be revoked by a Board
Resolution of AGY, subject to the provisions of such covenant.
"Voting Stock" with respect to any Person, means securities of any class of
Capital Stock of such Person entitling the holders thereof (whether at all
times or only so long as no senior class of stock has voting power by reason of
any contingency) to vote in the election of members of the Board of Directors
(or equivalent governing body) of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
(including any Disqualified Capital Stock) at any date, the number of years
obtained by dividing (a) the sum of the products obtained by multiplying (x)
the amount of each then remaining installment, sinking fund, serial maturity or
other required payment of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest one-
twelfth) that will elapse between such date and the making of such payment, by
(b) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of AGY means any Restricted Subsidiary
of which all the outstanding Capital Stock (other than in the case of a foreign
Restricted Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by AGY or any Wholly Owned Restricted Subsidiary.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material federal income tax
consequences expected to result to holders whose old notes are exchanged for
exchange notes in the exchange offer. The following discussion is based upon
current provisions of the Internal Revenue Code of 1986, as amended, applicable
Treasury regulations, judicial authority and administrative rulings and
practice. There can be no assurance that the IRS will not take a contrary view,
and no ruling from the IRS has been or will be sought with respect to the
exchange offer. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements
and conclusions set forth herein. Any such changes or interpretations may or
may not be retroactive and could affect the tax consequences to holders.
Certain holders (including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign corporations, and persons who
are not citizens or residents of the United States) may be subject to special
rules not discussed below.
Each holder of old notes should consult its own tax advisor as to the
particular tax consequences of exchanging old notes for exchange notes,
including the applicability and effect of any state, local or foreign laws.
The exchange of old notes for exchange notes pursuant to the exchange offer
should not be considered a taxable exchange for United States federal income
tax purposes because the exchange notes should not be considered to differ
materially in kind or extent from the old notes. Exchange notes received by a
holder of old notes should be treated as a continuation of the old notes.
Accordingly, there should not be any United States federal income tax
consequences to holders exchanging old notes for exchange notes in the exchange
offer.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The old notes were originally sold by AGY to First Union Capital Markets and
Warburg Dillon Read LLC (the "Initial Purchasers") pursuant to the note
purchase agreement between AGY and the Initial Purchasers dated January 15,
1999. The Initial Purchasers subsequently placed the old notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act. In
accordance with a condition set forth in the purchase agreement, AGY and the
Initial Purchasers entered into a registration rights agreement on the Issue
Date pursuant to which AGY agreed, for the benefit of the holders of the old
notes, that it will, at its cost
. use its best efforts to file, within 60 days after the Issue Date, a
registration statement (the "Exchange Offer Registration Statement") with
the SEC with respect to the exchange offer; and
. use its best efforts to cause the Exchange Offer Registration Statement
to be declared effective within 150 days from the Issue Date.
Promptly after the Exchange Offer Registration Statement has been declared
effective, AGY will offer the exchange notes in exchange for surrender of the
old notes. AGY will keep the exchange offer open for not less than 20 business
days (or longer if required by applicable law) after the date on which notice
of the exchange offer is mailed to the holders of the old notes. For each old
note validly tendered to AGY pursuant to the exchange offer and not withdrawn
by the holder thereof, the holder of such old note will receive an exchange
note having a principal amount equal to the principal amount of such
surrendered old note. Interest on each exchange note will accrue from the last
interest payment date on which interest was paid on the old note surrendered in
exchange therefor or, if no interest has been paid on such exchange note, from
the Issue Date.
Under existing SEC interpretations set forth in several no-action letters to
third parties and unrelated to AGY and the exchange offer, AGY believes that
the exchange notes issued pursuant to the exchange offer in exchange for old
notes may be offered for resale, resold and otherwise transferred by the
holders thereof (other than any such holder which is an "affiliate" of AGY
within the meaning of Rule 405 under the Securities Act) without further
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such exchange notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of such exchange notes. Any holder who is an
affiliate of AGY or who intends to participate in the exchange offer for the
purpose of distributing the exchange notes
. will not be able to rely on the SEC's interpretation set forth in the
above-mentioned no-action letters;
. will not be able to tender its old notes in the exchange offer; and
. must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer transaction
unless such sale or transfer is made pursuant to an exemption from such
requirements.
Failure to comply with such requirements may result in such holder incurring
liability under the Securities Act for which the holder is not indemnified by
AGY.
105
A participating broker-dealer holding old notes may participate in the
exchange offer provided that it acquired the old notes for its own account as a
result of market-making or other trading activities. In connection with any
resales of exchange notes, any participating broker-dealer who receives
exchange notes for old notes pursuant to the exchange offer may be an
"underwriter" (within the meaning of the Securities Act) and must deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of the exchange notes. The accompanying letter of transmittal states
that any acknowledgment by a participating broker-dealer that it will deliver a
prospectus in connection with any resale of exchange notes, and any such
delivery of a prospectus, shall not be deemed an admission by such
participating broker-dealer that it is an underwriter. The SEC has taken the
position that participating broker-dealers may fulfill their prospectus
delivery requirements with respect to the exchange notes (other than a resale
of an unsold allotment from the original sale of the old notes) with this
prospectus, as it may be amended or supplemented from time to time. Under the
registration rights agreement, AGY is required to allow participating broker-
dealers and other persons, if any, subject to similar prospectus delivery
requirements, to use this prospectus, as it may be amended or supplemented from
time to time, in connection with the resale of such exchange notes for a period
of 180 days.
Each holder of old notes wishing to accept the exchange offer must represent
to AGY
. that any exchange notes to be received by it will be acquired in the
ordinary course of such holder's business;
. that it is not an "affiliate" of AGY within the meaning of Rule 405 under
the Securities Act;
. that it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the exchange
notes; and
. if such holder is a participating broker-dealer that will receive
exchange notes for its own account in exchange for old notes that were
acquired as a result of market-making or other trading activities, that
it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such exchange notes.
By executing the letter of transmittal or an agent's message, each holder will
make the foregoing representations.
In the event that:
. applicable interpretations of the SEC do not permit AGY to effect the
exchange offer;
. for any other reason the exchange offer is not consummated within 30
business days of the date the Exchange Offer Registration Statement has
become effective;
. an Initial Purchaser so requests with respect to old notes it acquired
directly from AGY on or prior to the 20th business day following the
consummation of the exchange offer;
. any holder notifies AGY on or prior to the 20th business day following
the consummation of the exchange offer that such holder is not eligible
to participate in the exchange offer or the exchange notes such holder
would receive would not be freely tradable; or
. an Initial Purchaser participates in the exchange offer and does not
receive freely tradable exchange notes in exchange for old notes
constituting any portion of an unsold allotment and such Initial
Purchaser notifies AGY on or prior to the 20th business day following the
consummation of the exchange offer,
106
AGY will, at its expense:
. on or prior to 75 days after such filing obligation arises, file a
registration statement (a "Shelf Registration Statement") covering
resales of the old notes or the exchange notes, as the case may be;
. use its reasonable efforts to cause the Shelf Registration Statement to
be declared effective under the Securities Act on or prior to 135 days
after such filing obligation arises; and
. keep the Shelf Registration Statement effective until the earlier of (i)
the time when the old notes or the exchange notes covered by the Shelf
Registration Statement can be sold pursuant to Rule 144 without any
limitations under clauses (c), (e), (f) and (h) of Rule 144, (ii) two
years from the date on which the Shelf Registration Statement was filed
and (iii) such date as of which all old notes and exchange notes covered
by the Shelf Registration Statement have been sold.
AGY will, in the event a Shelf Registration Statement is filed, among other
things, provide to each holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the old notes or the exchange notes, as the case may
be. A holder selling such old notes or exchange notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement which are applicable to such
holder (including certain indemnification obligations).
In the event that any of the following "registration defaults" shall have
occurred:
. AGY fails to file any of the registration statements required by the
registration rights agreement on or before the date specified for such
filing;
. any of such registration statements is not declared effective by the SEC
on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date");
. AGY fails to consummate the exchange offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement;
. the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but the SEC shall have issued a stop
order suspending such effectiveness or proceedings have been initiated
under Sections 8(d) or 8(e) of the Securities Act with respect to the
Exchange Offer Registration Statement or Shelf Registration Statement;
. the aggregate number of days in any such suspension period referred to in
the preceding bullet point exceeds the number permitted in the
registration rights agreement; or
. the number of suspension periods referred to in the second preceding
bullet point exceeds the number permitted in the registration rights
agreement,
then AGY will pay liquidated damages to each holder of old notes, with respect
to the first 90-day period immediately following the occurrence of such
registration default in an amount equal to $0.05 per week per $1,000 principal
amount of old notes held by such holder. The amount of the liquidated
107
damages for such registration default will increase by an additional $0.05 per
week per $1,000 principal amount of old notes for each subsequent 90-day period
until such registration default has been cured, up to an aggregate maximum
amount of liquidated damages of $0.30 per week per $1,000 principal amount of
old notes for all registration defaults. All accrued liquidated damages will be
paid by AGY on each date that interest must be paid on the old notes. Following
the cure of all registration defaults, the accrual of liquidated damages will
cease and all accrued and unpaid liquidated damages shall be paid promptly
thereafter. At all other times, the old notes will bear interest at the
original interest rate thereof.
The summary herein of certain provisions of the registration rights agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the registration rights
agreement, which is filed as an exhibit to the registration statement of which
this prospectus is a part.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus and
in the letter of transmittal, AGY will accept any and all old notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. AGY will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding old notes accepted in
the exchange offer. Holders may tender some or all of their old notes pursuant
to the exchange offer. However, tenders of old notes must be in a minimum
principal amount of $1,000 or an integral multiple of $1,000 in excess thereof.
The form and terms of the exchange notes will be identical in all material
respects to the form and terms of the old notes, except that:
. the exchange notes will bear a different CUSIP number from the old notes;
. the issuance of the exchange notes will be registered under the
Securities Act and, therefore, the exchange notes will not bear legends
restricting the transfer thereof; and
. the holders of the exchange notes will not be entitled to certain rights
under the registration rights agreement, including the provisions thereof
which provide for liquidated damages payable to the holders of the old
notes in certain circumstances relating to the timing of the exchange
offer, which rights will terminate when the exchange offer is
consummated.
The exchange notes will evidence the same debt as the old notes (which they
replace) and will be issued under and be entitled to the benefits of the
indenture. See "Description of Exchange Notes."
As of the date of this prospectus, $150,000,000 aggregate principal amount of
old notes were outstanding. This prospectus and the letter of transmittal are
being mailed to persons who were holders of old notes on the close of business
on the date of this prospectus. Holders of old notes do not have any appraisal
or dissenters' rights under the Delaware Limited Liability Company Act or the
Delaware General Corporation Law or the indenture in connection with the
exchange offer. AGY intends to conduct the exchange offer in accordance with
the applicable requirements of the Securities Act, the Exchange Act and the
rules and regulations promulgated thereunder.
AGY shall be deemed to have accepted validly tendered old notes when, as and
if AGY has given written notice thereof to The Bank of New York, as exchange
agent. The exchange agent will act as agent for the tendering holders for the
purpose of receiving the exchange notes from AGY.
108
If any tendered old notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted old notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
expiration date.
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes for
exchange notes pursuant to the exchange offer. AGY will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the exchange offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "expiration date" shall mean 5:00 p.m., New York City time, on
, 1999, unless AGY in its sole discretion, extends the exchange offer, in
which case the term "expiration date" means the latest date and time to which
the exchange offer is extended.
In order to extend the exchange offer, AGY will notify the exchange agent
thereof by written notice and will make a public announcement of such
extension, each prior to 9:00 a.m., New York City time, on the next business
day after the previously scheduled expiration date.
AGY reserves the right, in its sole discretion:
. to delay accepting any old notes, to extend the exchange offer or to
terminate the exchange offer if any of the conditions set forth below
under "--Conditions" shall not have been satisfied, by giving written
notice of such delay, extension or termination to the exchange agent; or
. to amend the terms of the exchange offer in any manner, whether before or
after any tender of the old notes.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders.
Interest on Exchange Notes
Interest on each exchange note will accrue from the Issue Date, i.e., January
21, 1999, and be payable semiannually in arrears on January 15 and July 15 of
each year, commencing July 15, 1999, at the rate of 9 7/8 percent per annum.
Holders whose old notes are accepted for exchange will be deemed to have waived
the right to receive any interest accrued on the old notes.
Procedures for Tendering Old Notes
Only a holder of old notes may tender such old notes in the exchange offer.
Each such holder wishing to accept the exchange offer must complete, sign and
date the accompanying letter of transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, have the
signatures thereon guaranteed if required by the letter of transmittal or
transmit an agent's message in connection with a book-entry transfer, and mail
or otherwise deliver such letter of transmittal or such facsimile or agent's
message, together with the old notes and any other required documents, to the
exchange agent prior to 5:00 p.m., New York City time, on the expiration date.
To be tendered effectively, the old notes, the letter of transmittal or agent's
message and all other required documents must be properly completed and
received by the exchange agent at the address set forth below under "Exchange
Agent" prior to 5:00 p.m., New York City time, on the expiration
109
date. Delivery of the old notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the exchange agent prior to the expiration date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the old notes that such participant has
received and agrees: (i) to participate in the Automated Tender Option Program
("ATOP"); (ii) to be bound by the terms of the letter of transmittal; and (iii)
that AGY may enforce such agreement against such participant.
By executing the letter of transmittal or an agent's message, each holder
will make the representations set forth above in the second paragraph under the
heading "--Purpose and Effect of the Exchange Offer" to AGY. The tender by a
holder and the acceptance thereof by AGY will constitute an agreement between
such holder and AGY that such holder will participate in the exchange offer in
accordance with the terms and subject to the conditions set forth herein and in
the letter of transmittal.
The method of delivery of the old notes and the letter of transmittal or an
agent's message and all other required documents to the exchange agent is at
the election and sole risk of the holder. As an alternative to delivery by
mail, holders may wish to consider overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure delivery to the exchange
agent before the expiration date. Holders may request their respective brokers,
dealers, commercial banks, trust companies or nominees to effect the above
transactions for such holders.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a savings institution, commercial bank or trust company having an office
or correspondent in the United States, or is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act, and
which is, in each case, a member of a recognized signature guarantee program
(i.e., Securities Transfer Agents Medallion Program, Stock Exchange Medallion
Program or New York Stock Exchange Medallion Signature Program) (an "Eligible
Institution"), unless the old notes tendered pursuant thereto are tendered (i)
by a registered holder who has not completed the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" on the letter
of transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantees must be by an
Eligible Institution.
If the letter of transmittal is signed by a person other than the registered
holder of any old notes listed therein, such old notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such old notes with the
signature thereon guaranteed by an Eligible Institution.
110
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to AGY of
their authority to so act must be submitted with the letter of transmittal.
AGY understands that the exchange agent will make a request promptly after
the date of this prospectus to establish an account through the facilities of
The Depository Trust Company ("DTC") for receipt of the tender of old notes
through book-entry delivery thereof. For the purpose of facilitating the
exchange offer, any financial institution that is a DTC participant may
participate in the exchange offer through book-entry delivery of old notes by
causing DTC to transfer such old notes into the exchange agent's account for
the old notes. Although delivery of the old notes may be effected through book-
entry transfer into the exchange agent's account at DTC, unless an agent's
message is received by the exchange agent in compliance with ATOP, an
appropriate letter of transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the exchange agent at its
address and in the manner set forth below under "--Exchange Agent" on or prior
to the expiration date, or, if the guaranteed delivery procedures described
below are complied with, within the time period provided under such procedures.
Delivery of documents to DTC does not constitute delivery to the exchange
agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered old notes and withdrawal of tendered old notes
will be determined by AGY in its sole discretion, which determination will be
final and binding. AGY reserves the absolute right to reject any and all old
notes not properly tendered or any old notes AGY's acceptance of which would,
in the opinion of counsel for AGY, be unlawful. AGY also reserves the right in
its sole discretion to waive any defects, irregularities or conditions of
tender as to particular old notes. AGY's interpretation of the terms and
conditions of the exchange offer (including the instructions in the letter of
transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within such time as AGY shall determine. Although AGY intends to notify holders
of defects or irregularities with respect to tenders of old notes, neither AGY,
the exchange agent nor any other person shall incur any liability for failure
to give such notification. Tenders of old notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any old
notes received by the exchange agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the exchange agent to the tendering holders, unless otherwise
provided in the letter of transmittal, as promptly as practicable following the
expiration date.
No letter of transmittal, old notes, notice of guaranteed delivery or other
documents should be sent to AGY or DTC. Delivery thereof to AGY or DTC will not
constitute valid delivery.
Guaranteed Delivery Procedures
Holders of old notes who wish to tender their old notes but who cannot, prior
to 5:00 p.m., New York City time, on the expiration date (i) deliver their old
notes, the letter of transmittal or any other documents required by the letter
of transmittal to the exchange agent or (ii) deliver a confirmation of the
book-entry tender of their old notes into the exchange agent's account at DTC
and otherwise complete the procedures for book-entry transfer, may effect a
tender of old notes if:
. the tender is made through an Eligible Institution;
111
. prior to 5:00 p.m., New York City time, on the expiration date, the
exchange agent receives from such Eligible Institution a properly
completed and duly executed notice of guaranteed delivery (a form of
which accompanies this prospectus) (by facsimile transmission, registered
or certified mail or hand delivery) setting forth the name and address of
the holder, the certificate number(s) of such old notes and the principal
amount of old notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange
trading days after the expiration date, the letter of transmittal (or
facsimile thereof) together with the certificate(s) representing the old
notes (or a confirmation of book-entry transfer of such old notes into
the exchange agent's account at DTC), and any other documents required by
the letter of transmittal will be deposited by the Eligible Institution
with the exchange agent; and
. such properly completed and duly executed letter of transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered old notes in proper form for transfer (or a confirmation of
book-entry transfer of such old notes into the exchange agent's account
at DTC), and all other documents required by the letter of transmittal
are received by the exchange agent within three New York Stock Exchange
trading days after the expiration date.
Upon request to the exchange agent, additional copies of the notice of
guaranteed delivery will be sent to holders.
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
AGY will accept, promptly after the expiration date, all old notes properly
tendered and will issue the exchange notes promptly after acceptance of the old
notes. For a description of certain conditions to the exchange offer, see "--
Conditions" below. For purposes of the exchange offer, AGY will be deemed to
have accepted properly tendered old notes for exchange when, as and if AGY has
given written notice thereof to the exchange agent. For each old note accepted
for exchange, the holder of such old note will receive an exchange note having
a principal amount equal to that of the surrendered old note.
In all cases, issuance of exchange notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of certificates for such old notes (or a timely
confirmation that such old notes have been transferred into the exchange
agent's account at DTC), a properly completed and duly executed letter of
transmittal and all other required documents. If any tendered old notes are not
accepted for any reason set forth in the terms and conditions of the exchange
offer or if old notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged old notes will be
returned without expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the exchange offer.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of old notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the expiration date.
To withdraw a tender of old notes in the exchange offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
exchange agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the expiration date. Any such notice of withdrawal must:
. specify the name of the person having deposited the old notes to be
withdrawn (the "Depositor");
112
. identify the old notes to be withdrawn (including the certificate
number(s) and principal amount of such old notes, or, in the case of old
notes tendered by book-entry transfer into the exchange agent's account
at DTC pursuant to the applicable book-entry procedures, the name and
number of the account at DTC to be credited);
. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such old notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the trustee register the
transfer of such old notes into the name of the person withdrawing the
tender; and
. specify the name in which any such old notes are to be registered, if
different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by AGY in its sole discretion,
which determination shall be final and binding. Any old notes so withdrawn will
be deemed not to have been validly tendered for purposes of the exchange offer
and no exchange notes will be issued with respect thereto unless the old notes
so withdrawn are validly retendered. Any old notes which have been tendered but
which are not accepted for exchange will be returned, without expense, to the
holder thereof as promptly as practicable after withdrawal, rejection of tender
or termination of the exchange offer. Properly withdrawn old notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering Old Notes" at any time prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, AGY shall not be
required to accept for exchange, or exchange exchange notes for, any old notes,
and may terminate or amend the exchange offer as provided herein before the
acceptance of such old notes, if:
. any action or proceeding is instituted or threatened in any court or by
any governmental or quasi-governmental agency which might materially
impair the ability of AGY to proceed with the exchange offer or any
material adverse development has occurred in any existing action or
proceeding with respect to AGY;
. the exchange offer violates applicable law or any applicable SEC
interpretation; or
. any governmental or quasi-governmental approval has not been obtained,
which approval AGY shall deem necessary for the consummation of the
exchange offer as contemplated hereby.
If AGY determines in its sole discretion that any of the foregoing conditions
are not satisfied, AGY may:
. refuse to accept any old notes and return all tendered old notes to the
tendering holders;
. extend the exchange offer and retain all old notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw such old notes (see "--Withdrawal of Tenders"); or
. waive such unsatisfied conditions and accept all properly tendered old
notes which have not been withdrawn.
113
In addition, AGY has reserved the right, notwithstanding the satisfaction or
failure of any or all of the foregoing conditions, to terminate or amend the
exchange offer in any manner it shall determine in its sole discretion, which
determination shall be binding.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered or accepted for exchange.
Exchange Agent
The Bank of New York, which also acts as trustee under the indenture, has
been appointed as exchange agent for the exchange offer. Each holder wishing to
accept the exchange offer must deliver (i) a letter of transmittal, such
holder's tendered old notes and all other required documents or (ii) a notice
of guaranteed delivery and all other documents described under "--Guaranteed
Delivery Procedures," to the exchange agent as follows:
By Mail or Hand Delivery: The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Reorganization Section 7-E
Facsimile Transmission: (212) 815-6339
Confirm by Telephone: (212) 815-
Delivery to an address other than as set forth above will not constitute
valid delivery.
Questions and requests for assistance, and requests for additional copies of
this prospectus, the letter of transmittal or the notice of guaranteed
delivery, should be directed to the exchange agent at the address and telephone
number set forth in the letter of transmittal.
Fees and Expenses
The expenses of soliciting tenders will be borne by AGY. The principal
solicitation is being made by mail; however, additional solicitation may be
made by telegraph, telecopy, telephone or in person by officers, employees or
agents of AGY and its affiliates. AGY has not retained any dealer-manager in
connection with the exchange offer and will not make any payments to brokers,
dealers or others to solicit acceptances of the exchange offer. AGY, however,
will pay the exchange agent reasonable and customary fees for its services and
will reimburse it for its reasonable out-of-pocket expenses in connection with
the exchange offer. All other expenses to be incurred in connection with the
exchange offer will be paid by AGY. Such expenses include fees and expenses of
the trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the old
notes, which is face value, as reflected in AGY's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by AGY in connection with the exchange offer. The expenses of the
exchange offer will be amortized over the term of the exchange notes.
114
Consequences of Failure to Exchange
The old notes that are not exchanged for exchange notes pursuant to the
exchange offer will remain restricted securities. Accordingly, such old notes
may not be reoffered, resold, pledged or otherwise transferred except in
accordance with applicable state securities laws and
. to a person whom the transferor reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of Rule
144A;
. in an offshore transaction meeting the requirements of Rule 903 or Rule
904 of Regulation S;
. to an institution that is an "accredited investor" within the meaning of
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act
in a transaction exempt from the registration requirements of the
Securities Act (if available);
. pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder (if available); or
. pursuant to an effective registration statement under the Securities Act.
Following consummation of the exchange offer, holders of the old notes who
were eligible to participate in the exchange offer but who did not tender their
old notes will generally not have any further registration rights under the
registration rights agreement, and such old notes will continue to be subject
to restrictions on transfer. Accordingly, the liquidity of the market for such
old notes could be adversely affected. See "Risk Factors--Old Notes Outstanding
After the Exchange Offer Will Not Have Registration Rights and We Expect the
Market for the Old Notes To Be Illiquid."
115
PLAN OF DISTRIBUTION
Except as provided herein, this prospectus may not be used for an offer to
resell, a resale or other transfer of exchange notes. Based on existing
interpretations of the Securities Act by the SEC set forth in several no-action
letters to third parties and unrelated to AGY and the exchange offer, AGY
believes that the exchange notes issued pursuant to the exchange offer in
exchange for old notes may be offered for resale, resold and otherwise
transferred by the holders thereof (other than any such holder which is an
"affiliate" of AGY within the meaning of Rule 405 under the Securities Act)
without further compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such exchange notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of such exchange notes.
Any holder who is an affiliate of AGY or who intends to participate in the
exchange offer for the purpose of distributing the exchange notes:
. will not be able to rely on the SEC interpretations set forth in the
above-mentioned no-action letters;
. will not be able to tender its old notes in the exchange offer; and
. must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer transaction
unless such sale or transfer is made pursuant to an exemption from such
requirements.
A participating broker-dealer holding old notes may participate in the
exchange offer provided that it acquired the old notes for its own account as a
result of market-making or other trading activities. In connection with any
resales of exchange notes, any participating broker-dealer who receives
exchange notes for old notes pursuant to the exchange offer may be an
"underwriter" (within the meaning of the Securities Act) and must deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of the exchange notes. The SEC has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to the exchange notes (other than a resale of an unsold allotment
from the original sale of the old notes) with this prospectus, as it may be
amended or supplemented from time to time. Under the registration rights
agreement, AGY is required to allow participating broker-dealers and other
persons, if any, subject to similar prospectus delivery requirements, to use
this prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of such exchange notes for a period of 180 days.
Each participating broker-dealer wishing to accept the exchange offer must
represent to AGY that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of exchange notes.
The exchange offer is intended to satisfy certain of AGY's obligations under
the registration rights agreement. AGY will not receive any cash proceeds from
the issuance of the exchange notes offered hereby. In consideration for issuing
the exchange notes as contemplated in this prospectus, AGY will receive a like
principal amount of old notes. The form and terms of the exchange notes will be
identical in all material respects to the form and terms of the old notes,
except as described herein.
Exchange notes received by broker-dealers for their own account pursuant to
the exchange offer may be sold from time to time in one or more transactions in
the over-the-counter market, in
116
negotiated transactions, through the writing of options on the exchange notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, or at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through broker-dealers who may receive compensation in the form of commissions
or concessions from any such broker-dealer and/or the purchasers of any such
exchange notes. Any broker-dealer that resells exchange notes that were
received by it for its own account pursuant to the exchange offer and any
person that participates in the distribution of such exchange notes may be
deemed an "underwriter" (within the meaning of the Securities Act) and any
profit on any such resale of exchange notes and any commissions or concessions
received by any such broker-dealers may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that
any acknowledgment by a participating broker-dealer that it will deliver a
prospectus in connection with any resale of exchange notes, and any such
delivery of a prospectus, shall not be deemed an admission by such
participating broker-dealer that it is an underwriter.
For a period of 180 days after the expiration date, AGY will send additional
copies of this prospectus and any amendment or supplement to this prospectus to
any participating broker-dealer that requests such documents in such
participating broker-dealer's letter of transmittal. By acceptance of the
exchange offer, each broker-dealer that receives exchange notes for old notes
pursuant thereto agrees that, upon receipt of notice from AGY of the happening
of any event which makes any statement in this prospectus untrue in any
material respect or which requires the making of any changes in this prospectus
in order to make the statements herein not materially misleading (which notice
AGY has agreed to deliver to such broker-dealer), such broker-dealer will
suspend the use of this prospectus until AGY has amended or supplemented this
prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented prospectus to such broker-dealer.
AGY has agreed, pursuant to the registration rights agreement, to pay all
expenses incident to AGY's performance of and compliance with the exchange
offer and the registration rights agreement (other than agency fees and
commissions, underwriting discounts and commissions and the fees and
disbursements of counsel and other advisors and experts retained by the
holders). In addition, AGY has agreed to indemnify the holders of the exchange
notes against certain liabilities, including liabilities under the Securities
Act.
The exchange notes are a new issuance of securities for which there is
currently no trading market. The exchange notes will not be listed on any
national securities exchange or Nasdaq. AGY has been advised by the Initial
Purchasers that they intend to make a market in the exchange notes; however,
the Initial Purchasers are not obligated to do so, and any such market making
activities may be discontinued at any time without notice. Accordingly, there
can be no assurance that an active trading market for the exchange notes will
develop or as to the liquidity of any such market. In addition, if the exchange
notes are traded after their initial issuance, they may trade at a discount
from their initial offering price, depending upon prevailing interest rates,
the market for similar securities, the performance of AGY and other factors.
117
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for AGY
by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The audited statements of net assets of the Business as of December 31, 1997
and 1996 and the related statements of operations, changes in net assets and
cash flows for each of the three years in the period ended December 31, 1997
included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
118
INDEX TO FINANCIAL STATEMENTS
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
Page
----
Report of Independent Public Accountants................................. F-2
Statements of Net Assets as of December 31, 1997 and 1996................ F-3
Statements of Operations for the Years Ended December 31, 1997, 1996 and
1995.................................................................... F-4
Statements of Changes in Net Assets for the Years Ended December 31,
1997, 1996 and 1995..................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995.................................................................... F-6
Notes to Financial Statements............................................ F-7
ADVANCED GLASSFIBER YARNS LLC
(a Subsidiary of Owens Corning)
Balance Sheets as of September 30, 1998 (unaudited) and December 31,
1997.................................................................... F-17
Statements of Operations for the Nine Months Ended September 30, 1998 and
1997 (unaudited)........................................................ F-18
Statements of Cash Flows for the Nine Months Ended September 30, 1998 and
1997 (unaudited)........................................................ F-19
Notes to Condensed Financial Statements.................................. F-20
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Owens Corning:
We have audited the accompanying statements of net assets of the GLASS YARNS
AND SPECIALTY MATERIALS BUSINESS (the "Business"), a business unit of OWENS
CORNING, a Delaware corporation (the "Company") as described in Note 1, as of
December 31, 1997 and 1996 and the related statements of operations, changes in
net assets and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets of the GLASS YARNS AND SPECIALTY
MATERIALS BUSINESS as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Toledo, Ohio,
August 14, 1998.
F-2
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 1997 and 1996
(Note 1)
(In Thousands)
1997 1996
-------- --------
CURRENT ASSETS:
Receivables, less allowances of $1,419 in 1997 and $1,490
in 1996................................................... $ 19,272 $ 23,308
Inventories (Note 3)....................................... 19,168 21,246
Deferred income taxes (Note 9)............................. 4,396 4,438
Other current assets....................................... 291 --
-------- --------
Total current assets..................................... 43,127 48,992
-------- --------
Deferred income taxes (Note 9)............................... 5,276 7,537
Net property, plant and equipment (Note 4)................... 105,558 107,310
-------- --------
Total assets............................................. 153,961 163,839
-------- --------
CURRENT LIABILITIES:
Accounts payable........................................... 11,288 7,914
Accrued liabilities (Note 7)............................... 8,398 9,481
Income taxes payable (Note 9).............................. 30,237 31,775
Other current liabilities (Note 6)......................... 5,076 4,766
-------- --------
Total current liabilities................................ 54,999 53,936
-------- --------
PENSION AND OTHER EMPLOYEE BENEFIT PLANS (Note 6)............ 68,022 73,053
-------- --------
NET ASSETS................................................... $ 30,940 $ 36,850
======== ========
The accompanying notes are an integral part of these statements.
F-3
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Note 1)
(In Thousands)
1997 1996 1995
-------- -------- --------
NET SALES......................................... $277,357 $274,979 $272,395
COST OF SALES..................................... 182,366 180,343 187,153
-------- -------- --------
Gross margin.................................... 94,991 94,636 85,242
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(Note 1)......................................... 14,813 14,345 13,748
-------- -------- --------
Income from operations.......................... 80,178 80,291 71,494
OTHER INCOME, NET (Note 8)........................ (2,688) (3,003) (3,041)
-------- -------- --------
Income before provision for income taxes........ 82,866 83,294 74,535
PROVISION FOR INCOME TAXES (Note 9)............... 32,540 33,051 29,594
-------- -------- --------
NET INCOME........................................ $ 50,326 $ 50,243 $ 44,941
======== ======== ========
The accompanying notes are an integral part of these statements.
F-4
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Note 1)
(In Thousands)
1997 1996 1995
-------- -------- --------
Net assets at beginning of year................... $ 36,850 $ 31,899 $ 25,439
Net income........................................ 50,326 50,243 44,941
Net transfers to Owens Corning.................... (60,916) (44,030) (48,163)
Other net......................................... 4,680 (1,262) 9,682
-------- -------- --------
Net assets at end of year......................... $ 30,940 $ 36,850 $ 31,899
======== ======== ========
The accompanying notes are an integral part of these statements.
F-5
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Note 1)
(In Thousands)
1997 1996 1995
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 50,326 $ 50,243 $ 44,941
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 8,305 8,233 8,604
Deferred income tax provision.................. 2,303 1,276 1,935
Loss on disposal of property, plant and equip-
ment.......................................... 192 419 661
Changes in current assets and liabilities:
Receivables, net............................. 4,036 2,834 (3,757)
Inventories.................................. 2,078 (3,149) 3,010
Other current assets......................... (291) -- --
Accounts payable............................. 3,374 (1,378) 816
Accrued liabilities.......................... (1,083) 866 411
-------- -------- --------
Net cash provided by operating activities.... 69,240 59,344 56,621
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment..... (8,324) (15,314) (8,458)
-------- -------- --------
Net cash used in investing activities........ (8,324) (15,314) (8,458)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transfers to Owens Corning................. (60,916) (44,030) (48,163)
-------- -------- --------
Net cash used in financing activities........ (60,916) (44,030) (48,163)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH.................. -- -- --
CASH, beginning of year.......................... -- -- --
-------- -------- --------
CASH, end of year................................ $ -- $ -- $ --
======== ======== ========
The accompanying notes are an integral part of these statements.
F-6
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
NOTES TO FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying financial statements of the Owens Corning (the "Company")
Glass Yarns and Specialty Materials Business (the "Business") have been
prepared in conjunction with the Company's sale of a 51% interest in the
Business.
The Business is an operating unit of the Company's Composites Systems
Business and is operated from the following locations: Aiken, South Carolina;
Huntingdon, Pennsylvania; Battice, Belgium and Guelph, Ontario. The Business is
a global supplier of glass fiber yarns and specialty materials that are used in
a variety of industrial and commercial applications, including laminates for
printed circuit boards, reinforcing scrims, filtration and window screening and
reinforcement for roofing and facade cladding. The fiberglass yarns products
are typically sold to weavers who produce intermediary products known as
fabrics for use in the manufacture of end-products.
The Business employs approximately 1,500 hourly employees. The hourly
employees are organized under the Teamsters Local Union Number 86 the Aiken
plant and the Union of Needletrades, Industrial and Textiles Employees at the
Huntingdon plant. The collective bargaining agreements for the Aiken and
Huntingdon workforces expire in May of 1999 and October of 1999, respectively.
The accompanying financial statements have been derived from the historical
financial statements of the Company and do not reflect adjustments which may
arise related to the transaction and events described in Note 11.
The Business has been managed as an operating unit of the Composites Systems
Business of the Company, which has provided it with certain administrative and
operational support. The accompanying financial statements include the cost of
the Business' employees and estimates of certain corporate services provided by
the Company. Management, using its experience with the Business and its
judgment, has estimated the cost of such corporate services and other support.
Management believes that its methodology is reasonable and that the costs of
the operational and administrative support included in the accompanying
financial statements are comparable to those that the Business would have
incurred had it operated as a separate entity. The financial information
presented herein may not necessarily reflect the financial position and results
of operations of the Business in the future.
Two customers accounted for approximately 21% and 11% of the Business' net
sales for the year ended December 31, 1997, 21% and 10% in 1996, and 19% and
12% in 1995. Two customers accounted for approximately 17% and 11% at December
31, 1997, and 3% and 15% at December 31, 1996 of gross accounts receivable.
(2) Accounting Policies
Principles of Consolidation
The Business is conducted through the Company and two wholly-owned
subsidiaries of the Company. Significant intercompany accounts and transactions
have been eliminated.
F-7
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(2) Accounting Policies--(Continued)
Inventory Valuation
Inventories are stated at cost, which is less than market value, and include
material, labor and manufacturing overhead. Inventories are valued using the
first-in, first-out (FIFO) method.
Rebuild of Glass Melting Furnaces
Glass melting furnaces periodically require substantial rebuilding. The time
period between rebuilds varies depending upon the utilization of the furnace.
The Company applies the capital method of accounting for the cost to rebuild
glass melting furnaces. Under this method, costs are capitalized when incurred
and depreciated over the estimated useful lives of the rebuilt furnaces.
Depreciation
For assets placed in service prior to January 1, 1992, the Business' plant
and equipment is depreciated primarily using the double-declining balance
method for the first half of an asset's estimated useful life and the straight-
line method is used thereafter. For assets placed in service after December 31,
1991, the Business' plant and equipment is depreciated using the straight-line
method.
Revenue Recognition
Revenues are recognized upon shipment of products.
Foreign Currency Translation
The assets and liabilities of the Business' non-U.S. operations are
translated at the year-end exchange rates and income and expenses are
translated at the average exchange rates prevailing during the period.
Use of Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair value of financial instruments in the accompanying financial
statements approximates the carrying value.
F-8
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(3) Inventories
Inventories consist of the following at December 31 (in thousands):
1997 1996
------- -------
Finished goods............................................... $14,431 $17,597
Materials and supplies....................................... 4,737 3,649
------- -------
Total inventories......................................... $19,168 $21,246
======= =======
(4) Net Property, Plant and Equipment
Net property, plant and equipment consisted of the following at December 31
(in thousands):
1997 1996
-------- --------
Land..................................................... $ 1,057 $ 1,057
Building and leasehold improvements...................... 28,918 28,209
Machinery and equipment.................................. 189,244 190,385
Alloy metals............................................. 22,988 24,567
Construction in progress................................. 6,330 2,538
-------- --------
Gross property, plant and equipment.................... 248,537 246,756
Less--Accumulated depreciation........................... (142,979) (139,446)
-------- --------
Net property, plant and equipment.................... $105,558 $107,310
======== ========
(5) Transactions with Related Parties
The Business engages in several transactions with other manufacturing
facilities, divisions or legal entities of the Company that are not included in
the Business. The following is a description of these transactions:
Purchases of Materials
The Business purchases glass marbles, which are used as an input material to
the production of certain glass yarns, from another Company manufacturing
facility. The transfer price of the glass marbles is based on the actual
manufacturing cost of the producing facility. Glass marble purchases were
$3,047,000, $2,889,000 and $3,064,000 in 1997, 1996 and 1995, respectively.
Glass Forming Bushing Fabrication Services and Alloy Metal Loss
The glass forming bushings used in the Business' glass melting furnaces
require periodic refurbishing. Refurbishing and fabrication services are
provided to the Business by the Company's central alloy operations. Such
services and alloy metals physically consumed in the manufacturing process are
charged to the Business at actual cost and were $3,200,000, $3,400,000 and
$3,600,000 in 1997, 1996 and 1995, respectively.
Lease Transactions
The Company has entered into master lease arrangements, which are operating
leases for accounting purposes, for manufacturing equipment used by the
Business. The rental expense included in the accompanying statements of
operations associated with these leases was $1,928,000 and $418,000 in 1997 and
1996, respectively.
F-9
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The minimum future rental commitments associated with these leases are as
follows (in thousands):
1998.................................................................. $2,246
1999.................................................................. 2,263
2000.................................................................. 2,263
2001.................................................................. 1,776
2002 through 2003..................................................... 549
------
$9,097
======
Cross Charges
Certain employees of the Aiken glass yarns facility perform maintenance,
administrative support, customer support, environmental, safety, warehousing
and other services for the Aiken mat plant and for the Company's centralized
production support organization. The cost of such services has been cross
charged (removed from cost of sales in the accompanying statement of
operations) to the plant or organization receiving the service. The amount of
cost charged to other Owens Corning facilities was $2,900,000, $3,000,000 and
$3,400,000 in 1997, 1996 and 1995, respectively.
(6) Employee Benefit Plans
Pension Plans
The hourly and salaried employees of the Business participate in Company
wide defined benefit plans maintained by the Company. Under the plans, pension
benefits are generally based on an employee's pay and number of years of
service. Company contributions to these pension plans are based on the
calculations of independent actuaries using the projected unit credit method.
Plan assets consist primarily of equity securities with the balance in fixed
income investments. The unrecognized cost of retroactive amendments and
actuarial gains and losses are amortized over the average future service period
of plan participants expected to receive benefits.
Pension expense attributed to the Business from the Company's defined benefit
pension plans includes the following (in thousands):
1997 1996 1995
-------- -------- --------
Service cost................................. $ 2,000 $ 1,800 $ 3,000
Interest cost on projected benefit
obligation.................................. 7,777 7,833 8,133
Actual return on plan assets................. (20,374) (13,152) (16,071)
Net amortization and deferral................ 10,653 3,019 5,434
-------- -------- --------
Net pension expense (credit)................. $ 56 $ (500) $ 496
======== ======== ========
F-10
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table reconciles the funded status of the accrued pension
benefit cost at October 31, 1997 and 1996, as reflected on the statements of
net assets at December 31, 1997 and 1996 (in thousands):
1997 1996
-------- --------
Vested benefit obligation.............................. $103,344 $ 89,510
======== ========
Accumulated benefit obligation......................... $112,199 $102,226
======== ========
Plan assets at fair value.............................. $110,924 $103,088
Projected benefit obligation........................... 112,580 106,681
-------- --------
Plan assets in excess of (less than) projected benefit
obligation............................................ (1,656) (3,593)
Unrecognized loss...................................... 5,467 8,746
Unrecognized prior service cost........................ (8,201) (9,315)
Unrecognized transition amount......................... (3,631) (4,244)
-------- --------
Net pension liability.................................. $ (8,021) $ (8,406)
======== ========
The 1997, 1996 and 1995 primary actuarial assumptions used for the pension
plans were:
1997 1996 1997
---- ---- ----
Discount rate.............................................. 7.25% 7.75% 7.50%
Expected long-term rate of return on plan assets........... 9.00% 9.00% 9.00%
Rate of compensation increase.............................. 5.00% 5.10% 5.10%
Postemployment and Postretirement Benefits Other Than Pensions
The employees of the Business participate in Company wide health care and
life insurance benefit plans for certain retired employees and their
dependents. The health care plans in the U.S. are unfunded and pay either 1)
stated percentages of covered medically necessary expenses, after subtracting
payments by Medicare or other providers and after stated deductibles have been
met, or, 2) fixed amounts of medical expense reimbursement.
Employees become eligible to participate in the health care plans upon
retirement under the Company's pension plans if they have accumulated 10 years
of service after age 45. Some of the plans are contributory, with some retiree
contributions adjusted annually. The Company has reserved the right to change
or eliminate these benefit plans subject to the terms of collective bargaining
agreements.
F-11
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table reconciles the status of the accrued postretirement
benefits cost liability at October 31, 1997 and 1996, as reflected on the
statements of net assets at December 31, 1997 and 1996 (in thousands):
1997 1996
-------- --------
Accumulated Postretirement Benefits Obligation:
Retirees.............................................. $(40,068) $(33,831)
Fully eligible active plan participants............... (7,560) (5,292)
Other active plan participants........................ (9,072) (10,962)
-------- --------
Funded status....................................... (56,700) (50,085)
Unrecognized net (gain) loss............................ 3,780 (2,079)
Unrecognized net reduction in prior service cost........ (6,048) (9,828)
Benefit payments subsequent to the valuation date....... 756 --
-------- --------
Accrued postretirement benefits cost liability
(including current liabilities of $4,226 and $4,011 in
1997 and 1996, respectively)........................... $(58,212) $(61,992)
======== ========
The amount of net postretirement benefits cost attributed to the Business for
1997, 1996 and 1995 included the following components (in thousands):
1997 1996 1995
------- ------- -------
Service cost.................................... $ 900 $ 1,100 $ 900
Interest cost on accumulated Postretirement
benefits Obligation............................ 3,780 3,591 3,591
Net amortization and deferral................... (3,780) (3,780) (4,158)
------- ------- -------
Net postretirement benefits cost................ $ 900 $ 911 $ 333
======= ======= =======
For measurement purposes, an 8% annual rate of increase in the per capita
cost of covered health care claims was assumed for 1998. The rate was assumed
to decrease to 7% for 1999, then decrease to 6% by 2000. The health care cost
trend rate assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rate by one
percentage point in each year would increase the accumulated postretirement
benefits obligation as of October 31, 1997 by $7,779,000 and the aggregate of
the service and interest cost components of net postretirement benefits cost
for the year then ended by $867,000. The discount rate used in determining the
accumulated postretirement benefits obligation was 7.25% in 1997, 7.75% in 1996
and 7.50% in 1995.
Employees of the Business also participate in plans that provide benefits to
former or inactive employees after employment but before retirement under
certain conditions. These benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits (including workers' compensation), job training and
counseling, and continuation of benefits such as health care and life insurance
coverage. The accrued postemployment benefits cost liability attributed to the
Business at October 31, 1997 and 1996, as reflected in the statement of net
assets at December 31, 1997 and 1996 was $6,865,000 and $7,421,000,
respectively, including current liabilities of $850,000 and $755,000 at
December 31, 1997 and 1996, respectively.
F-12
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(7) Accrued Liabilities
Accrued liabilities consist of the following at December 31 (in thousands):
1997 1996
------ ------
Vacation...................................................... $3,180 $3,631
Real and personal property taxes.............................. 1,904 2,265
Health benefits............................................... 1,205 1,127
Other......................................................... 1,778 1,427
Incentive compensation........................................ 331 1,031
------ ------
$8,398 $9,481
====== ======
(8) Other Income, Net
Other income includes royalties and technical service fees earned in
connection with a non-exclusive license granted to Taiwan Glass Industrial
Corporation (TGIC) which entitles TGIC to make products using certain of the
Business' technology. The Business also provides technical services to TGIC
under a separate agreement. The financial statements include royalties
attributable to the manufacture and sale of glass yarns products by TGIC.
Also included in other income is the net revenue associated with sales of
certain scrap materials generated in the manufacturing process.
The components of other income are as follows (in thousands):
1997 1996 1995
------- ------ ------
Royalties and technical service fees................ $ 1,237 $2,100 $1,687
Sales proceeds from scrap material.................. 2,900 1,806 2,707
Cost of scrap material sold......................... (1,449) (903) (1,353)
------- ------ ------
$ 2,688 $3,003 $3,041
======= ====== ======
(9) Income Taxes
The provision for income taxes, income taxes payable and deferred income
taxes included in the accompanying financial statements have been calculated as
if the Business operated as a stand alone entity.
Income before provision for income taxes (in thousands):
1997 1996 1995
------- ------- -------
U.S.................................................. $81,129 $77,079 $65,492
Foreign.............................................. 1,737 6,215 9,043
------- ------- -------
Total................................................ $82,866 $83,294 $74,535
======= ======= =======
F-13
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The provision for income taxes consists of the following (in thousands):
1997 1996 1995
------- ------- -------
Currently payable:
U.S. state and federal............................ $29,539 $29,278 $24,026
Foreign........................................... 698 2,497 3,633
Deferred:
U.S. state and federal............................ 2,303 1,276 1,935
------- ------- -------
Total provision for income taxes.................. $32,540 $33,051 $29,594
======= ======= =======
The reconciliation between the U.S. Federal statutory rate and the Business'
effective income tax rate is:
1997 1996 1995
---- ---- ----
U.S. Federal statutory rate................................. 35% 35% 35%
State and local income taxes.............................. 4 4 4
Foreign tax rates greater than U.S. Federal statutory
rate..................................................... -- 1 1
--- --- ---
39% 40% 40%
=== === ===
Deferred income taxes are determined based on the estimated future tax
effects of temporary differences between the financial reporting and tax bases
of assets and liabilities, given the provisions of the enacted tax laws.
Deferred tax consequences of significant temporary differences existing as of
December 31, 1997 and 1996 are as follows (in thousands):
December 31,
------------------
1997 1996
-------- --------
Deferred tax assets:
Pension and other employee benefit plans.............. $ 29,692 $ 31,543
Other................................................. 1,668 1,853
-------- --------
$ 31,360 $ 33,396
======== ========
Deferred tax liabilities:
Fixed Assets.......................................... $(21,688) $(21,421)
======== ========
F-14
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(10) Segment Information
The Business operates in one business segment that manufactures glass fiber
yarns and specialty materials that are used in a variety of industrial and
commercial applications. The Business operates in various geographical
locations, as indicated below (in thousands).
1997 1996 1995
-------- -------- --------
Net Sales
North America................................ $202,666 $196,440 $186,411
Europe and other............................. 74,691 78,539 85,984
-------- -------- --------
277,357 274,979 272,395
-------- -------- --------
Inter Segment Sales
North America................................ 38,714 39,341 32,262
Eliminations................................. (38,714) (39,341) (32,262)
-------- -------- --------
$277,357 $274,979 $272,395
======== ======== ========
Income from Operations
North America................................ $ 78,441 $ 74,076 $ 62,451
Europe and other............................. 1,737 6,215 9,043
-------- -------- --------
$ 80,178 $ 80,291 $ 71,494
======== ======== ========
(11) Subsequent Event (Unaudited)
On July 1, 1998, the Company contributed certain assets and liabilities of
the Business to Advanced Glassfiber Yarns LLC (formerly known as Lincoln Yarns
LLC), a wholly owned Delaware limited liability company. On July 30, 1998, the
Company transferred 49% of its interest in Advanced Glassfiber Yarns LLC to
Jefferson Holdings, Inc., a wholly owned subsidiary of the Company. On July 31,
1998, the Company and Advanced Glassfiber Yarns LLC entered into an LLC
Interest Sale and Purchase Agreement (the "Agreement") with Glass Holdings
Corp., ("Glass Holdings") a U.S. subsidiary of Porcher Industries, S.A., of
Badinieres, France. Pursuant to the Agreement, OC sold its 51% interest in
Advanced Glassfiber Yarns LLC to a wholly owned subsidiary of Glass Holdings
for approximately $336 million. In addition, the Company received a
distribution of approximately $193 million at the time of the closing, which
was on September 30, 1998. Porcher Industries, S.A. and affiliates represent
21%, 21%, and 19% of the Business' sales for the years ended December 31, 1997,
1996 and 1995, respectively. Certain assets and liabilities presented in the
December 31, 1997 and 1996 statements of net assets were excluded from the
contribution to Advanced Glassfiber Yarns LLC and the sale and will therefore
be retained by the Company.
F-15
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business Unit of Owens Corning)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(12) Quarterly Financial Information (Unaudited)(in thousands)
Quarter
-------------------------------
1997 First Second Third Fourth
---- ------- ------- ------- -------
Net sales.................................... $67,653 $70,152 $71,815 $67,737
Cost of sales................................ 46,275 43,825 48,122 44,144
------- ------- ------- -------
Gross margin.............................. $21,378 $26,327 $23,693 $23,593
======= ======= ======= =======
Net income................................... $11,152 $14,138 $12,549 $12,487
======= ======= ======= =======
Quarter
-------------------------------
1996 First Second Third Fourth
---- ------- ------- ------- -------
Net sales.................................... $66,484 $72,508 $65,089 $70,898
Cost of sales................................ 45,316 48,277 41,675 45,075
------- ------- ------- -------
Gross margin.............................. $21,168 $24,231 $23,414 $25,823
======= ======= ======= =======
Net income................................... $11,058 $12,905 $12,413 $13,867
======= ======= ======= =======
F-16
ADVANCED GLASSFIBER YARNS LLC
(a Subsidiary of Owens Corning)
BALANCE SHEETS
(In Thousands)
(See Notes 1 and 4)
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Receivables, net.............................. $ 33,393 $ 19,272
Inventories (Note 2).......................... 24,378 19,168
Deferred income taxes......................... -- 4,396
Other current assets.......................... 1,457 291
-------- --------
Total current assets........................ 59,228 43,127
-------- --------
Deferred income taxes......................... -- 5,276
NET PROPERTY, PLANT AND EQUIPMENT............... 149,458 105,558
-------- --------
INTANGIBLE ASSETS............................... 227,678 --
OTHER ASSETS.................................... 9,112 --
-------- --------
Total assets................................ $445,476 $153,961
======== ========
LIABILITIES AND MEMBERS' INTEREST
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4).... $ 12,750 $ --
Accounts payable.............................. -- 11,288
Accrued liabilities (Note 3).................. 7,732 8,398
Due to parent/affiliates...................... 3,012 --
Income taxes payable.......................... -- 30,237
Other current liabilities..................... -- 5,076
-------- --------
Total current liabilities................... 23,494 54,999
-------- --------
PENSION AND OTHER EMPLOYEE BENEFIT PLANS........ 14,800 68,022
-------- --------
LONG-TERM DEBT, less current portion above (Note
4)............................................. 391,250 --
-------- --------
Total liabilities........................... 429,544 123,021
-------- --------
MEMBERS' INTEREST............................... 15,932 30,940
-------- --------
Total liabilities and members' interest..... $445,476 $153,961
======== ========
The accompanying notes are an integral part of these statements.
F-17
ADVANCED GLASSFIBER YARNS LLC
(a Subsidiary of Owens Corning)
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(In Thousands)
1998 1997
----------- -----------
(unaudited) (unaudited)
NET SALES............................................ $205,248 $209,580
COST OF SALES........................................ 134,820 138,045
-------- --------
Gross margin....................................... 70,428 71,535
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... 11,487 11,110
RESTRUCTURING COSTS (Note 5)......................... 2,034 --
-------- --------
Income from operations............................. 56,907 60,425
OTHER INCOME, NET.................................... (2,328) (2,026)
-------- --------
Income before provision for income taxes........... 59,235 62,451
PROVISION FOR INCOME TAXES (Note 6).................. 16,226 24,481
-------- --------
NET INCOME........................................... $ 43,009 $ 37,970
======== ========
The accompanying notes are an integral part of these statements.
F-18
ADVANCED GLASSFIBER YARNS LLC
(a Subsidiary of Owens Corning)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(In Thousands)
(See Notes 1 & 4)
1998 1997
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 43,009 $37,970
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 6,394 6,128
Deferred income tax (credit) provision.............. (841) 1,443
Changes in current assets and liabilities:
Receivables, net................................... (14,121) (11,075)
Inventories........................................ (3,786) (2,892)
Other current assets............................... (278) (200)
Accounts payable................................... (468) 304
Accrued liabilities................................ 1,052 (1,731)
-------- -------
Net cash provided by operating activities.......... 30,961 29,947
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment........... (13,509) (5,744)
-------- -------
Net cash used in investing activities.............. (13,509) (5,744)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving loan......................... 14,000 --
Proceeds from bridge facility........................ 150,000 --
Proceeds from term loans............................. 240,000 --
Distribution to Porcher Industries (Note 1).......... (203,624) --
Distribution to Owens Corning........................ (193,388) --
Net transfers to Owens Corning....................... (17,452) (24,203)
Payment of financing costs........................... (6,988) --
-------- -------
Net cash used in financing activities.............. (17,452) (24,203)
-------- -------
NET INCREASE (DECREASE) IN CASH........................ -- --
CASH, beginning of period.............................. -- --
-------- -------
CASH, end of period.................................... $ -- $ --
======== =======
The accompanying notes are an integral part of these statements.
F-19
ADVANCED GLASSFIBER YARNS LLC
(a Subsidiary of Owens Corning)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
The interim financial statements are unaudited and reflect all adjustments
that, in the opinion of management, are necessary for a fair presentation of
the results for the interim periods. The results of operations for the current
interim period are not necessarily indicative of results to be expected for
the current year or any other period.
These financial statements should be read in conjunction with the Business'
financial statements for the year ended December 31, 1997.
Advanced Glassfiber Yarns LLC ("AGY") was formed by Owens Corning to own and
operate Owens Corning's glass yarns and specialty materials business (the
"Business"), which was contributed to AGY on July 1, 1998 then, a wholly-owned
subsidiary of Owens Corning (the "Contribution"). On September 30, 1998, Owens
Corning sold a 51% interest in AGY to a wholly owned subsidiary of Porcher
Industries, S.A. ("Porcher Industries") for aggregate consideration of $336.2
million (the "Majority Purchase"). In addition, Porcher Industries paid fees
and expenses of approximately $3.2 million in connection with the Majority
Purchase. Subsequent to September 30, Owens Corning and Porcher Industries
reached agreement on the amount of a purchase price adjustment to be made
pursuant to the purchase contract. Porcher Industries agreed to pay an
additional $2.7 million to Owens Corning in connection with the purchase
contract. Owens Corning retained a 49% interest in AGY.
Concurrently with the Majority Purchase, AGY was recapitalized. AGY borrowed
an aggregate of $404.0 million through a combination of $254.0 million under a
Senior Credit Facility (see Note 4) and the issuance of $150.0 million
principal amount of senior subordinated bridge notes under a Senior
Subordinated Credit Facility (the "Subordinated Facility") (see Note 4). AGY
used the proceeds from the initial borrowing under the Senior Credit Facility
and the Subordinated Facility to pay (i) an aggregate cash distribution of
$397.0 million (the "Distribution") to Owens Corning and Porcher Industries in
the amounts of $193.4 million and $203.6 million, respectively, and
(ii) approximately $7.0 million in fees and expenses. The initial borrowings
under the Senior Credit Facility and the Subordinated Facility, and the
application of the net proceeds therefrom are collectively referred to as the
"Financings." The Financings, together with the Contribution and the Majority
Purchase are collectively referred to as the "Formation Transactions."
In connection with the Formation Transactions, the net cash outlay by
Porcher Industries was $135.8 million, represented by the $336.2 million paid
for the Majority Purchase plus fees and expenses of $3.2 million less the
$203.6 million cash distribution Porcher Industries received from AGY. The
total cash consideration received by Owens Corning before the additional
purchase price of $2.7 million referred to above was $529.6 million, comprised
of the $336.2 million paid by Porcher Industries and the $193.4 million cash
distribution received from AGY.
The acquisition of the 51% interest in AGY by a wholly owned subsidiary of
Porcher Industries was accounted for as a partial purchase business
combination in accordance with the provisions of APB No. 16 "Business
Combinations" and EITF Issue No. 88-16, "Basis in Leveraged Buyout
Transactions." The final allocation of the purchase price is subject to
further review by management and is therefore subject to change. However, that
allocation is not expected to differ materially from the initial allocation.
F-20
ADVANCED GLASSFIBER YARNS LLC
(a Subsidiary of Owens Corning)
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
Porcher Industries, S.A. and affiliates represent approximately 21%, 21% and
19% of AGY's net sales for the years ended December 31, 1997, 1996 and 1995,
respectively, and approximately 19% of AGY's sales for the nine months ended
September 30, 1998.
Certain assets and liabilities presented in the December 31, 1997 and 1996
statements of net assets were excluded from the Contribution to AGY and will
be retained by Owens Corning. Thus, the accompanying balance sheet as of
September 30, 1998 reflects only those assets and liabilities contributed to
AGY. The following table reconciles the September 30, 1998 historical balance
sheet of the Business including those assets and liabilities not part of the
Contribution to the balance sheet of AGY included herein. The adjustments
include (a) the elimination of certain assets and liabilities not contributed
or assumed (b) the allocation of the purchase price and (c) the effect of the
Distributions and the Financings.
Glass Yarns Elimination of
and Specialty amounts Allocation of Distribution
Materials not contributed purchase and Financing
Business or assumed price Transactions AGY
------------- --------------- ------------- ------------- --------
Current Assets:
Cash and cash
equivalents........... $ -- 404,000 $ --
(399,262)
2,250
(6,988)
Account receivables,
net................... 33,393 33,393
Inventories............ 22,954 (130) 1,554 24,378
Deferred income taxes.. 4,865 (4,865) --
Other current assets... 569 888 1,457
-------- --------
Total Current
Assets.............. 61,781 59,228
-------- --------
Net property, plant and
equipment.............. 115,697 33,761 149,458
-------- --------
Intangible assets....... -- 227,678 227,678
Deferred income taxes... 5,648 (5,648) --
Other assets............ -- 9,112 9,112
-------- --------
Total Assets......... $183,126 $445,476
======== ========
Current Liabilities:
Accounts payable....... $ 10,820 (10,820) $ --
Income taxes payable... 23,125 (23,125) --
Accrued Liabilities.... 9,450 (1,718) 7,732
Current portion of long
term debt............. -- 12,750 12,750
Due to affiliate....... -- 3,012 3,012
Other current
liabilities........... 5,635 (5,635) --
-------- --------
Total Current
Liabilities......... 49,030 23,494
Pension and Other
Employee Benefits...... 69,025 (54,225) 14,800
Long term debt.......... -- 391,250 391,250
-------- --------
Total Liabilities.... 118,055 429,544
-------- --------
Member's interest....... 65,071 84,880 262,993 (397,012) 15,932
-------- --------
Total Liabilities &
Members' Interest... $183,126 $445,476
======== ========
F-21
ADVANCED GLASSFIBER YARNS LLC
(a Subsidiary of Owens Corning)
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
Membership Interest and Put Rights
The following table sets forth each member's membership interest (deficit)
in AGY at September 30, 1998:
Owens Corning (held by Jefferson Holdings, Inc. a
wholly owned subsidiary)......................................... $(119,912)
Porcher Industries (held by Glass Holdings Corp. a
wholly owned subsidiary)......................................... 135,844
---------
Total Membership Interest..................................... $ 15,932
=========
At any time beginning on September 30, 2003, each of Owens Corning and
Porcher Industries (the "Members") have the right to sell not less than all of
their ownership interest to AGY (a "Put Right") in the event certain
conditions described below are satisfied. If either of the Members exercises
its Put Right, the value of the ownership interest will be determined by a
third party according to the procedures set forth in the operating agreement.
AGY's obligation to purchase a member's ownership interest is conditioned upon
AGY financing the purchase with a third party lender while maintaining or
obtaining not less than a B rating on its then outstanding unsecured debt
after giving effect to the purchase. In addition, AGY's ability to fund the
Put Right will be conditioned upon maintaining compliance with the covenants
under the Senior Credit Facility and the Senior Subordinated Credit Facility.
As of September 30, 1998, AGY could not finance the purchase of all or any
portion of either Members' ownership interest and maintain a credit rating of
at least B on its existing unsecured debt.
In the event that AGY is unable to purchase all of a member's ownership
interest upon the exercise of the Put Right, the member may request that AGY
file and use its reasonable best efforts to cause to become effective a
registration statement under the Securities Act of 1933 covering the
registration of its ownership interest (or a portion thereof).
Management's estimate of the aggregate value of the Members' ownership
interests using the measurement procedures specified in the Operating
Agreement is approximately $250 million.
(2) Inventories
Inventories consist of the following at (in thousands):
September 30, December 31,
1998 1997
------------- ------------
Finished goods.................................... $20,074 $14,431
Materials and supplies............................ 4,304 4,737
------- -------
Total inventories............................... $24,378 $19,168
======= =======
(3) Accrued Liabilities
Accrued liabilities consist of the following at (in thousands):
September 30, December 31,
1998 1997
------------- ------------
Vacation.......................................... $3,180 $3,180
Real and personal property taxes.................. 2,689 1,904
Health benefits (Note 1).......................... -- 1,205
Incentive Compensation............................ 1,537 331
Other............................................. 326 1,778
------ ------
$7,732 $8,398
====== ======
F-22
ADVANCED GLASSFIBER YARNS LLC
(a Subsidiary of Owens Corning)
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(4) Long-Term Debt
Long-term debt consisted of the following as of September 30, 1998:
Senior Credit Facility
Five year revolving credit facility............................... $ 14,000
Term loans........................................................ 240,000
Senior Subordinated Credit Facility................................ 150,000
--------
404,000
Less current portion.............................................. 12,750
--------
Long-term debt................................................... $391,250
========
Senior Credit Facility
In connection with the Formation Transactions, AGY entered into a senior
secured credit agreement, pursuant to which the lenders committed to lend to
AGY up to $315.0 million (the "Senior Credit Facility"), such amount to be
allocated among: (i) a five-year revolving credit facility in an aggregate
principal amount of up to $75.0 million (the "Revolver"); (ii) a six-year term
loan in an aggregate principal amount of $115.0 million ("Term Loan A"); (iii)
a seven-year term loan in an aggregate principal amount of $125.0 million
("Term Loan B" and together with Term Loan A, the "Term Loans").
The Term Loans will be amortized on a quarterly basis commencing December 31,
1998 based on the following schedule:
Twelve Months Ending
September 30, Term Loan A Term Loan B
-------------------- ------------ ------------
1999 $ 11,500,000 $ 1,250,000
2000 17,250,000 1,250,000
2001 17,250,000 1,250,000
2002 23,000,000 1,250,000
2003 23,000,000 1,250,000
2004 23,000,000 118,750,000
------------ ------------
$115,000,000 $125,000,000
============ ============
The Senior Credit Facility is secured by a first priority lien in
substantially all of the properties and assets of AGY and its respective
domestic subsidiaries, now owned or acquired thereafter and a pledge of Porcher
Industries' membership interest in AGY. The Senior Credit Facility will be
guaranteed by all of AGY's future domestic subsidiaries.
At AGY's option, the interest rates per annum applicable to the Revolver and
the Term Loan A is a fluctuating rate of interest measured by reference either
to: (i) LIBOR plus a borrowing margin or (ii) the bank's base rate, which is
the greater of the published prime rate or the overnight federal funds rate
plus 0.5% (the "ABR") plus a borrowing margin. The applicable borrowing margin
for the Revolver and Term Loan A ranges from 1.75% to 3.0% for LIBOR based
borrowings and 1.50% to 1.75% for ABR based borrowings. The applicable
borrowing margin for the Term Loan B ranges from 3.50% to 3.75% for LIBOR based
borrowings and 2.25% to 2.5% for ABR based borrowings.
F-23
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business of Owens Corning)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company has entered into interest rate swap agreements which convert the
rates of interest on Term Loan A and Term Loan B to 4.92% and 5.04% per annum,
respectively, plus the applicable borrowing margin. These swap agreements
remain in effect through the six-year and seven-year terms of Term Loan A and
Term Loan B, respectively. The notional amount of these swaps is the entire
balance of the outstanding loans on a declining basis over the term of the
debt. The interest rate on borrowings outstanding under the Revolver, Term Loan
A and Term Loan B as of September 30, 1998 was 8.1%, 7.7% and 8.5%,
respectively.
The Senior Credit Facility contains affirmative and negative covenants for
agreements of this type, including, among others, covenants restricting AGY and
its subsidiaries with respect to the incurrence of debt (including guarantees);
the creation of liens; substantially changing the nature of AGY's or its
subsidiaries' businesses; the consummation of certain transactions such as
dispositions of substantial assets, mergers, acquisitions, reorganizations and
recapitalizations; the making of certain investments and loans, non-ordinary
course asset sales and capital expenditures; the making of dividends and other
distributions; transactions with affiliates and AGY's ability to prepay certain
debt. AGY also is required to comply with certain financial tests and maintain
certain financial ratios. Certain of these financial tests and ratios include:
(i) maintaining a maximum Leverage Ratio; (ii) maintaining a minimum
Consolidated Net Worth (as defined in the Senior Credit Facility);
(iii) maintaining a minimum Interest Coverage Ratio (as defined in the Senior
Credit Facility); and (iv) maintaining a minimum Fixed Charge Coverage Ratio
(as defined in the Senior Credit Facility).
The Senior Credit Facility also contains customary Events of Default. An
Event of Default under the Senior Credit Facility will allow the lenders
thereunder to accelerate or, in certain cases, will automatically cause the
acceleration of, the maturity of the debt under the Senior Credit Facility.
Senior Subordinated Credit Facility
In connection with the Formation Transactions, AGY entered into an unsecured
senior subordinated credit facility (the "Facility"). This Facility, which
matures on September 30, 2008, provided for aggregate borrowings in an amount
of $150 million and was fully drawn by AGY as of September 30, 1998.
Amounts outstanding under this Facility accrue interest at a rate equal to
the sum (a) of the greater of (i) the three month LIBOR rate or (ii) a Treasury
based rate (based on a Treasury securities of the same principle amount as the
Facility), plus (b) a margin of 4.25%. The 4.25% margin increases by .25% per
annum at the end of each three-month period during the term of the Facility.
The maximum annual interest rate on the Facility is 18%. The rate of interest
on the amounts outstanding under this Facility was 9.56% at September 30, 1998.
In the event that the Facility has not been repaid in full immediately prior
to the first anniversary of its issuance, an extension fee equal to 3% of the
amount outstanding immediately prior to the first anniversary of the Facility
is due and payable.
F-24
GLASS YARNS AND SPECIALTY MATERIALS BUSINESS
(a Business of Owens Corning)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Keepwell Agreement
In connection with the Formation Transactions, Owens Corning entered into a
Keepwell Agreement to support the liquidity of AGY. In the event that AGY does
not have the liquidity to pay the interest on the Senior Credit Facility or the
Subordinated Facility when due, Owens Corning will loan AGY an amount equal to
the aggregate deficiency. Owens Corning's obligations to make such loans is
limited to a maximum aggregate amount of $65 million, and a maximum annual
amount of $20 million. The annual amount is reduced by $5 million after each
interest payment date with respect to the Subordinated Facility. This Agreement
terminates in January 2002.
(5) Restructuring Costs
During the first quarter of 1998, the Business recorded a $2 million
restructuring charge relating to personnel reductions at the Aiken and
Huntingdon plant locations. The charge represents severance costs associated
with the elimination of approximately 100 positions.
(6) Income Taxes
AGY was established as a limited liability company on July 1, 1998, and is
not subject to income tax, and therefore the statement of operations included
herein does not reflect income tax expense for any period subsequent to July 1,
1998. Income tax expense reflected in the statement of operations for the nine
months ended September 30, 1998 represents the estimated income tax expense
attributable to the results of operations of the Business through June 30,
1998. Income tax for the periods subsequent to the Contribution is the
responsibility of the members based on their respective interest in AGY.
(7) Segment Information
The Business operates in one business segment that manufactures glass fiber
yarns and specialty materials that are used in a variety of industrial and
commercial applications. The Business operates in various geographical
locations, as indicated below (in thousands).
September 30, 1998 September 30, 1997
------------------ ------------------
Net Sales
North America........................ $149,801 $153,167
Europe and other..................... 55,447 56,413
-------- --------
205,248 209,580
======== ========
Inter Segment Sales
North America........................ 30,527 28,694
Eliminations......................... (30,527) (28,694)
-------- --------
$205,248 $209,580
======== ========
Income from Operations
North America........................ $ 54,811 $ 59,119
Europe and other..................... 2,096 1,306
-------- --------
$ 56,907 $ 60,425
======== ========
F-25
$150,000,000
ADVANCED GLASSFIBER YARNS LLC
AGY CAPITAL CORP.
Offer to Exchange their 9 7/8% Series B Senior Subordinated Notes due 2009
which have been registered under the Securities Act
for up to $150,000,000 aggregate principal amount
of their outstanding 9 7/8% Senior Subordinated Notes due 2009
, 1999
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
(a) Advanced Glassfiber Yarns LLC
Section 18-108 of the Delaware Limited Liability Company Act (the "Act")
empowers a limited liability company to indemnify and hold harmless any member
or manager or other person from and against any and all claims and demands
whatsoever; subject to such standards and restrictions, if any, set forth in
the operating agreement.
Section 11 of the operating agreement of Advanced Glassfiber Yarns LLC (the
"Company") provides in pertinent part as follows:
(a) Except as otherwise prohibited by the Act, the Company shall
indemnify and hold each owner and its affiliates and its officers,
employees, directors, members, stockholders, managers, agents and
representatives, and their successors and assigns, and each of the members
of the Board of Directors and each officer (collectively, the
"Indemnitees"), harmless from and against any and all losses, claims,
damages, costs, liabilities and expenses (including without limitation
costs of investigation and reasonable attorneys' fees) ("Losses") suffered
or incurred by any and/or all of the Indemnitees (or to which any and/or
all of the Indemnitees may become subject) arising out of, resulting from,
based upon or in connection with the management or conduct of the business
or affairs of the Company or the activities of each such Indemnitee with
respect thereto, other than those which are the result of willful
misconduct or gross negligence by such Indemnitee (the "Indemnified
Damages").
(b) Any payment by the Company to an Indemnitee hereunder shall be
increased by an additional amount sufficient to pay all applicable income
taxes (if any) of any jurisdiction with respect to the total amount
(including both the initial amount and such additional amount) paid to such
Indemnitee hereunder.
(c) To the extent that insurance form third parties has been obtained and
is available in respect of any Indemnified Damages, the amount of any
Indemnified Damages shall be reduced by any amount actually recovered by
the Indemnitee from such third parties (to the extent such reimbursement
was not taken into account in assessing the amount of Indemnified Damages
incurred by the Indemnitee) rather than having the Company make any
payments pursuant to the indemnification obligations contained herein;
provided that if such proceeds are not readily available, the Board of
Directors will cause the Company to pay such Indemnified Damages, in which
event the Company shall be entitled to reimbursement therefor out of the
proceeds of insurance when and if obtained. The Board of Directors may (but
shall not be obligated to) obtain, at the expense of the Company, insurance
against any Indemnified Damages whether or not the Company would, pursuant
to this Section 11.1, be required to indemnify any Indemnitee in respect
thereof.
(d) The Company shall, at its sole cost and expense, (i) maintain, with
insurers or underwriters of national standing, in the name of the Company,
(x) liability insurance to protect members of the Board of Directors and
the officers, and (y) employee fidelity and other insurance consistent with
industry practice, in the case of (x) and (y), in at least such amounts as
are sufficient to cover reasonable risks of loss and are consistent with
industry practice, and (ii) pay all premiums and other sums payable in
respect of maintaining such insurance.
(b) AGY Capital Corp.
Under Section 145 of the General Corporation Law of the State of Delaware, a
corporation may indemnify its directors, officers, employees and agents and
its former directors, officers, employees and agents and those who serve, at
the corporation's request in such capacities with another enterprise,
II-1
against expenses (including attorney's fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. Delaware law
provides, however, that such person must have acted in good faith and in a
manner he or she reasonably believed to be in (or not opposed to) the best
interests of the corporation and, in the case of a criminal action, such person
must have had no reasonable cause to believe his or her conduct was unlawful.
In addition, Delaware law does not permit indemnification of any action or suit
by or in the right of the corporation, where such person has been adjudged
liable to the corporation, unless, and only to the extent that, a court
determines that such person fairly and reasonably is entitled to indemnity for
costs the court deems proper in light of liability adjudication. Indemnity is
mandatory to the extent a claim, issue or matter involving a present or former
director or officer has been successfully defended.
AGY Capital Corp.'s certificate of incorporation and bylaws provide, under
certain circumstances, for the indemnification of AGY Capital Corp.'s present
or former directors, officers, employees, agents and persons who, at the
request of AGY Capital Corp., are or were serving in a similar capacity for
another corporation or entity. These provisions also allow the Board of
Directors to purchase and maintain insurance on behalf of AGY Capital Corp.'s
present or former directors, officers or persons who are or were serving at the
request of AGY Capital Corp. as a director or officer of another corporation or
entity.
Item 21. Exhibits and Financial Statement Schedules
(a) The following exhibits are filed as part of this Registration Statement:
Ex. Description
--- -----------
2.1 Amended and Restated Asset Contribution Agreement dated as of July 31,
1998 between Owens Corning and Lincoln Yarns LLC
2.2 LLC Interest Sale and Purchase Agreement dated as of July 31, 1998 among
Owens Corning, Lincoln Yarns LLC and Glass Holdings Corp.
2.3 Amendment No. 1 to LLC Interest Sale and Purchase Agreement dated as of
September 30, 1998 among Owens Corning, Advanced Glassfiber Yarns LLC and
AGY Holdings, Inc.
3.1 Certificate of Formation of Advanced Glassfiber Yarns LLC
3.2 Advanced Glassfiber Yarns LLC Amended and Restated Limited Liability
Company Operating Agreement between Jefferson Holdings, Inc. and AGY
Holdings, Inc. dated as of September 30, 1998
3.3 Certificate of Incorporation of AGY Capital Corp.
3.4 Bylaws of AGY Capital Corp.
4.1 Indenture, dated as of January 21, 1999, among Advanced Glassfiber Yarns
LLC, AGY Capital Corp., the Guarantors and Bank of New York, as trustee,
relating to $150 million principal amount of 9 7/8% Senior Subordinated
Notes due 2009.
4.2 Form of 9 7/8% Series A and Series B Senior Subordinated Notes due 2009
(included in Exhibit 4.1)
4.3 Registration Rights Agreement dated as of January 21, 1999 among Advanced
Glassfiber Yarns LLC, AGY Capital Corp. and the Initial Purchasers
5 Opinion of Alston & Bird LLP re legality*
10.1 Patent and Know How License Agreement dated as of September 30, 1998
among Owens Corning Fiberglas Technology, Inc., Owens Corning and
Advanced Glassfiber Yarns LLC
10.2 Glass Marbles Supply Agreement dated as of September 30, 1998 between
Owens Corning and Advanced Glassfiber Yarns LLC
II-2
Ex. Description
--- -----------
10.3 Alloy Services Agreement dated as of September 30, 1998 between Advanced
Glassfiber Yarns LLC and Owens Corning
10.4 Non-Compete Agreement dated as of September 30, 1998 among Owens
Corning, AGY Holdings Corp., Porcher Industries, S.A. and Advanced
Glassfiber Yarns LLC
10.5 Manufacturing Services Agreement dated as of September 30, 1998 between
Owens Corning and Advanced Glassfiber Yarns LLC
10.6 Trademark Assignment Agreement dated as of September 30, 1998 by Owens
Corning Fiberglas Technology, Inc. and Owens Corning in favor of
Advanced Glassfiber Yarns LLC
10.7 Master Patent and Know How Assignment Agreement dated as of September
30, 1998 by Owens Corning Fiberglas Technology, Inc., Owens Corning and
Advanced Glassfiber Yarns LLC
10.8 Borates Supply Agreement dated as of September 30, 1998 between Owens
Corning and Advanced Glassfiber Yarns LLC**
10.9 Transitional Services Agreement dated as of September 30, 1998 by and
among Owens Corning and Advanced Glassfiber Yarns LLC
10.10 Support Services Agreement dated as of September 30, 1998 between
Advanced Glassfiber Yarns LLC and Owens Corning
10.11 Software License Agreement dated as of September 30, 1998 between Owens
Corning and Advanced Glassfiber Yarns LLC
10.12 Keep-Well Agreement dated as of September 30, 1998 between Owens Corning
and Advanced Glassfiber Yarns LLC
10.13 Senior Credit Agreement dated as of September 30, 1998 among Advanced
Glassfiber Yarns LLC, the Guarantors, First Union National Bank, as
agent and lender, and certain other lenders
10.14 Senior Subordinated Credit Agreement dated as of September 30, 1998
among Advanced Glassfiber Yarns LLC, the Guarantors, First Union
Investors, Inc., as co-agent and lender, and Warburg Dillon Read LLC, as
co-agent and lender
10.15 Note Purchase Agreement dated January 15, 1999 among Advanced Glassfiber
Yarns LLC, AGY Capital Corp. and the Initial Purchasers
12 Statement re Computation of Ratios
21 Subsidiaries of the Registrant
23.1 Consent of Alston & Bird LLP (included in Exhibit 5)*
23.2 Consent of Arthur Andersen LLP
24 Power of Attorney (included on signature page)
25 Statement of Eligibility (Form T-1) of The Bank of New York, as Trustee
27 Financial Data Schedule
99 Form of Letter of Transmittal and related documents to be used in
conjunction with the Exchange Offer
- --------
* To be filed by amendment
** Portions of exhibit have been omitted pursuant to a request for
confidential treatment
(b) Financial Statement Schedules--None
Item 22. Undertakings
(a) Each of the undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which,
II-3
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liability arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, each of the
Registrants has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
a Registrant of expenses incurred or paid by a director, officer or
controlling person of such Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrants
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) Each of the undersigned Registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(d) Each of the undersigned Registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Aiken, State of South
Carolina, on February 12, 1999.
Advanced Glassfiber Yarns LLC
/s/ Robert B. Fisher
By: ____________________________________________
Robert B. Fisher President
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Advanced Glassfiber Yarns LLC hereby severally constitute Robert
B. Fisher and Catherine Cuisson, and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement
filed herewith and any and all amendments to said Registration Statement,
including any registration statement filed pursuant to Rule 462(b), and
generally to do all such things in our names and in our capacities as officers
and directors to enable Advanced Glassfiber Yarns LLC to comply with the
provisions of the Securities Act of 1933, and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signature as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
/s/ Robert Porcher Chairman of the February 12,
- ------------------------------------- Board of Directors 1999
Robert Porcher
/s/ Heinz J. Otto Director February 12,
- ------------------------------------- 1999
Heinz J. Otto
/s/ Serge Piolat Director February 12,
- ------------------------------------- 1999
Serge Piolat
/s/ Philippe Porcher Director February 12,
- ------------------------------------- 1999
Philippe Porcher
/s/ Thurston Roach Director February 12,
- ------------------------------------- 1999
Thurston Roach
/s/ Robert B. Fisher President February 12,
- ------------------------------------- 1999
Robert B. Fisher
/s/ Catherine Cuisson Chief Financial February 12,
- ------------------------------------- Officer (Principal 1999
Catherine Cuisson Accounting Officer)
II-5
SIGNATURES
Pursuant to Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Aiken,
State of South Carolina, on February 12, 1999.
Agy Capital Corp.
/s/ Robert B. Fisher
By: _________________________________
Robert B. Fisher
President
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of AGY Capital Corp. hereby severally constitute Robert B. Fisher
and Catherine Cuisson, and each of them singly, our true and lawful attorneys
with full power to them, and each of them singly, to sign for us and in our
names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Registration Statement, including
any registration statement filed pursuant to Rule 462(b), and generally to do
all such things in our names and in our capacities as officers and directors
to enable AGY Capital Corp. to comply with the provisions of the Securities
Act of 1933, and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signature as they may be signed by our
said attorneys, or any of them, to said Registration Statement and any and all
amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Name Title Date
/s/ Robert Porcher Chairman of the February 12,
- ------------------------------------- Board of Directors 1999
Robert Porcher
/s/ Heinz J. Otto Director February 12,
- ------------------------------------- 1999
Heinz J. Otto
/s/ Serge Piolat Director February 12,
- ------------------------------------- 1999
Serge Piolat
/s/ Philippe Porcher Director February 12,
- ------------------------------------- 1999
Philippe Porcher
/s/ Thurston Roach Director February 12,
- ------------------------------------- 1999
Thurston Roach
/s/ Robert B. Fisher President February 12,
- ------------------------------------- 1999
Robert B. Fisher
/s/ Catherine Cuisson Chief Financial February 12,
- ------------------------------------- Officer (Principal 1999
Catherine Cuisson Accounting Officer)
II-6
EXHIBIT INDEX
Ex. Description
--- -----------
2.1 Amended and Restated Asset Contribution Agreement dated as of July 31,
1998 between Owens Corning and Lincoln Yarns LLC
2.2 LLC Interest Sale and Purchase Agreement dated as of July 31, 1998 among
Owens Corning, Lincoln Yarns LLC and Glass Holdings Corp.
2.3 Amendment No. 1 to LLC Interest Sale and Purchase Agreement dated as of
September 30, 1998 among Owens Corning, Advanced Glassfiber Yarns LLC
and AGY Holdings, Inc.
3.1 Certificate of Formation of Advanced Glassfiber Yarns LLC
3.2 Advanced Glassfiber Yarns LLC Amended and Restated Limited Liability
Company Operating Agreement between Jefferson Holdings, Inc. and AGY
Holdings, Inc. dated as of September 30, 1998
3.3 Certificate of Incorporation of AGY Capital Corp.
3.4 Bylaws of AGY Capital Corp.
4.1 Indenture, dated as of January 21, 1999, among Advanced Glassfiber Yarns
LLC, AGY Capital Corp., the Guarantors and Bank of New York, as trustee,
relating to $150 million principal amount of 9 7/8% Senior Subordinated
Notes due 2009.
4.2 Form of 9 7/8% Series A and Series B Senior Subordinated Notes due 2009
(included in Exhibit 4.1)
4.3 Registration Rights Agreement dated as of January 21, 1999 among
Advanced Glassfiber Yarns LLC, AGY Capital Corp. and the Initial
Purchasers
5 Opinion of Alston & Bird LLP re legality*
10.1 Patent and Know How License Agreement dated as of September 30, 1998
among Owens Corning Fiberglas Technology, Inc., Owens Corning and
Advanced Glassfiber Yarns LLC
10.2 Glass Marbles Supply Agreement dated as of September 30, 1998 between
Owens Corning and Advanced Glassfiber Yarns LLC
10.3 Alloy Services Agreement dated as of September 30, 1998 between Advanced
Glassfiber Yarns LLC and Owens Corning
10.4 Non-Compete Agreement dated as of September 30, 1998 among Owens
Corning, AGY Holdings Corp., Porcher Industries, S.A. and Advanced
Glassfiber Yarns LLC
10.5 Manufacturing Services Agreement dated as of September 30, 1998 between
Owens Corning and Advanced Glassfiber Yarns LLC
10.6 Trademark Assignment Agreement dated as of September 30, 1998 by Owens
Corning Fiberglas Technology, Inc. and Owens Corning in favor of
Advanced Glassfiber Yarns LLC
10.7 Master Patent and Know How Assignment Agreement dated as of September
30, 1998 by Owens Corning Fiberglas Technology, Inc., Owens Corning and
Advanced Glassfiber Yarns LLC
10.8 Borates Supply Agreement dated as of September 30, 1998 between Owens
Corning and Advanced Glassfiber Yarns LLC**
10.9 Transitional Services Agreement dated as of September 30, 1998 by and
among Owens Corning and Advanced Glassfiber Yarns LLC
10.10 Support Services Agreement dated as of September 30, 1998 between
Advanced Glassfiber Yarns LLC and Owens Corning
10.11 Software License Agreement dated as of September 30, 1998 between Owens
Corning and Advanced Glassfiber Yarns LLC
10.12 Keep-Well Agreement dated as of September 30, 1998 between Owens Corning
and Advanced Glassfiber Yarns LLC
10.13 Senior Credit Agreement dated as of September 30, 1998 among Advanced
Glassfiber Yarns LLC, the Guarantors, First Union National Bank, as
agent and lender, and certain other lenders
10.14 Senior Subordinated Credit Agreement dated as of September 30, 1998
among Advanced Glassfiber Yarns LLC, the Guarantors, First Union
Investors, Inc., as co-agent and lender, and Warburg Dillon Read LLC, as
co-agent and lender
Ex. Description
--- -----------
10.15 Note Purchase Agreement dated January 15, 1999 among Advanced Glassfiber
Yarns LLC, AGY Capital Corp. and the Initial Purchasers
12 Statement re Computation of Ratios
21 Subsidiaries of the Registrant
23.1 Consent of Alston & Bird LLP (included in Exhibit 5)*
23.2 Consent of Arthur Andersen LLP
24 Power of Attorney (included on signature page)
25 Statement of Eligibility (Form T-1) of The Bank of New York, as Trustee
27 Financial Data Schedule
99 Form of Letter of Transmittal and related documents to be used in
conjunction with the Exchange Offer
- --------
* To be filed by amendment
** Portions of exhibit have been omitted pursuant to a request for confidential
treatment